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, 1999
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 a registrant as specified in its charter)
Illinois 36-2663010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2400 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, 1999 (based on the closing price as
quoted by NASDAQ as of such date) was $4,418,175.
The number of outstanding shares of the registrant's common stock, no
par value per share, as of June 30, 1999, was 3,926,020.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the definitive proxy statement of
Circuit Systems, Inc. for use in connection with its 1999 Annual
Meeting of Shareholders to be filed with the Commission pursuant to
Regulation 14A.
<PAGE>
TABLE OF CONTENTS
PART 1
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 7
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 8
HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 8
ITEM 6. SELECTED FINANCIAL DATA 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 14
ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 14
ITEM 11. EXECUTIVE COMPENSATION 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS
This Form 10-K contains forward-looking statements that involve
risks and uncertainties, including Year 2000 matters. The Company's
actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include,
but are not limited to, those discussed herein, as well as those
discussed in other filings or statements made by or on behalf of the
Company. Reliance on these forward-looking statements reflect
management's analysis only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any
revision to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events. Although the Company believes
the expectations expressed in such forward-looking statements are
based on reasonable assumptions within the bounds of its knowledge of
its business, a number of factors could cause actual results to differ
materially from those expressed in any forward-looking statements,
whether oral or written, made by or on behalf of the Company. Many of
these factors have previously been identified in filings or statements
made by or on behalf of the Company. The Company does not intend to
update these forward-looking statements.
<PAGE>
PART I
ITEM 1. BUSINESS
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. The Company's
Common Stock is traded over-the-counter on NASDAQ under the symbol
CSYI.
The Company manufactures and sells single-sided, double-sided and
multilayer printed circuit boards. All of the Company's printed
circuit boards ("pcb's") are specially designed by the customer and
are manufactured to exacting customer specifications. The boards are
sold primarily to original equipment manufacturers ("OEM's") and
subcontractors of OEM's which manufacturer computers and peripherals,
consumer and industrial electronic equipment and telecommunications
equipment primarily by independent sales representative companies.
The Company is U.L. recognized and has achieved ISO 9002 certification
at all of its current manufacturing facilities. In November 1998,
the Company received minority status certification from the Chicago
Minority Business Development Council, Inc.
On July 28, 1997, the Company, through its affiliate, Circuit Systems
of Tennessee, L.P. ("CST, LP") acquired the printed circuit board
manufacturing operation of Philips Consumer Electronics Company
("Philips"), a division of Philips Electronics North America
Corporation. The purchase consisted of inventory, equipment and plant
located in Greeneville, Tennessee, which is presently dedicated to the
production of single-sided pcb's. This is a "state-of-the-art"
single-sided pcb facility that has ISO 9002 and ISO 14001
certification.
An agreement also requires Philips to purchase pcb's for its North
American television set requirements from the Company for a minimum of
two years, which has subsequently been extended an additional year.
Philips and related entities currently represent approximately 65% of
the current production from this facility. Even though the facility
will continue producing Philip's pcb requirements, there is sufficient
capacity to add additional single-sided customers.
In November 1997, the Company acquired certain pcb operating assets of
Zenith Electronics Company ("Zenith") and entered into a pcb purchase
agreement whereby the Company will supply Zenith all of the pcb's
which were previously produced by the Zenith facility and a minimum of
50% of any newly designed pcb's for a period of two years, subject to
competitive pricing requirements.
Effective December 1, 1998, the Company, through its subsidiary, SVPC
Circuit Systems, Inc. ("SVPC"), acquired the operations of Silicon
Valley Printed Circuits of Santa Clara, CA. SVPC specializes in quick
turnaround production for both prototype and low-to-medium volume
orders. Certain of the production capabilities include advance
materials, increased printed circuitry density and up to thirty layer
counts.
<PAGE>
The Company also owns 488,413 shares of SigmaTron International, Inc.
("SigmaTron"), an electronics contract manufacturer, representing an
approximate 17% interest. SigmaTron's common stock trades on the
NASDAQ national market system under the symbol "SGMA".
* PRINTED CIRCUIT BOARDS
Pcb's are used in large quantities in the electronics industry to
mount and interconnect microprocessors, integrated circuits and other
electronic components. Pcb's 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 the circuit
layers. Pcb's consist of one or more layers of circuitry laminated to
rigid insulating material, primarily fiberglass epoxy. Multilayer
pcb's provide a three dimensional system with electronic signals
traveling horizontally along planes of multiple circuitry patterns as
well as vertically through plated holes.
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 pcb's of complex designs with
surface mount and other attachment technologies, narrower widths and
separations of copper traces, advanced materials and smaller diameters
of through-holes. The performance of these pcb's are highly sensitive
to quality standards. The Company's completed pcb's are subject to
more advanced testing, which includes automated optical inspection,
flying probe testing and other customized test fixtures that are
assembled by the Company.
* MARKETS
The Illinois based Institute of Interconnecting and Packaging
Electronic Circuits ("IPC") reported that the total U.S. pcb industry
remained stable at $8.6 billion in 1998 as compared to 1997.
Independent pcb manufacturers continued to gain on the total share of
the total pcb market. The independent's share, according to the IPC,
reached 95% in 1998 from 93% in 1997. The IPC continues to be
confident about future growth prospects for the pcb industry and
estimates the average annual growth rate for 1997 through 2002 to be
5.6%, bringing total U.S. production to $10 billion in the year 2002.
The pcb market is segmented by type of circuit boards, namely single-
sided, double-sided, multilayer, high performance, paper composite and
flexible. The Company offers its customers a "one-stop shopping"
capability since the Company serves the single-sided, double-sided and
multilayer medium to high volume segments of the pcb market, including
paper composite. The Company also offers its customers quick
turnaround prototype services and low-to-medium volumes through its
recent acquisition in Silicon Valley to complement its full range of
services.
<PAGE>
For the year ended April 30, 1999, 28% of the Company's sales were
represented by single-sided, 54% by double-sided, and 18% by
multilayer pcb's, as compared to 29%, 58% and 13%, respectively, in
1998. The IPC estimates that glass based single-sided, glass based
double-sided, glass based multilayer, high performance, paper
composite, and flex printed circuit boards represent 1%, 18%, 58%,
11%, 3% and 9%, respectively, of the total printed circuit boards
produced in the U.S. during 1998. Management continues to pursue
additional market share in its primary segments of the market.
* CUSTOMERS AND MARKETING
The Company had approximately 225 active customers as of April 30,
1999. These customers include small to large-size companies and
represent a cross-section of the electronics industry.
The Company's customers are typically OEMs and subcontractors of OEMs,
which are referred to as "contract manufacturers". The customers
include Lucent Technologies, Philips Consumer Electronics, General
Instrument Corporation, American Power Conversion, Honeywell, Inc.,
Mitel, Motorola, Inc., Scientific Atlanta, SigmaTron International,
Inc., Zenith Electronics Company, and many other accounts. Lucent
Technologies, Philips Consumer Electronics, American Power Conversion
and SigmaTron accounted for approximately 27.8 %, 15.0%, 8.7% and
7.7%, respectively, of the Company's net sales for the year ended
April 30, 1999. Lucent Technologies, Philips Consumer Electronics,
American Power Conversion and SigmaTron accounted for approximately
31.2 %, 15.2%, 10.9% and 8.5%, respectively, of the Company's net
sales for the year ended April 30, 1998.
The Company's marketing strategy is to become a supplier to potential
OEM's, as well as their contract manufacturers, who utilize pcb's 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
facilities in connection with the development of pcb's for their new
projects. The acquisition of SVPC further enhances the Company's
ability to develop customers and their projects by becoming involved
with the customer's engineers in the early stages of new product
design.
The Company primarily markets its products through approximately 20
independent sales representative companies and the Company's internal
sales, customer service and engineering staff consisting of
approximately 35 full time individuals, who are located throughout its
locations.
The Company generally does not obtain long-term purchase orders from
its customers and the orders received by the Company generally require
delivery within 15-45 days. However, many of the Company's customers
have long-term relationships with the Company.
<PAGE>
* COMPETITION
The pcb market is highly competitive and fragmented. Over 690
independent manufacturers in the U.S. compete primarily on the basis
of price, quality, lead time, responsiveness to customers and timely
deliveries rather than on patent protection. According to the IPC
report, there were 23 independent manufacturers of pcb's in the U.S.,
which had sales in excess of $50 million in 1998. It is also
estimated that these 23 companies represent about 57% of the sales
volume for all U.S. independent pcb manufacturers. Manufacturing
processes are complex and, therefore, it is important to maintain a
skilled and motivated work force. The technology used in the
manufacturing of most boards is widely available. Pcb's produced in
large volumes involve a higher level of automation and process control
and, therefore, a substantially larger investment in plant and
equipment is required.
The Company believes that its major competitors are the large U.S. and
international independent manufacturers, some of which have
significantly greater financial, technical and other resources than
the Company.
During slow economic periods in the electronics industry as well as
other periods when excess capacity exists, electronics manufacturers
become more price sensitive, which could have an adverse effect on pcb
pricing. In addition, the Company believes that pcb manufacturers in
Asia will play an increasing role in pcb markets, which may result in
further price reductions, which could have an adverse effect on the
Company's business.
* EMPLOYEES
At April 30, 1999, the Company had approximately 780 people employed
in the U.S. on a full-time basis in manufacturing, customer support,
engineering and administrative functions. Approximately 65 of the
Company's employees working in the manufacturing facility at its
Greeneville, TN facility are represented by Local 796 of the
International Union of Electronics, Electrical, Salaried, Machine and
Furniture Workers, under a collective bargaining agreement which
expires in June 2000. The Company believes that its employee
relations are satisfactory.
* BACKLOG
As of June 30, 1999, the Company's backlog was approximately
$22,400,000, in contrast to approximately $21,000,000 as of June 30,
1998.
Backlog is comprised of orders for which artwork has been received, a
delivery date has been scheduled and the Company anticipates it will
manufacture and deliver the order. The majority of the June 30, 1999
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. A significant portion of the
Company's backlog at any time may be subject to cancellation or
postponement without penalty.
<PAGE>
* MANUFACTURING PROCESS
The Company uses a variety of raw materials in its processes including
sheets of copper-clad epoxy glass, copper foil, various chemicals and
core materials, dry film photo resists and gold used for sliding
connector surfaces on the pcb. 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 pcb
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.
* COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS
Waste treatment and disposal is a major consideration for pcb
manufacturers since the manufacturing processes utilize substantial
quantities of metals, acids, other toxic substances and water. The
Company is required to comply with all federal, state, county and
municipal regulations regarding protection of the environment. It is
possible that more stringent environmental regulations may be adopted
in the future and, if adopted, the costs of compliance could be
substantial. In order to comply with environmental regulations, the
Company continues to invest in equipment, materials and training of
employees. 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.
<PAGE>
ITEM 2. PROPERTIES
The Company owns all of its production and administrative facilities
except those as specifically noted below. The Company has pursued a
strategy of expanding capacity and capabilities of its manufacturing
facilities in anticipation of customer requirements. The following
table lists the administrative and pcb production facilities of the
Company:
<TABLE>
Location Function Square Footage
-------- -------- --------------
<S> <C> <C>
2400 E. Lunt Avenue Administrative and 61,000
Elk Grove Village, IL primarily drilling,
routing, testing and
shipping
2350 E. Lunt Avenue Primarily double-sided 48,000
Elk Grove Village, IL
2450 E. Lunt Avenue Manufacturing(2) 43,000
Elk Grove Village, IL
2201 Landmeier Road Primarily single-sided 140,000(1)
Elk Grove Village, IL and double-sided
896 Anita Avenue Primarily multilayer 47,000
Antioch, IL
1515 Industrial Drive Primarily single-sided 93,000
Greeneville, TN
3501*, 3511*, 3555*, Administrative and 26,000
3571 Thomas Road manufacturing
Santa Clara, CA
3531 Thomas Road Subleased through July 6,000
Santa Clara, CA 1999- for future
expansion
</TABLE>
* Facility is leased by the Company
(1) Approximately 61,000 square feet are leased to SigmaTron, which
paid an aggregate rental of approximately $386,000 to the Company in
1999.
(2) It is anticipated building improvements will be completed and
equipment installed so manufacturing can begin in August 1999 (single
and double-sided).
The Company believes its current facilities will be adequate for its
operating needs.
<PAGE>
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 26, 1999, the Company held its 1998 Annual Meeting at
which time the only item submitted to a vote of the shareholders was
the election of the board of directors. The following seven nominees
were elected by the shareholders:
<TABLE>
Director Nominees Votes Cast Votes Cast
For Against
or Withheld
----------------- ---------- -----------
<S> <C> <C>
D.S. Patel 3,110,089 39,327
Thomas W. Rieck 3,110,089 39,327
Gary R. Fairhead 3,110,389 39,027
C. Joseph Incrocci 3,110,389 39,027
Tribhovan M. Patel 3,110,389 39,027
Rasiklal V. Patel, M.D. 3,110,389 39,027
Alan Cuthbertson 3,110,389 39,027
</TABLE>
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
----------------------------------------
<S> <C> <C>
Fiscal 1999
First Quarter 4 11/16 2 11/16
Second Quarter 4 1/8 1 5/8
Third Quarter 4 31/32 2 2
Fourth Quarter 3 25/32 2
Fiscal 1998
First Quarter 5 15/16 4 15/16
Second Quarter 5 15/32 4 1/4
Third Quarter 5 3 3/4
Fourth Quarter 4 5/8 3 7/8
</TABLE>
<PAGE>
The Company has not paid dividends on its Common Stock since fiscal
1980 and it is currently anticipated that the Company will continue to
retain its earnings for use in the business. Declarations of
dividends are 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 limit the amount of dividends which the Company could pay in the
future. See Note D of Notes to Consolidated Financial Statements.
As of June 30, 1999, there were approximately 240 holders of record
of the common stock of the Company. The closing price of the
Company's common stock on the NASDAQ National Market on June 30, 1999
was $2.375.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Year Ended April 30,
(In thousands, except for per share amounts)
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings
- ----------------------------------
Net Sales $59,586 $65,130 $63,414 $74,973 $88,997
Net Earnings (Loss) 2,242 3,084 2,119 (983) 3
Net Earnings (Loss) per
common share-basic (1) $ .42 $ .58 $ .40 $ (.20) $ -
Weighted average number of
common shares outstanding 5,317 5,322 5,299 4,880 4,216
Consolidated Balance Sheet Data
- -------------------------------
Working capital $ 6,435 $ 8,046 $ 3,735 $ 7,211 $ 5,468
Total Assets 39,411 45,816 45,758 67,607 79,916
Long-Term Obligations 11,622 14,536 10,640 27,380 41,513
Shareholders' Equity 18,119 21,202 22,462 18,527 16,279
(1) Diluted earnings per share were the same as basic earnings per
share for each of the years presented.
</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 amount)
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net Sales $63,414 $74,973 $88,997
Cost of Sales 55,077 68,977 77,947
Gross Profit 8,337 5,996 11,050
Selling, General and 5,553 5,749 6,935
Administrative Expenses
Restructuring Charge - - 1,520
Operating Profit 2,784 247 2,595
Other Deductions/(Income)-net (552) 1,861 2,477
Income Tax Expense (Benefit) 1,217 (631) 115
Net Earnings (Loss) $ 2,119 $ (983) $ 3
Net Earnings (Loss) per common
share-basic $ .40 $ (.20) $ -
</TABLE>
* RESULTS OF OPERATIONS 1999 COMPARED TO 1998
General
Effective December 1, 1998, the Company through its subsidiary , SVPC
Circuit Systems, Inc. ("SVPC") acquired the assets and assumed certain
liabilities of Silicon Valley Printed Circuits of Santa Clara, CA.
SVPC specializes in quick turnaround production for both prototype and
low-to-medium volume orders. The purchase price was $7,000,000 plus
the assumption of certain liabilities of approximately $5,000,000.
The excess of the purchase price, including direct costs of
acquisition, over the net assets acquired, which is approximately
$6,674,000, is being amortized to operations over fifteen years.
Effective July 27, 1998, the Company's executive vice president
resigned as an officer and director of the Company. In connection
therewith, the Company agreed to repurchase the 181,181 shares owned
by him for $775,000 and entered into severance and non-compete
agreements and agreed to sell to him its 70% interest in Circuit
Systems (India) Limited and its 100% interest in Circuit Sigma India
Limited.
<PAGE>
In addition, during the quarter ended July 31, 1998, the Company
recorded a restructuring charge of approximately $1,520,000, relating
to a reorganization of the Company's management and plant operations.
The majority of the restructuring charge relates to severance and
termination benefits for its executive vice president and five other
managers and supervisors.
Reference to "IL" hereinafter refers to the Company's Illinois
operations only; reference to "CST" refers to Circuit Systems of
Tennessee; reference to "CSIL" refers to Circuit Systems (India)
Limited; reference to "SVPC" refers to SVPC Circuit Systems, Inc.
Operations
The net sales in 1999 increased by 18.7% to $88,997,000 from
$74,973,000 in the prior year. The net sales (after inter-company
eliminations) of IL, CST, SVPC and CSIL for fiscal 1999 were
$63,173,000, $19,451,000, $5,761,000 and $612,000, respectively, as
compared to $58,707,000, $15,255,000, $- and $1,011,000, respectively,
for 1998. SVPC sales for 1999 were included from December 1, 1998,
the date of acquisition. The 1998 sales for CST were for nine months,
based on the date of the asset acquisition. Although the net sales
for IL increased by $4,466,000, the net sales for each of the
companies has been and will continue to be impacted by downward
pricing pressure stemming from Far East competition. Net sales to
four customers accounted for approximately $52,740,000 or 59.3% of net
sales in 1999 as compared to 1998 in which four customers accounted
for approximately $49,332,000 or 65.8% of net sales. SigmaTron is
included in the customer group reference in both years.
The gross profit in 1999 was $11,050,000 or 12.4% of net sales,
compared to $5,996,000 or 8.0% of net sales in the prior year. The
increase in the overall gross profit was primarily due to decreases in
material prices and lower scrap rates, as well as certain operating
efficiencies and additional product throughput to spread the fixed
overhead, which were offset by the pricing pressures noted above and
an increase in labor costs. The Company continues to review and
realign manufacturing processes within all of its facilities to
decrease cycle times and handling, which will also improve yields.
During 1999, the Company has increased the overhead infrastructure, as
well as capacity in many areas of its facilities.
Selling, General and Administrative expense in 1999 was $6,935,000 or
7.8% of net sales, compared to $5,749,000 or 7.7% of net sales in the
prior year. The expenses have increased in total primarily as a result
of the inclusion of SVPC from December 1998, which amounted to
approximately $1,072,000, including amortization of goodwill of
$186,000.
Operating expenses for 1999 also included a restructuring charge of
$1,520,000 relating to the reorganization of the Company's management
and plant operations. Excluding the restructuring charge, income from
operations was $4,115,000 or 4.6% of net sales in 1999, compared to
income from operations of $247,000 or .3% of net sales in the prior
year.
<PAGE>
Other Deductions (Income) reflected a net deduction of $2,477,000 in
1999 compared to a net deduction of $1,861,000 in the prior year.
Interest expense increased to $3,407,000 in 1999 from $2,506,000 in
1998 due to the Philips acquisition in fiscal 1998 and the SVPC
acquisition in December 1998, increased capital expenditures to expand
capabilities and capacity, stock repurchases and increased borrowings
under the line of credit to fund additional working capital needs.
The equity in the earnings of the unconsolidated affiliate, SigmaTron,
increased to $280,000 in 1999 from $89,000 in the prior year. The
increase in SigmaTron's earnings was due to a slight increase in
revenue and a pre-tax gain on an insurance reimbursement of
$1,132,000.
The 1999 effective income tax rate was 97.4% as compared to 39.1% in
the prior year. The 1999 rate is unusually high due to the inability
to recognize certain operating losses for state tax purposes and the
inability to recognize a foreign net operating loss on a majority
owned subsidiary disposed of during 1999.
The net earnings and basic earnings per share for 1999 were $3,000
and $-, respectively, compared to net loss and basic loss per share of
$983,000 and $.20, respectively, for the prior year.
As of June 30, 1999, the Company's backlog was approximately
$22,400,000, in contrast to approximately $21,000,000 as of June 30,
1998. Backlog is comprised of orders for which artwork has been
received, a delivery date has been scheduled and the Company
anticipates it will manufacture and deliver the order. The majority
of the June 30, 1999 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. A
significant portion of the Company's backlog at any time may be
subject to cancellation or postponement without penalty.
SigmaTron net sales, gross profit and net earnings for the year ended
April 30, 1999 were $88,159,000, $8,921,000, and $1,697,000,
respectively, as compared to $85,651,000, $8,457,000, and $526,000,
respectively, for the year ended April 30, 1998. The 1999 net income
includes a pre-tax gain on an insurance reimbursement of $1,132,000
related to a flash flood at its Texas/Mexican operations.
* RESULTS OF OPERATIONS 1998 COMPARED TO 1997
General
Effective July 29, 1997, the Company acquired the pcb operations of
Philips Consumer Electronics Company ("Philips"), consisting of land,
machinery and inventory for approximately $10,141,000. The purchase
was funded through various term and mortgage notes. The acquisition
was accounted for as a purchase and the results of operations of this
facility have been included with the Company's results from the date
of acquisition. Philips also entered into a purchasing agreement with
the Company in which CST will sell to Philips all of its television
pcb requirements for North America for a minimum of two years, which
has been subsequently extended an additional year.
<PAGE>
On November 24, 1997, the Company acquired certain pcb equipment from
Zenith Electronics Corporation ("Zenith") and entered into a pcb
purchasing agreement with Zenith whereby the Company will supply all
of the pcb's previously manufactured at the Zenith facility and a
minimum of 50% of any newly designed pcb's for a period of two years,
subject to competitive pricing.
The Company's 70% owned foreign subsidiary, CSIL, moved into full
production and achieved sales of approximately $1,011,000 during
fiscal 1998.
Operations
The net sales in 1998 increased by 18.2% to $74,973,000 from
$63,414,000 in the prior year. The increase in sales is primarily due
to the sales of CST and CSIL, which represented $15,255,000 and
$1,011,000, respectively, for the year ended April 30, 1998. IL net
sales were $58,848,000, or a 7.2% decrease from the net sales of
$63,414,000 in the prior year. The IL sales decreased, due in part
to the realignment of the IL facilities and a softening in demand
within the current customer base. Net sales to four customers
accounted for approximately $49,332,000 or 65.8% of net sales in
1998 compared to 1997 in which three customers accounted for
approximately $36,035,000 or 56.8% of net sales. SigmaTron is
included in the customer group reference in both years.
The gross profit in 1998 was $5,996,000 or 8.0% of net sales,
compared to $8,337,000 or 13.1% of net sales for the prior year. IL,
CST and CSIL had a gross profit of 6.5%, 13.6% and 11.7%,
respectively. The lower gross profit contributed from the IL
operations in the current year is a result of competitive pricing
(partially stemming from the "Asian economic crisis"), operating
inefficiencies during the facility realignments and sales volume well
below the potential capacity.
Selling, General and Administrative expense in 1998 was $5,749,000 or
7.7% of net sales, compared to $5,553,000 or 8.8% of net sales in the
prior year. The decrease in expenses as a percentage of net sales is
primarily due to revenue from Philips not being subject to
commissions and a decrease in professional fees. These were
partially offset by general increases in administrative expenses and
the inclusion of CST which were approximately $434,000.
<PAGE>
Other Deductions (Income) reflected a net deduction of $1,861,000 in
1998 compared to income of $552,000 in the prior year. Interest
expense increased to $2,506,000 in 1998 from $1,613,000 in 1997 due
to the Philips acquisition, term borrowings on equipment additions
during the year and increased borrowings under the line of credit to
fund the additional working capital needs of the IL and CST
operations as well as the repurchase of 581,000 shares of Company
stock. Rental income increased $69,000 due to leasing certain
warehouse space to SigmaTron and an unrelated party. The equity in
the earnings of the unconsolidated affiliate, SigmaTron, decreased to
$89,000 in 1998 from $636,000 in the prior year. The decrease in
SigmaTron's earnings was due to a slight decrease in revenue caused
by softer demand from its customers, coupled with competitive pricing
pressure and a general increase in their overhead structure at all
locations. Other income in 1997 also included a gain of $1,092,000
on the sale of 68,000 shares of SigmaTron's common stock.
The 1998 effective income tax rate was 39.1% as compared to 36.5% in
the prior year. The effective rate was lower in 1997 due to
certain state credits and increased utilization of the foreign sales
corporation.
The net loss and loss per share for 1998 were $983,000 and $.20,
respectively, compared to net earnings and earnings per share of
$2,119,000 and $.40, respectively, for the prior year.
As of June 30, 1998, the Company's backlog was approximately
$21,000,000, which includes approximately $8,000,000 for CST, in
contrast to approximately $9,400,000 as of June 30, 1997, which did
not include CST.
SigmaTron net sales, gross profit and net earnings for the year ended
April 30, 1998 were $85,651,000, $8,457,000, and $526,000,
respectively, as compared to $87,216,000, $12,639,000 and $3,255,000,
respectively, for the year ended April 30, 1997.
* LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations primarily through
bank borrowings, other collateralized borrowings and cash generated
from operations.
During 1999, the Company generated $6,425,000 of cash from its
operating activities versus a use of $916,000 of cash in its operating
activities during 1998. Capital expenditures of $10,304,000, the
business acquisition of $2,751,000, the repurchase of common stock of
$1,612,000 and principal payments/debt payoffs of $10,382,000 were
funded by the cash generated from operating activities, proceeds from
long-term obligations of $15,687,000 and increased borrowings on the
line of credit of $2,922,000.
<PAGE>
During 1998, the Company used $916,000 of cash in its operating
activities. In addition, capital expenditures (net of proceeds from
the sales of equipment) of $3,981,000, the acquisition of the pcb
operations of Philips of $10,141,000, the repurchase of Company stock
of $2,833,000 and the payoff of certain debt obligations and principal
payments of $12,192,000 were funded by mortgage and term notes in the
amount of $20,281,000 and the increase in the line of credit
borrowings of $11,078,000.
As of January 6, 1999, the Company changed its commercial lender and
entered into a line of credit agreement (as subsequently amended) of
$17,000,000 and a term note of $8,000,000. The maximum line of credit
borrowings of $17,000,000 is limited to 85% of eligible accounts
receivable, 75% of eligible finished goods (not to exceed $2,500,000),
50% of eligible raw material inventory (not to exceed $2,000,000), and
60% of the fair market value of the Company's investment in SigmaTron
International, Inc. (not to exceed $2,000,000). The line bears
interest under the current pricing matrix at either the prime rate
plus .5% or LIBOR plus 2.75%. At April 30, 1999, the entire borrowed
amount was priced at the LIBOR pricing or 7.75%. At April 30, 1999,
there was approximately $300,000 of unused credit available under the
line. The agreement contains certain covenants, which restrict the
amount of dividends the Company could pay, capital stock redemptions,
and capital expenditures. Other financial covenants pertain to the
maintenance of specified debt to tangible net worth and debt service
ratios and minimum EBITDA and tangible net worth as defined. At April
30, 1999, the Company was in violation of the covenant restricting
annual capital expenditures, which has been waived by the lender.
The Company has purchase commitments as of June 30, 1999 of
approximately $2,300,000 for future deliveries of machinery and
equipment and approximately $600,000 for building improvements for the
2450 E. Lunt Avenue property. The Company intends to finance such
purchases through collateralized borrowings, installment loans and
existing cash flow. The amount of anticipated capital expenditures
will frequently change based on future changes in business plans.
The impact of inflation for the past three years has been minimal.
* YEAR 2000 COMPLIANCE
During fiscal 1999, the Company continued its Year 2000 compliance
project as previously discussed in its previous filings. The Company
has a committee of officers and others to review Year 2000 compliance
issues and their resolution. The Company has utilized the services of
two independent consulting firms for various Year 2000 matters,
including computer hardware, embedded systems and business systems.
Based on their reviews to date, which have been supplemented by
internal staff projects, the Company would not be materially impacted
by the Year 2000 issues.
<PAGE>
The Company continues its internal assessment of operations,
equipment, etc. on a plant by plant basis, which it estimates is 90%
complete. The Company believes that its internal assessment of all
facilities will be completed by September 1999. The Company also
continued to successfully implement its Enterprise Resource Planning
("ERP") II systems within the IL operations and is approximately 80%
compete. The CST facility is approximately 40% complete in the
implementation of the same ERP system. Both will be complete by
October 1999. The Company believes that the new ERP system is Year
2000 compliant. SVPC currently operates on independent
operational/financial software, which it believes is Year 2000
compliant.
As a part of the Company's plan, the Company surveyed its supplier's
Year 2000 compliance status. To date, the Company has received
responses from its key suppliers. The Company will send final notices
to key suppliers to submit written notice of their Year 2000
compliance by September. Non-responses or noncompliance will be
handled in terms of sourcing alternative suppliers. The entire supply
chain will also be addressed in the Company's contingency plan.
However, if certain critical suppliers, such as those supplying
electricity, water, transportation or critical materials experience a
disruption of service or delivery of supplies to the Company, a
shutdown of the Company's operation could occur.
The Company has substantially completed its assessment of its
operations and equipment and a committee has been formed to develop a
detailed contingency plan which will address individual plants. This
plan will be formalized by October. The Company realizes that a
number of vendors and suppliers, including banks, telecommunications
and utility providers and other providers of goods and services to the
Company, may not be Year 2000 ready. The Company will address these
situations in the most cost effective and efficient way possible
within its contingency plan. In addition, a Year 2000 compliance
failure with respect to a major customer could materially impact the
Company's ability to process customer orders on or after January 1,
2000.
The Company currently estimates that it has expended approximately
$225,000 in external costs associated with consultants, hardware and
anticipates it will spend an additional $300,000 for hardware and
software (which will include a human resources system upgrade or
purchase), consulting and training. These estimates are subject to
change as additional information is obtained. The Company may also
retain additional consultants to assist in certain areas, which would
increase the expenses for the Year 2000 issue.
The Company's assessments and plans to complete its Year 2000 project
are based upon management's best estimates, which were derived
utilizing presently available information and numerous assumptions
about future events such as availability of certain resources, ability
to identify and correct relevant codes and other uncertainties. The
Company believes that its compliance with Year 2000 issues will not
have a material adverse impact on its business, operations or
financial condition.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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 definitive proxy statement relating to the 1999 Annual
Meeting of Shareholders to be filed with the Commission pursuant to
Regulation 14A, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the
Company's definitive proxy statement relating to the 1999 Annual
Meeting of Shareholders to be filed with the Commission pursuant to
Regulation 14A, 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 definitive proxy
statement relating to the 1999 Annual Meeting of shareholders to be
filed with the Commission pursuant to Regulation 14A, 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 definitive proxy statement relating
to the 1999 Annual Meeting of shareholders to be filed with the
Commission pursuant to Regulation 14A, 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) Financial Statements and Schedules to Financial
Statements-
The financial statements, notes thereto, financial statement
schedules and report of independent certified public
accountants, are listed in the Index to Financial Statements
and Financial Statements and Financial Statement Schedule
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:
On March 30, 1999, the Company filed a Form 8-K, which
contained the audited financial statements of H.O.T.L.R.T.,
Inc. dba Silicon Valley Printed Circuits ("SV") as of and
for the eleven months ended November 30, 1998. It also
contained certain pro forma financial statements for the
Company and SV.
(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 (a)(2).
<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.
Date: July 27 ,1999 By:
/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 July 27, 1999
D.S. Patel of Directors; President
and Chief Executive
Officer (Principal
Executive Officer)
/s/ James E. Robbs Vice President-Finance July 27, 1999
James E. Robbs and Chief Financial
Officer and Assistant
Secretary (Principal
Financial Officer)
/s/ Thomas W. Rieck Secretary and Director July 27, 1999
Thomas W. Rieck
/s/ Gary R. Fairhead Director July 27, 1999
Gary R. Fairhead
/s/ C. Joseph Incrocci Director July 27, 1999
C. Joseph Incrocci
/s/ R. Alan Cuthbertson Director July 27, 1999
R. Alan Cuthbertson
/s/ Rasiklal V. Patel Director July 27, 1999
Rasiklal V. Patel
/s/ Tribhovan M. Patel Director July 27, 1999
Tribhovan M. Patel
<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 AND SHAREHOLDERS' EQUITY ................... F-4
CONSOLIDATED STATEMENTS OF OPERATIONS ................... 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-25
<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, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three
years in the period ended April 30, 1999. 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, 1999 and
1998, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period
ended April 30, 1999, 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,
1999. 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 13, 1999
<PAGE>
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
April 30,
ASSETS 1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .................. $ 1,463,336 $ 1,531,526
Receivables
Trade .................................... 11,754,955 12,992,351
Affiliate ................................ 1,255,723 1,108,513
Other .................................... 212,700 335,220
---------- ----------
13,223,378 14,436,084
Less allowance for doubtful receivables .. 175,000 150,000
---------- ----------
13,048,378 14,286,084
Inventories
Raw material ............................. 4,007,914 3,118,101
Work in process .......................... 2,451,106 2,533,346
Finished goods ........................... 3,073,442 2,863,661
---------- ----------
9,532,462 8,515,108
Refundable income taxes .................... 579,000 1,150,000
Deferred income taxes ...................... 309,000 330,000
Prepaid expenses ........................... 103,707 572,082
---------- ----------
Total current assets .................. 25,035,883 26,384,800
INVESTMENT IN AFFILIATE...................... 3,211,083 2,930,595
PROPERTY, PLANT, AND EQUIPMENT - AT COST
Buildings and improvements ............... 15,206,521 13,686,852
Machinery and equipment .................. 50,060,966 41,300,125
Automotive equipment ..................... 226,922 98,938
Equipment not placed in service .......... 3,393,659 1,773,209
---------- ----------
68,888,068 56,859,124
Less accumulated depreciation and
amortization 28,082,923 22,740,838
---------- ----------
40,805,145 34,118,286
Land ..................................... 3,040,453 2,693,089
---------- ----------
43,845,598 36,811,375
OTHER ASSETS
Goodwill, net of accumulated amortization
of $186,063 6,487,447 -
Cash surrender value of officers'
life insurance policies..................... 513,970 453,547
Equipment and land deposits ................ 135,328 47,842
Sundry ..................................... 686,459 978,538
---------- ----------
7,823,204 1,479,927
---------- ----------
$79,915,768 $67,606,697
========== ==========
</TABLE> F-3
<PAGE>
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
April 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations $ 7,854,208 $ 7,088,855
Accounts payable ........................ 9,252,421 10,203,540
Accrued expenses ........................ 2,461,738 1,880,966
---------- ----------
Total current liabilities............ 19,568,367 19,173,361
LONG-TERM OBLIGATIONS
Term notes and capital leases ........... 37,512,604 27,380,107
Subordinated debt ....................... 4,000,000 -
---------- ----------
41,512,604 27,380,107
DEFERRED INCOME TAXES..................... 2,556,000 2,108,000
MINORITY INTEREST......................... - 417,878
COMMITMENTS AND CONTINGENCIES............. - -
SHAREHOLDERS' EQUITY
Common stock - authorized, 20,000,000
shares without par value; issued and
outstanding, 3,926,020 shares in 1999
and 4,577,173 shares in 1998 ........... 2,191,168 2,554,579
Retained earnings ....................... 14,087,629 16,107,750
Accumulated other comprehensive loss - (134,978)
---------- ----------
Total shareholders' equity........... 16,278,797 18,527,351
---------- ----------
$79,915,768 $67,606,697
========== ==========
The accompanying notes are an integral part of these statements.
F-4
</TABLE>
<PAGE>
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales....................... $88,997,269 $74,973,096 $63,414,341
Cost of goods sold.............. 77,947,292 68,976,762 55,077,512
---------- ---------- ----------
Gross profit............... 11,049,977 5,996,334 8,336,829
Sales and marketing expenses.... 3,631,127 3,026,233 3,168,551
Administrative expenses......... 3,304,133 2,723,185 2,384,205
Restructuring charge............ 1,520,000 - -
---------- ---------- ----------
8,455,260 5,749,418 5,552,756
---------- ---------- ----------
Operating profit........... 2,594,717 246,916 2,784,073
Other deductions (income)
Interest expense .............. 3,407,109 2,506,088 1,612,854
Interest income ............... (52,897) (10,933) (14,031)
Equity in earnings of
unconsolidated affiliate ..... (280,488) (89,402) (636,260)
Realized gain on sale of common
stock of affiliate ........... - - (1,092,215)
Minority interest in loss of
subsidiary ................... (31,782) (31,941) (30,113)
Rental income ................. (411,619) (408,240 ) (338,620)
Sundry ........................ (153,724) (104,464) (53,492)
---------- ---------- ----------
2,476,599 1,861,108 (551,877)
Earnings (loss) before
income taxes ............. 118,118 (1,614,192) 3,335,950
Income tax expense (benefit).... 115,000 (631,000) 1,217,000
---------- ---------- ----------
NET EARNINGS (LOSS)........ $ 3,118 $ (983,192) $ 2,118,950
========== ========== ==========
Net earnings (loss) per common
share Basic ................... $ - $(.20) $ .40
=== ==== ====
Diluted ....................... $ - $(.20) $ .40
=== ==== ====
The accompanying notes are an integral part of these statements.
F-5
</TABLE>
<PAGE>
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three years ended April 30, 1999
Accumulated
other
Common Retained comprehensive
stock earnings income (loss) Total
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at May 1, 1996........ $3,002,599 $18,199,818 $ - $21,202,417
Purchase and retirement of
163,900 shares of common stock (120,277) (722,528) - (842,805)
Comprehensive income
Net earnings for the year ... - 2,118,950 - 2,118,950
Other comprehensive loss .... - - (16,866) (16,866)
----------
Total comprehensive income 2,102,084
--------- ---------- --------- ----------
Balance at April 30, 1997..... 2,882,322 19,596,240 (16,866) 22,461,696
Purchase and retirement of
580,900 shares of common stock (327,743) (2,505,298) - (2,833,041)
Comprehensive loss
Net loss for the year ....... - (983,192) - (983,192)
Other comprehensive loss .... - - (118,112) (118,112)
----------
Total comprehensive loss . (1,101,304)
--------- ---------- --------- ----------
Balance at April 30, 1998..... 2,554,579 16,107,750 (134,978) 18,527,351
Purchase and retirement of
651,153 shares of common stock (363,411) (2,023,239) - (2,386,650)
Comprehensive income
Net earnings for the year ... - 3,118 - 3,118
Other comprehensive loss .... - - (112,370) (112,370)
Reclassification adjustment
for foreign currency
translation adjustments
included in net loss - - 247,348 247,348
----------
Total comprehensive income 138,096
--------- ---------- --------- ----------
Balance at April 30, 1999..... $2,191,168 $14,087,629 $ - $16,278,797
========= ========== ========= ==========
The accompanying notes are an integral part of this statement.
F-6
</TABLE>
<PAGE>
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) ................ $ 3,118 $ (983,192) $ 2,118,950
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating
activities
Depreciation and amortization... 5,624,434 4,560,505 3,648,827
Deferred income taxes........... 469,000 293,000 333,000
Net gain on sale/disposition of
equipment - (55,482) (5,500)
Equity in earnings of
unconsolidated affiliate (280,488) (89,402) (636,260)
Realized gain on sale of common
stock of affiliate ............ - - (1,092,215)
Minority interest in loss of
subsidiary (31,782) (31,941) (30,113)
Changes in assets and liabilities,
net of effects from acquisitions
and divestiture
Receivables, including
refundable income taxes..... 2,586,198 (8,874,302) 1,557,352
Inventories ................. (808,857) (1,228,287) 963,821
Prepaid expenses and other .. 734,591 (895,838) 14,984
Accounts payable, accrued
expenses, and income taxes
payable... (1,871,349) 6,388,574 680,470
---------- ---------- ----------
Total adjustments.......... 6,421,747 66,827 5,434,366
---------- ---------- ----------
Net cash provided by (used
in) operating activities . 6,424,865 (916,365) 7,553,316
Cash flows from investing activities
Capital expenditures ... (10,304,104) (4,535,264) (5,810,440)
Business acquisitions, net of cash
acquired (2,751,955) (10,141,435) -
Proceeds from sale of equipment .... - 553,627 5,500
Proceeds from sale of common stock
of affiliate - - 1,474,891
Minority interest capital
contribution to subsidiary - - 501,359
Increase in cash surrender value ... (60,423) (43,809) (56,870)
---------- ---------- ----------
Net cash used in investing activities (13,116,482) (14,166,881) (3,885,560)
F-7
</TABLE>
<PAGE>
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended April 30,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from financing activities
Net borrowings (payments) under line
of credit $ 2,922,464 $11,077,536 $(4,388,274)
Proceeds from issuance of long-term
obligations 15,687,202 20,281,177 5,850,638
Payments on long-term obligations .. (10,381,915) (12,192,403) (4,219,514)
Repurchase of common stock ......... (1,611,650) (2,833,041) (842,805)
---------- ---------- ----------
Net cash provided by (used in)
financing activities ........ 6,616,101 16,333,269 (3,599,955)
Effect of foreign exchange rate changes 7,326 (12,701) (16,866)
---------- ---------- ----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ............ (68,190) 1,237,322 50,935
Cash and cash equivalents at beginning
of year 1,531,526 294,204 243,269
---------- ---------- ----------
Cash and cash equivalents at end
of year $ 1,463,336 $ 1,531,526 $ 294,204
========== ========= ==========
Supplemental disclosures of cash
flow information
Cash paid (received) during the
year for
Interest ........................ $ 3,184,976 $ 2,554,700 $ 1,564,242
Income taxes .................... (957,064) 355,727 821,687
Supplemental schedule of non-cash
investing and
financing activities
Divestiture of net investment in
Circuit Systems (India) Limited
and Circuit Sigma India Limited
in satisfaction of certain
accrued liabilities and
repurchase of common stock...... $ 1,270,049 $ - $ -
Subordinated debt to seller in
conjunction with business
acquisition..................... 4,000,000 - -
The accompanying notes are an integral part of these statements.
F-8
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999, 1998, and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of Circuit Systems, Inc. and Subsidiaries' (the "Company")
significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.
Industry/Segment
The Company operates in the electronics industry, which includes
the manufacture and sale of printed electronic circuit boards.
Effective April 30, 1999, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise",
replacing the "industry segments" approach with the "management"
approach. The management approach designates the internal organization
that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable
segments. The Company's management approach results in a single
segment.
Principles of Consolidation
The accounts of wholly-owned and majority-owned subsidiaries are
included in the consolidated financial statements. Investments in
affiliates owned 20% or more are accounted for under the equity
method. Investments owned less than 20% 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. All
significant intercompany accounts and transactions have been
eliminated.
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.
<PAGE>
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Property, Plant, 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
F-9
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Property, Plant, and Equipment - Continued
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.
Goodwill
Goodwill is amortized on a straight line basis over 15 years.
Income Taxes
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." 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.
Revenue Recognition
Revenue is recognized by the Company at the time the product is
shipped or, in the case of consigned inventory, when placed into the
customer's manufacturing process.
Earnings (Loss) Per Share
The Company accounts for earnings per share under the provisions of
SFAS No. 128, "Earnings per Share," which requires companies to
present basic earnings per share and, if applicable, diluted earnings
per share, instead of primary and fully diluted earnings per share.
The Company's basic net earnings (loss) per share amounts have been
computed by dividing net earnings (loss) by the weighted average
number of outstanding common shares. The Company's diluted earnings
(loss) per share have been computed by dividing net earnings (loss) by
the weighted average number of common shares and common equivalent
shares relating to dilutive securities. A reconciliation between the
numerators and denominators for these calculations follows:
F-10
<PAGE>
<TABLE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Earnings (Loss) Per Share - Continued
Years ended April 30,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss) - numerator $ 3,118 $ (983,192) $2,118,950
Shares - denominator
Weighted average number of
outstanding common shares -
basic........................ 4,216,185 4,879,734 5,298,967
Effect of dilutive securities
Stock options .............. 5,028 - 39,273
Denominator for diluted per
share computation 4,221,213 4,879,734 5,338,240
</TABLE>
Comprehensive Income (Loss)
Effective May 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Comprehensive income is defined as the change
in equity of a business enterprise from transactions and other events
from nonowner sources. Comprehensive income includes net income and
other nonowner changes in equity which bypass the statement of income
and are reported in a separate component of equity. For each of the
years ended April 30, 1999, 1998, and 1997, other comprehensive income
includes only one component, which is the change in the foreign
currency translation adjustments.
Foreign Subsidiaries
Foreign currency adjustments, arising from the translation of the
foreign subsidiaries' financial statements to U.S. dollars, are
recorded in the accumulated other comprehensive loss accounts as a
separate component of stockholders' equity. Assets and liabilities
are translated to U.S. dollars using exchange rates in effect at the
balance sheet date. The results of operations are translated using
the monthly average exchange rates for the year.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
F-11
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Concentration of Credit Risk
The Company has a broad customer base representing many types of
businesses within the electronics industry primarily throughout North
America. 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,
cost-basis 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 its cost-basis 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.
NOTE B - ACQUISITIONS
In January 1997, the Company's 70% owned subsidiary, Circuit Systems
(India) Limited, acquired the printed circuit board manufacturing
facility, leasehold land, and machinery and equipment of the
electronics division of Stovec Industries Limited for approximately
$1,250,000. The acquisition is accounted for as a purchase;
accordingly, the results of operations are included in the
consolidated financial statements from the date of acquisition. The
purchase price was allocated to property, plant, and equipment based
upon appraisals and relevant facts.
Effective July 28, 1997, the Company, through its affiliate, Circuit
Systems of Tennessee, L.P., a Tennessee Limited Partnership ("CST,
LP"), acquired the assets of the printed circuit board operation of
Philips Consumer Electronics Company ("Philips"), a division of
Philips Electronics North America Corporation. The acquisition
consisted of inventory, machinery and equipment, land, and building
for an aggregate cost of $10,141,435, including direct costs of
acquisition.
F-12
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE B - ACQUISITIONS - Continued
The purchase price was allocated as follows:
Inventory............................................ $ 650,000
Machinery and equipment.............................. 5,491,435
Building............................................. 3,845,000
Land................................................. 155,000
$10,141,435
The purchase was funded through term and mortgage notes with the
Company's commercial lender. The acquisition has been accounted for
as a purchase and the results of operations have been included from
the effective date of the acquisition. In addition, CST, LP and
Philips entered into a printed circuit board ("PCB") purchase
agreement in which CST, LP will manufacture and sell to Philips all of
its television PCB requirements for North America for a minimum of two
years, which has subsequently been extended an additional year. Prior
to the acquisition, substantially all of the printed circuit board
operation's production was utilized by Philips. Sales to Philips from
the date of acquisition to April 30, 1998 were approximately
$11,430,000.
Effective November 24, 1997, the Company acquired certain of the PCB
assets of Zenith Electronics Corporation ("Zenith") for $625,000,
which was funded by a secured installment note with the Company's
commercial lender. The Company brought some equipment into its
existing Elk Grove Village, Illinois, and Greeneville, Tennessee
facilities for use. During February 1998, the Company sold certain of
the remaining equipment, through an auction, for approximately
$474,000 net of expenses. The net gain on the sale was approximately
$175,000.
In addition, the Company and Zenith entered into a PCB purchase
agreement whereby the Company will supply Zenith with 100% of the PCBs
which were previously produced by Zenith's Chicago facility and a
minimum of 50% of any newly designed PCBs for a period of two years,
subject to competitive pricing requirements.
On December 7, 1998, with an effective date of December 1, 1998, the
Company, through its newly formed subsidiary, SVPC Circuit Systems,
Inc. ("SVPC"), acquired the assets and assumed certain liabilities of
Silicon Valley Printed Circuits ("SV") of Santa Clara, California.
SVPC specializes in quick turnaround production for both prototype and
low to medium volume orders. The purchase price was $7,000,000 plus
the assumption of certain liabilities of approximately $5,000,000.
The purchase price was funded utilizing $3,000,000 of collateralized
bank borrowings (paid to SV on January 5, 1999) plus $4,000,000 in
subordinated notes, payable over 60 months. The acquisition has been
accounted for as a purchase. The purchase price,
F-13
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE B - ACQUISITIONS - Continued
including direct costs of acquisition, was allocated to the assets
acquired and liabilities assumed based upon their estimated fair
values. Results of operations for SVPC is included with those of the
Company since December 1, 1998. The excess of the purchase price over
the net assets acquired, which is approximately $6,674,000, is being
amortized to operations over 15 years.
The fair value of assets acquired, net of liabilities assumed or
created is as follows.
Current assets, other than cash acquired............... $(1,831,000)
Plant and equipment.................................... (3,872,000)
Purchase price in excess of net assets acquired........ (6,674,000)
Liabilities assumed and seller subordinated debt....... 9,625,000
----------
Cash paid, net of cash acquired........................ $(2,752,000)
==========
The following pro forma financial information for the Company reflects
the effect of the acquisition of substantially all of the operating
assets and assumption of certain liabilities of SV as if the
transactions were consummated as of the beginning of the period
reported, utilizing the results of operations for the 12 months ended
October 31, 1998 for the Company, and the 11 months ended November 30,
1998, and a one-month average of the 11-month period to constitute a
12-month period for SV. The prior operating results of SV were
maintained on a cash basis, and it is therefore impracticable for the
Company and SV to furnish pro forma results of operations of SV for
the Company's fiscal year end of April 30.
Twelve months
ended October 31,
1998 (unaudited) Pro forma
---------- -----------
Net sales........................... $89,232,638 $102,532,660
Net earnings (loss)................. 43,116 (1,336,927)
Net earnings (loss) per common share
Basic and diluted ................. $ .01 $ (.29)
The unaudited pro forma financial data does not purport to be
indicative of the results which actually would have been obtained if
the acquisition had occurred on the date indicated or of those results
which may be obtained in the future.
F-14
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE C - DIVESTITURE/RESTRUCTURING
Effective July 27, 1998, the Company's executive vice president
resigned as an officer and director of the Company. In connection
therewith, the Company agreed to repurchase the 181,181 shares held by
him for $775,000 and entered into severance and non-compete agreements
and agreed to sell to him its 70% interest in Circuit Systems (India)
Limited and its 100% interest in Circuit Sigma India Limited.
In addition, during the quarter ended July 31, 1998, the Company
recorded a restructuring charge of approximately $1,520,000, relating
to a reorganization of the Company's management and plant operations.
The majority of the restructuring charge relates to severance and
termination benefits for its executive vice president and five other
managers and supervisors.
NOTE D - LONG-TERM OBLIGATIONS
<TABLE>
Long-term obligations consist of the following:
April 30,
1999 1998
---------- ----------
<S> <C> <C>
Revolving credit agreement (1)............ $14,000,000 $11,077,536
Term note (1)............................. 7,613,095 -
Mortgage notes (2)........................ 7,323,728 7,592,143
Various installment obligations, payable
through December 2003 in monthly payments of
approximately $660,000, including interest,
collateralized by certain machinery and
equipment. Interest rates range from 7.4%
to 11.6%. ............................... 16,429,989 14,916,243
Subordinated debt (3)..................... 4,000,000 -
Other..................................... - 883,040
---------- ----------
49,366,812 34,468,962
Less current maturities................... 7,854,208 7,088,855
---------- ----------
$41,512,604 $27,380,107
========== ==========
</TABLE>
F-15
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE D - LONG-TERM OBLIGATIONS - Continued
(1)Through January 5, 1999, consisted of a line of credit dated
November 21, 1997, which provided for maximum borrowings of
$15,000,000, which is limited to 80% of eligible accounts
receivable and 50% of eligible raw material inventories (not to
exceed $2,500,000) and 75% of eligible finished goods inventories
(not to exceed $3,000,000), at the bank's prime rate. In
addition, the Company could borrow in $1,000,000 increments under
this line of credit for 30, 60, or 90 days at LIBOR plus 1.75%.
At April 30, 1998, $5,000,000 was borrowed at LIBOR plus 1.75%.
Interest was paid monthly. The loan was collateralized by a
security agreement covering substantially all of the assets of the
Company.
As of January 6, 1999, the Company changed its lead commercial
lender and entered into a line of credit agreement (as amended) of
$17,000,000 and a term note in the amount of $8,000,000. The term
note of $8,000,000 was utilized to pay off term debt of
approximately $2,560,000 to the Company's previous lender,
$3,000,000 for the asset purchase from SV and the remaining amount
to reduce line of credit borrowings.
The line of credit borrowings, which mature on October 31, 2001,
are limited to 85% of eligible accounts receivable, 50% of
eligible raw material inventory (not to exceed $2,000,000), and
75% of eligible finished goods (not to exceed $2,500,000), and 60%
of the fair market value of the Company's investment in Sigmatron
International Inc. (not to exceed $2,000,000). Interest is
calculated under the current pricing matrix at either the prime
rate plus .50% or LIBOR plus 2.75%. At April 30, 1999, the entire
amount outstanding of $14,000,000 is priced at the LIBOR pricing
or 7.75%. At April 30, 1999, the Company's eligible borrowing
base was approximately $14,300,000.
The term note is payable in monthly principal installments of
$95,238 plus interest, with a balloon payment due on October 31,
2003. Interest is calculated under the current pricing matrix at
either the prime rate plus .75% or LIBOR plus 2.75%. At April 30,
1999, the entire balance of the term note is priced at the LIBOR
pricing or 7.75%.
The loans are collateralized by a security agreement covering
substantially all of the unencumbered assets of the Company.
Certain loan covenants restrict or limit, among other things,
capital expenditures, the amount of capital stock redemptions,
dividends, and advances to and investments in related entities.
Other financial covenants pertain to the maintenance of specified
debt to tangible net worth and debt service ratios and minimum
EBITDA and tangible net worth as defined. At April 30, 1999, the
Company was in violation of the covenant restricting annual
capital expenditures. This violation has been waived by the bank.
F-16
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE D - LONG-TERM OBLIGATIONS - Continued
(2) At April 30, 1999 and 1998, the Company was obligated on three
mortgage notes, with interest at 8.25%. The notes are being
amortized over 15 years. The mortgage notes have total monthly
payments of approximately $74,000, including interest.
(3) The subordinated debt is due to the previous shareholders of SV
and is subordinate to the debt of the Company's lead commercial
lender. The note bears interest only (8.5%) through June 1, 1999,
and monthly payments of principal and interest of $88,772 which
commence from July 1, 1999, through its maturity on December 1,
2003.
Scheduled annual maturities of total long-term obligations as of April
30, 1999, are as follows:
Years ending April 30,
2000.............................................. $ 7,854,208
2001.............................................. 20,657,487
2002.............................................. 6,265,365
2003.............................................. 4,622,151
2004.............................................. 4,373,006
2005 and thereafter............................... 5,594,595
----------
$49,366,812
==========
NOTE E - INCOME TAXES
<TABLE>
Income tax expense (benefit) consists of the following:
Years ended April 30,
1999 1998 1997
-------- -------- ----------
<S> <C> <C> <C>
Current
Federal ......................... $(344,000) $(712,000) $ 788,000
State ........................... (10,000) (212,000) 96,000
Deferred........................... 469,000 293,000 333,000
-------- -------- ----------
$ 115,000 $(631,000) $ 1,217,000
======== ======== ==========
</TABLE>
F-17
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE E - INCOME TAXES - Continued
The Company's Federal income tax returns have been examined and
cleared by the Internal Revenue Service through 1994. A
reconciliation of the Federal statutory income tax rate to the
Company's effective tax expense (benefit) rate is as follows:
<TABLE>
Percent of pretax (loss) earnings
Years ended April 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate....... 34.0% (34.0)% 34.0%
State income taxes, net of Federal
benefit, state credits and valuation
allowance.............................. 45.3 (8.7) 3.1
Effect of Foreign Sales Corporation..... - - (1.2)
Effect of foreign net operating loss.... 21.3 - -
Other - net............................. (3.2) 3.6 .6
---- ---- ----
Effective income tax (benefit)
expense rate......................... 97.4% (39.1)% 36.5%
==== ==== ====
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:
1999 1998
-------- ---------
<S> <C> <C>
Deferred tax assets
Allowance for doubtful receivables ......... $ 57,000 $ 57,000
Employee benefits .......................... 225,000 265,000
Accrued expenses and other ................. 64,000 90,000
Alternative minimum tax credit carryforwards 307,000 -
State net operating loss carryforward ...... 70,000 -
Total deferred tax assets............... 723,000 412,000
Valuation allowance..................... (70,000) -
Net deferred tax assets................. 653,000 412,000
F-18
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
<TABLE>
NOTE E - INCOME TAXES - Continued
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax liabilities
Depreciation ............................... $(2,083,000) $(1,450,000)
Equity in earnings of affiliate ............ (621,000) (544,000)
Unrealized gain on public stock offering
by affiliate (196,000) (196,000)
---------- ----------
Total deferred tax liabilities.......... (2,900,000) (2,190,000)
Net deferred tax liability.............. $(2,247,000) $(1,778,000)
</TABLE>
The deferred tax asset valuation allowance relates to a state net
operating loss carryforward.
NOTE F - EMPLOYEE BENEFIT PLANS
The Circuit Systems, Inc. Employee Stock Ownership Plan ("ESOP")
covered substantially all domestic employees of the Company. The
Company approved a resolution to terminate the ESOP during June 1997,
received regulatory approval to terminate the plan in July 1998 and
completed the distribution of substantially all of the assets of the
plan by December 31, 1998. No contribution was made during the three
years ended April 30, 1999. The plan held 233,714 shares of Company
stock as of April 30, 1998.
The Circuit Systems, Inc. 401(k) Plan covers substantially all
domestic 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 an amount equal to 25% of the
participants' deferrals, up to 6% of eligible compensation. The
Company's contribution to this plan amounted to approximately
$133,000, $117,000, and $78,000 for the years ended April 30, 1999,
1998, and 1997, respectively.
NOTE G - 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 both when it is probable that a liability has
been incurred and when 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 while 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.
F-19
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE H - 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 the fair market value at the date of grant. The maximum
term of an option may not exceed 10 years. The options generally 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 at each annual shareholders'
meeting beginning in 1994 is automatically 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.
At May 1, 1996, the Company had 25,000 nonqualified stock options
outstanding 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, 1998, these options expired.
In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has elected to continue to
account for stock-based compensation under the intrinsic value based
method of accounting prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Under APB
Opinion No. 25, generally, no cost is recorded for stock options
issued to employees unless the option price is below the fair market
value at the time options are granted. The following pro forma net
earnings (loss) and earnings (loss) per share are presented for
informational purposes and have been computed using the fair value
method of accounting for stock-based compensation as set forth in SFAS
No. 123:
<TABLE>
April 30,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss)................ $ 3,118 $ (983,192) $2,118,950
Pro forma net earnings (loss)...... (148,533) (1,221,818) 1,833,926
Net earnings (loss) per common
share - basic - (.20) .40
Pro forma net earnings (loss) per share (.04) (.25) .34
</TABLE>
F-20
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE H - STOCK OPTIONS - Continued
These pro forma amounts may not be representative of future
disclosures, because they do not take into effect pro forma
compensation expense related to grants made before 1995. The pro
forma results include expense related to the fair value of stock
options estimated at the date of grant using the Black-Scholes option
pricing model with the following assumptions:
1999 1998 1997
---- ---- ----
Expected dividend yield................... 0.0% 0.0% 0.0%
Expected stock price volatility........... 54.3 50.2 82.4
Risk-free interest rate................... 6.7 5.9 6.9
Weighted average expected life of options. 9 years 9 years 9 years
Option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing method does
not necessarily provide a reliable single measure of the fair value of
its employee stock options.
<TABLE>
Information relating to stock option transactions over the past three
years is summarized as follows:
Options outstanding Options exercisable
------------------- -------------------
Weighted Weighted
averag e average
Number price per Number price per
outstanding share exercisable share
-------- ----- ------- -----
<S> <C> <C> <C> <C>
Balance, May 1, 1996 . 360,000 $5.21 260,000 $5.65
Granted ............ 120,000 6.39 ======= ====
Exercised .......... - -
Canceled ........... -
-
-------
Balance, April 30, 1997 480,000 5.51 380,000 $5.40
Granted ............ 70,000 4.34 ======= ====
Exercised .......... - -
Canceled ........... 30,000 4.23
-------
Balance, April 30, 1998 520,000 5.42 445,000 $5.50
Granted ............ 130,000 3.99 ======= ====
Exercised .......... -
Canceled ........... 270,000 4.96
-------
Balance, April 30, 1999 380,000 5.25 275,000 $5.77
======= ======= ====
</TABLE>
F-21
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE H - STOCK OPTIONS - Continued
<TABLE>
Further information about stock options outstanding at April 30, 1999,
can be summarized as follows:
Options outstanding Options exercisable
--------------------------------- -------------------
Range of Weighted Weighted Weighted
average remaining average average
exercise Number contractual price per Number price per
prices outstanding life share exercisable share
----------- ------- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$2.69 to $3.99 80,000 7.53 $3.41 50,000 $3.85
4.00 to 4.49 100,000 9.01 4.38 25,000 4.38
4.50 to 5.99 100,000 6.29 5.36 100,000 5.36
6.00 to 8.00 100,000 5.75 7.50 100,000 7.50
</TABLE>
NOTE I - MAJOR CUSTOMERS
Sales to individual unaffiliated customers, which exceeded 10% of net
sales, were approximately $24,746,000 and $13,338,000 for the year
ended April 1999, $23,413,000, $11,430,000, and $8,151,000 for the
year ended April 30, 1998, and $16,231,000 and $12,909,000 for the
year ended April 30, 1997. Sales to affiliates are separately
identified in note J. The percentage composition of the accounts
receivable for these customers bears a similar relationship to net
sales.
NOTE J - RELATED PARTY AND SIGNIFICANT SUBSIDIARY INFORMATION
During the year ended April 30, 1997, the Company sold 68,000 shares
of common stock of SigmaTron International, Inc. ("SGMA") and
recognized a gain on the sale of approximately $1,093,000. The
Company currently holds 488,413 shares, or approximately 17% of the
outstanding stock of SGMA, and continues to account for this
investment under the equity method. The quoted market price per share
of SGMA was $4.00 on April 30, 1999.
F-24
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE J - RELATED PARTY AND SIGNIFICANT SUBSIDIARY INFORMATION -
Continued
<TABLE>
Transactions and balances with this unconsolidated affiliate as of and
for the years ended April 30 are as follows:
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Investment in affiliate............ $3,211,083 $2,930,595 $2,841,193
Accounts receivable................ 1,255,723 1,108,513 727,986
Net sales.......................... 6,325,000 6,380,000 6,895,000
Rental income...................... 386,000 402,000 339,000
</TABLE>
The Company subleases a portion of one of its manufacturing facilities
to SGMA. The lease has a base rental of $29,987 per month and
requires SGMA to pay maintenance, utilities, and real estate taxes.
The lease continues through February 2001 and has a five-year renewal
option.
<TABLE>
The following is summarized financial information for SGMA, as of and
for the years ended April 30:
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current assets.................. $34,610,524 $32,203,952 $28,719,612
Noncurrent assets............... 20,712,422 16,437,254 13,368,827
Current liabilities............. 13,943,592 11,495,266 7,070,627
Noncurrent liabilities.......... 22,078,862 19,542,549 18,003,168
Net sales....................... 88,159,189 85,650,598 87,216,343
Gross profit ................... 8,921,091 8,456,834 12,639,082
Net earnings.................... 1,697,101 525,892 3,255,058
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1999, 1998, and 1997
NOTE K - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
The unaudited quarterly results of operations are as follows for the
fiscal years ended April 30,
1999
Quarter ended
July 31, October 31, January 31, April 30,
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales............. $22,553,713 $25,101,583 $20,708,764 $20,633,209
Gross profit.......... 3,052,495 4,080,547 1,964,732 1,952,203
Net (loss) earnings... (498,959) 1,239,635 (319,621) (417,937)
Net (loss) earnings per
share - basic ....... (.11) .29 (.08) (.11)
Net (loss) earnings per
share - diluted ..... (.11) .29 (.08) (.11)
1998
Quarter ended
July 31, October 31, January 31, April 30,
---------- ---------- ---------- ----------
Net sales............. $12,922,618 $20,473,136 $18,833,070 $22,744,272
Gross profit.......... 639,060 2,231,011 1,521,905 1,604,358
Net (loss) earnings... (502,286) 216,654 (249,039) (448,521)
Net (loss) earnings per
share - basic ....... (.10) .04 (.05) (.09)
Net (loss) earnings per
share - diluted ..... (.10) .04 (.05) (.09)
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended April 30, 1999, 1998, and 1997
Additions
Balanced Charged to Charged to Balance
at costs and other at end
beginning expenses accounts Deduction of
of period period
-------- -------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
Year ended April 30, 1999
Allowance for doubtful
receivables $150,000 $(195,220) $25,000(2) $(195,220) $175,000
(1)
Allowance for slow
moving inventories - 130,000 - - 130,000
Year ended April 30, 1998
Allowance for doubtful
receivables 500,000 15,165 - 365,165 150,000
(1)
Year ended April 30, 1997
Allowance for doubtful
receivables 475,000 36,760 - 11,760 500,000
(1)
</TABLE>
(1) Uncollectable receivables charged off, net of recoveries.
(2) Allowance for doubtful receivables acquired from business
acquisition.
See note B of Notes to Financial Statements.
<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 9915C 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 10K 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 1993 Stock Option Plan. (Incorporated herein by reference to
Exhibit 10.11 of Form 10-K for the year ended April 30, 1993.)
10.2 1994 Director's Stock Option Plan. (Incorporated herein by
reference to Exhibit 10.8 of Form 10-K for the year ended April 30,
1994.)
10.3 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.)
10.4 Industrial Lease Agreement dated as of February 29, 1996 by and
between Circuit Systems, Inc. and SigmaTron International, Inc.
(Incorporated here and by reference to Exhibit 10.19 of Form 10-K for
the year ended April 30, 1996.)
10.5 Real Estate and Asset Purchase and Sale Agreement between Circuit
Systems of Tennessee, L.P. and Philips Electronics North America
Corporation dated July 27, 1997. (Incorporated herein by reference to
Exhibit 2.1 of Form 8-K dated July 24, 1997.)
10.6 Employment Agreement dated as of March 1, 1999, by and between
D.S. Patel and Circuit Systems, Inc.
10.7 Asset Purchase Agreement dated as of December 1, 1998, by and
among Circuit Systems, Inc. and H.O.T.L.R.T., Inc. d/b/a Silicon
Valley Printed Circuits; Thomas L. Rogotzke, Richard T. Lebherz, and
Hershel O. Petty, being the shareholders of SVPC.
10.8 Subordinated Term Note in the amount of $4,000,000.00 dated
December 1, 1998 executed by SVPC Circuit Systems, Inc. in favor of
H.O.T.L.R.T., Inc. d/b/a Silicon Valley Printed Circuits.
10.9 Credit Agreement among Circuit Systems, Inc., Circuit Systems of
Tennessee, L.P., and SVPC Circuit Systems, Inc. as the Borrowers, the
Lenders Which are Parties Hereto, and LaSalle National Bank as Agent,
dated as of January 6, 1999.
<PAGE>
10.10 Revolving Credit Note in the amount of $18,000,000 dated January
4, 1999, executed by Circuit Systems, Inc., Circuit Systems of
Tennessee, L.P. and SVPC Circuit Systems, Inc., the lenders which are
parties to the Credit Agreement dated as January 4, 1999, and LaSalle
National Bank.
10.11 Term Loan Note in the amount of $7,000,000 dated January 4,
1999, executed by Circuit Systems, Inc., Circuit Systems of Tennessee,
L.P. and SVPC Circuit Systems, Inc., the lenders which are parties to
the Credit Agreement dated as January 4, 1999, and LaSalle National
Bank.
21 Subsidiaries of the Registrant.
27.1 Financial Data Schedule (EDGAR Only)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of the 1st day of March,
1999, is between Circuit Systems, Inc., an Illinois, corporation (the
"Company"), and D.S. Patel ("D.S.").
WHEREAS, the Company, being well satisfied with D.S.' services as
President and Chief Executive Officer (referred to herein together as
"Chief Executive Officer"), desires to retain him in an executive
capacity for the period and upon the other terms and conditions herein
provided; and
WHEREAS, D.S. is willing to continue in employment by the Company
pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and obligations herein contained, and for other good and
valuable consideration, the receipt, adequacy, and sufficiency of
which are hereby acknowledged, the parties hereto do hereby covenant
and agree as follows:
1. EMPLOYMENT
1.1 Position. The Company hereby confirms D.S.' employment as
its Chief Executive Officer.
1.2 Duties. D.S.' duties will include all those duties
customarily associated with the position of Chief Executive Officer in
an emerging growth company, including those duties that require the
performance of policy-making functions as contemplated by Rule 3b-7 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Such duties shall also include management of all functions and
facilities required of and maintained by the Company and its
subsidiaries. D.S. agrees to devote substantially his entire business
time and attention to the performance of his duties hereunder and to
serve the Company diligently and to the best of his abilities.
Notwithstanding the foregoing, D.S. shall have the continuing right
(a) to make passive investments in the securities of any publicly-
owned corporation, (b) to make any other passive investments with
respect to which he is not obligated or required to, and does not in
fact, devote any substantial managerial efforts that interfere with
the fulfillment of his duties to the Company; and, (c) subject to the
prior written approval of the Company's Board of Directors (the "Board
of Directors"), to serve as a director of or consultant to other
companies and entities.
2. COMPENSATION AND BENEFITS
2.1 Base Annual Salary. The Company shall pay D.S. a base
annual salary of $560,000 (the "Base Annual Salary") periodically
throughout the year, commencing the date hereof, in accordance with
its customary payroll practices, as modified from time to time,
subject to all payroll and withholding deductions required by
applicable law. The Base Annual Salary shall be reviewed at least
annually by the Compensation Committee of the Board of Directors (the
"Compensation Committee"), but shall not be decreased without D.S.'
prior written consent.
<PAGE>
2.2 Signing Bonuses. The Company will pay D.S. a cash bonus in
the amount of $300,000 upon signing of this Agreement (the "Signing
Bonus"). D.S. shall earn the Signing Bonus ratably over the Initial
Term (as hereafter defined) of this Agreement. In the event D.S.
voluntarily terminates his employment with the Company, D.S. shall be
obligation to return to the Company the "unearned" portion of the
Signing Bonus.
2.3 Cash Bonuses; Other Incentive Compensation. Subject to the
satisfaction of such criteria and the achievement of such objectives
as the Compensation Committee of the Board of Directors may establish,
D.S. may receive additional cash bonuses and other incentive
compensation (including stock options), it being understood that the
Compensation Committee shall at least once annually consider the
payment of a cash bonus to him.
2.4 Other Benefits. D.S. shall be entitled to other benefits
and perquisites no less favorable than those provided to the Company's
employees generally, as such benefits and perquisites may be modified
from time to time in the Company's discretion. Such benefits shall in
all events include health insurance, a 401(k) plan and paid holidays
annually. Such perquisites shall in all events include four weeks of
vacation annually, disability insurance and group term life insurance.
The Company shall pay D.S. compensation in accordance with paragraph
2.1 hereof in the event D.S. does not take his full vacation during
any calendar. To assist with the business travel essential to
conducting business in the Metropolitan Chicago area, throughout the
term of this Agreement the Company will provide D.S. with a company-
acquired and -maintained automobile. All expenses incidental to the
personal use of the automobile shall be borne by D.S.
2.5 Expense Reimbursement. D.S. shall be reimbursed by the
Company for his reasonable out-of-pocket business expenses in
accordance with the Company's established policies applicable to
executive officers generally. In addition, the Company will reimburse
D.S. for all expenses related to legal, tax and financial advice, not
to exceed $150,000 in the aggregate over the Initial Term of this
Agreement, and not to exceed $25,000 each year during any subsequent
year of this Agreement.
2.6 Insurance. The Company will pay annual premiums not to
exceed $100,000 for life insurance to be owned by D.S.
3. TERM
3.1 Term. The term of the Executive's employment hereunder
shall be the period of thirty eight (38) months commencing on March 1,
1999 and expiring on April 30, 2002 (the "Initial Term"). The Company
in its sole discretion may extend the term of D.S.'s employment
hereunder for successive periods of one (1) year on or before the
third anniversary of this Agreement and thereafter on or before each
successive anniversary of such extension, the intention being that at
the date of any such anniversary on which the employment is extended,
the term of Executive's employment will be for an additional one (1)
year period. The term of Executive's employment hereunder shall, in
any event, be subject to earlier termination as provided in paragraph
4 hereof.
<PAGE>
4. TERMINATION AND SEVERANCE PAY
4.1 At Will. D.S. and the Company acknowledge and agree that
D.S.' employment with the Company is "at will" during the term of this
Agreement. Accordingly, either party may terminate D.S.' employment
by the Company, with or without cause, in which case D.S. shall have
no claim for lost wages, although termination of D.S.' employment
shall be subject to the terms and conditions of this Agreement
regarding severance pay, benefits and other obligations.
4.2 Voluntary Resignation. In the event that D.S.' employment
with the Company terminates as a result of his voluntary resignation,
D.S. shall be entitled to no severance pay or benefits.
4.3 Involuntary Termination.
(a) Severance Pay. In the event that D.S.' employment with
the Company is terminated by the Company For Just Cause (as defined in
Section 4.3(c) hereof), D.S. shall not be entitled to severance pay or
benefits. In the event that D.S.' employment with the Company is
terminated by the Company other than for Just Cause, DS shall be
entitled to severance pay in the form of continuation of Base Annual
Salary for thirty six (36) months from the effective date of the
termination. D.S. shall have no duty to mitigate such payments by
seeking or accepting other employment; accordingly, such payments
shall not be reduced due to receipt of other compensation from such
other employment as he may obtain during the term of his severance
payments.
(b) Additional Benefits. In the event that D.S' employment
with the Company is terminated by the Company other than For Just
Cause, D.S. shall be entitled to continue to participate in the
Company's employee benefit programs as and to the extent theretofore
made available to him pursuant to Section 2.4 above. Such benefits
shall be continued at no additional cost to D.S., except to the
extent, if any, that tax laws require the inclusion of the value of
such benefits in his gross income. Such benefits shall continue for
the benefit of D.S. for the entire period of his severance pay
continuation as provided in Section 4.3(a) above, in the same manner
and at the same level as in effect immediately prior to D.S.'
termination. In addition, upon any termination of D.S.' employment
by the Company other than For Just Cause, (i) any and all employee
stock options and other similar rights held by D.S. shall become fully
vested and exercisable immediately, and (ii) any and all cash bonuses
that would be payable to D.S. at the end of a period but for his
earlier termination shall be payable to him immediately and pro rata
(in accordance with the percentage of completion of the period in
question and with reference to the best available financial
information proximate to the time of termination).
<PAGE>
(c) For Just Cause. For purposes of this Agreement, the
term "For Just Cause" shall mean any termination of employment of D.S.
for one or more of the following reasons: (i) the substantial failure
by D.S., for any reason other than his death or Disability (as defined
below), to comply with a lawful, written instruction of the Company's
Board of Directors, which instruction is consistent with his duties as
elsewhere provided in this Agreement, which failure continues without
interruption for the 30 days immediately following D.S.' receipt of
such instruction; (ii) the substantial and continuing failure of D.S.,
for any reason other than his death or Disability, to render vital
service to the Company in execution of his essential duties, as
determined by the Board of Directors in good faith with reference to
D.S.'s employment agreement then in effect, after giving written
notice to D.S. and an opportunity for him to remedy such failure
within 30 days of receiving such notice; (iii) the conviction of D.S.
for a felony involving an act of moral turpitude, which conviction has
become final and non-appealable; (iv) recklessness in the performance
of D.S.'s duties to the Company causing material harm to the Company;
or (v) material dishonesty, material breach of fiduciary duty or
material breach by D.S. of any representation, covenant or other
agreement contained in this Agreement.
(d) Constructive Termination. If D.S. without his prior
written consent, is removed from the position of Chief Executive
Officer, or if D.S.' duties are restricted or reduced in such a manner
as to result in his position with the Company no longer including
duties requiring the performance of policy making functions by an
executive officer within the meaning of Rule 3b-7 of the Exchange Act,
then, in either such case, the employment of D.S. shall be deemed, in
his discretion, involuntarily terminated by the Company other than For
Just Cause, it being understood that D.S. must exercise his discretion
under this Section 4.3(d) in writing to the Board of Directors within
sixty days following the latest to occur of any event constituting
involuntary termination pursuant to this Section 4.3(d).
4.4 Death. In the event of D.S.'death, this Agreement shall
automatically terminate and shall be of no further force or effect, it
being understood that the Company shall be obligated to make all the
payments and to provide all the benefits due to D.S. hereunder to the
time of his death. In addition, the Company shall (a) commencing the
first day of the month after the month in which death occurs, pay
seventy-five percent (75%) of D.S.'s salary for three (3) years to his
widow, or if he has no widow then or thereafter surviving, to his
estate, and (b) at its own expense, continue to provide full medical
coverage to D.S.'s widow for three (3) years or until her death,
whichever is earlier.
<PAGE>
4.5 Disability. In the event of D.S.' Disability (as defined
below) during the term of this Agreement for any period of at least
three consecutive months, the Company shall have the right,
exercisable in its discretion, to terminate this Agreement (the
"Disability Date"). In the event that the Company does elect to
terminate this Agreement, the Base Annual Salary otherwise then
payable to D.S. shall be reduced by twenty-five percent (25%), and
shall be paid to D.S. for a three (3) year period from the Disability
Date, subject to reinstatement upon D.S.'s return to employment and
discharge of his duties hereunder; the Company may fund this
obligation, in whole or in part, by the purchase of a disability
income protection policy for D.S. The Company, at its sole expense,
shall also continue to provide full medical coverage to D.S. and his
spouse for the same three (3) year period from the Disability Date.
For purposes of this Agreement, "Disability" shall mean the inability
of D.S. to perform the essential functions of his employment hereunder
by reason of physical or mental illness or incapacity as determined by
a physician chosen by the Company and reasonably satisfactory to D.S.
or his legal representative.
5. NON-DISCLOSURE, NON-SOLICITATION, NON-COMPETE AND NON-DISPARAGEMENT
5.1 Non-Disclosure. Except as is reasonably necessary in the
performance of his duties hereunder, D.S. shall not disclose to any
person or entity or use for his own direct or indirect benefit any
Confidential Information (as defined below) pertaining to the Company
obtained by him in connection with his employment with the Company.
For purposes of this Agreement, the term "Confidential Information"
shall include information with respect to the Company's products,
services, processes, suppliers, customers, customers' account
executives, financial, suppliers and distribution information, price
lists, identity and list of actual and potential customers, trade
secrets, technical information, business plans and strategies;
provided, however, that such information shall not be treated as
Confidential Information to the extent that it has been publicly
disclosed by the Company (other than by D.S. through a breach of this
Section 5.1).
5.2 Non-Solicitation. D.S. agrees that for a period of three
(3) years after termination of his employment for any reason other
than involuntary termination not for Just Cause, he shall not (a)
directly or indirectly solicit, induce or attempt to solicit or induce
any Company employee to discontinue such employee's employment by the
Company, (b) usurp any opportunity of the Company of which he became
aware during his tenure at the Company, or that was made available to
him on the basis of a mistaken belief that he was still employed by
the Company, or (c) directly or indirectly solicit or induce or
attempt to influence any person or business that is an account,
customer or client of the Company to reduce or cancel the business of
any such account, customer or client with the Company.
<PAGE>
5.3 Non-Compete. D.S. agrees that, so long as he is employed by
the Company and for a period of three (3) years after termination of
his employment for any reason other than involuntary termination not
For Just Cause, he shall not, without prior written consent of the
Company's Board of Directors, either directly or indirectly
(including, without limitation, through a partnership, joint venture,
corporation or other entity or as a consultant, director or employee),
engage in the business engaged in by the Company as of the date hereof
within any of those geographical areas in which the Company currently
conducts active business operations. The parties hereto agree that
the scope and the nature of such covenant, and the duration and the
area within which such covenant is to be effective, are reasonable in
light of all facts and circumstances.
5.4 Non-Disparagement. D.S. agrees that, so long as he is
employed by the Company and for a period of three years after
termination of his employment for any reason other than involuntary
termination not For Just Cause, he shall not make any public comment
(whether written or oral) concerning or touching upon the Company or
any of its Affiliates, including but not limited to any or all of the
Company's executive officers and directors, which comment would tend
to disparage the personal, financial or business reputation of such
other person or persons, except for such comments as may be required
by law and except for such comments as may be made in litigation,
arbitration or mediation with such person or persons.
6. CERTAIN COVENANTS OF THE COMPANY
6.1 No Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed as a
waiver of any subsequent breach thereof.
6.2 Assignment. This Agreement may not be assigned by D.S. and
may not be assigned by the Company otherwise than by operation of law.
This Agreement shall be binding upon the Company's successors and
assigns.
6.3 Entire Agreement. This Agreement supersedes any and all
prior written or oral agreements between D.S. and the Company and
evidences the entire understanding of the parties hereto with respect
to the terms and conditions of D.S.' employment with the Company.
6.4 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Illinois
without regard to the choice of law rules of the State of Illinois or
any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above written.
/s/
By: ________________________________
Chairman, Compensation Committee
Circuit Systems, Inc.
/s/
________________________________
D.S. Patel
SVPC CIRCUIT SYSTEMS, INC.
PURCHASE OF ASSETS OF
H.O.T.L.R.T., INC.
d/b/a SILICON VALLEY PRINTED CIRCUITS
AS OF DECEMBER 1, 1998
ASSET PURCHASE AGREEMENT
BY AND AMONG
H.O.T.L.R.T., INC. d/b/a SILICON VALLEY PRINTED CIRCUITS,
THOMAS L. ROGOTZKE,
RICHARD T. LEBHERZ, and
HERSHEL O. PETTY
AND
CIRCUIT SYSTEMS, INC., and
SVPC CIRCUIT SYSTEMS, INC.
DATED AS OF DECEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
RECITALS........................................................1
ARTICLE I - PURCHASE AND SALE
1.1 Purchased Assets.................................1
1.2 Excluded Assets..................................3
1.3 Assumed Liabilities..............................3
1.4 Excluded Liabilities.............................3
ARTICLE II - PURCHASE PRICE
2.1 Purchase Price...................................4
2.2 Allocation of Purchase Price.....................4
ARTICLE III - CLOSING
3.1 Closing Date.....................................4
3.2 Payment of the Purchase Price....................4
3.3 Buyer's Additional Deliveries....................5
3.4 SVPC's Deliveries................................5
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SVPC AND THE
SHAREHOLDERS
4.1 Corporate Status.................................6
4.2 Power and Authority..............................7
4.3 Enforceability...................................7
4.4 No Restrictions..................................7
4.5 Capitalization of SVPC; Shareholders.............7
4.6 No Violation.....................................7
4.7 Records..........................................8
4.8 Financial Statements.............................8
4.9 Changes Since the Current Balance Sheet Date.....8
4.10 Liabilities......................................9
4.11 Litigation..................................... 10
4.12 Environmental Matters...........................10
4.13 Real Estate.....................................17
4.14 Good Title to, Condition of and Adequacy of
Purchased Assets....................................19
4.15 Compliance with Laws............................19
4.16 Labor and Employment Matters....................20
4.17 Employee Benefit Plans..........................20
4.18 Tax Matters.....................................23
4.19 Insurance.......................................24
4.20 Receivables.....................................24
4.21 Licenses and Permits............................25
4.22 Relationships with Customers and Suppliers;
Affiliated Transactions.........................25
4.23 Intellectual Property...........................25
4.24 Contracts.......................................26
4.25 Accuracy of Information Furnished to CSI........27
4.26 Business Locations..............................27
4.27 Names; Prior Acquisitions.......................27
4.28 No Commissions..................................27
4.29 Inventory.......................................27
4.30 Product Warranty................................28
<PAGE>
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Corporate Status................................28
5.2 Corporate Power and Authority...................28
5.3 Enforceability..................................29
5.4 No Commissions..................................29
5.5 Financial Information...........................29
5.6 Capitalization..................................29
5.7 New Permits.....................................29
5.8 Waiver of Bulk Sales Compliance ................29
5.9 Reliance on Information Furnished...............30
ARTICLE VI - INDEMNIFICATION
6.1 Agreement by SVPC and the Shareholders to
Indemnify.......................................30
6.2 Conditions of Indemnification of Buyer..........32
6.3 Agreement by Buyer to Indemnify.................33
6.4 Conditions of Indemnification of SVPC and
Shareholders....................................34
6.5 Effect of Insurance and Taxes...................35
6.6 Minimum Threshold for Indemnification...........36
6.7 Security for Indemnification Obligation.........36
6.8 Collection of Receivables.......................36
ARTICLE VII - ADDITIONAL AGREEMENTS
7.1 Further Assurances..............................37
7.2 Compliance with Covenants.......................37
7.3 Cooperation.....................................37
7.4 Tax Treatment...................................37
7.5 Restrictive Covenants...........................37
7.6 Taxes and Transfer Taxes........................39
7.7 Other Agreements................................39
7.8 Employment Procedure............................39
7.9 Corporate Name Change...........................40
7.10 Payments of Accounts Receivable.................40
7.11 New Permits.....................................40
7.12 Environmental Covenants of SVPC.................40
7.13 Environmental Covenants of Buyer................40
7.14 Incentive Compensation Plan.....................41
7.15 Business Expansion Plan.........................41
7.16 Buyer's Promissory Notes and Guaranty ..........41
7.17 Notes Receivable from Shareholders .............41
ARTICLE VIII - DEFINITIONS
8.1 Defined Terms...................................42
8.2 Other Definitional Provisions...................46
<PAGE>
ARTICLE IX - GENERAL PROVISIONS
9.1 Survival of Obligations........................46
9.2 Confidential Nature of Information.............47
9.3 No Public Announcement.........................47
9.4 Notices........................................47
9.5 Successors and Assigns.........................49
9.6 Access to Records after Closing................49
9.7 Entire Agreement; Amendments...................49
9.8 Interpretation.................................49
9.9 Waivers........................................50
9.10 Expenses.......................................50
9.11 Partial Invalidity.............................50
9.12 Execution in Counterparts......................50
9.13 Further Assurances.............................50
9.14 Destruction of Information.....................50
9.15 Time of Essence................................51
9.16 Governing Law; Submission to Jurisdiction......51
INDEX OF EXHIBITS
Exhibit A Opinion of Counsel to Buyer
Exhibit B Opinion of Counsel to SVPC and the Shareholders
Exhibit C Bill of Sale
Exhibit D Employment Agreements
Exhibit E Incentive Compensation Plan
Exhibit F Buyer's Promissory Notes and Guaranty
INDEX OF SCHEDULES
Schedule 1.2(c) Other Excluded Assets
Schedule 2.1 Subordinated Term Note and Guaranty
Schedule 4.5 Capitalization of SVPC; Shareholders
Schedule 4.6 Violations; Conflicts; etc.
Schedule 4.8 Financial Statements
Schedule 4.9 Changes since the Current Balance Sheet Date
Schedule 4.10 Liabilities
Schedule 4.11 Litigation
Schedule 4.12 Environmental Matters
Schedule 4.13(a) Owned Premises
Schedule 4.13(b) Leased Premises
Schedule 4.13(c) Additional Locations
Schedule 4.14 Title to and Condition of Assets
Schedule 4.15 Compliance with Laws
Schedule 4.16 Labor and Employment Matters
Schedule 4.17 Employee Benefit Plans
Schedule 4.18 Tax Matters
Schedule 4.19 Insurance
Schedule 4.20 Receivables
Schedule 4.21 Licenses and Permits
Schedule 4.22 Relationships with Customers and Suppliers
Schedule 4.23 Intellectual Property
Schedule 4.24 Purchased Contracts
Schedule 4.26 Accuracy of Information
Schedule 4.27 Names
Schedule 4.28 Commissions
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered
into effective as of December 1, 1998, by and among Circuit Systems,
Inc., an Illinois corporation ("CSI"), and SVPC Circuit Systems, Inc.,
a California corporation and a wholly-owned subsidiary of CSI ("SVCS")
("SVCS," together with "CSI," constitute "BUYER"); and H.O.T.L.R.T.,
Inc. d/b/a Silicon Valley Printed Circuits, a California Corporation
("SVPC"); Thomas L. Rogotzke, Richard T. Lebherz, and Hershel O.
Petty, being the shareholders of SVPC (Rogotzke, Lebherz, and Petty
are hereinafter sometimes referred to individually as "SHAREHOLDER"
and collectively as "SHAREHOLDERS") ("SVPC," together with
"SHAREHOLDERS," constitute "SELLERS").
R E C I T A L S:
A. SVPC is engaged in the business of manufacturing printed
circuit boards with emphasis on quick turnaround production for both
prototype and low-to-medium volume orders (the "BUSINESS").
B. SVPC desires to sell to Buyer, and Buyer desires to purchase
from SVPC, on a going- concern basis, substantially all of SVPC's
assets, properties, and Business, other than certain excluded assets,
all on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchased Assets. Upon the terms and subject to the
conditions of this Agreement, on the Closing Date, SVPC shall sell,
transfer, assign, convey, and deliver to Buyer, and Buyer shall
purchase from SVPC, on a going-concern basis, free and clear of all
Liens (except for Permitted Liens), all of the Business and operations
of SVPC related to the Business and, except for the Excluded Assets as
set forth in Section 1.2 hereof, all of the assets and properties of
SVPC of every kind and description, wherever located, real, personal
or mixed, tangible or intangible, used or useable in connection with
the Business as the same shall exist on the Closing Date
(collectively, the "PURCHASED ASSETS"), including, without limitation,
all right, title, and interest of SVPC in, to, and under:
(a) All of the assets reflected on the Balance Sheet,
including, without limitation, the Receivables identified on Schedule
4.20, and those assets acquired subsequent to the Balance Sheet Date
(as hereinafter defined), except those assets disposed of or converted
into cash after the Balance Sheet Date in the Ordinary Course of
Business;
(b) All cash and cash equivalents on hand and in banks,
including checks deposited for collection.
<PAGE>
(c) All raw materials, supplies, parts, work-in progress,
finished goods and other materials (including all such materials
subject to a consignment relationship) included in the inventory of
the Business (the "INVENTORY");
(d) The Permits listed in Schedule 4.21;
(e) The Purchased Contracts identified in Schedule 4.24, as
well as all contracts-in-process;
(f) The real property parcels commonly known as 3571-3581
Thomas Road, Santa Clara, California 95054; including any rights and
easements of SVPC related thereto, as more fully described or referred
to in Schedule 4.13(a) (the "OWNED PREMISES");
(g) The trademarks, trade names, service marks, and
copyrights, which SVPC owns or has the right to use (and all goodwill
associated therewith), registered or unregistered, and the
applications for registration thereof, and the patents and
applications therefor, and the licenses relating to any of the
foregoing listed in Schedule 4.23 (as further defined in Section 4.23,
the "INTELLECTUAL PROPERTY");
(h) All mailing lists, customer lists, subscriber lists,
processes, computer software, manuals or business procedures, trade
secrets, designs, engineering drawings and reports, know-how and other
proprietary or confidential information used in or relating to the
Business;
(i) All books and records (including all data and other
information stored on discs, tapes, or other media) of SVPC relating
to the assets, properties and operations of the Business;
(j) All of SVPC's rights, claims, or causes of action
against third parties relating to the assets, properties, or
operations of the Business arising out of transactions occurring prior
to the Closing Date;
(k) All of SVPC's interest in and to all telephone and
telephone facsimile numbers, Internet website, and other directory
listings of the Business and any assumed or fictitious names related
to the Business;
(l) All prepaid expenses and deposits that benefit the
Buyer after the Closing Date; and
(m) All other assets, properties and rights specifically
set forth in the Agreement as being sold, transferred or assigned to,
or purchased by, Buyer.
1.2 Excluded Assets. Notwithstanding the provisions of Section
1.1, the Purchased Assets shall not include the following (herein
referred to as the "EXCLUDED ASSETS"):
(a) All corporate minute books and stock transfer books and
the corporate seal of SVPC; and
(b) The assets listed on Schedule 1.2(b).
<PAGE>
1.3 Assumed Liabilities. On the Closing Date, Buyer shall
assume and agree to discharge the following obligations and
liabilities SVPC:
(a) All of the accounts and notes payable and accrued
expenses of SVPC reflected on the Balance Sheet, except those
liabilities subsequently discharged, and all liabilities incurred in
the Ordinary Course of Business after the Balance Sheet Date
including, but not limited to, warranty work.
(b) All obligations of SVPC to be paid or performed on
or after the Closing Date under the Purchased Contracts; except: to
the extent such liabilities and obligations, but for a breach or
default by SVPC, would have been paid, performed, or otherwise
discharged on or prior to the Closing Date or to the extent such
liabilities and obligations arise out of any such breach or default;
and
(c) All sales, use and property transfer taxes, and other
costs (including, but not limited to, escrow charges, title fees and
the like) relating to the transfer of the Owned Premises, incurred by
SVPC as a result of this transaction.
All of the foregoing liabilities and obligations to be
assumed by Buyer hereunder (excluding any Excluded Liabilities) are
referred to herein as the "ASSUMED LIABILITIES."
1.4 Excluded Liabilities. Buyer shall not assume or be
obligated to pay, perform, or otherwise discharge any liability or
obligation of SVPC, direct or indirect, known or unknown, absolute or
contingent, not expressly assumed by Buyer (all such liabilities and
obligations not being assumed are herein referred to as the "EXCLUDED
LIABILITIES") and, notwithstanding anything to the contrary in Section
1.3, none of the following shall be "ASSUMED LIABILITIES" for purposes
of this Agreement:
(a) Any liabilities of SVPC in respect of taxes of SVPC for
which SVPC is liable pursuant to Section 4.18;
(b) Any legal and accounting firm costs and expenses
incurred by SVPC or the Shareholders in excess of $10,000 each
incident to its negotiation and preparation of this Agreement from and
after August 25, 1998 and its performance and compliance with the
agreements and conditions contained herein;
(c) Any liabilities or obligations in respect of any
Excluded Assets;
(d) Any other liabilities of any kind or nature whatsoever
other than those described in Section 1.3;
(e) Any federal or state tax liability of the Shareholders;
and
(f) Any liabilities of SVPC related to the Employer Benefit
Plans pursuant to Section 4.17 including, but not limited to,
premiums, claims, penalties for late ERISA filings and the like.
<PAGE>
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. The purchase price (the "PURCHASE PRICE")
for the Purchased Assets shall be $7,000,000, consisting of:
$3,000,000 in the form of a Short Term Note (the "Short Term Note) and
$4,000,000 in the form of a subordinated term note ("Subordinated
Note"), both guaranteed by CSI ("Guaranty") copies of which Short Term
Note, Subordinated Note, and Guaranty are attached hereto on Schedule
2.1.
2.2 Allocation of Purchase Price. The Purchase Price shall be
allocated for tax purposes among the Purchased Assets in such amounts
as Buyer may reasonably request, in accordance with generally accepted
accounting principles. Such allocations shall be accepted by the
parties in writing at Closing and shall be binding on the parties.
SVPC shall sign and submit all necessary forms to report this
transaction for federal and state income tax purposes in accordance
with that allocation and shall not take a position for tax purposes
inconsistent therewith.
ARTICLE III
CLOSING
3.1 Closing Date. The Closing of the transactions contemplated
by this Agreement shall be on the date hereof at the office of SVPC,
Santa Clara, California ("CLOSING DATE"). The Closing shall be deemed
to be effective as of 12:01 a.m. (Chicago time) on December 1, 1998
(the "EFFECTIVE TIME").
3.2 Payment of the Purchase Price. Subject to fulfillment or
waiver of the conditions set forth in Article VII, the Purchase Price
shall be payable by Buyer to SVPC at Closing as follows: Buyer shall:
(a) pay to SVPC $3,000,000 by certified check or by wire-
transfer of funds; and
(b) deliver to SVPC the Subordinated Note and Guaranty.
3.3 Buyer's Additional Deliveries. At Closing Buyer shall
deliver to SVPC all the following:
(a) A certificate of the Secretary or an Assistant
Secretary of each of CSI and SVCS, dated as of the Closing Date, in
form and substance reasonably satisfactory to SVPC, as to:
(i) the resolutions of the Board of Directors of CSI
or SVCS, as applicable, authorizing the execution and performance of
this Agreement, the Other Agreements and the transactions contemplated
thereby; and
(ii) incumbency and signatures of the officers of CSI
or SVCS, as applicable, executing this Agreement and the Other
Agreements;
<PAGE>
(b) The Other Agreements, each duly executed by each of CSI
and SVCS, as applicable;
(c) Such other documents as SVPC may reasonably request or
as may be otherwise necessary to evidence and effect the sale,
assignment, transfer, conveyance and delivery of the Purchased Assets
to Buyer;
(d) A Certificate of Good Standing and Certificate of
Status Domestic Corporation, issued by the Secretary of State of
Illinois and California, with respect to each of CSI and SVCS,
respectively, dated no earlier than thirty (30) days prior to the
Closing Date;
(e) An opinion of counsel to Buyer in substantially the
form contained in Exhibit A;
(f) The Employment Agreement for each of the Shareholders
executed by an authorized officer of SVCS in substantially the form
contained in Exhibit D; and
(g) Promissory Notes (and Guaranty) for the Shareholders in
substantially the form contained in Exhibit F, in exchange for
existing notes to Shareholders in the same amount.
3.4 SVPC's Deliveries. At Closing SVPC and the Shareholders
shall deliver to Buyer the following:
(a) A certificate of the Secretary or an Assistant
Secretary of SVPC, dated as of the Closing Date, in form and substance
reasonably satisfactory to Buyer, as to:
(i) the resolutions of the Board of Directors and
shareholders of SVPC authorizing the execution and performance of this
Agreement, the Other Agreements and the transactions contemplated
thereby; and
(ii) incumbency and signatures of the officers of
SVPC executing this Agreement and the Other Agreements.
(b) Opinions of counsel to SVPC and the Shareholders
substantially in the form contained in Exhibit B;
(c) The Bill of Sale duly executed by SVPC in substantially
the form contained in Exhibit C;
(d) The Employment Agreements executed by each of the
Shareholders in substantially the form contained in Exhibit D;
(e) Certificates of title or origin (or like documents)
with respect to any vehicles or equipment included in the Purchased
Assets for which a certificate of title or origin is required in order
to transfer title;
(f) The consents, waivers or approvals obtained by SVPC
with respect to the Purchased Assets or the consummation of the
transactions contemplated by this Agreement, if any;
<PAGE>
(g) Certificate of Status Domestic Corporation issued by
the Secretary of State of California with respect to SVPC, dated no
more than thirty (30) days prior to the Closing Date;
(h) UCC-3 termination statements or other applicable
releases relating to any Liens other than Permitted Liens; and
(i) Landlord's waiver and consent forms for the Leased
Premises, if required by Buyer's lender;
(j) Existing notes to Shareholders, in exchange for Buyer's
Promissory Notes (and Guaranty) in the same amount; and
(k) Such other bills of sale, assignments and other
instruments of transfer or conveyance as Buyer may reasonably request
or as may be otherwise necessary to evidence and effect the sale,
assignment, transfer, conveyance and delivery of the Purchased Assets
to Buyer.
In addition to the above deliveries, SVPC and the
Shareholders shall take all steps and actions as Buyer may reasonably
request or as may otherwise be necessary to put Buyer in actual
possession or control of the Purchased Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SVPC AND THE SHAREHOLDERS
As a material inducement to CSI and SVCS to enter into this
Agreement and to consummate the transactions contemplated hereby, the
Shareholders and SVPC hereby jointly and severally make the following
representations and warranties to CSI and SVCS:
4.1 Corporate Status. SVPC is a corporation duly organized,
legally existing and in good standing, and has filed all required
annual reports and paid all required franchise and other taxes and
fees, under the laws of the State of California. SVPC has the
requisite power and authority to own or lease its property and to
carry on its Business as now being conducted. SVPC has not qualified
to transact business as a foreign corporation in any other
jurisdiction. There is no pending or threatened proceeding for the
dissolution, liquidation, insolvency, or rehabilitation of SVPC.
4.2 Power and Authority. SVPC and each of the Shareholders have
the power and authority to execute and deliver this Agreement, to
perform its respective obligations hereunder and to consummate the
transactions contemplated hereby. SVPC has taken all action necessary
to authorize the execution and delivery of this Agreement, the
performance of its respective obligations hereunder and the
consummation of the transactions contemplated hereby. Each of the
Shareholders is a resident of the State of California and has the
requisite competence to execute and deliver this Agreement and to
perform his obligations hereunder and to consummate the transactions
contemplated hereby.
<PAGE>
4.3 Enforceability. This Agreement and each of the Other
Agreements has been or will have been at the time of Closing duly
executed and delivered by SVPC and the Shareholders and constitutes or
will constitute the legal, valid, and binding obligation of each of
them, enforceable against them in accordance with their respective
terms.
4.4 No Restrictions. There are no proxies, voting rights,
Contracts, or other agreements or understandings with respect to the
voting of shares in SVPC or the transfer of the Purchased Assets other
than as set forth in this Agreement.
4.5 Capitalization of SVPC; Shareholders. The Shareholders are
the holders beneficially and of record of all issued and outstanding
shares of capital stock of SVPC, and the Shareholders own such shares
as set forth on Schedule 4.5, free and clear of all Liens,
restrictions and claims of any kind, except as set forth on Schedule
4.5.
4.6 No Violation. Except as set forth on Schedule 4.6, the
execution and delivery of this Agreement by SVPC and each of the
Shareholders, the performance by each of them of their respective
obligations hereunder and the consummation by them of the transactions
contemplated by this Agreement will not:
(a) contravene any provision of the Articles of
Incorporation or Bylaws of SVPC;
(b) violate or conflict with any law, statute, ordinance,
rule, regulation, decree, writ, injunction, judgment or order of any
Governmental Authority or of any arbitration award which is either
applicable to, binding upon or enforceable against SVPC or the
Shareholders;
(c) conflict with, result in any breach of, or constitute a
default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or give rise to
a right to terminate, amend, modify, abandon or accelerate, any
Contract which is applicable to, binding upon or enforceable against
SVPC or the Shareholders;
(d) result in or require the creation or imposition of any
Lien upon or with respect to any of the property or assets of SVPC; or
(e) require the consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority, any
court or tribunal or any other Person, except any SEC and other
securities or exchange filings required to be made by CSI.
<PAGE>
4.7 Records. The copies of the respective certificate of
incorporation and bylaws of SVPC which were provided to CSI are true,
accurate, and contained all written minutes of meetings and reflect
all amendments made through the date of this Agreement. The minute
books for SVPC provided to CSI for review were correct and complete as
of the date of such review, no further entries have been made through
the date of this Agreement, such minute books contain the true
signatures of the persons purporting to have signed them, and such
minute books contain an accurate record of all corporate actions of
the shareholders and directors (and any committees thereof) of SVPC
taken by written consent or at a meeting within five (5) years prior
to the date hereof. All material corporate actions taken by SVPC have
been duly authorized or ratified. All accounts, books, ledgers, and
official and other records of SVPC within five (5) years of the date
hereof have been fully, properly and accurately kept and completed in
all material respects, and there are no material inaccuracies or
discrepancies of any kind contained therein, and no meeting of the
shareholders, directors, or any committee has been held for which
minutes have not been prepared and are not contained in such minute
books.
4.8 Financial Statements. The Shareholders have delivered to
CSI the financial statements of SVPC, as of December 31, 1996 and
1997, including the notes thereto, reviewed by Pascuzzi, Hedblad &
Co., and the internally prepared unaudited financial statements of
SVPC as of July 31, 1998 (collectively, the "FINANCIAL STATEMENTS"),
copies of which are attached as Schedule 4.8 hereto. The balance
sheet dated as of July 31, 1998, included in the Financial Statements
is referred to herein as the "CURRENT BALANCE SHEET." The Financial
Statements fairly present the financial position of SVPC at each of
the balance sheet dates and the results of operations for the periods
covered thereby and, except as set forth in Schedule 4.8, have been
prepared in accordance with GAAP consistently applied throughout the
periods indicated. Except as set forth in Schedule 4.8, the books and
records of SVPC fully and fairly reflect the transactions, properties,
assets, and liabilities of SVPC. Except as set forth in Schedule 4.8,
there are no material special or non-recurring items of income or
expense during the periods covered by the Financial Statements, and
the balance sheets included in the Financial Statements do not reflect
any writeup or revaluation increasing the book value of any assets,
except as specifically disclosed in the notes thereto. Except as set
forth in Schedule 4.8, the Financial Statements reflect all
adjustments necessary for a fair presentation of the financial
information contained therein.
4.9 Changes Since the Current Balance Sheet Date. Except as
disclosed in Schedule 4.9, since the date of the Current Balance
Sheet, SVPC has not:
(a) sold, leased or transferred any of its properties or
assets other than in the Ordinary Course of Business consistent with
past practice;
(b) made any payment in respect of its liabilities other
than in the Ordinary Course of Business consistent with past practice;
<PAGE>
(c) incurred any obligations or liabilities (including any
indebtedness) or entered into any transaction or series of
transactions involving in excess of $10,000 in the aggregate out of
the Ordinary Course of Business, except for this Agreement and the
transactions contemplated hereby;
(d) suffered any theft, damage, destruction or casualty
loss not covered by insurance and for which a timely claim was filed,
in excess of $10,000 in the aggregate;
(e) suffered any extraordinary loss (whether or not covered
by insurance);
(f) waived, canceled, compromised, or released any rights
having a value in excess of $10,000 in the aggregate;
(g) made or adopted any change in its accounting practices
or policies;
(h) made any adjustment to its books and records other than
in respect of the conduct of its Business activities in the Ordinary
Course of Business consistent with past practice;
(i) entered into any employment agreement not previously
disclosed to CSI;
(j) terminated, amended or modified any agreement involving
an amount in excess of $10,000;
(k) imposed any security interest or other Lien on any of
its assets other than in the Ordinary Course of Business consistent
with past practice;
(l) delayed paying any account payable which is due and
payable except to the extent being contested in good faith and except
in the ordinary course of its Business consistent with past practice;
(m) made or pledged any charitable contribution other than
in the Ordinary Course of Business consistent with past practice; or
(n) made any Shareholder distributions.
4.10 Liabilities. Except as set forth on Schedule 4.10, SVPC
does not have any liabilities or obligations, whether accrued,
absolute, contingent, or otherwise, except:
(a) to the extent reflected or taken into account in the
Current Balance Sheet and not heretofore paid or discharged;
(b) to the extent specifically set forth in or incorporated
by express reference in any of the Schedules attached hereto;
(c) liabilities incurred in the Ordinary Course of Business
consistent with past practice since the date of the Current Balance
Sheet (none of which relates to breach of contract, breach of
warranty, tort, infringement, or violation of law, or which arose out
of any action, suit, claim, governmental investigation or arbitration
proceeding); and
<PAGE>
(d) normal accruals, reclassifications, and audit
adjustments which would be reflected on an audited financial statement
and which would not be material in the aggregate.
4.11 Litigation. Except as set forth on Schedule 4.11 or
Schedule 4.12, there is no action, suit, or other legal or
administrative proceeding or governmental investigation pending or
threatened by or against SVPC or the Shareholders or anticipated or
contemplated by SVPC or the Shareholders, nor, to the best knowledge
of SVPC and the Shareholders, is there any such action, suit, or other
legal or administrative proceeding or governmental investigation
anticipated or contemplated against SVPC or the Shareholders,
affecting SVPC or any of its respective properties or assets, or the
Shareholders, or which question the validity or enforceability of this
Agreement or the transactions contemplated hereby, and to the best
knowledge of each of the Shareholders and SVPC, there is no basis for
any of the foregoing. Except as set forth in Schedule 4.11 or
Schedule 4.12, there are no outstanding orders, decrees or
stipulations issued by any Governmental Authority in any proceeding to
which SVPC is or was a party which have not been complied with in full
or which continue to impose any material obligations on SVPC.
4.12 Environmental Matters.
(a) Green Environment, Inc. ("GEI") performed subsurface
investigations of the properties located at 3571-3581 Thomas Road,
Santa Clara, California (previously defined in this Agreement as the
"Owned Premises") and 3551-3561 Thomas Road, Santa Clara, California
(hereinafter defined in this Agreement as the "Leased Premises"), and
has prepared Environmental Site Assessments for the Owned Premises and
the Leased Premises (collectively, the AGEI "ssessments"). The
findings and conclusions of the GEI Assessments are attached hereto as
part of this Schedule 4.12 and are incorporated herein by reference.
The GEI and Assessments contain certain conclusions of fact and
recommendations, including, but not limited to, the following:
3571-3581 Thomas Road, Santa Clara, California (the Owned
Premises)
As a result of subsurface investigation activities on and
off the Owned Premises performed by GEI as documented in its report
entitled "Environmental Site Assessment, 3571-3581 Thomas Road, Santa
Clara, California," and dated November 6, 1998, the following
substances were detected in groundwater beneath the eastern area of
the Owned Premises:
Substance Range of Concentration
--------- ----------------------
Trichloroethene 3.4 to 22 parts per billion (ppb)
1,1-dichloroethene 2.2 to 25.0 ppb
1,1,1-trichloroethane 1.4 to 14.0 ppb
3551-3561 Thomas Road, Santa Clara, California (the Leased
Premises)
<PAGE>
As a result of subsurface investigation activities on and
off the Leased Premises at 3551-3561 Thomas Road, Santa Clara,
California, performed by GEI as documented in its report entitled
"Environmental Site Assessment, 3551-3561 Thomas Road, Santa Clara,
California," and dated November 6, 1998, trichloroethene was detected
in groundwater beneath the eastern area of the Leased Premises at 11.0
ppb, and the following substances were detected in groundwater beneath
the eastern area of the Owned Premises, and within a few feet of the
property line of the Leased Premises, leading GEI to conclude those
substances may also exist in the groundwater beneath the Leased
Premises, even though the water samples taken did not detect the
presence of those substances:
Substance Range of Concentration
--------- ----------------------
1,1-dichloroethene 2.2 to 25.0 ppb
1,1,1-trichloroethane 1.4 to 14.0 ppb
Established Groundwater Cleanup Standards
The California Regional Water Quality Control Board has
established the following final groundwater cleanup standards at a
nearby property: 5 ppb trichloroethene, 6 ppb 1,1-dichloroethene, and
200 ppb 1,1,1-trichloroethane. Therefore, trichloroethene and 1,1-
dichloroethene have been detected in groundwater beneath the Owned
Premises at concentrations that may require future groundwater
remediation, and trichloroethene has been detected in groundwater
beneath the Leased Premises at concentrations that may require future
groundwater remediation. In addition, GEI has reason to believe that
1,1-dichloroethene may be present in groundwater beneath the Leased
Premises at a concentration that may require future groundwater
remediation. The California Regional Water Quality Control Board
and/or another public or private entity may require additional
subsurface investigations on the properties.
Asbestos-Containing Floor Tile
Approximately 400 square feet of asbestos-containing floor
tile are located within the Leased Premises.
<PAGE>
(b) Except as set forth in and the GEI Assessments:
(i) SVPC is and has at all times been in material
compliance with all Environmental, Health and Safety Laws
(as defined herein) governing its Business, operations,
properties and assets, including, without limitation,
Environmental, Health and Safety Laws with respect to
discharges into the ground water, surface water and soil,
emissions into the ambient air, and generation,
accumulation, storage, treatment, transportation, transfer,
labeling, handling, manufacturing, use, spilling, leaking,
dumping, discharging, release or disposal of Hazardous
Substances (as defined herein), or other Waste (as defined
herein). SVPC is not currently liable for any penalties,
fines, or forfeitures for failure to comply with any
Environmental, Health and Safety Laws. SVPC is in material
compliance with all notice, record keeping, and reporting
requirements of all Environmental, Health and Safety Laws,
and has complied with all informational requests or demands
arising under the Environmental, Health and Safety Laws.
(ii) SVPC has obtained, or caused to be obtained,
and is in material compliance with, all licenses,
certificates, permits, approvals and registrations
(collectively the "LICENSES") required by the Environmental,
Health and Safety Laws for the ownership of its properties
and assets and the operation of its Business as presently
conducted, including, without limitation, all air emission,
water discharge, water use and solid waste, hazardous waste
and other Waste generation, transportation, transfer,
storage, treatment or disposal Licenses, and is in
compliance in all material respects with all the terms,
conditions, and requirements of such Licenses, and copies of
such Licenses have been provided to CSI. There are no
administrative or judicial investigations, notices, claims
or other proceedings pending or threatened by any
Governmental Authority or third parties against SVPC, its
Business, operations, properties, or assets, which question
the validity or entitlement of to any License required by
the Environmental, Health and Safety Laws for the ownership
of the properties and assets of SVPC and the operation of
its Business or wherein an unfavorable decision, ruling or
finding could have a Material Adverse Effect on the
Purchased Assets, the Business or SVPC, or which would
impose any liability upon CSI in the event that the
transaction contemplated by this Agreement closes.
<PAGE>
(iii) SVPC has not received, nor is it aware of,
nor does it have any basis to expect to receive any non-
compliance order, warning letter, investigation, notice of
violation, claim, suit, action, judgment, or administrative
or judicial proceeding pending or threatened against or
involving SVPC, its Business, operations, properties, or
assets, issued by any Governmental Authority or third party
with respect to any Environmental, Health and Safety Laws in
connection with the ownership by SVPC of its properties or
assets or the operation of its Business, which has not been
resolved to the satisfaction of the issuing Governmental
Authority or third party in a manner that would not impose
any obligation, burden or continuing liability on CSI in the
event that the transaction contemplated by this Agreement
closes, or which could have a Material Adverse Effect on the
Purchased Assets, the Business, or SVPC.
(iv) SVPC is in full compliance with, and is not
in breach of or default under any applicable writ, order,
judgment, injunction, governmental communication or decree
issued pursuant to the Environmental, Health and Safety Laws
and no event has occurred or is continuing which, with the
passage of time or the giving of notice or both, would
constitute such non-compliance, breach or default
thereunder, or affect the Business or the Purchased Assets.
(v) SVPC has not generated, manufactured, used,
transported, transferred, stored, handled, treated, spilled,
leaked, dumped, discharged, released or disposed, nor has it
allowed or arranged for any third parties to generate,
manufacture, use, transport, transfer, store, handle, treat,
spill, leak, dump, discharge, release or dispose of,
Hazardous Substances or other waste to or at any location
other than a site lawfully permitted to receive such
Hazardous Substances or other waste for such purposes, nor
has it performed, arranged for or allowed by any method or
procedure such generation, manufacture, use, transportation,
transfer, storage, treatment, spillage, leakage, dumping,
discharge, release or disposal in contravention of any
Environmental, Health and Safety Laws. SVPC has not
generated, manufactured, used, stored, handled, treated,
spilled, leaked, dumped, discharged, released or disposed
of, or allowed or arranged for any third parties to
generate, manufacture, use, store, handle, treat, spill,
leak, dump, discharge, release or dispose of, Hazardous
Substances or other waste upon property currently or
previously owned or leased by it, except as permitted by
law. For purposes of this Agreement, the term "Hazardous
Substances" shall be construed broadly to include any toxic
or hazardous substance, material, or waste, and any other
contaminant, pollutant or constituent thereof, whether
liquid, solid, semi-solid, sludge and/or gaseous, including
without limitation, chemicals, compounds, metals, by-
products, pesticides, asbestos containing materials,
petroleum or petroleum products, and polychlorinated
biphenyls, the presence of which requires investigation or
remediation under any Environmental, Health and Safety Laws
<PAGE>
or which are or become regulated, listed or controlled by,
under or pursuant to any Environmental Health and Safety
Laws, including, without limitation, the United States
Department of Transportation Table (49 CFR 172, 101) or by
the Environmental Protection Agency as hazardous substances
(40 CFR Part 302) and any amendments thereto; the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendment
and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et
seq. (hereinafter collectively "CERCLA"); the Solid Waste
Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and subsequent Hazardous and Solid
Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq.
(hereinafter, collectively "RCRA"); the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Section 1801, et
seq.; the Clean Water Act, as amended, 33 U.S.C. Section
1311, et seq.; the Clean Air Act, as amended (42 U.S.C.
Section 7401-7642); Toxic Substances Control Act, as
amended, 15 U.S.C. Section 2601 et seq.; the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended, 7
U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning
and Community Right-to-Know Act of 1986 as amended, 42
U.S.C. Section 11001, et seq. (Title III of SARA)
("EPCRA"); the Occupational Safety and Health Act of 1970,
as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any
similar state statute, or any future amendments to, or
regulations implementing such statutes, laws, ordinances,
codes, rules, regulations, orders, rulings, or decrees, or
which has been or shall be determined or interpreted at any
time by any Governmental Authority to be a hazardous or
toxic substance regulated under any other statute, law,
regulation, order, code, rule, order, or decree. For
purposes of this Section 4.12, the term "Waste" shall be
construed broadly to include agricultural wastes, biomedical
wastes, biological wastes, bulky wastes, construction and
demolition debris, garbage, household wastes, industrial
solid wastes, liquid wastes, recyclable materials, sludge,
solid wastes, special wastes, used oils, white goods, and
yard trash.
(vi) SVPC has not caused, allowed to be caused, or
permitted, either by action or inaction, a Release or
Discharge, or threatened Release or Discharge, of any
Hazardous Substance on, into or beneath the surface of any
parcel of the Purchased Assets, the Owned Premises or the
Leased Premises or to any properties adjacent thereto.
There has not occurred, nor is there presently occurring, a
Release or Discharge, or threatened Release or Discharge, of
any Hazardous Substance on, into or beneath the surface of
any portion of the Owned Premises or the Leased Premises or
to any properties adjacent thereto. For purposes of this
Section, the terms "release" and "Discharge" shall have the
meanings given them in the Environmental, Health and Safety
Laws.
<PAGE>
(vii) SVPC has not generated, handled,
manufactured, treated, stored, used, shipped, transported,
transferred, or disposed of, nor has it allowed or arranged,
by contract, agreement, or otherwise, for any third parties
to generate, handle, manufacture, treat, store, use, ship,
transport, transfer, or dispose of, any Hazardous Substance
or other Waste to or at a site which, pursuant to CERCLA or
any similar state law:
(A) has been placed on the National Priorities
List or its state equivalent; or
(B) the Environmental Protection Agency or the
relevant state agency has notified that it has proposed
or is proposing to place on the National Priorities
List or its state equivalent. Neither SVPC nor the
Shareholders have received notice, and neither SVPC nor
the Shareholders have knowledge of any facts which
could give rise to any notice, that is a potentially
responsible party for a federal or state environmental
cleanup site or for corrective action under CERCLA,
RCRA or any other applicable Environmental Health and
Safety Laws. SVPC has not submitted nor was
required to submit any notice pursuant to Section
103(c) of CERCLA with respect to the Leased Premises,
the Owned Premises or the Purchased Assets. SVPC has
not received any written or oral request for
information in connection with any federal or state
environmental cleanup site, or in connection with any
of the real property or premises where SVPC has
transported, transferred or disposed of other Wastes.
SVPC has not been required to and has not undertaken
any response or remedial actions or cleanup actions of
any kind at the request of any Governmental Authorities
or at the request of any other third party. SVPC has no
liability under any Environmental, Health and Safety
Laws for personal injury, property damage, natural
resource damage, or cleanup obligations.
(viii) SVPC does not use, nor has it used, any
Aboveground Storage Tanks or Underground Storage Tanks, and
there are not now nor, to the best of its Knowledge and
belief, have there ever been any Aboveground Storage Tanks,
and/or Underground Storage Tanks in, on or under the Owned
Premises and Leased Premises. For purposes of this Section
4.12, the terms "Aboveground Storage Tanks" and "Underground
Storage Tanks" shall have the meanings given them in Section
6901 et seq., as amended, of RCRA, or any applicable state
or local statute, law, ordinance, code, rule, regulation,
order ruling, or decree governing Aboveground Storage Tanks
or Underground Storage Tanks.
(ix) Schedule 4.12 identifies, regardless of their
materiality:
<PAGE>
(A) all environmental audits, assessments or
occupational health studies undertaken by SVPC or its
respective agents, or by the Shareholders, or by any
Governmental Authority, or by any third party, relating
to or affecting SVPC or any of the Leased Premises, the
Owned Premises or the Purchased Assets;
(B) the results of any ground, water, soil, air
or asbestos monitoring undertaken by SVPC or its
agents, or by the Shareholders, or by any Governmental
Authority, or by any third party, relating to or
affecting SVPC or any of the Leased Premises, the Owned
Premises, or the Purchased Assets;
(C) all written communications between SVPC and
any Governmental Authority arising under or related to
Environmental, Health and Safety Laws; and
(D) all citations issued under OSHA, or similar
state or local statutes, laws, ordinances, codes,
rules, regulations, orders, rulings, or decrees,
relating to or affecting SVPC or any of the Leased
Premises, the Owned Premises or the Purchased Assets.
(x) Schedule 4.12 contains a recent survey, including
recommendations for management, of "friable asbestos" (as
such term is identified under the Environmental, Health and
Safety Laws) present on the Owned Premises and Leased
Premises. The recommendations have been fully implemented
as of the date of this Agreement. SVPC has operated and
continues to operate in compliance with all Environmental,
Health and Safety Laws governing the handling, use and
exposure to and disposal of asbestos or asbestos-containing
materials. There are no claims, actions, suits,
governmental investigations or proceedings before any
Governmental Authority or third party pending, or
threatened against or directly affecting SVPC, or any of
its assets or operations relating to the use, handling, or
exposure to and disposal of asbestos or asbestos-containing
materials in connection with its assets and operations.
<PAGE>
(xi) As used in this Agreement, "Environmental,
Health and Safety Laws" means all federal, state, regional
or local statutes, laws, rules, regulations, codes, orders,
plans, injunctions, decrees, rulings, and changes or
ordinances or judicial or administrative interpretations
thereof, whether currently in existence or hereafter
enacted or promulgated, any of which govern (or purport to
govern) or relate to pollution, protection of the
environment, public health and safety, air emissions, water
discharges, hazardous or toxic substances, solid or
hazardous waste or occupational health and safety, as any
of these terms are or may be defined in such statutes,
laws, rules, regulations, codes, orders, plans,
injunctions, decrees, rulings and changes or ordinances, or
judicial or administrative interpretations thereof,
including, without limitation, RCRA, CERCLA, the Hazardous
Materials Transportation Act, the Toxic Substances Control
Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA
and OSHA, as any of them may be or have been amended from
time to time, together with all regulations promulgated
thereunder. In the event any Environmental, Health and
Safety Law is amended to broaden the meaning of any term
defined thereby, such broader meaning shall apply
subsequent to the effective date of such amendment.
(xii) Schedule 4.12 identifies the operations and
activities, and locations thereof, which have been conducted
and are being conducted by SVPC on any of the Purchased
Assets, the Owned Premises, or the Leased Premises which
have involved the generation, accumulation, storage,
treatment, transportation, labeling, handling,
manufacturing, use, spilling, leaking, dumping, discharging,
release, or disposal of Hazardous Substances.
(xiii) Schedule 4.12 identifies the locations to
which SVPC has transferred, transported, hauled, moved, or
disposed of Waste over the past five years and the types and
volumes of Waste transferred, transported, hauled, moved, or
disposed of to each such location.
(xiv) None of the Purchased Assets, the Owned
Premises, or Leased Premises presently includes, or has been
constructed upon, any "wetlands" as defined under applicable
Environmental, Health and Safety Laws.
<PAGE>
(xv) Schedule 4.12 identifies all Material:
(A) Remediation of any and all Hazardous
Substances Discharged or Released from the operations
of the Business and any other investigative, clean-up,
and corrective actions, and the planning thereof,
including without limitation, corrective, remedial or
removal actions, and pre- or post-remediation
monitoring, conducted with respect to any Environmental
Condition ("REMEDIAL ACTION"); or
(B) Claims, citations, notices of violation or
similar notices, actions, suits, orders, governmental
investigations or proceedings, whether administrative
or judicial and whether civil or criminal, alleging
the violation of any Environmental, Health or Safety
Laws ("LEGAL ACTION").
For purposes of this Section 4.12(xv), the term "MATERIAL"
when applied to a Remedial Action shall mean:
(A) any Remedial Action (excluding attorneys
fees) undertaken as a result of any Legal Action, and
for which the potential costs have exceeded or could
reasonably be expected to exceed $10,000; and
(B) any Remedial Action not undertaken as a
result of any Legal Action, and for which the potential
costs have exceeded or could reasonably be expected to
exceed $10,000.
For purposes of this Section 4.12(o), the term "MATERIAL"
when applied to a Legal Action shall mean:
(A) any Legal Action to which any Governmental
Authority is a party, and for which the potential
liability to SVPC or the Shareholders collectively has
exceeded or could reasonably be expected to exceed
$10,000; and
(B) any Legal Action to which any Governmental
Authority is not a party, and for which the potential
liability to SVPC or the Shareholders (excluding
attorneys fees) collectively has exceeded or could
reasonably be expected to exceed $10,000.
(xvi) During the previous five (5) years:
(A) no employees, agents or independent
contractors of SVPC have died or sustained severe
personal injuries on the Owned Premises or Leased
Premises or in the course of their employment or
engagement by SVPC; and
(B) Neither SVPC nor any of its properties has
been the subject of fines, penalties or charges issued
or assessed by OSHA in excess of $5,000.
<PAGE>
4.13 Real Estate.
(a) SVPC owns the real property set forth on Schedule
4.13(a), which Schedule sets forth the location and size of and
principal improvements and buildings on the Owned Premises.
(b) Schedule 4.13(b) sets forth a list of all leases,
licenses, or similar agreements with respect to interests in real
estate (the "LEASES") to which SVPC is a party (copies of which have
previously been furnished to CSI), in each case setting forth:
(i) the lessor and lessee thereof and the date and
term of each of the Leases;
(ii) the legal description or street address of
each property covered thereby; and
(iii) a brief description (including size and
function) of the principal improvements and buildings
thereon (the ALEASED PREMISES"), all of which are within the
property set-back and building lines of the respective
property. The Leases are in full force and effect and have
not been amended, except as set forth on Schedule 4.13(b),
and no party thereto is in default or breach under any such
Lease. No event has occurred that, with the passage of time
or the giving of notice or both, would cause a material
breach of or default under any of such Leases. To the best
knowledge of SVPC and the Shareholders, there is no breach
or anticipated breach by any other party to such Leases.
Except as set forth on Schedule 4.13(b), with respect to
each such Leased Premises:
(A) SVPC has valid leasehold interests in the
Leased Premises leased by it, which leasehold interests are free and
clear of any Liens, covenants, easements, or title defects of any
nature whatsoever;
(B) the portions of the buildings located on the
Leased Premises that are used in the Business of SVPC are in good
repair and condition, normal wear and tear excepted, and are in the
aggregate sufficient to satisfy SVPC's current and reasonably
anticipated normal business activities as conducted thereat;
(C) each of the Leased Premises:
(1) has direct access to public roads or
access to public roads by means of a perpetual access easement, such
access being sufficient to satisfy the current and reasonably
anticipated normal transportation requirements of SVPC's Business as
presently conducted at such parcel; and
(2) is served by all utilities in such
quantity and quality as are sufficient to satisfy the current normal
business activities as conducted at such parcel; and
<PAGE>
(3) SVPC has not received notice of:
(a) any condemnation proceeding with
respect to any portion of the Leased Premises or any access thereto,
and to the best knowledge of SVPC and the Shareholders, no such
proceeding is contemplated by any Governmental Authority; or
(b) any special assessment which may
affect any of the Leased Premises and to the best knowledge of SVPC
and the Shareholders, no such special assessment is contemplated by
any Governmental Authority.
(c) all of the Purchased Assets are
located on the Owned Premises, the Leased Premises, or the other
locations identified on Schedule 4.13(c).
4.14 Good Title to, Condition of, and Adequacy of Purchased
Assets.
(a) Except as set forth on Schedule 4.14, SVPC has good and
marketable title to all of the Purchased Assets, free and clear of any
Liens (other than Permitted Liens) or restrictions on use.
(b) The Purchased Assets are in good operating condition,
normal wear and tear excepted, and have been maintained in accordance
with sound industry practices.
(c) The Purchased Assets constitute all of the assets and
properties necessary for the conduct of the Business of SVPC in the
manner in which and to the extent to which such Business is currently
being conducted.
4.15 Compliance with Laws.
(a) Except as set forth in Schedule 4.12 or Schedule 4.15,
SVPC is and has been in compliance in all material respects with all
laws, regulations, and orders applicable to it, its respective
Business and operations (as conducted by it now and in the past), and
the Purchased Assets. Except as set forth on Schedule 4.12 or
Schedule 4.15, SVPC has not been cited, fined, or otherwise notified
of any asserted past or present failure to comply with any laws,
regulations or orders which have not been permanently cured and no
proceeding with respect to any such violation is pending or
threatened.
(b) SVPC has not made any payment of funds in connection
with its Business that is prohibited by law, and no funds have been
set aside to be used in connection with its Business for any payment
prohibited by law.
(c) SVPC is not subject to any Contract, decree or
injunction which restricts the continued operation of any Business or
the expansion thereof to other geographical areas, customers and
suppliers, or lines of Business.
<PAGE>
4.16 Labor and Employment Matters. Schedule 4.16 sets forth
the name, address, social security number and current rate of
compensation (base salary and bonus and/or commission) of each of the
employees of SVPC as of July 31, 1998 and his or her relationship, if
any, to any director, employee or officer of SVPC. Except as set
forth in Schedule 4.16, SVPC is not a party to or bound by any
collective bargaining agreement or any other agreement with a labor
union, and there have been no efforts by any labor union during the
twenty-four (24) months prior to the date hereof to organize any
employees of SVPC into one or more collective bargaining units. There
is no pending or threatened labor dispute, strike or work stoppage
that affects or that may affect the Business of SVPC or which may
interfere with its respective continued operations. SVPC has not
within the last twenty-four (24) months committed any unfair labor
practice as defined in the National Labor Relations Act, as amended,
and there is no pending or threatened charge or complaint against by
or with the National Labor Relations Board or any representative
thereof. There has been no strike, walkout, or work stoppage
involving any of the employees of SVPC during the twenty-four (24)
months prior to the date hereof. The Shareholders are not aware that
any executive or employee or group of employees has any plans to
terminate his, her, or their employment with SVPC as a result of this
Agreement or otherwise. Schedule 4.16 contains detailed information
about each contract, agreement or plan of the following nature,
whether formal or informal, and whether or not in writing, to which
SVPC is a party or under which it has an obligation:
(a) employment agreements;
(b) employee handbooks, policy statements and similar
plans;
(c) noncompetition agreements; and
(d) consulting agreements.
None of the parties to any of the contracts or agreements
listed on Schedule 4.16 is an Affiliate of a Shareholder, SVPC, or any
of their respective directors, employees, officers, relatives or
Affiliates, except by reason of the contract or agreement listed on
Schedule 4.16. SVPC has complied with applicable laws, rules, and
regulations relating to employment, civil rights and equal employment
opportunities, including but not limited to, the Civil Rights Act of
1964, the Fair Labor Standards Act and the Worker Adjustment and
Retraining Notification Act of 1988.
<PAGE>
4.17 Employee Benefit Plans.
(a) Employee Benefit Plans. Schedule 4.17 contains a list
setting forth each employee benefit plan or arrangement of SVPC,
including, but not limited to, employee pension benefit plans, as
defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), employee welfare benefit plans, as
defined in Section 3(1) of ERISA, deferred compensation plans, stock
option plans, Section 125 Premium Only Plan, bonus plans, stock
purchase plans, hospitalization, disability and other insurance plans,
severance or termination pay plans and policies, whether or not
described in Section 3(3) of ERISA, in which employees, their spouses
or dependents, of SVPC participate (the "EMPLOYEE BENEFIT PLANS")
(true and accurate copies of which, together with the most recent
annual reports on Form 5500 and summary plan descriptions with respect
thereto, were provided to CSI).
(b) Compliance with Law. With respect to each Employee
Benefit Plan:
(i) each has been administered in all material
respects in compliance with its terms and with all applicable laws,
including, but not limited to, ERISA and the Internal Revenue Code of
1986, as amended (the "CODE");
(ii) no actions, suits, claims or disputes are pending
or threatened;
(iii) no audits, inquiries, reviews, proceedings,
claims, or demands are pending with any governmental or regulatory
agency;
(iv) there are no facts which could give rise to
any material liability in the event of any such investigation, claim,
action, suit, audit, review, or other proceeding;
(v) all reports, returns, and similar documents
required to be filed with any governmental agency or distributed
to any plan participant have been duly or timely filed or distributed;
and
(vi) no "prohibited transaction" has occurred
within the meaning of the applicable provisions of ERISA or the Code.
(c) Qualified Plans. With respect to each Employee Benefit
Plan intended to qualify under Code Section 401(a):
(i) the Internal Revenue Service has issued a
favorable determination letter, true and correct copies of which have
been furnished to CSI, that such plans are qualified and exempt from
federal income taxes;
<PAGE>
(ii) no such determination letter has been revoked
nor has revocation been threatened, nor has any amendment or other
action or omission occurred with respect to any such plan since the
date of its most recent determination letter or application therefor
in any respect which would adversely affect its qualification or
materially increase its costs;
(iii) no such plan has been amended in a manner
that would require security to be provided in accordance with Section
401(a)(29) of the Code;
(iv) no reportable event (within the meaning of
Section 4043 of ERISA) has occurred, other than one for which the
thirty (30) day notice requirement has been waived; and
(v) as of the Effective Time, the present value of all
liabilities that would be "benefit liabilities" under Section
4001(a)(16) of ERISA if benefits described in Code Section
411(d)(6)(B) were included will not exceed the then current fair
market value of the assets of such plan (determined using the
actuarial assumptions used for the most recent actuarial valuation for
such plan);
(vi) except as disclosed on Schedule 4.17, all
contributions to, and payments from and with respect to such plans,
which may have been required to be made in accordance with such plans
and, when applicable, Section 302 of ERISA or Section 412 of the Code,
have been timely made;
(vii) all such contributions to the plans, and all
payments under the plans (except those to be made from a trust
qualified under Section 401(a) of the Code) and all payments with
respect to the plans (including, without limitation, PBGC and
insurance premiums) for any period ending before the Closing Date that
are not yet, but will be, required to be made are properly accrued and
reflected on the Current Balance Sheet or are disclosed on Schedule
4.17.
(d) Welfare Plans. Other than as disclosed in Schedule
4.17:
(i) SVPC is not obligated under any employee welfare
benefit plan as described in Section 3(1) of ERISA ("WELFARE PLAN"),
whether or not disclosed in Schedule 4.17, to provide medical or death
benefits with respect to any employee or former employee of SVPC or
its predecessors after termination of employment;
(ii) SVPC has complied in all material respects
with the notice and continuation coverage requirements of Section
4980B of the Code and the regulations thereunder with respect to each
Welfare Plan that is, or was during any taxable year for which the
statute of limitations on the assessment of federal income taxes
remains, open, by consent or otherwise, a group health plan within the
meaning of Section 5000(b)(1) of the Code; and
<PAGE>
(iii) there are no reserves, assets, surplus or
prepaid premiums under any Welfare Plan which is an Employee Benefit
Plan. The consummation of the transactions contemplated by this
Agreement will not entitle any individual to severance pay, and, will
not accelerate the time of payment or vesting, or increase the amount
of compensation, due to any individual.
(e) Other Liabilities. Except as set forth on Schedule
4.17:
(i) none of the Employee Benefit Plans obligates SVPC
to pay separation, severance, termination, or similar benefits solely
as a result of any transaction contemplated by this Agreement;
(ii) all required or discretionary (in accordance with
historical practices) payments, premiums, contributions,
reimbursements, or accruals for all periods ending prior to or as of
the Effective Date shall have been made or properly accrued on the
Current Balance Sheet; and
(iii) none of the Employee Benefit Plans has any
unfunded liabilities which are not reflected on the Current Balance
Sheet or the books and records of SVPC.
4.18 Tax Matters. Except as set forth in Schedule 4.18 hereto,
all Tax returns required to be filed prior to the date hereof with
respect to SVPC or any of its respective income, properties,
franchises, or operations have been filed, each such Tax Return has
been prepared in compliance with all applicable laws and regulations,
and all such Tax Returns are true, complete, and accurate in all
respects. All Taxes due and payable by or with respect to SVPC have
been paid or accrued on the Current Balance Sheet or will be accrued
on its books and records as of the Closing. Except as set forth in
Schedule 4.18 hereto:
(a) with respect to each taxable period of SVPC, no taxable
period has been audited by the relevant taxing authority;
(b) no deficiency or proposed adjustment that has not been
settled or otherwise resolved for any amount of Taxes has been
asserted or assessed by any taxing authority against SVPC;
(c) SVPC has not consented to extend the time in which any
Taxes may be assessed or collected by any taxing authority;
(d) SVPC has not requested or been granted an extension of
the time for filing any Tax Return to a date later than the Closing
Date;
(e) there is no action, suit, taxing authority proceeding,
audit or claim for refund now in progress, pending, or threatened
against or with respect to SVPC regarding Taxes;
(f) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of SVPC;
(g) SVPC will not be required:
<PAGE>
(i) as a result of a change in method of accounting
for a taxable period ending on or prior to the Closing Date, to
include any adjustment under section 481(c) of the Code (or any
corresponding provision of state, local or foreign law) in taxable
income for any taxable period (or portion thereof) beginning after the
Closing Date; or
(ii) as a result of any "Closing Agreement,"as
described in Section 7121 of the Code (or any corresponding provision
of state, local, or foreign law), to include any item of income or
exclude any item of deduction from any taxable period (or portion
thereof) beginning after the Closing Date;
(h) SVPC is not a party to or bound by any tax allocation
or tax sharing agreement or has any current or potential contractual
obligation to indemnify any other Person with respect to Taxes;
(i) there is no basis for any assessment, deficiency
notice, thirty (30) day letter, or similar notice with respect to any
Tax to be issued to SVPC with respect to any period on or before the
Closing Date;
(j) true, correct and complete copies of all income and
sales Tax Returns filed by or with respect to SVPC for the past two
(2) years have been provided or made available to CSI;
(k) SVPC will not be subject to any Taxes, other than the
state income tax for the period ending at the Closing Date for any
period for which a Tax Return has not been filed pursuant to Section
1374 or Section 1375 of the Code (or any corresponding provision of
state, local or foreign law); and
(l) no sales or use tax or property transfer tax (other
than use tax on assets purchased), non-recurring intangibles tax,
documentary stamp tax, or other excise tax (or comparable tax imposed
by any Governmental Authority) will be payable by SVPC or CSI by
virtue of the transactions contemplated in this Agreement.
4.19 Insurance. SVPC is covered by valid, outstanding, and
enforceable policies of insurance issued to it by reputable insurers
covering its properties, assets, and business against risks of the
nature normally insured against by businesses in the same or similar
lines of business and in coverage amounts typically and reasonably
carried by such businesses (the "INSURANCE POLICIES"). Such Insurance
Policies are in full force and effect (to the Closing Date only), all
premiums due thereon have been paid, and SVPC has complied with the
provisions of such Insurance Policies. Schedule 4.19 contains:
(a) a complete and correct list of all Insurance Policies
and all amendments and riders thereto (copies of which have been
provided to CSI); and
(b) a detailed description of each pending claim under any
of the Insurance Policies for an amount in excess of $5,000 that
relates to loss or damage to the properties, assets, or Business of
SVPC. SVPC has not failed to give, in a timely manner, any notice
required under any of the Insurance Policies to preserve its rights
thereunder.
<PAGE>
4.20 Receivables. All of the Receivables are valid and
legally binding, represent bona fide transactions and arose in the
Ordinary Course of Business of SVPC. All of the Receivables are good
and collectible receivables, without set-off or counterclaims. Except
as set forth in Section 6.6 (b) hereof, SVPC and the Shareholders
hereby absolutely and unconditionally guarantee and agree to be a
surety for the full and prompt payment to Buyer, no later than ninety
(90) days following the Closing, of all amounts owing under each of
the Receivables included in the Purchased Assets, as more fully
identified and described on Schedule 4.20. SVPC and the Shareholders
acknowledge that any failure to perform this guaranty obligation shall
constitute a breach of this Agreement and shall entitle the Buyer to
recover Indemnifiable Damages. SVPC and the Shareholders agree:
(a) to pay to Buyer, upon demand, all amounts owing under
any Receivables identified on Schedule 4.20 which have not been paid
by the applicable account debtor within ninety (90) days following the
Closing; and
(b) to promptly pay to Buyer any amount they may receive
and/or collect under any Receivables identified on Schedule 4.20,
except for those Receivables purchased from Buyer under Section (a)
above.
4.21 Licenses and Permits. SVPC possesses all environmental
licenses and permits and all other licenses and required governmental
or official approvals, permits or authorizations (collectively, the
"PERMITS") for its Business and operations, including the operation of
the Owned Premises and the Leased Premises, which Permits are listed
on Schedule 4.21. All such Permits are valid and in full force and
effect, SVPC is in full compliance with the requirements thereof, and
no proceeding is pending or threatened to revoke or amend any of them.
Schedule 4.21 specifies all Permits which must be obtained by SVPC in
order for SVPC to own the Purchased Assets and operate the Business of
SVPC consistent with past practice (the "NEW PERMITS"). Except for
the new Permits, none of the Permits is or will be impaired or in any
way affect the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby and are freely
transferable to SVPC and will be transferred to SVPC at Closing.
4.22 Relationships with Customers and Suppliers; Affiliated
Transactions. No current supplier to SVPC of any items essential to
the conduct of its Business has threatened to terminate its respective
business relationship with it for any reason. Except as set forth on
Schedule 4.22, none of SVPC or the Shareholders have any direct or
indirect interest in any customer, supplier, or competitor of SVPC, or
in any person from whom or to whom leases real or personal property.
Except as set forth on Schedule 4.22, no officer, director, or
shareholder of, nor any person related by blood or marriage to any
such person, nor any entity in which any such person owns any
beneficial interest, is a party to any Contract or transaction with
SVPC or has any interest in any property used by SVPC.
<PAGE>
4.23 Intellectual Property. Schedule 4.23 sets forth a list of
all trademarks, service marks, trade names, copyrights, know-how,
patents, trade secrets, licenses (including licenses for the use of
computer software programs), all rights in mask works and other
intellectual property used in the conduct of SVPC's Business (the
"INTELLECTUAL PROPERTY") and all such rights, titles and interests
shall be transferred to SVPC at Closing, free and clear of any liens
or restrictions. SVPC has full legal right, title, and interest in
and to all Intellectual Property used in its Business. The conduct of
the Business of SVPC as presently conducted, and the unrestricted
conduct and the unrestricted use and exploitation of the Intellectual
Property, does not infringe or misappropriate any rights held or
asserted by any Person, and no Person is infringing on the
Intellectual property. No payments are required for the continued use
of the Intellectual Property, except as set forth in Schedule 4.23.
None of the Intellectual Property has ever been declared invalid or
unenforceable, or is the subject of any pending or threatened action
for opposition, cancellation, declaration, infringement, or
invalidity, unenforceability or misappropriation or like claim, action
or proceeding. Except as set forth in Part 3.22(c) of the Disclosure
Letter, all former and current employees of each Acquired Company have
executed written Contracts with one or more of the Acquired Companies
that assign to one or more of the Acquired Companies all rights to any
inventions, improvements, discoveries, or information relating to the
business of any Acquired Company. No employee of any Acquired Company
has entered into any Contract that restricts or limits in any way the
scope or type of work in which the employee may be engaged or requires
the employee to transfer, assign, or disclose information concerning
his work to anyone other than one or more of the Acquired Companies.
4.24 Contracts. Schedule 4.24 sets forth a list of each Contract
to which SVPC is a party or by which its properties or assets are
bound and which is material to its Business, assets, properties or
prospects (the "PURCHASED CONTRACTS"), true and correct copies of
which have been provided to CSI. The copy of each Purchased Contract
provided to CSI is a true and complete copy of the document it
purports to represent and reflects all amendments thereto made through
the date of this Agreement. Except as set forth on Schedule 4.24,
SVPC has not violated any of the material terms or conditions of any
Purchased Contract or any term or condition which would permit
termination or material modification of any Purchased Contract, and
all of the covenants to be performed by any other party thereto have
been fully performed and there are no claims for breach or
indemnification or notice of default or termination under any
Purchased Contract. Except as set forth on Schedule 4.24, no event
has occurred which constitutes, or after notice or the passage of
time, or both, would constitute, a material default by SVPC under any
Purchased Contract, and to the best knowledge of SVPC and the
Shareholders, no such event has occurred which constitutes or would
constitute a material default by any other party. Except as set forth
in Schedule 4.24, all Purchased Contracts are freely assignable to
SVPC without notice to or the consent of any third party and, SVPC is
not subject to any liability or payment resulting from renegotiation
of amounts paid it under any Purchased Contract. As used in this
Section, Purchased Contracts shall include, without limitation:
<PAGE>
(a) loan agreements, indentures, mortgages, pledges,
hypothecations, deeds of trust, conditional sale or title retention
agreements, security agreements, equipment financing obligations or
guaranties, or other sources of contingent liability in respect of any
indebtedness or obligations to any other person, or letters of intent
or commitment letters with respect to same;
(b) contracts obligating SVPC to purchase or sell products
or services;
(c) leases of real property, and leases of personal
property not cancelable without penalty on notice of sixty (60) days
or less or calling for payment of an annual gross rental exceeding
$10,000.00;
(d) distribution, sales agency, or franchise or similar
agreements, or agreements providing for an independent contractor's
services, or letters of intent with respect to same;
(e) employment agreements, management service agreements,
consulting agreements, confidentiality agreements, noncompetition
agreements, and any other agreements relating to any employee, officer
or director of SVPC;
(f) licenses, assignments or transfers of trademarks, trade
names, service marks, patents, copyrights, trade secrets, or know how,
or other agreements regarding proprietary rights or intellectual
property;
(g) any Contract relating to pending capital expenditures
by SVPC; and
(h) other material Contracts or understandings,
irrespective of subject matter and whether in writing, not entered
into in the Ordinary Course of Business by SVPC and not otherwise
disclosed on the Schedules.
4.25 Accuracy of Information Furnished to CSI. No
representation, statement, or information made or furnished by the
Shareholders or SVPC to CSI or any of CSI's representatives, including
those contained in this Agreement and the various Schedules attached
hereto and the other information and statements referred to herein and
previously furnished by SVPC or the Shareholders, contains or shall
contain any untrue statement of a material fact or omits any material
fact necessary to make the information contained therein not
misleading; provided, however, that SVPC and the Shareholders make no
representations or warranties as to the accuracy or completeness of
the documents listed on Schedule 4.25, which have been prepared by
persons other than SVPC or the Shareholders, or their representatives.
The Shareholders and SVPC have provided CSI with true, accurate, and
complete copies of all documents listed or described in the various
Schedules attached hereto.
<PAGE>
4.26 Business Locations. Except for the Owned Premises, and the
Leased Premises, as of the date hereof, SVPC has no office or place of
business other than as identified on Schedules 4.13(b) and 4.13(c) and
all locations where the equipment, inventory, chattel paper, and books
and records of SVPC are located as of the date hereof are fully
identified on Schedules 4.13(b) and 4.13(c).
4.27 Names; Prior Acquisitions. All names under which SVPC does
business as of the date hereof are specified on Schedule 4.27. Except
as set forth on Schedule 4.27, SVPC has not changed its name or used
any assumed or fictitious name, nor been the surviving entity in a
merger, acquired any business, nor changed its principal place of
business or chief executive office within the past five (5) years.
4.28 No Commissions. Except as specified on Schedule 4.28,
neither SVPC nor the Shareholders have incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar
compensation in connection with the transactions contemplated hereby.
4.29 Inventory. All Purchased Assets that consist of
Inventory (including raw materials and work-in-progress):
(a) were acquired in the Ordinary Course of Business
consistent with past practice;
(b) are of a quality, quantity, and condition useable or
saleable in the Ordinary Course of Business within SVPC's normal
inventory turnover experience; and
(c) are valued at the lower of cost or net realizable
market value. SVPC has no material liability with respect to the
return or repurchase of any goods in the possession of any customer.
4.30 Product Warranty. Except for product returned for repair or
replacement in the Ordinary Course of Business, SVPC has no liability
or obligation (and there is no basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, or demand
against any of them giving rise to any liability or obligation) for
replacement or repair thereof or other damages in connection
therewith. No product sold, manufactured, or delivered by SVPC is
subject to any guaranty, warranty, or other indemnity other than the
obligation to repair or replace defective product prior to customers
"loading" or "populating" the circuit board (as those terms are
customarily used in the industry).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to the Shareholders and SVPC to
enter into this Agreement and to consummate the transactions
contemplated hereby, each of CSI and SVCS make the following
representations and warranties to the Shareholders and SVPC:
<PAGE>
5.1 Corporate Status. Each of CSI and SVCS is a corporation
duly organized, validly existing, and in good standing under the laws
of the State of Illinois and California, respectively.
5.2 Corporate Power and Authority. Each of CSI and SVCS has, or
at the time Closing will have, the corporate power and authority to
execute and deliver this Agreement, to perform its respective
obligations hereunder, and consummate the transactions contemplated
hereby. CSI and SVCS have or will have taken at or prior to Closing
all action necessary to authorize the execution and delivery of this
Agreement, the performance of their respective obligations hereunder
and the consummation of the transactions contemplated hereby. The
execution and delivery of this Agreement by CSI and SVCS, the
performance by them of their respective obligations hereunder, and the
consummation by them of the transactions contemplated by this
Agreement will not:
(a) contravene any provision of the Articles of
Incorporation or Bylaws of either of them;
(b) in any material respect violate or conflict with any
law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment, or order of any Governmental Authority or of any arbitration
award which is either applicable to, binding upon, or enforceable
against either of them;
(c) conflict with, result in breach of, or constitute a
default (or any event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or give rise to
a right to terminate, amend, modify, abandon or accelerate any
material Contract;
(d) result in or require the creation or imposition of any
lien upon or with respect to any property or assets of CSI or SVCS; or
(e) require the consent, approval, authorization, or permit
of, or filing with or notification to, any Governmental Authority, any
court or tribunal, or any other Person, except any SEC and other
securities or exchange filings required to be made by CSI following
the Closing Date.
5.3 Enforceability. Each of this Agreement and the Other
Agreements has been, or will have been at the time of Closing, duly
executed and delivered by each of CSI and SVCS and constitutes or will
constitute a legal, valid and binding obligation of each of CSI and
SVCS, enforceable against each of CSI and SVCS in accordance with
their respective terms.
5.4 No Commissions. Neither CSI nor SVCS has incurred any
obligation for any finder's or broker's or agent's fees or commissions
or similar compensation in connection with the transactions
contemplated hereby.
<PAGE>
5.5 Financial Information. CSI has filed with the Securities
and Exchange Commission all required reports, including, but not
limited to, its Annual Report on Form 10-K for the year ended April
30, 1998, and its quarterly report on Form 10-Q for the quarter ended
July 31, 1998 (the "SEC Documents"). The SEC Documents, as of the
date of the filing thereof with the Commission, conformed in all
material respects with the requirements of the Exchange Act, and the
rules and regulations thereunder and, as of the date of such filing
or, if such SEC Document was subsequently amended, as of the date of
the filing of any amendment thereto with the Commission, such SEC
Document did not contain an untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
5.6 Capitalization. The authorized capital stock of CSI
consists of 20,000,000 shares of Common Stock. As of the date hereof,
approximately 4,200,000 shares of Common Stock are validly issued and
outstanding, fully paid and non-assessable. All issued and
outstanding shares of capital stock of SVPC are owned beneficially and
of record by CSI.
5.7 New Permits. There are no facts known to CSI or SVCS that
will materially and adversely affect their eligibility for the
transfer or re-issuance of any New Permits.
5.8 Waiver of Bulk Sales Compliance. In reliance on SVPC's and
Shareholders' representations and warranties and indemnification with
respect thereto as provided in Article VI hereof, Buyer waives and
shall not require compliance with applicable laws relating to or
affecting bulk transfers and sales.
5.9 Reliance on Information Furnished. Each of CSI and SVCS has
not relied upon any statement in representations of SVPC or the
Shareholders, employees, consultants and authorized agents other than
as contained in the representation and warranties contained in this
Agreement. Further, each of CSI and SVCS acknowledge that SVPC's
finders have not been authorized to make any representation on behalf
of SVPC and CSI and SVCS have not relied upon any representations of
SVPC's finders.
<PAGE>
ARTICLE VI
INDEMNIFICATION
6.1 Agreement by SVPC and the Shareholders to Indemnify. SVPC
and the Shareholders agree, jointly and severally, to indemnify,
defend and hold Buyer harmless from and against the aggregate of all
Buyer Indemnifiable Damages (as defined below); provided, however,
that the aggregate indemnification liability of SVPC and the
Shareholders collectively shall not exceed the Purchase Price (plus
any costs of collection). The right to indemnification, payment of
Damages or other remedy based on such representations, warranties,
covenants, and obligations will not be affected by any investigation
conducted with respect to, or any Knowledge acquired (or capable of
being acquired) at any time, whether before or after the execution and
delivery of this Agreement or the Closing Date, jointly and severally,
or diminution of value.
(a) For purposes of this Agreement, "BUYER INDEMNIFIABLE
DAMAGES" means, without limitation, the aggregate of all expenses,
losses, costs, claims, diminution in value, deficiencies, liabilities
and damages (including, without limitation as to type of expense,
related counsel and paralegal fees and expenses) incurred or suffered
by Buyer, to the extent:
(i) resulting from any material breach of a
representation or warranty made by SVPC or the Shareholders in or
pursuant to this Agreement;
(ii) resulting from any breach of the covenants or
agreements made by SVPC or the Shareholders pursuant to this
Agreement;
(iii) resulting from any inaccuracy in any
certificate or environmental report (except those listed in Schedule
4.25) delivered by SVPC or the Shareholders pursuant to this
Agreement;
(iv) resulting from any Excluded Liabilities;
(v) resulting from any remediation, cleanup, or other
actions required by applicable law, regulation, rule, or
ordinance or by this Agreement to be taken by SVPC or the
Shareholders to ensure that the Owned Premises and the
Leased Premises are in compliance or are made to comply with
all Environmental, Health and Safety Laws, or resulting from
any failure to act or omission, with respect to any
Environmental, Health and Safety Laws, including, without
limitation, any and all financial and legal liabilities
associated with any future subsurface investigations and
soil and/or groundwater remediation activities on the Owned
Premises and the Leased Premises, any private or public suit
that may be brought as a result of real or alleged public
health and/or environmental exposures caused by soil or
groundwater contamination on the Owned Premises and the
Leased Premises, and any private or public suit that may be
brought as a result of real or alleged public health and/or
<PAGE>
environmental exposures caused by any soil or groundwater
contamination on or under the Owned Premises or the Leased
Premises that was a result of a release or releases of
Hazardous Substances or Wastes on or under the soils or
groundwater Owned Premises and the Leased Premises prior to
SVCS's ownership and occupancy of the Owned Premises and the
Leased Premises (the "CLEANUP LIABILITY"). Notwithstanding
the foregoing, it is the intention of SVPC and Sharheolders,
on the one hand, and Buyer, on the other hand, that the
liability of SVPC and/or the Shareholders is expressly
limited as set forth in this paragraph. To the extent any
future subsurface investigation and soil and/or groundwater
monitoring/testing reveals real or alleged public health or
environmental exposures caused by any soil or groundwater
contamination, other than or in combination with, the
trichloroethene, 1,1-dichloroethene and 1,1,1-
trichloroethane identified in the GEI Assessments ("GEI
Substances"), on or under the Owned Premises or the Leased
Premises, then in said event, Buyer acknowledges that SVPC
and/or the Shareholders will not be responsible for any
financial and legal liabilities associated with any non-GEI
Substances except for any non-GEI substances of which SVPC
and/or the Shareholders had Knowledge prior to closing. In
any investigation involving a combination of GEI and non-GEI
Substances, the parties agree to reasonably and in good
faith apportion on a pro-rata basis all related financial
and legal liabilities, taking into account all facts,
circumstances, levels and concentrations of substances in
comparison to state reported action levels, the particular
focus of any state administrative clean-up order and all
other reasonably associated factors;
(vi) resulting from any default or failure to pay by
the account debtors with respect to any of the Receivables
identified on Schedule 4.20;
(vii) resulting from repair or replacement of
defective product manufactured, sold and delivered by SVPC
prior to the Closing Date; or
(viii) resulting from any fact, condition, event,
act, omission, or other matter whose occurrence or failure
to occur would have constituted a breach of a representation
or warranty made by SVPC or the Shareholders in or pursuant
to this Agreement were not that representation or warranty
qualified by the words "to the best knowledge of SVPC and/or
the Shareholders" or other words of similar import.
(b) Each of the representations and warranties made by the
Shareholders and SVPC in this Agreement or pursuant hereto shall
survive for a period of twenty-four (24) months after the Closing
Date, except as follows:
<PAGE>
(i) the representations and warranties of the
Shareholders to the extent relating to tax attributes or liabilities
with respect to Taxes of SVPC, shall expire at the time the period of
limitations (including any extensions thereof pursuant to the delivery
of waivers of the applicable period of limitations) expires for the
assessment by the taxing authority of additional Taxes with respect to
which the representations and warranties relate;
(ii) the representations and warranties of the
Shareholders and SVPC contained in Sections 4.12 and 4.15
shall expire at the time the latest period of limitations
expires for the enforcement by an applicable Governmental
Authority of any remedy with respect to which the particular
representations and warranties of the Shareholders related
and if there is no such period of limitations, then the
representations and warranties shall continue indefinitely;
and
(iii) the representations and warranties of the
Shareholders and SVPC contained in Sections 4.1, 4.2, 4.3,
4.4, 4.5, and 4.6 shall not expire, but shall continue
indefinitely, except for the representations and warranties
contained in section 4.1, which shall expire upon the
liquidation and dissolution of SVPC. No claim for the
recovery of Buyer Indemnifiable Damages may be asserted by
Buyer against or the Shareholders after such representations
and warranties shall thus expire; provided, however, that
claims for Buyer Indemnifiable Damages first asserted within
the applicable period shall not thereafter be barred.
Notwithstanding any knowledge of facts determined or
determinable by any party by investigation, each party shall
have the right to fully rely on the representations,
warranties, covenants and agreements of the other parties
contained in this Agreement or in any other documents or
papers delivered in connection herewith (except those
documents listed on Schedule 4.25). Each representation,
warranty, covenant, and agreement of the parties contained
in this Agreement is independent of each other
representation, warranty, covenant, and agreement.
(c) In the event that Buyer believes it is entitled to a
claim for any Buyer Indemnifiable Damages hereunder, Buyer shall
promptly give written notice to SVPC and the Shareholders of such
claim and the amount or the estimated amount of such claim, and the
basis for such claim. If neither SVPC nor the Shareholders pay the
amount of the claim for Buyer Indemnifiable Damages to Buyer within
fourteen (14) days, then Buyer may take any action or exercise any
remedy available to Buyer by appropriate legal proceedings to collect
the Buyer Indemnifiable Damages or make a claim for payment. However,
this Section will not apply to any breach of any of SVPC and
Shareholders' representations and warranties of which SVPC and
Shareholders had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional breach by SVPC
and Shareholders of any covenant or obligation, and SVPC and
Shareholders will be jointly and severally liable for all Damages with
respect to such breaches.
<PAGE>
6.2 Conditions of Indemnification of Buyer. The obligations and
liabilities of SVPC and the Shareholders hereunder with respect to the
indemnities pursuant to this Article VI resulting from any claim or
other assertion of liabilities by third parties (hereinafter called
collectively the "BUYER CLAIMS") shall be subject to the following
terms and conditions:
(a) Buyer must give SVPC and the Shareholders notice of any
such Buyer Claim promptly after Buyer receives notice thereof;
(b) SVPC and the Shareholders shall have the right to
undertake, by counsel or other representatives of their own choosing,
the defense of such Buyer Claim; provided, however, if a Buyer Claim
is made against Buyer that exceeds the value of the Indemnification
Security at such time, Buyer shall have the right to control the
defense of the Buyer Claim;
(c) in the event SVPC and the Shareholders shall elect not
to undertake such defense, or within a reasonable time after notice of
any such Buyer Claim from Buyer shall fail to defend, Buyer (upon
further written notice to SVPC and the Shareholders) shall have the
right to undertake the defense, compromise, or settlement of such
Buyer Claim, by counsel or other representatives of its own choosing,
on behalf of and for the account and risk of SVPC and the Shareholders
(subject to the right of SVPC and the Shareholders to assume defense
of such Buyer Claim at any time prior to settlement, compromise or
final determination thereof);
(d) anything in this Section 6.2 to the contrary
notwithstanding:
(i) Buyer shall have the right, at its own cost and
expense, to have its own counsel to protect its own interests and
participate in the defense, compromise, or settlement of the Buyer
Claim;
(ii) neither SVPC nor any of the Shareholders shall,
without Buyer's written consent, settle, or compromise any Buyer Claim
or consent to entry of any judgement which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff
to Buyer of a release from all liability in respect of such Buyer
Claim; and
(iii) Buyer, by counsel or other representatives of
its own choosing and at its sole cost and expense, shall have the
right to consult with SVPC, the Shareholders and their respective
counsel or other representatives concerning such Buyer Claim, and
SVPC, the Shareholders and Buyer and their respective counsel shall
cooperate with respect to such Buyer Claim.
(e) Buyer may exercise the right of set-off for any amount
to which it may be entitled under this section against any amount due
SVPC or Shareholders under the promissory notes delivered to SVPC and
Shareholders at closing. The exercise of such right and set-off by
Buyer in good faith, whether or not ultimately determined to be
justified, will not constitute an event of default under the
promissory notes or any instrument securing a promissory note.
<PAGE>
6.3 Agreement by Buyer to Indemnify. Each of CSI and SVCS
agrees jointly and severally to indemnify, defend, and hold SVPC and
the Shareholders harmless from and against the aggregate of all Seller
Indemnifiable Damages (as defined below); provided, however, that the
aggregate indemnification liability of CSI and SVCS collectively shall
not exceed the amount paid to SVPC pursuant to the Short Term Note
(plus any costs of collection).
(a) For purposes of this Agreement, "SELLER INDEMNIFIABLE
DAMAGES" means, without duplication, the aggregate of all expenses,
losses, costs, claims, deficiencies, liabilities, and damages
(including, without limitation, related counsel and paralegal fees and
expenses) incurred or suffered SVPC or the Shareholders to the extent:
(i) resulting from any breach of a representation or
warranty made by CSI or SVCS in or pursuant to this Agreement;
(ii) resulting from any breach of the covenants or
agreements made by CSI or SVCS pursuant to this Agreement;
(iii) resulting from any inaccuracy in any
certificate or report prepared by or on behalf of CSI or SVCS
delivered by CSI or SVCS pursuant to this Agreement; or
(iv) resulting from any default or failure to pay or
perform any of the Assumed Liabilities.
(b) Each of the representations and warranties made by CSI
and/or SVCS in this Agreement or pursuant hereto shall survive for a
period of twenty-four (24) months after the Closing Date. No claim
for the recovery of Seller Indemnifiable Damages may be asserted by
SVPC or the Shareholders against CSI or SVCS after such
representations and warranties shall thus expire; provided, however,
claims for Seller Indemnifiable Damages first asserted within the
applicable period shall not thereafter be barred. Notwithstanding any
knowledge of facts determined or determinable by any party by
investigation, each party shall have the right to fully rely on the
representations, warranties, covenants, and agreements of the other
parties contained in this Agreement or in any other documents or
papers delivered in connection herewith. Each representation,
warranty, covenant and agreement of the parties contained in this
Agreement is independent of each other representation, warranty,
covenant and agreement.
<PAGE>
(c) In the event that SVPC or the Shareholders believes he
or it is entitled to a claim for any Seller Indemnifiable Damages
hereunder, the claimant shall promptly give written notice to CSI and
SVCS of such claim and the amount or the estimated amount of such
claim, and the basis for such claim. If neither CSI nor SVCS pays the
amount of the claim for Seller Indemnifiable Damages to the claimant
within ten (10) days, then the claimant may take any action or
exercise any remedy available to it by appropriate legal proceedings
to collect the Seller Indemnifiable Damages. However, this section
will not apply to any Breach of any of Buyer's representations and
warranties of which Buyer had Knowledge at any time prior to the date
on which such representation and warranty is made or any intentional
Breach by Buyer of any covenant or obligation, and Buyer will be
liable for all Damages with respect to such Breaches.
(d) Amount otherwise payable under the Promissory Notes.
The exercise of such right of set-off by Buyer in good faith, whether
or not ultimately determined to be justified, will not constitute an
event of default under the Promissory Notes or any instrument securing
a Promissory Note.
6.4 Conditions of Indemnification of SVPC and Shareholders. The
obligations and liabilities of CSI and SVCS hereunder with respect to
the indemnities pursuant to this Article VI resulting from any claim
or other assertion of liabilities by third parties (hereafter called
collectively "SELLER CLAIMS"), shall be subject to the following terms
and conditions:
(a) SVPC or the Shareholders asserting the claim for
indemnification, as the case may be (the "INDEMNIFIED PARTY"), must
give notice of any such Seller Claim promptly after the Indemnified
Party receives notice thereof;
(b) CSI and SVCS shall have the right to undertake, by
counsel or other representatives of their own choosing, the defense of
such Seller Claim; provided, however, if a Seller Claim is made that
exceeds $10,000, the Indemnified Party shall have the right to control
the defense of the Seller Claim;
(c) in the event that CSI and SVCS shall elect not to
undertake such defense, or within a reasonable time after notice of
any such Seller Claim from the Indemnified Party shall fail to defend,
the Indemnified Party (upon further written notice to CSI or SVCS)
shall have the right to undertake the defense, compromise, or
settlement of such Seller Claim, by counsel or other representatives
of its choosing, on behalf of and for the account and risk of CSI and
SVCS (subject to the right of CSI and SVCS to assume defense of such
Seller Claim at any time prior to settlement, compromise, or final
determination thereof);
(d) anything in this Section 6.4 to the contrary
notwithstanding:
(i) the Indemnified Party shall have the right, at its
cost and expense, to have its own counsel to protect its own interests
and participate in the defense, compromise or settlement of the Seller
Claim;
<PAGE>
(ii) neither CSI nor SVCS shall, without the
Indemnified Party's written consent, settle or compromise any Seller
Claim or consent to entry of any judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff
to the Indemnified Party of a release from all liability in respect of
such Seller Claim; and
(iii) the Indemnified Party, by counsel or other
representatives of its own choosing and at its cost and expense, shall
have the right to consult with CSI and SVCS and their respective
counsel or other representatives concerning such Seller Claim, and
CSI, SVCS and the Indemnified Party and their respective counsel shall
cooperate with respect to such Seller Claim.
6.5 Effect of Insurance and Taxes.
(a) Any party or parties shall be deemed to have suffered a
loss for which the other party or parties shall be liable for
indemnification only to the extent that the party or parties claiming
indemnification is or are unable to obtain monetary recovery with
respect thereto under an insurance policy or from any other third
party. If a party's entitlement to such a recovery is discovered
after payments of indemnification hereunder, then the amount of such
indemnification subject to such claim of entitlement against such
third party shall be refunded to the party or parties who paid it, but
only after and only to the extent of such recovery from such insurance
policy or third party. An indemnified party who has received a
recovery for a loss arising from a breach of a representation,
warranty, or covenant under the Agreement which is subject to
indemnification shall have no right to recover twice for the same loss
under the indemnification provided in this Agreement.
(b) In determining the amount of any loss to an indemnified
party, any available tax benefits to the indemnified party, such as,
for example, the ability to take any deduction of all or any part of
the amount on such party's tax returns or the ability to exclude from
income for tax purposes amounts which would have been includable in
such party's income absent the loss, damage, or expense, shall be
taken into account, such that only the net after tax effect of the
loss or expense to the indemnified party shall be considered a loss
subject to the indemnification provisions of this Agreement; provided,
however, if any indemnity payment is includable in the income of the
indemnified party, such payment shall be grossed up to the extent
required to fully compensate the indemnified party after taking into
account the associated tax liability.
(c) For purposes of this Section 6.5, the term "loss" means
any loss, liability, damage, cost, or expense indemnified against
under this Article VI.
6.6 Minimum Threshold for Indemnification by SVPC and the
Shareholders.
<PAGE>
(a) No indemnification shall be paid by SVPC or the
Shareholders under Sections 6.1 (a)(i) through (v) and (viii) hereof
until such time as the amount for which indemnification would
otherwise be due to any and all parties entitled to indemnification
from SVPC and the Shareholders hereunder exceeds $10,000 in the
aggregate, and then only to the extent of the excess over $10,000;
(b) No indemnification shall be paid by SVPC or the
Shareholders under Section 6.1 (a)(vi) hereof until such time as the
amount for which indemnification would otherwise be due to any and all
parties entitled to indemnification from SVPC or the Shareholders
hereunder exceeds $25,000 in the aggregate, and then only to the
extent of the excess over $25,000.
(c) No indemnification shall be paid by SVPC or the
Shareholders under Section 6.1 (a) (vii) for repair a replacement of
defective product until such time as the amount for which
indemnification would otherwise be due to any and all parties entitled
to indemnification from SVPC and the Shareholders hereunder exceeds
$25,000 in the aggregate, and than only to the extent of the excess
over $25,000. SVPC's maximum liability hereunder for the repair or
replacement of the defective product shall not exceed the purchase
price of product for which repair or replacement is sought or SVCS's
actual out of pocket costs incurred in connection with the repair or
replacement, whichever is less. In no event shall SVPC or
Shareholders be liable for any special, indirect, incidental,
consequential, exemplary or punitive damages.
6.7 Security for Indemnification Obligation. As security (the
"INDEMNIFICATION SECURITY") for the agreement by SVPC and the
Shareholders to indemnify and hold Buyer harmless as described in
Section 6.1, CSI shall have the right to offset any Indemnifiable
Damages against the amounts due SVPC pursuant to the Subordinated
Note.
6.8 Collection of Receivables. SVCS agrees to use all
reasonable and normal efforts to collect the Receivables. Payments
received from customers after the Closing shall be applied as a
customer specifically directs in writing or as is reasonably implied
by reference to the remittance, otherwise against the oldest
Receivables first. Except as set forth in Section 6.6 (b) hereof,
SVPC agrees to pay to SVCS, promptly after SVCS delivers written
notice to SVPC, an amount equal to any reduction in the amount of a
Receivable due to a sales adjustment made by a customer after the
Closing. If SVPC subsequently collects any portion of a Receivable
for which SVPC and/or the Shareholders have paid SVCS pursuant to the
Section 4.20 guaranty of Receivables (whether directly or through a
deduction from the Subordinated Note), SVCS will reimburse SVPC and/or
the Shareholders by payment in the amount of such subsequent
collection to the source from which such indemnification payment came,
i.e., either SVPC and/or the Shareholders if they paid SVPC directly
or the Subordinated Note if the indemnification payment was deducted
therefrom. SVCS agrees that it will, at the request of SVPC and/or
the Shareholders, assign and transfer to SVPC any uncollected
Receivables for which SVCS has been paid indemnification pursuant to
Section 4.20, and upon such assignment SVPC will be free to use any
lawful means to collect such Receivable, without intentionally
damaging the ongoing business relationship by and between SVCS and the
customer.
<PAGE>
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such
further actions as may be necessary or appropriate to effectuate,
carry out, and comply with all of the terms of this Agreement and the
transactions contemplated hereby.
7.2 Compliance with Covenants. The Shareholders shall cause
SVPC to comply with all of its respective covenants of SVPC under this
Agreement.
7.3 Cooperation. Each of the parties agrees to cooperate with
the other in the preparation and filing of all forms, notifications,
reports and information, if any, required or reasonably deemed
advisable pursuant to any law, rule or regulation or the rules of the
NASDAQ Stock Market in connection with the transactions contemplated
by this Agreement.
7.4 Tax Treatment. Each party to this Agreement has sought and
received its own advice as to the tax treatment of the transactions
covered by this Agreement and is not relying on any opinions of the
other parties or their respective advisers with respect thereto. All
parties hereto agree to fully and completely comply with the reporting
requirements of the Internal Revenue Service.
7.5 Restrictive Covenants. In order to assure that CSI and SVCS
will realize the benefits of this Agreement and in consideration of
the transactions set forth in this Agreement, SVPC and the
Shareholders agree with CSI and SVCS that they shall not, provided CSI
and SVCS are not in default of their obligations under the
Subordinated Note, and Guaranty, for a period of sixty (60) months
from the Closing Date:
(a) directly or indirectly, alone or as a partner, joint
venturer, officer, director, employee, consultant, agent, independent
contractor or stockholder of any company or business, engage in any
business activity in the Restricted Territory (as defined below), and
which is directly or indirectly in competition with the Business
conducted by SVPC at the Closing Date; provided, however, that, the
beneficial ownership of less than 5% of the shares of stock of any
corporation having a class of equity securities actively traded on a
national securities exchange or over-the-counter market shall not be
deemed, in and of itself, to violate the prohibitions of this Section.
As used in this Section 7.5, the term "Restricted Territory" means
the state of California;
(b) directly or indirectly:
(i) induce any Person who is a customer of SVPC at the
Closing Date to patronize any business directly or indirectly in
competition with the Business conducted by SVPC;
(ii) canvass, solicit or accept from any Person any
such competitive business; or
<PAGE>
(iii) request or advise any Person which is a
customer of SVPC at the Closing Date to withdraw, curtail,
or cancel any such customer's business with SVCS.
(c) without the prior written consent of CSI, directly or
indirectly, employ, or knowingly permit any company or business
directly or indirectly controlled by SVPC or the Shareholders, to
employ, any person who was employed by SVPC at or within six (6)
months prior to the Closing Date, or in any manner seek to induce any
such Person to leave his or her employment;
(d) directly or indirectly, at any time following the
Closing Date, in any way utilize, disclose, copy, reproduce or retain
in their possession's any of SVPC proprietary rights or records,
including, but not limited to, any of their customer lists.
SVPC and the Shareholders agrees and acknowledges that the
restrictions contained in this Section 7.5 are reasonable in scope and
duration and are necessary to protect CSI after the Closing Date. If
any provision of this Section as applied to any party or to any
circumstance is adjudged by a court to be invalid or unenforceable,
the same will in no way affect any other circumstance or the validity
or enforceability of this Agreement. If any such provision, or any
part thereof, is held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties agree that the
court making such determination shall have the power to reduce the
duration and/or area of such provision, and/or to delete specific
words or phrases, and in its reduced form, such provision shall then
be enforceable and shall be enforced. The parties agree and
acknowledge that the breach of this Section will cause irreparable
damage to CSI and upon breach of any provision of this Section, CSI
shall be entitled to injunctive relief, specific performance, or other
equitable relief; provided, however, that this shall in no way limit
any other remedies which CSI may have (including, without limitation,
the right to seek monetary damages).
7.6 Taxes and Transfer Taxes.
(a) SVPC shall be liable for and shall pay all Taxes
(whether assessed or unassessed) applicable to the Business or the
Purchased Assets, in each case attributable to periods (or portions
thereof) prior to the Closing Date. Buyer shall be liable for and
shall pay:
(i) all Taxes reflected as a liability on the Closing
Date Statement; and
(ii) all Taxes (whether assessed or unassessed)
applicable to the Business or the Purchased Assets, in each case
attributable to periods (or portions thereof) beginning on the Closing
Date. For purposes of this paragraph (a), any period beginning before
and ending after the Closing Date shall be treated as two partial
periods, one ending on the Closing Date and the other beginning after
the Closing Date.
<PAGE>
(b) Notwithstanding Section 7.6(a), any Tax (including a
sales tax or gains tax) directly attributable to the sale or transfer
of the Purchased Assets, shall be paid by SVPC. Buyer, SVPC and the
Shareholders agree to timely sign and deliver such certificates or
forms as may be necessary or appropriate to establish an exemption
from (or otherwise reduce), or make a report with respect to, such
Taxes.
(c) SVCS shall pay to Shareholders on or before February
15, 1999 the amount of the DEEMED INCOME TAX LIABILITY. The Deemed
Income Tax Liability shall be the amount of federal and state income
tax liabilities of the Shareholders of SVPC for the taxable income of
SVPC, excluding the gain on the consummation of this transaction, from
January 1, 1998 to the Closing Date. The Shareholders shall prepare
the calculations of the Deemed Income Tax Liability using consistent
tax accounting methods and shall submit the calculation to Buyer for
approval, which approval shall not be unreasonably withheld.
7.7 Other Agreements. Upon the Closing, each party hereto that
is a signatory to any of Exhibits A through D (the "OTHER AGREEMENTS")
agrees to execute and deliver such Other Agreements, as appropriate,
to the other parties to such Other Agreements. The parties agree that
the non-competition covenants contained in the Employment Agreements
with the Shareholders attached as Exhibit D are an integral part of
this Agreement.
7.8 Employment Procedure.
(a) Pursuant to IRS Revenue Procedure 84-77, Buyer shall
assume SVPC's obligations to furnish Forms W-2 to Employees for the
calendar year in which the Closing Date occurs.
(b) Nothing in this Section 7.8, express or implied, shall
confer upon any Employee, any legal representative thereof or any
third party rights, benefits, or remedies, including any right to
employment, or continued employment for any specified period of any
nature or kind whatsoever under or by reason of this Agreement or any
of the Other Agreements.
(c) SVPC shall retain the right to amend or terminate any
Employee Benefit Plan, in accordance with the terms of such Employee
Benefit Plan.
7.9 Corporate Name Change. SVPC shall, immediately following
the Closing, execute and deliver to CSI for filing all documents or
certificates necessary to change the legal, trade or assumed names of
SVPC to names which do not, in the sole discretion of CSI, create any
likelihood of confusion with the names "H.O.T.L.R.T., Inc. d/b/a
Silicon Valley Printed Circuits," any abbreviations or derivations
thereof, or any other names which are included in the Intellectual
Property.
7.10 Payments of Accounts Receivable. In the event that the
Shareholders shall receive any instrument of payment of any of the
Receivables not repurchased from SVCS by SVPC or the Shareholders,
SVPC or the Shareholders, whichever the case may be, shall forthwith
deliver such payment or instrument to SVCS, endorsed where necessary,
without recourse, in favor of SVCS.
<PAGE>
7.11 New Permits and Environmental Due Diligence. CSI or SVCS
shall duly file and diligently pursue all applications for New Permits
and pay all associated filing and permit transfer fees. SVPC shall
use its best efforts to assist the prompt transfer or assignment to
SVCS of all New Permits. Any application for the renewal of any
License due prior to the Closing Date has been, or will be, timely
filed prior to the Closing date. After execution of this Agreement,
SVPC will take all actions necessary to assist SVCS in obtaining all
New Permits.
7.12 Environmental Covenants of SVPC.
(a) At its sole cost and expense, SVPC or Shareholders
shall remove, within thirty (30) days after the Closing, the 400
square feet of asbestos-containing floor tile located within the
Leased Premises. Said removal shall be performed by a licensed
asbestos abatement contractor. SVPC shall provide copies of all
removal certifications and proof that the removed asbestos-containing
materials were disposed in accordance with all applicable
Environmental, Health and Safety Laws.
(b) At its sole cost and expense, SVPC or Shareholders
shall determine whether the existence of the substances noted in the
GEI Assessments must be reported to the Environmental Protection
Agency or the relevant state agency, and, if SVPC determines the
existence of such substances must be reported, SVPC or Shareholders
shall report such existence in accordance with all applicable
Environmental, Health and Safety Laws.
7.13 Environmental Covenants of Buyer.
(a) Buyer covenants that on and after the Closing Date, it
will comply with all applicable Environmental, Health and Safety Laws
and will maintain compliance in all material respects with the terms
and conditions of all Permits required for the ongoing operation of
the Business and its use and occupancy of the Owned Premises and
Leased Premises.
(b) Buyer covenants that on and after the Closing Date it
will continue to operate the Business and will use and occupy the
Owned Premises and Leased Premises in substantially the same manner
(as to type of Business) as SVPC currently operates the Business and
uses and occupies the Owned Premises and Leased Premises.
(c) Remediation of Environmental Conditions Arising After
Closing Date. Buyer covenants that it shall be responsible for
remediation of Environmental Conditions resulting from its operations
on the Owned Premises and the Leased Premises after the Closing Date.
(d) Off-Site Environmental Liabilities. Buyer covenants
that it shall be responsible for all actions brought or claims made
pursuant to any Environmental, Health and Safety Laws arising from the
alleged Discharge or Release or threatened Discharge or Release of
Hazardous Substances transported off the Owned Premises or Leased
Premises on or after the Closing Date. This provision shall not apply
to Hazardous Substances transported off site by SVPC or its agents in
connection with the Remediation of the Owned Premises and Leased
Premises conducted by SVPC under this Agreement.
<PAGE>
7.14 Incentive Compensation Plan. Buyer covenants that it will
adopt an Incentive Compensation Plan for the employees of the Company
in substantially the form of the plan contained in Exhibit E.
7.15 Business Expansion Plan. Buyer represents that its strategy
for the Business includes the purchase of an adjacent building,
renovation to the Owned Premises and Leased Premises, and the purchase
and/or lease of equipment, all within the first year after the Closing
Date, and in the aggregate amount of approximately $1,800,000.
Notwithstanding the foregoing, there are risks and uncertainties
inherent in Buyer's anticipated business strategy that are not
foreseeable as of the date hereof. Accordingly, CSI and the Buyer
makes no warranty that Buyer will realize their business strategy and
SVPC and Shareholders acknowledge that Buyer is under no obligation
whatever to effectuate the aforestated business strategy.
7.16 Buyer's Promissory Notes. On the Closing Date, Buyer and
Shareholders Thomas L. Rogotzke and Hershel O. Petty agree to exchange
the subordinated notes payable to Shareholders as set forth in the
Current Balance Sheet for the promissory notes of SVPC in
substantially the form of the Promissory Notes (and Guaranty)
contained in Exhibit F.
7.17 Notes Receivable from Shareholders. Shareholders agree to
repay the notes receivable from Shareholders as set forth on the
Current Balance Sheet within forty-five (45) days after the Closing
Date, if not paid prior thereto.
ARTICLE VIII
DEFINITIONS
8.1 Defined Terms. As used herein, the following terms shall
have the following meanings:
"Aboveground Storage Tanks" defined in Section 4.12(h).
"Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as
in effect on the date hereof.
"asbestos" or AAsbestos-containing material" defined in
Section 4.12(j).
"Assumed Liabilities" defined in Section 1.3.
"Balance Sheet" means the unaudited balance sheet of SVPC as
of July 31, 1998, included in Schedule 4.8.
"Balance Sheet Date" means July 31, 1998.
"Bill of Sale" means the Bill of Sale in the form attached
hereto as Exhibit C.
"Business" defined in the Recitals to this Agreement.
"Buyer Claims" as defined in Section 6.2.
"Buyer Indemnifiable Damages" defined in Section 6.1(a).
<PAGE>
"CERCLA" defined in Section 4.12(e).
"Cleanup Liability" defined in Section 6.1(a).
"Closing Date" defined in Section 3.1.
"Code" defined in Section 4.17(b).
"Common Stock" means shares of CSI's common stock, no par
value per share.
"Contract" means any indenture, lease, sublease, license,
loan agreement, mortgage, note, indenture, restriction, will, trust,
commitment, obligation, or other contract, agreement or instrument,
whether written or oral.
"Current Balance Sheet" defined in Section 4.8.
"Deemed Income Tax Liability" defined in Section 7.6(c).
"Discharge" defined in Section 4.12(f).
"Effective Time" defined in Section 3.1.
"Employee Benefit Plans" defined in Section 4.17(a).
"Employment Agreements" means the Employment Agreements
between Buyer and each of the Shareholders in the forms attached
hereto as Exhibit D.
"Environmental, Health and Safety Laws" defined in Section
4.12(k).
"EPCRA" defined in Section 4.12(e).
"ERISA" defined in Section 4.17(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" defined in Section 1.2.
"Excluded Liabilities" defined in Section 1.4.
"FIFRA" defined in Section 4.12(e).
"Financial Statements" defined in Section 4.8.
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time, consistently
applied.
"Governmental Authority" means any nation or government, any
state, regional, local, or other political subdivision thereof, and
any entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
<PAGE>
"Hazardous Substances" defined in Section 4.12(e).
"Indemnification Security" defined in Section 6.7.
"Indemnified Party" defined in Section 6.4(a).
"Insurance Policies" defined in Section 4.19.
"Intellectual Property" defined in Section 4.23.
"Knowledge" means an individual will be deemed to have
"knowledge" of a particular fact or other matter if:
(a) such individual is actually aware of such fact or
other matter; or
(b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course
of conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who
is serving, or who has at any time served, as a director, officer,
partner, executor, or trustee of such person (or in any similar
capacity) has, or at any time had, knowledge of such fact or other
matter.
"Leased Premises" defined in Section 4.13(b).
"Leases" defined in Section 4.13(b).
"Licenses" defined in Section 4.12(b).
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited
to, any conditional sale or other title retention agreement, any lease
in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable
law or any jurisdiction in connection with such mortgage, pledge,
security interest, encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties,
assets, liabilities, rights, obligations, operations, Business, or
prospects which change (or effect) individually or in the aggregate,
is materially adverse to such condition, properties, assets,
liabilities, rights, obligations, operations, Business or prospects.
"New Permits" defined in Section 4.21.
"Ordinary Course of Business" means an action taken by a
Person will deemed to have been taken in the "Ordinary Course of
Business" only if:
(a) such action is consistent with the past practices
of such Person and is taken in the ordinary course of the normal day-
to-day operations of such Person;
<PAGE>
(b) such action is not required to be authorized by
the board of directors of such Person (or by any Person or group of
Persons exercising similar authority)[and is not required to be
specifically authorized by the parent company (if any) of such
Person];and
(c) such action is similar in nature and magnitude to
actions customarily taken, without any authorization by the board of
directors (or by any Person or group of Persons exercising similar
authority), in the ordinary course of the normal day-to-day operations
of the Persons that are in the same line of business as such Person.
"OSHA" defined in Section 4.12(e).
"Other Agreements" defined in Section 7.7.
"Owned Premises" defined in Section 1.1(f).
"Permits" defined in Section 4.21.
"Permitted Liens" means: (a) liens for taxes and other
governmental charges and assessments which are not yet due and
payable; (b) liens of landlords and liens of carriers, warehousemen,
mechanics, and materialmen and other like liens arising in the
Ordinary Course of Business for sums not yet due and payable; and (c)
other liens or imperfections on property which are not material in
amount or do not materially detract from the value of or materially
impair the existing use of the property affected by such lien or
imperfection.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust, unincorporated
association, joint venture, Governmental Authority, or other entity,
of whatever nature.
"Purchased Assets" defined in Section 1.1.
"Purchased Contracts" defined in Section 4.24.
"Purchase Price" defined in Section 2.1
"RCRA" defined in Section 4.12(e).
"Receivables" means all receivables of SVPC, including all
trade account receivables arising from the provision of services or
sale of inventory, notes receivable, notes receivable from
Shareholders and insurance proceeds receivable.
"Release" defined in Section 4.12(f).
"Restricted Territory" defined in Section 7.5(a).
"SEC" means the Securities and Exchange Commission.
"SEC Documents" defined in Section 5.5.
"Securities Act" means the Securities Act of 1933, as
amended.
<PAGE>
"Seller Claims" as defined in Section 6.4.
"Seller Indemnifiable Damages" defined in Section 6.3(a).
"Shareholders" defined in the introductory paragraph of this
Agreement.
"Short Term Note" defined in Section 2.1(a).
"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Taxes; and
"Taxes" means all taxes, fees or other assessments,
including, but not limited to, income, excise, property, sales,
franchise, intangible, withholding, social security, and unemployment
taxes imposed by any federal, state, local or foreign governmental
agency, and any interest or penalties related thereto.
"Underground Storage Tanks" defined in Section 4.12(h).
"Waste" defined in Section 4.12(e).
"Welfare Plan" defined in Section 4.17(e).
8.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the
defined meanings when used in any certificates, reports or other
documents made or delivered pursuant hereto or thereto, unless the
context otherwise requires.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with
this Agreement and the transactions contemplated hereby shall be
determined in accordance with GAAP applied on a basis consistent with
prior periods, where applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the
neuter and feminine, where the context so permits.
ARTICLE IX
GENERAL PROVISIONS
9.1 Survival of Obligations. All representations, warranties,
covenants and obligations contained in this Agreement shall survive
for such time as the indemnity for the breach thereof shall survive as
set forth in Sections 6.1, 6.2, and 6.3.
<PAGE>
9.2 Confidential Nature of Information. Each party agrees that
it will treat in confidence all documents, materials, and other
information which it shall have obtained regarding the other party
during the course of the negotiations leading to the consummation of
the transactions contemplated hereby (whether obtained before or after
the date of this Agreement), the investigation provided for herein and
the preparation of this Agreement and other related documents. Such
documents, materials and information shall not be communicated to any
Person (other than, in the case of Buyer, to its counsel, accountants,
financial advisors or lenders, and in the case of SVPC and the
Shareholders, to their counsel, accountants or financial advisors).
No other party shall use any confidential information in any manner
whatsoever except solely for the purpose of evaluating the proposed
purchase and sale of the Purchased Assets; provided, however, after
the Closing buyer may use or disclose any confidential information
included in the purchased Assets. The obligation of each party to
treat such documents, materials and other information in confidence
shall not apply to any information which:
(a) is or becomes available to such party on a non-
confidential basis from a source other than such party;
(b) is or becomes available to the public other than as a
result of disclosure by such party or its agents;
(c) is required to be disclosed under applicable law or
judicial process, but only to the extent it must be disclosed; or
(d) such party reasonably deems necessary to disclose to
obtain any of the consents or approvals contemplated hereby, provided
that the disclosing party gives reasonable prior notice to the other
parties.
9.3 No Public Announcement. Neither Buyer nor SVPC, nor the
Shareholders, without approval of the other, shall make any press
release or other public announcement concerning the transactions
contemplated by this Agreement, except as and to the extent that any
such party shall be so obligated by law, in which case the other party
shall be advised and the parties shall use their best efforts to cause
a mutually agreeable release or announcement to be issued; provided
that the foregoing shall not:
(a) preclude communications or disclosures necessary to
implement the provisions of this agreement or to comply with any
accounting rules; or
(b) prevent CSI from making any public disclosure which CSI
believes in good faith is required by law or by the terms of any
listing agreement with or requirements of a securities exchange.
9.4 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given,
delivered, and received:
(a) when delivered, if delivered personally by a commercial
messenger delivery service with verification of delivery;
<PAGE>
(b) four (4) days after mailing, when sent by registered or
certified mail, return receipt requested, and postage prepaid;
(c) one business day after delivery to a private courier
service, when delivered to a private courier service providing
documented overnight service;
(d) on the date of delivery if delivered by facsimile and
electronically confirmed before 5:00 p.m. (Chicago, Illinois time) on
any business day; or
(e) on the next business day if delivered by facsimile and
electronically confirmed either after 5:00 p.m. (Chicago, Illinois
time) or on a non-business day, in each case addressed as follows:
If to the Shareholders: Mr. Thomas L. Rogotzke
287 Hubbard Avenue
Redwood City, California 94062
Phone: 650-364-9867
Fax: 650-364-1172
With a copy to: Anthony J. Kerin, III, Esq.
Flicker & Kerin
285 Hamilton
Suite 460
P.O. Box 840
Palo Alto, California 94302
Telephone: 650-321-0947
Facsimile: 650-326-9722
If to the Buyer: Mr. D.S. Patel
President and Chief Executive Officer
Circuit Systems, Inc.
2400 East Lunt Avenue
Elk Grove Village, Illinois 60007
Telephone: 847- 439-1999
Facsimile: 847- 439-9638
With a copy to: Thomas W. Rieck, Esq.
Rieck and Crotty, P.C.
55 West Monroe Street
Suite 3390
Chicago, Illinois 60603
Telephone: 312-726-4646
Facsimile: 312-726-0647
or to such other address or addresses as may hereafter by specified by
notice given by any of the above to others.
9.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
successors and permitted assigns. The successors and permitted
assigns hereunder shall include, without limitation, in the case of
Buyer, any Affiliate as well as the successors in interest to such
Affiliate (whether by merger, liquidation [including successive
mergers or liquidations] or otherwise). Nothing in this Agreement,
expressed or implied, is intended or shall be construed to confer upon
any Person other than the parties and successors and assigns permitted
by this Section 9.5 any right, remedy, or claim under or by reason of
this Agreement.
<PAGE>
9.6 Access to Records after Closing. For the period of the
survival of any indemnification obligations hereunder, SVPC and its
representatives shall have reasonable access to all of the books and
records of the Business transferred to Buyer hereunder to the extent
that such access may reasonably be required by or the Shareholders in
connection with matters relating to or affected by the operations of
the Business prior to the Closing Date or pursuant to any collections
of accounts receivable. Such access shall be afforded by Buyer upon
receipt of reasonable advance notice and during normal business hours.
SVPC shall be solely responsible for any costs or expenses incurred
by it pursuant to this Section 9.6. If Buyer shall desire to dispose
of any of such books and records prior to the expiration of such
period, Buyer shall, prior to such disposition, give SVPC a reasonable
opportunity, at SVPC's expense, to segregate and remove such books and
records as SVPC may select. For a period of three (3) years after the
Closing Date, Buyer and its representatives shall have reasonable
access to all of the books and records relating to the Business which
SVPC may retain after the Closing Date. Such access shall be afforded
by SVPC and its respective Affiliates upon receipt of reasonable
advance notice and during normal business hours. Buyer shall be
solely responsible for any costs and expenses incurred by it pursuant
to this Section 9.6. If SVPC or any of its Affiliates shall desire to
dispose of any of such books and records prior to the expiration of
such three (3) year period, such party shall, prior to such
disposition, give Buyer a reasonable opportunity, at Buyer's expense,
to segregate and remove such books and records as Buyer may select.
9.7 Entire Agreement; Amendments. This Agreement and the
Exhibits and Schedules referred to herein and the documents delivered
pursuant hereto contain the entire understanding of the parties hereto
with regard to the subject matter contained herein or therein, and
supersede all prior agreements, understandings, or letters of intent
between or among any of the parties hereto. This Agreement shall not
be amended, modified, or supplemented except by a written instrument
signed by an authorized representative of each of the parties hereto.
9.8 Interpretation. Article titles and headings to sections
herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of
this Agreement. The Schedules and Exhibits referred to herein shall
be construed with and as an integral part of this Agreement to the
same extent as if they were set forth verbatim herein.
9.9 Waivers. Any term or provision of this Agreement may be
waived or the time for its performance may be extended by the party or
parties entitled to the benefit thereof. Any such waiver shall be
validly and sufficiently authorized for the purposes of this Agreement
if, as to any party, it is authorized in writing by an authorized
representative of such party. The failure of any party hereto to
enforce at any time any provision of this Agreement shall not be
construed to be a waiver of such provision, nor in any way to affect
the validity of this Agreement or any part hereof or the right of any
party thereafter to enforce each and every such provision. No waiver
of any breach of this Agreement shall be held to constitute a waiver
of any other or subsequent breach.
<PAGE>
9.10 Expenses. Except as otherwise set forth herein, each party
hereto will pay all costs and expenses incident to its negotiation and
preparation of this Agreement and to its performance and compliance
with all agreements and conditions contained herein on its part to be
performed or complied with, including the fees, expenses, and
disbursements of its counsel and accountants.
9.11 Partial Invalidity. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and
valid under applicable law, but in case any one or more of the
provisions contained herein shall, for any reason, be held to be
invalid, illegal, or unenforceable in any respect, such provision
shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality, or unenforceability without invalidating the
remainder of such invalid, illegal, or unenforceable provision or
provisions or any other provisions hereof, unless such a construction
would be unreasonable.
9.12 Execution in Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be considered an
original instrument, but all of which shall be considered one and the
same agreement and shall become binding when one or more counterparts
have been signed by each of the parties hereto and delivered to SVPC,
the Shareholders, and Buyer.
9.13 Further Assurances. On the Closing Date, SVPC shall:
(a) deliver to Buyer such other bills of sale, deeds,
endorsements, assignments and other good and sufficient instruments of
conveyance and transfer, in form reasonably satisfactory to Buyer and
its counsel, as Buyer may reasonably request or as may be otherwise
reasonably necessary to vest in Buyer all the right, title and
interest of SVPC in, to or under any or all of the purchased Assets;
and
(b) take all steps as may be reasonably necessary to put
Buyer in actual possession and control of all the Purchased Assets.
From time to time following the Closing, SVPC shall execute and
deliver, or cause to be executed and delivered, to Buyer such other
instruments of conveyance and transfer as Buyer may reasonably request
or as may be otherwise necessary to more effectively convey and
transfer to, and vest in, Buyer and put Buyer in possession of, any
part of the Purchased Assets.
9.14 Destruction of Information. If the contemplated
transactions are not consummated, each party will return or destroy as
much of such written information as the other party may reasonably
request.
9.15 Time of the Essence. With regard to all dates and time
periods set forth or referred to in this Agreement, time is of the
essence.
<PAGE>
9.16 Governing Law; Submission to Jurisdiction. This Agreement
shall be enforced in accordance with the laws of the State of
California and shall be construed in accordance therewith. The
parties hereto agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated
exclusively in the State and Federal courts located in the County of
Santa Clara, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in
nature, thereby precluding in the possibility of litigation between
the parties with respect to or arising out of this Agreement in any
jurisdiction other than that specified in this paragraph. Each party
hereby waives any right it may have to assert the doctrine of forum
non conveniens or similar doctrine or to object to venue with respect
to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal Courts located in the County of
Santa Clara, State of California shall have in personam jurisdiction
and venue over each of them for the purpose of litigating any dispute,
controversy or proceeding arising out of or related to this Agreement.
Each Party hereby authorizes and accepts service of process
sufficient for personal mail, return receipt requested, postage
prepaid, to its address for the giving of notices as set forth in this
Agreement, Any final judgment rendered against a party in any action
or proceeding shall be conclusive as to the subject of such final
judgment and may be enforced in other jurisdictions in any manner
provided by law.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed the day and year first above written.
BUYER: ___________________ __________________________
CIRCUIT SYSTEMS, INC., SVPC CIRCUIT SYSTEMS, INC.
an Illinois Corporation a California Corporation
By: /s/ By: /s/
_______________________ _________________________
James E. Robbs James E. Robbs
Vice President-Chief Financial Vice President-Finance
Officer
SELLER:
________________________
H.O.T.L.R.T., INC. d/b/a SILICON
VALLEY PRINTED CIRCUITS,
a California Corporation
SHAREHOLDERS:
By: /s/ /s/
______________________ _________________________
Thomas L. Rogotzke Thomas L. Rogotzke
President /s/
_________________________
Richard T. Lebherz
/s/
_________________________
Hershel O. Petty
SUBORDINATED TERM NOTE
$4,000,000.00 Elk Grove Village, Illinois
December 1, 1998
1. FOR VALUE RECEIVED, on November 1, 2003 (the "Maturity Date"),
SVPC Circuit Systems, Inc., a California corporation ("SVCS"),
promises to pay to H.O.T.L.R.T., Inc. d/b/a Silicon Valley Printed
Circuits ("SVPC"), at 3501 Thomas Road #3, Santa Clara, California
95054, or order, the principal sum of FOUR MILLION DOLLARS
($4,000,000) or so much thereof as may be outstanding on the Maturity
Date, together with interest on the unpaid principal balance from time
to time outstanding from the date of this Note until paid, at the rate
of eight and one-half percent (8.5%) per annum, Interest shall be
calculated based upon 30-day months and a 360-day year.
2. Payments. Commencing January 1, 1999, and on the first day of
each month thereafter through June 1, 1999, SVCS will pay interest
only in the amount of Twenty Eight Thousand Three Hundred Thirty Three
and 33/100 ($28,333.33); SVCS will pay a prorata lesser amount in the
event the principal balance has not been outstanding for 30 days as of
January 1, 1999. Commencing July 1, 1999, SVCS will pay principal and
interest in monthly installments of Eighty Eight Thousand Seven
Hundred Seventy One and 75/100 ($88,771.75) and continuing thereafter
on the first day of each month thereafter until paid, with a final
payment of principal and interest (together with all other obligations
due under this Note) on the Maturity Date, unless sooner paid.
3. Default; Rate of Interest. Failure of SVCS to pay any sum within
fifteen (15) days of the date such sum becomes due and payable under
this Note, including without limitation, interest or principal or both
and either as an installment or on the Maturity Date, after SVCS has
received five (5) days written notice, shall constitute an event of
default ("Default") hereunder. Upon and after the occurrence of a
Default, this Note shall bear interest on the principal amount
outstanding from time to time at a rate per annum (the "Default Rate")
equal to Eleven and one half per cent (11 1/2%) per annum until fully
paid.
4. Acceleration. If Default occurs in any payment of principal or
interest under this Note, then the entire principal balance of this
Note then outstanding, together with interest thereon, shall become
immediately due and payable without further demand or notice.
<PAGE>
5. Change in Control. This Note shall become immediately due and
payable in the event Change in Control of the Parent (as defined
below) shall occur. For the purposes of this Note: (1) a "Change in
Control of the Parent" shall have occurred if. (A) D. S. Patel is not
Chairman of the Parent; (B) any person (within the meaning of Section
13(d) of the Exchange Act) other than the Parent or an Affiliate shall
become the beneficial owner (as that term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 50% or more of the
outstanding Common Stock (such person's beneficial ownership to be
determined, in the case of warrants, options or rights to acquire
Common Stock, pursuant to paragraph (d) of Rule 13d-3 under the
Exchange Act); (C) the Shareholders of Parent shall approve: (i) a
merger or consolidation of the Parent with or into any person other
than an Affiliate; (ii) any sale, lease, exchange or other transfer of
all or substantially all the assets of Parent to any person other than
an Affiliate; or (iii) the dissolution of the Parent. "Parent" means
Circuit Systems, Inc., an Illinois corporation.
6. Prepayment. This Note may be prepaid in whole or in part at any
time without penalty or prepayment premium. Any partial prepayment
made at the option of SVCS shall be applied against the principal
amount outstanding and shall not postpone the due date of any
subsequent payment of principal or interest or change the amount of
such installment unless SVPC shall otherwise agree in writing.
7. Security. This Note is unsecured.
8. Attorneys' Fees and Expenses. If, at any time or times, after a
Default occurs, SVPC employs counsel for advice or other
representation or incurs legal and/or other costs and expenses in
connection with any attempt to enforce any rights of SVPC against SVCS
under this Note, then, in such event, the reasonable attorneys' fees
arising from such services and all reasonably incurred expenses,
costs, charges, and other fees of such counsel or of SVPC shall be
payable on demand by SVCS to SVPC.
9. No Waiver. SVPC's failure, at any time or times hereafter, to
require strict performance by SVCS of any provision of this Note shall
not constitute a waiver, or affect or diminish any right of lender
thereafter to demand strict performance by SVCS under this Note nor
shall any such failure constitute a waiver of or affect any other
default by SVCS under this Note.
10. Waivers by SVCS. Presentment, notice of dishonor, and protest
are hereby waived by all makers, sureties, guarantors and endorsers
hereof
11. Binding Nature. This Note shall be binding upon and inure to the
benefit of the successors and assigns of SVCS and SVPC.
12. Subordination. The obligation of SVCS under this Note, and the
rights of SVPC, are subject to a certain Subordination Agreement by
and between SVCS, SVPC, and SVCS's lender dated even date herewith,
the provisions of which are incorporated herein by reference.
<PAGE>
13. Governing Law. This Note shall be enforced in accordance with the
laws of the State of California and shall be construed in accordance
therewith. The parties hereto agree that all actions or proceedings
arising in connection with this Note shall be tried and litigated
exclusively in the State and Federal courts located in the County of
Santa Clara, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in
nature, thereby precluding in the possibility of litigation between
the parties with respect to or arising out of this Note in any
jurisdiction other than that specified in this paragraph. Each party
hereby waives any right it may have to assert the doctrine of forum
non conveniens or similar doctrine or to object to venue with respect
to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of
Santa Clara, State of California shall have in personam jurisdiction
and venue over each of them for the purpose of litigating any dispute,
controversy, or proceeding arising out of or related to this Note.
Each party hereby authorizes and accepts service of process sufficient
for personal mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in this Note. Any final
judgment rendered against a party in any action of proceeding shall be
conclusive as to the subject of such final judgment and may be
enforced in other jurisdictions in any manner provided by law.
SVPC Circuit Systems, Inc.
/s/
By:_______________________
D.S. Patel, Chairman and Chief
Executive Officer
CREDIT AGREEMENT
Among
Circuit Systems, Inc.,
Circuit Systems of Tennessee, L.P., and
SVPC Circuit Systems, Inc.
as the Borrowers,
The Lenders Which are Parties Hereto,
and
LaSalle National Bank
as Agent
Dated as of January 6, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS; RULES OF CONSTRUCTION1
1.1 Defined Terms 1
1.2 Accounting Terms 21
1.3 Rules of Construction 21
ARTICLE 2. THE LOANS 22
2.1 Revolving Credit Commitment 22
2.1a Revolving Credit Loans 22
2.1b Commitments of the Lenders 22
2.1c Mandatory and Voluntary Reductions of Revolving Credit
Commitment; Mandatory and Voluntary Principal Payments 22
(i) Borrowing Base Amount 22
(ii) Voluntary Permanent Reductions 22
(iii) Effect of Reductions 22
(iv) Application of Reductions and Prepayments 23
(v) Funding Breakage Fee 23
2.1d Amount of Revolving Credit Loans 24
2.1e Interest Rate 24
2.1f Repayments 24
2.1g Revolving Credit Note 24
2.2 Intentionally Left Blank 24
2.3 Term Loan 25
2.3a Term Loan: Term Loan Notes 25
2.3b Commitments of the Lenders 25
2.3c Term Loan Scheduled Payments 25
2.3d Prepayment of Term Loan 25
(i) Voluntary Prepayments 25
(ii) Payment of Interest and Fees on Prepayment 25
2.3e Interest Rate 26
2.4 Intentionally Left Blank 26
2.5 Interest 26
2.5a Interest Rates; Base Rate and LIBOR-Rate Options 26
2.5b Adjustments to Interest Rates and Fees 26
(i) Changes in Funded Debt to EBITDA Ratio 26
(ii) Changes in Base Rate 27
(iii) Changes in LIBOR-Rate Reserve Percentage 27
(iv) Default Rate 27
2.5c Interest Rate Option Elections Renewals and Conversions 27
2.5d Limitation on Election of LIBOR-Rate Options 28
2.5e Special Provisions Relating to LIBOR-Rate Option 28
(i) LIBOR-Rate Unascertainable 28
(ii) Illegality of Offering LIBOR-Rate 28
(iii) Inability to Offer LIBOR-Rate 29
(iv) Indemnity 29
2.5f Yield Protection 29
2.5g Method of Calculation 30
2.5h Interest Payment Dates 30
2.5i Calculation of Interest 30
2.6 Requests for Loans, Interest Rate Options and Conversions 30
2.7 Method of Disbursements and Payments 31
2.8 Capital Adequacy 31
2.9 Loan Accounts 32
<PAGE>
2.10 Fees 32
2.10a Draw Fees 32
2.10b Unused Availability Fee 32
2.10c Fees Fully Earned 32
2.11 All Obligations to Constitute One Obligation 32
2.12 Payment From Accounts Maintained by the Borrowers 32
ARTICLE 3. SET-OFF AND SECURITY INTERESTS 32
3.1 Set-Off 32
3.2 Personal Property Interests 33
3.3 Real Property Interests 33
ARTICLE 4. REPRESENTATIONS AND WARRANTIES 33
4.1 Organization and Powers 33
4.1a Corporations 33
4.1b CSTLP 34
4.2 Capitalization/Ownership 34
4.3 Power and Authority 34
4.4 Validity; Binding Effect and Enforceability 34
4.5 No Conflict 35
4.6 Financial Matters 35
4.6a Historical Financial Statements 35
4.6b Financial Pro-Forma and Projections 36
4.7 Material Adverse Change 36
4.8 Litigation 36
4.9 Compliance with Laws 36
4.10 Material Contracts 36
4.11 Labor Matters 37
4.12 Account Warranties 37
4.13 Names 37
4.14 Locations: Mortgaged Parcels 37
4.15 Condition of and Title to Assets 38
4.15a Real Property Owned by Any Borrower which is not a
Mortgaged Parcel 38
4.15b Leased Real Property 39
4.16 Tax Returns and Payments 39
4.17 Intellectual Property 39
4.18 Insurance 40
4.19 Consents and Approvals 40
4.20 Plans and Benefit Arrangements 40
4.21 Solvency 41
4.22 Margin Stock 41
4.23 Investment Company Act 41
4.24 Public Utility Holding Company Act 41
4.25 Year 2000 Problem 41
4.26 Full Disclosure 41
ARTICLE 5. AFFIRMATIVE COVENANTS 42
5.1 Use of Proceeds 42
5.2 Delivery of Financial Statements and Other Information 42
5.2a Annual Financial Statements 42
5.2b Quarterly Budgets. 43
5.2c Monthly Statement of Operations 43
5.2d Compliance Certificate 43
5.2e Borrowing Base Certificate 43
5.2f Management Letters 43
<PAGE>
5.2g Other Reports, Information and Notices 43
(i) Notice of Defaults and Material Adverse Changes 43
(ii) Notice of Litigation 44
(iii) ERISA Reports 44
(iv) Notices of Tax Audits 44
(v) Notice of Name Change 44
(vi) Labor Matters 45
(vii) Annual Forecast 45
5.2h Statements and Reports 45
5.2i SEC Reports 45
5.2j Additional Information; Visitation 45
5.3 Preservation of Existence; Qualification 45
5.4 Compliance with Laws, Contracts and Licenses 45
5.5 Continuance of Business 46
5.6 Accounting System: Books and Records 46
5.7 Payment of Taxes and Other Liabilities 46
5.8 Insurance 46
5.9 Maintenance of Properties 47
5.10 Plans and Benefit Arrangements 47
5.11 Access to Accountants and Management 47
5.12 Audit 47
5.13 Collateral Locations 47
5.14 Updates to Representations, Warranties and Schedules 48
5.15 Further Assurances: Power of Attorney 48
5.16 Key Man Life Insurance Policy 48
5.17 Primary Banking Relationship 49
5.18 Ownership of Subsidiaries. 49
5.19 Silicon Valley Acquisition 49
ARTICLE 6. NEGATIVE COVENANTS 49
6.1 Indebtedness 49
6.2 Guarantees 50
6.3 Liens: Negative Pledge 50
6.4 Financial Covenants 50
6.4a Minimum EBITDA 50
6.4b Adjusted Debt Service Ratio 50
6.4c Minimum Tangible Net Worth 50
6.4d Maximum Debt to Tangible Net Worth Ratio 50
6.4e Capital Expenditures 50
6.4f Operating Lease Expense 51
6.5 Distribution Restriction 51
6.6 Liquidations, Mergers, Consolidations, Acquisitions, Etc 51
6.7 Subsidiaries 51
6.8 Loans and Other Advances and Payments 51
6.8a Loans 51
6.8b Prepayments 51
6.9 Investments 51
6.10 Affiliate Transactions 52
6.11 Change of Business 52
6.12 ERISA 52
6.13 Capital Expenditure Limits 53
6.14 Asset Dispositions 53
<PAGE>
ARTICLE 7. CONDITIONS TO EXTENSIONS OF CREDIT53
7.1 All Loans 53
7.1a Request for Loan or Application 53
7.1b Borrowing Base Certificate 53
7.1c No Default or Event of Default 53
7.1d Representations Correct 53
7.1e Landlord Waivers and Consent 54
7.1f Loans for Silicon Valley Acquisition 54
7.2 Initial Extension of Credit 54
7.2a Closing Documents 54
7.2b Lien Searches 55
7.2c Termination Statements, Etc 55
7.2d Title Insurance 55
7.2e Surveys 55
7.2f Site Assessments 55
7.2g Environmental Agreement 55
7.2h Appraisals 56
7.2i Audit of Accounts and Inventory 56
7.2j Hazard and Liability Insurance 56
7.2k Flood Insurance 56
7.2l Termination of Existing Bank Credit Agreement 56
7.2m Organizational Documents 56
7.2n Intentionally Left Blank 56
7.2o Opinion of Counsel 56
7.2p Intentionally left blank 57
7.2q Governmental Approvals 57
7.2r Performance of Agreements 57
7.2s Request for Initial Loans 57
7.2t Assignment of Life Insurance Policy 57
7.2u Landlord Waivers and Consents 57
7.2v Solvency Certificate 57
7.2w No Deterioration 57
7.2x No Litigation 57
7.2y Closing Date Applicable Margin Statement 57
7.2z Payment of Fees 57
7.3 Conditions for Loans Made for the Silicon Valley Acquisition 58
7.3a Purchase and Sale Agreement 58
7.3b UCC-1 Financing Statements 58
7.3c Lien Searches 58
7.3d Termination Statements, Etc 58
7.3e Termination of Existing Indebtedness 58
7.3f Opinion of Counsel 58
7.3g Governmental Approvals 58
7.3h Landlord Waivers and Consents 59
7.3i Solvency Certificate 59
7.3j No Deterioration 59
<PAGE>
ARTICLE 8. EVENTS OF DEFAULT; REMEDIES59
8.1 Events of Default 59
8.1a Nonpayment of Any Borrower's Obligations 59
8.1b Violations Under Other Indebtedness and Obligations 59
8.1c Insolvency, Etc. 59
(i) Involuntary Proceedings 59
(ii) Voluntary Proceedings 60
8.1d Dissolution; Cessation of Business 60
8.1e ERISA 60
8.1f Change of Control 60
8.1g Adverse Judgments 60
8.1h Failure to Comply with Loan Documents 60
(i) Failure to Comply with Negative Covenants 60
(ii) Failure to Comply with Other Covenants 60
(iii) Defaults under or Failure to Comply with Other
Loan Documents 61
8.1i Misrepresentation 61
8.1j Invalidity, Etc. of Loan Documents 61
8.1k Material Adverse Change 61
8.1l Agent's Lien 61
8.2 Remedies 61
8.2a Events of Default Under Sections 8.1c and 8.1d 61
8.2b Remaining Events of Default 62
8.2c Additional Remedies 62
8.2d Exercise of Remedies; Remedies Cumulative 62
ARTICLE 9. AGREEMENT AMONG LENDERS 62
9.1 General; No Third Party Beneficiary 62
9.2 Appointment and Grant of Authority 62
9.3 Non-Reliance on the Agent 63
9.4 Responsibility of the Agent and Other Matters 63
9.4a Ministerial Nature of Duties 63
9.4b Limitation of Liability 63
9.4c Reliance 64
9.5 Action on Instructions 64
9.6 Action Upon Occurrence of a Default or Event of Default 64
9.7 Indemnification 64
9.8 Agent's Rights as a Lender 65
9.9 Loan Advances by the Agent 65
9.10 Payment to Lenders 65
9.11 Pro Rata Sharing 66
9.12 Notice of Event of Default 66
9.13 Successor Agent 66
<PAGE>
ARTICLE 10. GENERAL PROVISIONS 66
10.1 Amendments and Waivers 66
10.2 Taxes 68
10.3 Expenses 68
10.4 Notices 69
10.4a Notice to the Borrower 69
10.4b Notice to the Agent 69
10.4c Notice to the Lenders 70
10.4d Effectiveness of Notices 70
10.5 Assignments 70
10.5a Assignments 70
10.5b Assignment to Federal Reserve Bank 71
10.5c Assignment Register 71
10.6 Participations 71
10.6a Sale of Participations 72
10.6b Right of Setoff 72
10.7 Indemnity 72
10.8 Successors and Assigns 73
10.9 Confidentiality 73
10.10 Severability 73
10.11 Survival 73
10.12 Governing Law 73
10.13 Forum 74
10.14 Non-Business Days 74
10.15 Integration 74
10.16 Joint and Several Obligations 74
10.17 Headings 74
10.17 Counterparts 74
10.18 WAIVER OF JURY TRIAL 75
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of January 6, 1999, is entered
into by and among CIRCUIT SYSTEMS, INC., an Illinois corporation
("CSI"), CIRCUIT SYSTEMS OF TENNESSEE, L.P., a Tennessee limited
partnership ("CSTLP"), and SVPC CIRCUIT SYSTEMS, INC., a California
corporation ("SVPCCS"), (each, a "Borrower" as further defined below,
and collectively, the "Borrowers"), the financial institutions which
are or which become parties hereto (each a "Lender" and collectively
the "Lenders," as further defined below), and LASALLE NATIONAL BANK, a
national banking association, for itself as a Lender and as the agent
for the Lenders (in such capacity the "Agent").
WITNESSETH:
WHEREAS, the Borrowers have requested that the Lenders make
available to them (i) a revolving credit facility in the maximum
principal amount of $18,000,000 and (ii) a term loan in the maximum
principal amount of $7,000,000, and the Lenders have agreed to do so,
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises (each of which
is incorporated herein by reference) and the mutual promises contained
herein and other valuable consideration, the receipt and adequacy of
which are hereby acknowledged, and with the intent to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS; RULES OF CONSTRUCTION
1.1 Defined Terms. As used in this Agreement, including the preamble
and recitals hereto, and in the other Loan Documents, the following
terms shall have the meanings set forth below or in the Section or
Subsection of this Agreement referred to, unless the context otherwise
requires:
Account: An account, as that term is defined in the Uniform
Commercial Code, due any Borrower, whether now in existence or
hereafter created or acquired.
Account Debtor: Any Person who is or becomes obligated under or
with respect to an Account.
Adjusted Net Income: Net income of the Borrowers on a
consolidated basis determined in accordance with GAAP, less any
gain on the sale of any asset not in the ordinary course of
business and/or any extraordinary income and income tax
liability.
Affiliate: As to any Person, any other person directly or
indirectly through one or more intermediaries Controlling,
Controlled by, or under direct or indirect common Control with
such Person.
Agent: LaSalle National Bank, a national banking association, in
its capacity as agent for the Lenders hereunder, and its
successors and assigns, and any Person that becomes a successor
agent hereunder.
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Agreement: This Credit Agreement, together with all exhibits and
schedules hereto and all extensions, renewals, amendments,
restatements, substitutions, and replacements hereto and hereof.
Applicable Margin: As to each (i) Revolving Loan Tranche and
Term Loan Tranche, an incremental amount in excess of the Base
Rate or the LIBOR-Rate which will fluctuate as a function of the
Funded Debt to EBITDA Ratio, pursuant to Section 2.5a.
Assignment and Assumption Agreement: An Assignment and
Assumption Agreement entered into by and between a Purchasing
Lender, and a Transferor Lender, substantially in the form of
Exhibit "N" hereto, with appropriate insertions, and all
exhibits, schedules, extensions, renewals, amendments,
substitutions, and replacements thereto and thereof.
Authorized Officer: D.S. Patel and James E. Robbs. The Agent
and the Lenders shall be entitled to rely on the incumbency
certificates delivered pursuant to Section 7.2 for the initial
designation of each Authorized Officer. Additions or deletions
to the list of Authorized Officers may be made by CSI at any time
by delivering to the Agent a revised, fully-executed incumbency
certificate.
Base Rate: The per annum rate of interest equal to the Prime
Rate.
Base Rate Loan: A Revolving Loan Tranche or Term Loan Tranche
bearing interest under the Base Rate Option, as set forth in
Subsection 2.5a.
Base Rate Option: The ability of the Borrowers to elect Base
Rate Loans, as set forth in Subsection 2.5a.
Benefit Arrangement: An "employee benefit plan," within the
meaning of Section 3(3) of ERISA, which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise
contributed to by the Borrowers or any ERISA Affiliate for the
benefit of employees of the Borrowers or any ERISA Affiliate.
Borrower: Any of CSI, CSTLP, or SVPCCS.
Borrowing Base:
For the Revolving Credit Loans: The lesser of
$18,000,000 or the sum of (i) 85% of Eligible Accounts,
(ii) 50% of Eligible Finished Goods, (iii) 75% of
Eligible Finished Goods on Consignment, not greater
than $2,500,000, (iv) the sum of 40% of the Raw
Materials of SVPCCS and 50% of Raw Materials of all
other entities, together, not greater than $2,000,000,
and (v) 60% of the current market value of the common
stock of SigmaTron held by CSI, not greater than
$2,000,000.
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For the Term Loan: The lesser of $7,000,000 or the sum
of (a) 75% of the fair market value of the Mortgaged
Parcels and (b) 75% of the orderly liquidation value of
the Borrowers' machinery and equipment less the sum of
the current outstanding loans and leases secured by
such machinery and equipment.
Borrowing Base Certificate: A borrowing base certificate
substantially in the form of Exhibit "K" which has been executed
by an Authorized Officer and delivered to the Agent.
Business: The manufacture or sourcing, distribution and sale of
printed circuit boards by CSI and its Subsidiaries.
Business Day: Any day other than a Saturday or a Sunday or a
legal holiday on which the offices of the Agent (currently
located in Chicago, Illinois) are authorized or required to be
closed for business, and if the applicable Business Day related
to any LIBOR-Rate Loan, such day must also be a day on which
dealings are carried on in the London interbank market.
Capital Expenditure: Any expenditure which would be classified
as a capital expenditure in accordance with GAAP.
Capitalized Lease: Any lease of property which would be
capitalized on a balance sheet prepared in accordance with GAAP.
Capitalized Lease Obligations: The amount of the obligations
under Capitalized Leases which would be shown as a liability on a
balance sheet prepared in accordance with GAAP.
Change of Control: Any transaction or series of transactions or
occurrences which result at any time in any Person (other than
D.S. Patel) or group of Persons (within the meaning of Sections
13 and 14 of the Securities Exchange Act of 1934, as amended and
the rules and regulations thereunder) shall have the beneficial
ownership (within the meaning of Rule 13d-3 promulgated by the
Securities Exchange Commission under said Act) of securities
representing 25% or more of the combined voting power of all
outstanding voting securities of CSI or (b) D.S. Patel shall own
less than 25% of all outstanding voting securities of CSI.
Chattel Paper: Any chattel paper, as that term is defined in the
Uniform Commercial Code, of any Borrower, whether now owned or
hereafter created or acquired.
Closing Certificate: A certificate substantially in the form of
Exhibit "L" which has been executed by the Borrowers and
delivered to the Agent.
Closing Date: A date mutually agreed to by the parties hereto
upon the satisfaction or fulfillment of the conditions precedent
set forth in Article 7.
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Closing Date Applicable Margin Statement: A pro forma financial
statement showing Funded Debt of CSI on a Consolidated basis to
the EBITDA of CSI on a consolidated basis for the twelve months
ended November 30, 1998 which reflects the Funded Debt as of the
Closing Date, the Silicon Valley Acquisition and the costs and
expenses of the Silicon Valley Acquisition and those hereunder.
Collateral: Collectively, all of the property (whether real,
personal or mixed, and whether tangible or intangible), rights,
titles and interests subject to any Lien in favor of the Agent
for the benefit of the Lenders pursuant to this Agreement or any
other Loan Document.
Commission: The Securities and Exchange Commission.
Commitment: With respect to each Lender, the commitment of such
Lender to make Revolving Credit Loans and the Term Loan pursuant
to Article 2 in the aggregate Dollar amounts not to exceed at any
one time outstanding: (i) as to any Lender which is an original
signatory to this Agreement, the Dollar amounts for such Lender
set forth on Annex A hereto or as modified on Schedule I to the
most recent Assignment and Assumption Agreement, if any, which
such Lender executes as a Transferor Lender, as the case may be,
or (ii) as to any Lender which is not an original signatory to
this Agreement but which becomes a Lender by executing an
Assignment and Assumption Agreement as a Purchasing Lender, the
Dollar amounts for such Lender set forth on Schedule I to such
Assignment and Assumption Agreement, or as modified on Schedule I
to the most recent Assignment and Assumption Agreement, if any,
which such Lender executes as a Transferor Lender.
Commitment Percentage: With respect to each Lender, its
percentage commitment of the Revolving Credit Commitment and the
Term Loan, which shall be (i) as to any Lender which is an
original signatory to this Agreement, the percentage set forth on
Annex A hereto or as modified on Schedule I to the most recent
Assignment and Assumption Agreement, if any, which such Lender
executes as a Transferor Lender, as the case may be, or (ii) as
to any Lender which is not an original signatory to this
Agreement but which becomes a Lender by executing an Assignment
and Assumption Agreement as a Purchasing Lender, the percentage
set forth on Schedule I to such Assignment and Assumption
Agreement, or as modified on Schedule I to the most recent
Assignment and Assumption Agreement, if any, which such Lender
executes as a Transferor Lender.
Compliance Certificate: A certificate substantially in the form
of Exhibit "J", as the case may be, which has been executed by an
Authorized Officer and delivered to the Agent.
<PAGE>
Control (and its derivatives): Either (i) the ownership of five
percent (5%) or more of any class of voting securities, limited
liability company membership interests, partnership interests or
other equity interest of a Person, or (ii) the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether as a
general partner of a limited partnership, manager of a limited
liability company or through the ownership of voting securities,
partnership interests or other equity interests, by contract or
otherwise, including without limitation the power to elect a
majority of the directors of a corporation or trustees of a
trust, as the case may be.
CSI: Circuit Systems, Inc., an Illinois corporation.
CST: Circuit Systems of Tennessee, Inc., a Tennessee
corporation, and the general partner of CSTLP.
CSTLP: Circuit Systems of Tennessee, L.P., a Tennessee limited
partnership.
Debt Service: As of any date of determination, the sum of (i)
interest expense on Indebtedness, (ii) scheduled payments of
principal on Indebtedness (other than on the Revolving Credit
Loans or any voluntary prepayments of principal), (iii) lease
payments made with respect to Capitalized Leases and (iv) rental
payments for leased real property all determined in accordance
with GAAP consistently applied.
Default: Any condition, event, omission or act which with the
giving of notice, the passage of time or the occurrence of any
condition, event or act would constitute an Event of Default.
Default Rate: The rate of interest described in Section
2.5b(iv).
Document: Any document, as that term is defined in the Uniform
Commercial Code, of the Borrowers, whether now owned or in
existence or hereafter created or acquired.
Dollars or $: The legal tender of the United States of America.
EBITDA: The sum of (i) Adjusted Net Income, (ii) interest
expense, (iii) depreciation, (iv) amortization, (v) income tax
expense, of the Borrowers on a consolidated basis, and (vi) the
one-time restructuring charge of $1,520,000 taken in the first
quarter of Fiscal Year 1999, all determined in accordance with
GAAP consistently applied (and limited, in the cases of (ii)
through (vi) above, to the extent such items are deducted from
such Adjusted Net Income).
Eligible Account: Any Account of any Borrower which the Agent,
in its sole discretion exercised in good faith, determines to
have met all of the following minimum requirements:
<PAGE>
(i) The Account represents a complete bona fide transaction
for goods sold and delivered or services rendered (excluding any
amounts in the nature of a service charge added to the amount due
on an invoice because the invoice has not been paid when due)
which requires no further act under any circumstances on the part
of the Borrower to make such Account payable by the Account
Debtor;
(ii) The Account arises from an arm's-length transaction in
the ordinary course of the business of the Borrower between the
Borrower and an Account Debtor which (unless the Account Debtor
is SigmaTron or unless the Agent otherwise agrees in writing) is
not (A) an Affiliate or Subsidiary of any Borrower, (B) a Person
Controlled by a Subsidiary or Affiliate of any Borrower, (C) an
officer, director, stockholder or employee of any of the
Borrowers or any Affiliate or Subsidiary of the Borrowers, or (D)
a member of the family of an officer, director, stockholder or
employee of any Borrower or a Subsidiary or Affiliate of any
Borrower;
(iii) The Account shall not (A) be or have been unpaid
more than ninety (90) days from the original due date of the
invoice or (B) be payable by an Account Debtor (1) more than 25%
of whose Accounts are not deemed Eligible Accounts or (2) whose
Accounts constitute 20% or more of the aggregate amount of all
outstanding Accounts, provided, however, that the 20% limit shall
not apply to Lucent Technologies, Inc. and other Account Debtors
approved in writing by the Required Lenders and provided further,
that, as to such (B)(2) Account Debtors, only the amount of such
Accounts in excess of 20% shall not be an Eligible Account;
(iv) The goods the sale of which gave rise to the Account
were shipped or delivered or provided to the Account Debtor on an
absolute sale basis and not on a bill-and-hold, consignment sale,
guaranteed sale or sale-or-return basis or on the basis of any
other similar understanding, and no part of such goods have been
returned or rejected;
(v) The Account is not evidenced by Chattel Paper or an
Instrument of any kind and has not been reduced to judgment;
(vi) The Account Debtor with respect to the Account (A) is
Solvent, (B) is not the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action,
threatened or pending, which might have a materially adverse
effect on his or its business, operations or properties, (C) has
not made an assignment for the benefit of his or its creditors,
(D) has not failed, suspended business, ceased to be Solvent,
dissolved or consented to or suffered the appointment of a
receiver, trustee, liquidator or custodian for him or it or for
all or a significant portion of his or its assets or affairs, (E)
is not, in the sole discretion of the Agent exercised in good
faith, deemed ineligible for credit for other reasons (including,
without limitations, unsatisfactory past experience of any of the
Borrowers, respectively, or the Agent with such Account Debtor or
the unsatisfactory reputation of such Account Debtor), and (F) is
not located in Indiana, Minnesota, New Jersey or any other
jurisdiction which requires a Borrower, as a precondition to
<PAGE>
commencing or maintaining an action in the courts of that
jurisdiction, either (i) to receive a certificate of authority to
do business and be in good standing in that jurisdiction, or (ii)
to file a Notice of Business Activities Report or similar report
with such jurisdiction's taxing authority, unless (X) the
Borrower has taken one of the actions described in clause (i) or
(ii), (Y) the failure to take one of the actions described in
either clause (i) or (ii) may be cured retroactively by the
Borrower at its election, or (Z) the Borrower has proven, to the
Agent's reasonable satisfaction, that it is exempt from any such
requirements under any such jurisdiction's laws for all required
periods;
(vii) The Account Debtor is not located outside of the
United States of America, unless (a) the foreign Account Debtor
is a Fortune 1000 company, the Borrower has delivered to the Bank
any or all letters of credit and/or cash against documents
relating to such foreign Account or evidence of credit insurance,
as requested by the Agent and deemed adequate and acceptable by
the Agent or (b) the foreign Account has been deemed eligible by
the Agent in its sole discretion;
(viii) The Account Debtor is not the government of the
United States of America, or any department, agency or
instrumentality of the United States of America, unless the
Borrower assigns its right to payment of such Account to the
Agent, in form and substance satisfactory to the Agent, so as to
comply with the Assignment of Claims Act of 1940 (31 U.S.C. '203
et seq.), as amended from time to time, or applicable similar or
successor legislation.
(ix) The Account is a valid, legally enforceable obligation
of the Account Debtor with respect thereto and is only that
portion of an Account which is not subject to any dispute,
condition, contingency, offset, recoupment, reduction, claim for
credit, allowance, adjustment, counterclaim or defense on the
part of such Account Debtor, and the Account is not otherwise
subject to any right of setoff to the extent of any of the
foregoing.
(x) The Account is subject to a valid, perfected, first
priority Lien in favor of the Agent, subject only to the
Permitted Liens;
(xi) The Account is evidenced by an invoice or other
reasonably appropriate documentation;
(xii) The Account is not subject to any provision
prohibiting its assignment or requiring notice of or consent to
such assignment;
(xiii) The goods giving rise to the Account were not, at
the time of sale thereof, subject to any Lien except a Lien in
favor of the Agent;
(xiv) The Account is payable in freely transferable
Dollars;
<PAGE>
(xv) The Borrower has not made any agreement with the
Account Debtor for any deduction therefrom, except for discounts
or allowances which are made in the ordinary course of business
for prompt payment and which discounts or allowances are
reflected in the calculation of the face value of each invoice
related to such Account;
(xvi) The Borrower has not made any agreement with the
Account Debtor to extend the time of payment of such Account
beyond the ninety (90) day period referred to in (iii) unless the
Account is supported by an irrevocable letter of credit issued by
a Bank acceptable to the Agent without prior written consent of
the Lenders; and
(xvii) No covenant, representation or warranty contained
in this Agreement or any of the other Loan Documents with respect
to such Account has been breached.
In addition to the foregoing requirements, Accounts of any
Account Debtor which are otherwise Eligible Accounts shall be
reduced to the extent of any accounts payable (including, without
limitation, the Agent's good faith estimate of any contingent
liabilities) owing by the Borrower to such Account Debtor, which
accounts payable are known as "contras".
Eligible Finished Goods: Any of the finished goods in the
Inventory of the Borrowers which the Agent, in its sole
discretion exercised in good faith, determines to have met all of
the following minimum requirements:
(i) The finished goods are (A) located in the United States
at the premises listed on Schedule 4.14 and the Agent's Lien has
been perfected at such location, unless the applicable Borrower
has complied with the terms of Section 5.13 and the Agent's Lien
has been perfected in any new location for Inventory and (B) not
in transit;
(ii) The finished goods are not stored with a bailee,
warehouseman, consignee or similar party;
(iii) The finished goods are not located on the premises
of an outside processor or an independent sales office;
(iv) The finished goods are new and of good and merchantable
quality, are not obsolete and represent no more than an 18-month
supply of such finished goods;
(v) The finished goods are not packaging material or
packaging supplies unless such materials or supplies have already
been incorporated into the finished goods;
(vi) The finished goods are subject to a valid, perfected,
first priority Lien in favor of the Agent and are not subject to
any other Lien whatsoever, other than the Permitted Liens;
(vii) No covenant, representation or warranty contained
in this Agreement or any of the other Loan Documents with respect
to such finished goods has been breached; and
<PAGE>
(viii) The finished goods have not been manufactured in
violation of any Federal minimum wage or overtime laws, including
the Fair Labor Standards Act, 29 U.S.C. 215(a)(1) or any similar
or successor legislation.
Eligible Finished Goods On Consignment: That portion of the
Borrowers' finished goods inventory (i) which is held by an
Agent-approved Account Debtor, (ii) which is subject to a
consignment agreement which has been approved by Agent in form
and substance, and (iii) in which the Agent holds a perfected
security interest. The only Agent-approved Account Debtor
holding Eligible Goods On Consignment as of the Closing Date is
Lucent Technologies, Inc.
Environmental Agreement: The Environmental Indemnity Agreement
substantially in the form of Exhibit "G", together with all
exhibits, schedules, extensions, renewals, amendments,
substitutions and replacements thereto and thereof.
Environmental Law: This term shall have the meaning given it in
the Environmental Agreement.
Equipment: Any equipment, as that term is defined in the Uniform
Commercial Code, owned by the Borrowers, whether now owned or
hereafter acquired and wherever located.
ERISA: The Employee Retirement Income Security Act of 1974, as
it may from time to time be amended, supplemented, or otherwise
modified, or any successor statute, and the rules and regulations
promulgated thereunder.
ERISA Affiliate: At any time any member of a controlled group of
corporations under Section 414(b) of the Internal Revenue Code of
which any Borrower is a member, and any trade or business
(whether or not incorporated) under common control with any
Borrower under Section 414(c) of the Internal Revenue Code, and
all other entities which, together with any of the Borrowers, are
or were treated as a single employer under Section 414(m) or
414(o) of the Internal Revenue Code.
Event of Default: Any of the events specified in Section 8.1.
Existing Bank Credit Agreement: The Credit Agreement dated as of
July 24, 1997 entered into by and between CSI and American
National Bank, together with all extensions, renewals,
amendments, substitutions and replacements thereto and thereof.
Existing Bank Indebtedness: All outstanding principal, accrued
and unpaid interest and fees, and all other unpaid amounts owed
to American National Bank pursuant to the Existing Bank Credit
Agreement.
Expenses: Those amounts described in Section 10.3.
Fee: Any of the Unused Availability Fee, the Term Loan Draw Fee
or any other fee payable by the Borrowers to the Agent or the
Lenders hereunder or under any of the other Loan Documents.
<PAGE>
Fiscal Quarter: Each three-month fiscal period of CSI beginning
respectively on each successive February 1, May 1, August 1 and
November 1 during the term thereof and ending on the immediately
succeeding April 30, July 31, October 31 and January 31.
Fiscal Year: Each annual fiscal period of CSI beginning May 1
and ending on the immediately succeeding April 30.
Fixture: Any fixture, as that term is defined in the Uniform
Commercial Code, owned by the Borrowers, whether now owned or
hereafter acquired and wherever located.
Funded Debt: As of any date of determination, the total amount
of the Borrowers' outstanding Indebtedness, reported on a
consolidated basis.
Funded Debt to EBITDA Ratio: The ratio of Funded Debt as of the
end of a Fiscal Quarter to EBITDA for such Fiscal Quarter, on a
rolling four quarter basis; provided that for periods prior to
the Closing Date the ratio shall be determined on the basis of
the Funded Debt as of the Closing Date and the EBITDA for the
relevant period.
Funding Breakage Fee: The prepayment fee described in Section
2.1c(v).
GAAP: Generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting
profession) which are applicable to the circumstances as of the
date of determination.
General Intangible: Any general intangible, as that term is
defined in the Uniform Commercial Code, of the Borrowers, whether
now owned or in existence or hereafter created or acquired,
including without limitation any cause of action, business
records, deposit account, invention, design, patent, patent
application, trademark, trademark application, service mark,
service mark application, trade name, trade name application,
trade secret, goodwill, copyright, copyright application,
registration, license, franchise, customer guaranties, security
interests, rights to indemnification or any other intangible
property of any kind or nature (other than an Account).
Goods: All goods, as that term is defined in the Uniform
Commercial Code, of the Borrowers, whether now owned or hereafter
acquired and wherever located.
<PAGE>
Governmental Approval: Any order, consent, authorization,
license, validation, approval or permit required to be issued to
or obtained by any of the Borrower from any Governmental
Authority in connection with (i) the ownership, construction,
erection, installation, operation, use and maintenance by it of
its properties, (ii) the conduct of its present and proposed
businesses and (iii) the execution, delivery and performance by
it of and under the Loan Documents.
Governmental Authority: The government of the United States or
the government of any state or locality therein, any political
subdivision or any governmental, quasi-governmental, judicial,
public or statutory instrumentality, court, arbitrator,
authority, body or entity or other regulatory bureau, authority,
body or entity of the United States or any state, territory or
municipality or locality therein, or any central bank or any
comparable authority, and any successor to any of the foregoing
or any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
Governmental Rule: Any law, statute, rule, regulation, treaty,
ordinance, order, writ, injunction, decree, judgment, guideline,
directive or decision of any Governmental Authority, including
without limitation Environmental Laws, whether in existence on
the Closing Date or whether issued, enacted or adopted after the
Closing Date, and any change therein or in the interpretation or
application thereof following the Closing Date.
Guaranty: As to any Person, any obligation, direct or indirect,
by which such Person undertakes to guaranty, assume or remain
liable for the payment of a second Person's obligations,
including but not limited to (i) endorsements of negotiable
instruments, (ii) discounts with recourse, (iii) agreements to
pay or perform upon a second Person's failure to pay or perform,
(iv) agreements to remain liable on obligations assumed by a
second Person, (v) agreements to maintain the capital, working
capital, solvency or general financial condition of a second
Person and (vi) agreements for the purchase or other acquisition
of products, materials, supplies or services, if in any case
payment therefor is to be made regardless of the nondelivery of
such products, materials or supplies or the nonfurnishing of such
services.
Indebtedness: Individually and collectively, (i) all obligations
and indebtedness for borrowed money, including but not limited to
the Obligations and subordinated financing (to the extent such
financing shall be treated as indebtedness (or debt) under GAAP);
(ii) all obligations evidenced by bonds, debentures, notes,
including but not limited to the Notes, or similar instruments;
(iii) all obligations under conditional sale or other title
retention agreements relating to property purchased by any
Borrower; (iv) all obligations issued or assumed as the deferred
purchase price of property or services; (v) all Capitalized Lease
Obligations; (vi) all obligations with respect to letters of
credit, whether matured or contingent; (vii) all obligations of
others secured by any Lien or property or assets owned or
acquired, whether or not the obligations secured thereby have
been assumed; (viii) any Guaranty; (ix) all obligations with
<PAGE>
respect to any interest hedge agreement (i.e. any type of
agreement or arrangement designed to provide protection against
fluctuations in interest rates); and (x) any other transaction
which shall be treated as indebtedness (or debt) in accordance
with GAAP; provided, however, that Indebtedness shall not include
accounts payable incurred in the ordinary course of business and
not more than 90 days old, unless disputed in good faith, if
those accounts payable do not constitute obligations to repay
borrowed money.
Indemnified Person: This term shall have the meaning given it in
Section 10.7.
Instrument: Any instrument, as that term is defined in the
Uniform Commercial Code, owned or held by any Borrower, whether
now owned or in existence or hereafter created or acquired.
Interest Rate Option: Either the Base Rate Option or the LIBOR-
Rate Option.
Internal Revenue Code: The Internal Revenue Code of 1986 or any
successor legislation thereto, and the rules and regulations
issued or promulgated thereunder, including any amendments to any
of the foregoing.
Inventory: All inventory, as that term is defined in the Uniform
Commercial Code, owned by any Borrower, including but not limited
to any and all new or used goods, merchandise or other personal
property, including but not limited to goods in transit, of any
Borrower, and which is or may at any time be held as finished
goods, raw materials, work-in-process, supplies or materials used
or consumed in the business of such Borrower or held for sale or
lease or furnished under a contract of service in the ordinary
course of the business of such Borrower, including but not
limited to all returned and repossessed goods and all
supplementary items, packing and shipping supplies and
advertising materials, all of the foregoing whether now owned or
hereafter acquired and wherever located.
Investment Property: Any investment property, as that term is
defined in the Uniform Commercial Code, of any of the Borrowers,
whether now owned or in existence as hereinafter created or
acquired.
Lender: Each financial institution listed on Annex A, and any
financial institution which becomes a party hereto in the future,
and its successors and permitted assigns.
LIBOR-Rate: With respect to each Revolving Loan Tranche and each
Term Loan Tranche to which the LIBOR-Rate Option applies for any
LIBOR-Rate Interest Period, the interest rate per annum
determined by the Agent by dividing (the resulting quotient
rounded upward or downward to the nearest 1/16th of 1% per annum)
(i) the rate of interest determined by the Agent in accordance
with its usual procedures (which determination shall be
conclusive, absent manifest error) to be quoted on the Reuters
screen ISDA page to be the average of the rates per annum for
deposits in Dollars offered to major money center banks in the
<PAGE>
London interbank market (or, if such Reuters quotation is not
available, determined in good faith by the Agent, after inquiry
to three reference banks selected by the Agent from among the
Lenders, in accordance with its usual procedures when reference
banks are consulted), at approximately 11:00 a.m., London time,
two Business Days prior to the first day of such LIBOR-Rate
Interest Period for delivery on the first day of such LIBOR-Rate
Interest period and in an amount comparable to such Revolving
Loan Tranche or Term Loan Tranche and having a borrowing date and
a maturity comparable to such LIBOR-Rate Interest Period by (ii)
a number equal to 1.00 minus the LIBOR-Rate Reserve Percentage.
LIBOR-Rate Interest Period: (i) With respect to any Revolving
Loan Tranche or Term Loan Tranche, any individual period of one,
two or three months commencing on the date a LIBOR-Rate Option is
effective; provided, however, that (A) any LIBOR-Rate Interest
Period which would otherwise end on a day which is not a Business
Day shall be extended to the next Business Day unless such
Business Day falls in the succeeding calendar month, in which
case such LIBOR-Rate Interest Period shall end on the next
preceding Business Day, (B) any LIBOR-Rate Interest Period which
begins on the last day of a calendar month or on a day for which
there is no numerically corresponding day in the subsequent
calendar month during which such LIBOR-Rate Interest Period is to
end shall end on the last Business Day of such subsequent month,
and (C) no LIBOR-Rate Interest Period for any Revolving Loan
Tranche may end after the Revolving Credit Termination Date, and
no LIBOR-Rate interest period for any Term Loan Tranche may end
after the Term Loan Maturity Date.
LIBOR-Rate Loan: A Revolving Loan Tranche or Term Loan Tranche
bearing interest under the LIBOR-Rate Option, as set forth in
Subsection 2.5a.
LIBOR-Rate Option: The ability of the Borrowers to elect LIBOR-
Rate Loans, as set forth in Subsection 2.5c.
LIBOR-Rate Reserve Percentage: The maximum percentage (expressed
as a decimal rounded upward to the nearest 1/16 of 1%), as
determined by the Agent (which determination shall be conclusive,
absent manifest error) which is in effect during any relevant
period, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum
reserve requirements (including supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as "Eurocurrency Liabilities") of
a member bank in such System. The LIBOR-Rate shall be adjusted
automatically as of the effective date of each change in the
LIBOR-Rate Reserve Percentage. The LIBOR-Rate Option shall be
calculated in accordance with the foregoing whether or not any
Lender is actually required to hold reserves in connection with
its eurocurrency funding or, if required to hold such reserves,
is required to hold reserves at the "LIBOR-Rate Reserve
Percentage" as herein defined.
<PAGE>
Lien: Any security interest, mortgage, charge, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority or other security
agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale
or other title retention agreement, any Capitalized Lease having
substantially the same economic effect as any of the foregoing,
and the filing of any financing statement under the Uniform
Commercial Code evidencing any of the foregoing), in, upon or
against any asset of any Borrower or any Subsidiary, whether or
not voluntarily given.
Loan: A Revolving Credit Loan or the Term Loan, and
collectively, the "Loans."
Loan Account: Any loan account referred to in Section 2.9.
Loan Document: Any of this Agreement, any Revolving Credit Note,
any Term Note, any Security Document, the Environmental
Agreement, the Pledge Agreement, and all other agreements,
documents and instruments executed and delivered to govern,
evidence or secure the Obligations, and the statements, reports,
certificates and other documents required by, or related to, any
of the foregoing, together with all extensions, renewals,
amendments, substitutions and replacements to and of any of the
foregoing.
Loan Request: Each Loan Request executed by a Borrower and
delivered to the Agent, substantially in the form of Exhibit "C".
Material Adverse Change: Any set of circumstances or events
which (i) has or could reasonably be expected to have any
material adverse effect whatsoever upon the validity of
enforceability of this Agreement or any of the other Loan
Documents, (ii) is or could reasonably be expected to be material
and adverse to the business, properties, assets, financial
condition or results of operations of the Borrowers, taken as a
whole, (iii) impairs materially or could reasonably be expected
to impair materially the ability of a Borrower to duly and
punctually pay or perform the Obligations, or (iv) impairs
materially or could reasonably be expected to impair materially
the ability of the Agent or any Lender to enforce their
respective legal remedies pursuant to this Agreement and the
other Loan Documents.
Material Adverse Effect: An effect that results in or causes a
Material Adverse Change.
Money: Any money, as that term is defined in the Uniform
Commercial Code, of the Borrowers, whether now owned or hereafter
acquired.
Mortgage: Any mortgage or deed of trust delivered pursuant to
this Agreement, substantially in the form of Exhibit "F", for the
Mortgaged Parcels, together with all extensions, renewals,
amendments, restatements, substitutions and replacements thereto
and thereof.
<PAGE>
Mortgaged Parcel or Mortgaged Parcels: The parcels of real
estate and all improvements and appurtenances owned by any
Borrower, identified on Schedule 4.14, which are to be mortgaged
by such Borrower pursuant to this Agreement.
Multiemployer Plan: A "Multiemployer Plan" as defined in Section
4001(a)(3) of ERISA to which any Borrower or any ERISA Affiliate
is making or accruing an obligation to make contributions, or has
within any of the preceding five plan years made or accrued an
obligation to make contributions.
Note: Individually, any Revolving Credit Note and any Term Loan
Note, and collectively, all of the Revolving Credit Notes and the
Term Loan Notes, the "Notes".
Obligations: Collectively, (i) all unpaid principal and accrued
and unpaid interest with respect to the Loans, (ii) all accrued
and unpaid Fees and Expenses, (iii) any other amounts due
hereunder or under any of the other Loan Documents, including all
reimbursements, indemnities, costs, expenses, prepayment
premiums, yield protection obligations, the Funding Breakage Fee
and other obligations of any Borrower to the Agent, any Lender or
any Indemnified Person hereunder and thereunder, and (iv) all
out-of-pocket costs and expenses incurred by the Agent and any
Lender in connection with this Agreement and the other Loan
Documents, including but not limited to the reasonable fees and
expenses of the Agent's and the Lender's counsel which the
Borrowers are responsible to pay pursuant to the terms of this
Agreement and the other Loan Documents.
Outstanding Revolving Credit Amount: The aggregate principal
amount of outstanding Revolving Credit Loans.
Participant: Any bank or financial institution which acquires
from any Lender an interest in such Lender's Revolving Credit
Commitment and Loans, pursuant to Section 10.6.
Participation: The sale, made in accordance with the provisions
of Section 10.6, by a Lender to any Participant of an undivided
interest in such Lender's Revolving Credit Commitment and Loans.
PBGC: The Pension Benefit Guaranty Corporation established
pursuant to ERISA, or any entity succeeding to any or all of its
functions under ERISA.
Permitted Encumbrances: Certain permitted liens, easements and
encumbrances described in Section 7.2d.
Permitted Lien: Any of the following:
(i) The security interests in the Collateral granted to the
Agent for the benefit of the Lenders as security for the
Obligations;
(ii) Liens to secure Indebtedness permitted to exist
pursuant to items (ii) and (iii) of Section 6.1, including,
without limitation, purchase money security interests granted in
favor of sellers of personal property so long as the lien does
not exceed eighty percent (80%) of such Indebtedness;
<PAGE>
(iii) Good faith deposits made in the ordinary course of
business in connection with bids, tenders, contracts or leases to
which a Borrower is a party, or deposits made to secure public or
statutory obligations;
(iv) Deposits to secure replevin, surety, attachment or
appeal bonds relating to legal proceedings to which a Borrower is
a party;
(v) Liens for taxes, assessments, governmental charges or
levies on the Borrower's properties, including any such liens
made pursuant to any Environmental Law, if such taxes,
assessments, governmental charges or levies are not at the time
due and payable or are being contested in good faith by
appropriate proceedings diligently conducted and with respect to
which the applicable Borrower has created adequate reserves;
(vi) Pledges or deposits to secure payment of workers'
compensation obligations, unemployment insurance, deposits or
indemnities to secure public or statutory obligations or for
similar purposes;
(vii) Liens arising out of judgments or awards against
any Borrower with respect to which enforcement has been stayed
and the applicable Borrower at the time shall currently be
prosecuting an appeal or proceeding for review in good faith by
appropriate proceedings diligently conducted provided that all
such Liens in the aggregate do not exceed $100,000;
(viii) Mechanics', carriers', workmen's, repairmen's and
other similar statutory Liens incurred in the ordinary course of
the business of any Borrower, so long as the obligation secured
is not overdue or, if overdue, is being contested in good faith
by appropriate actions or proceedings being diligently conducted
and as to which such Borrower has created adequate reserves;
(ix) Security interests in favor of lessors of personal
property, which property is the subject of a true lease between
such lessor and any Borrower;
(x) Liens existing on the Closing Date which are listed on
Schedule 6.3.
Person: Any individual, partnership, corporation, association,
trust, business trust, joint venture, joint stock company,
limited liability company, unincorporated organization or
enterprise, entity or Governmental Authority.
Plan: As to any Person, any employee pension benefit plan other
than a Multiemployer Plan which is covered by Title IV of ERISA
and which either (i) is maintained by such Person and/or any
ERISA Affiliate of such Person for employees of such Person
and/or any ERISA Affiliate or (ii) has at any time within the
preceding five years been maintained by such Person and/or any
entity which was an ERISA Affiliate at such time for their
respective employees.
<PAGE>
Pledge Agreement: The pledge by CSI of all of the capital stock
of SigmaTron owned by CSI and 100% of the CSI's Subsidiaries now
existing or hereafter acquired, pursuant to the terms of a Pledge
Agreement dated of even date executed by CSI in the form of
Exhibit "E", together with all extensions, renewals, amendments,
restatements, substitutions and replacements thereto and thereof.
Prime Rate: For any day, a variable per annum interest rate
equal at all times to the rate of interest established and quoted
by the Agent as its Prime Rate, such rate to change
contemporaneously with each change in the established and quoted
rate. In the event that the Agent, during the term of the Loans,
shall abolish or abandon the practice of publishing the Prime
Rate, the Prime Rate hereunder shall be the lowest published
prime rate announced by one of the other Lenders under this
Agreement. The Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to
a customer by the Agent.
Prohibited Transaction: A "prohibited transaction" as defined
under Section 406 of ERISA or Section 4975 of the Internal
Revenue Code.
Purchasing Lender: A Lender which becomes a party to this
Agreement by executing an Assignment and Assumption Agreement.
Qualified Lender: Either (i) the Agent or any Lender or (ii) any
other bank or trust company organized under the laws of the
United States of America or any state thereof, having total
assets in excess of $5,000,000,000 and whose long-term
certificates of deposit are rated "A" or better by Standard and
Poor's Ratings Group, a division of McGraw-Hill, Inc., or "A" or
better by Moody's Investors Service, Inc.
Raw Material Inventory: That portion of a Borrower's Inventory
which consists of raw materials normally used by that Borrower in
the manufacture of finished goods.
Register: This term shall have the meaning given it in Section
10.5c.
Regulations D,G,T,U and X: Regulations D, G, T, U and X
promulgated by the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 204 et seq., 12 C.F.R. Part 207 et. seq.,
12 C.F.R. Part 220 et. seq., 12 C.F.R. Part 221 et. seq. and 12
C.F.R. Part 224 et. seq., respectively), as such regulations are
now in effect and as may hereafter be amended.
Reportable Event: A "reportable event" described in Section 4043
of ERISA and in 29 C.F.R. Part 2615.
<PAGE>
Required Lenders: Prior to the termination of the Revolving
Credit Commitment, the Lenders whose Commitment Percentages
aggregate at least sixty-six and two-thirds percent (66-2/3%) of
the aggregate Commitment Percentages of all the Lenders, and
after the termination of the Revolving Credit Commitment, whether
on the stated Revolving Credit Termination Date, by acceleration
or otherwise, the Lenders whose outstanding principal amounts of
the Loans aggregate at least sixty-six and two-thirds percent
(66-2/3%) of the aggregate principal amount of the outstanding
Loans.
Revolving Credit Commitment: The obligation of the Lenders to
make available to the Borrowers Revolving Credit Loans in a
maximum aggregate principal amount not to exceed $18,000,000.
Revolving Credit Loan: An individual borrowing by a Borrower
under the Revolving Credit Commitment including any increases,
extensions or renewals thereto or thereof and collectively with
other borrowings by other Borrowers under the Revolving Credit
Commitment, the "Revolving Credit Loans".
Revolving Credit Note: Any promissory note of a Borrower
evidencing Indebtedness of that Borrower under the Revolving
Credit Commitment and in substantially the form of Exhibit "A",
together with all extensions, renewals, amendments, substitutions
and replacements thereto and thereof.
Revolving Credit Termination Date: October 31, 2001.
Revolving Loan Tranche: A specified portion of the Revolving
Credit Loans as follows: (i) any Revolving Credit Loan to which
the LIBOR-Rate Option applies which becomes subject to the same
LIBOR-Rate Option under the same Loan Request and for election of
or conversion to an Interest Rate Option by the Borrowers and
which has the same LIBOR-Rate Interest Period shall constitute
one Revolving Loan Tranche and (ii) any Revolving Credit Loan to
which the Base Rate Option applies shall constitute one Revolving
Loan Tranche.
Security Agreement: The Security Agreement executed by the
Borrowers and substantially in the form of Exhibit "D", together
with all extensions, renewals, amendments, restatements,
substitutions and replacements thereto and thereof.
Security Documents: Any and all of (i) the Security Agreement,
(ii) the Mortgages, (iii) the Pledge Agreement, (iv) all
additional documents and instruments entered into from time to
time for the purpose of securing the Obligations, (v) any and all
ancillary documents and instruments relating to any of the
foregoing, such as Uniform Commercial Code financing statements,
and (vi) all extensions, renewals, amendments, substitutions,
replacements and continuations to and of any of the foregoing.
Shareholder Distribution: Any dividend, redemption or other
acquisition for value of capital stock now or hereafter
outstanding, return of capital or any distribution of assets to
any shareholder.
<PAGE>
SigmaTron: SigmaTron International, Inc., a Delaware
corporation.
Silicon Valley: H.O.T.L.R.T., Inc. d/b/a Silicon Valley Printed
Circuits, a California corporation.
Silicon Valley Acquisition: The transaction (which will have
been consummated prior to January 4, 1999) through which SVPCCS
shall acquire substantially all of the assets and certain assumed
liabilities of Silicon Valley with a combination of seller notes
aggregating no more than $4,000,000 and cash and other
consideration valued at no more than $3,000,000.
Solvent: As to any Person, the condition which exists when such
Person (i) owns assets whose value (both at fair market value and
present fair saleable value) is, on the date of determination,
greater than the amount of such Person's liabilities (including
without limitation contingent and unliquidated liabilities), (ii)
is able to pay all of its obligations as they mature and (iii)
has capital that is not unreasonably small and is sufficient in
relation to its present business and transactions and all
business and transactions in which it is about to engage.
Subsidiary: Either (i) any corporation more than 50% of the
outstanding voting securities of which is at the time owned or
Controlled, directly or indirectly, by a Borrower, or by a
Borrower and one or more Subsidiaries, or (ii) any other Person
which is so owned or Controlled.
Tangible Net Worth: An amount equal to (i) the sum of the
capital stock and additional paid-in capital plus retained
earnings (or minus accumulated deficit) calculated in accordance
with GAAP, less intangible assets, whether or not in accordance
with GAAP, including, without limitation, unamortized covenants
not to compete, prepayments, deferred charges, unamortized debt
discount and expense, good will, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks and brand
names, all obligations owed to the Borrower by any Affiliate or
Subsidiary, and all loans by the Borrowers to their officers,
shareholders, Subsidiaries or employees.
Term Loan: The term loan made by the Lenders to the Borrowers in
the principal amount of $7,000,000, including any increases,
extension or renewals thereto or thereof.
Term Loan Draw Fee: The Fee described in subsection 2.10a.
Term Loan Maturity Date: October 31, 2003.
Term Loan Note: A promissory note of the Borrowers evidencing
indebtedness of the Borrowers under the Term Loan, in
substantially the form of Exhibit "B", together with all
extensions, renewals, amendments, substitutions and replacements
thereto and thereof.
<PAGE>
Term Loan Tranche: A specified portion of the principal amount
of the Term Loan as follows: (i) any portion of the principal of
the Term Loan to which the LIBOR-Rate Option applies which
becomes subject to the same LIBOR-Rate Option under the same
election of or conversion to an Interest Rate Option by the
Borrowers and which has the same LIBOR-Rate Interest Period shall
constitute one Term Loan Tranche and (ii) the entire portion of
the principal of the Term Loan to which the Base Rate Option
applies shall constitute one Term Loan Tranche.
Transfer Effective Date: For each Assignment and Assumption
Agreement, the date upon which such Assignment and Assumption
Agreement is effective.
Transferor Lender: The selling Lender pursuant to an Assignment
and Assumption Agreement as permitted by Section 10.5.
Treasury Rate Applicable to LIBOR-Rate Loan Prepayment: The rate
per annum as of any "Funding Breakage Date" referenced in
Subsection 2.1c(v) determined by the applicable Lender (which
determination shall be conclusive absent manifest error) to be
the semiannual equivalent yield to maturity (expressed as a
semiannual equivalent and decimal and, in the case of United
States Treasury bills, converted to a bond equivalent yield) for
United States Treasury securities maturing on the last day of the
corresponding treasury rate maturity date and trading in the
secondary market in reasonable volume (or if no such securities
mature on such date, the rate determined by standard securities
interpolation methods as applied to the series of securities
maturing as close as possible to, but earlier than, such date,
and the series of such securities maturing as close as possible
to, but later than, such date.)
Uniform Commercial Code: The Uniform Commercial Code as enacted
in the applicable jurisdiction, in effect on the Closing Date and
as amended from time to time.
Unused Availability Fee: That Fee described in subsection 2.10b.
1.2 Accounting Terms. Each accounting term not defined herein and
each accounting term partly defined herein, to the extent not defined,
shall have the meaning given it under GAAP.
1.3 Rules of Construction. (i) Except as otherwise specified herein,
all references in any Loan Document (A) to any Person shall be deemed
to include such Person's heirs, executors, administrators, successors
and assigns, (B) to any applicable Governmental Rule shall be deemed
references to such Governmental Rule as the same may have been or may
be amended, supplemented or replaced from time to time and (C) to any
Loan Document defined or referred to herein shall be deemed references
to such Loan Document (and, in the case of any Note or other
instrument, any instrument issued in substitution therefor) as the
terms thereof may have been or may be amended, supplemented, waived or
otherwise modified from time to time.
<PAGE>
(ii) When used in any Loan Document, the words "herein," and
"hereunder" and words of similar import shall refer to such Loan
Document as a whole and not to any particular provision of such Loan
Document, and the words "Article," "Section," "Subsection,"
"Schedule," "Exhibit," and "Annex" shall refer to Articles, Sections
and Subsections of, and Schedules, Exhibits and Annexes to, such Loan
Document, unless otherwise specified.
(iii) Whenever the context so requires, in all Loan Documents
the use of or reference to any gender includes the masculine, feminine
and neuter genders; "or" has the inclusive meaning represented by the
phrase "and/or"; "including" has the meaning represented by the phrase
"including without limitation"; and all terms used in the singular
shall have comparable meanings when used in the plural and vice versa.
ARTICLE 2. THE LOANS
2.1 Revolving Credit Commitment.
2.1a Revolving Credit Loans. The Lenders agree, severally and
not jointly, subject to the terms and conditions hereof and relying
upon the representations and warranties herein set forth, that any
Borrower shall have the right to borrow, repay and reborrow, from the
date hereof until the Revolving Credit Termination Date, an aggregate
principal amount which shall not exceed in the aggregate at any one
time outstanding the lesser of (i) $18,000,000 or (ii) the Borrowing
Base for the Revolving Credit Loans.
2.1b Commitments of the Lenders. Each Lender agrees, for itself
only, and subject to the terms and conditions of this Agreement, to
make Revolving Credit Loans to the Borrowers from time to time not to
exceed an aggregate principal amount at any time equal to such
Lender's Commitment Percentage of the Revolving Credit Commitment;
provided, however, that in no event shall any Lender be required to
advance an amount in excess of its Commitment with respect to the
Revolving Credit Loans; and provided, further, that if any Lender
fails to advance to any Borrower its commitment Percentage of any
Revolving Credit Loan, the remaining Lenders shall not be required to
advance to that Borrower the defaulting Lender's share of such
Revolving Credit Loan.
2.1c Mandatory and Voluntary Reductions of Revolving Credit
Commitment; Mandatory and Voluntary Principal Payments.
(i) Borrowing Base Amount. In the event that at any time either
any Loan Account or the Borrowing Base Certificate most recently
delivered by a Borrower to the Agent shows that the Outstanding
Revolving Credit Amount exceeds the Borrowing Base, the Borrowers
shall repay, simultaneously with the delivery of any such Borrowing
Base Certificate to the Agent or upon demand by the Agent, whichever
is earlier, an amount which is sufficient to reduce the Outstanding
Revolving Credit Amount so that, after such repayment, the Borrowing
Base has not been exceeded. Until such repayment occurs, the Lenders
shall not be required to make additional Revolving Credit Loans to any
Borrower.
<PAGE>
(ii) Voluntary Permanent Reductions. Upon two Business Days'
written notice to the Agent, the Borrowers may from time to time
voluntarily permanently reduce the Revolving Credit Commitment. Each
voluntary reduction shall be in a minimum amount of $1,000,000 or, if
greater than $1,000,000, in integral multiples of $500,000.
(iii) Effect of Reductions. The portion of the Revolving
Credit Commitment so terminated pursuant to the preceding item (ii)
shall no longer be available for borrowing. Simultaneously with each
voluntary permanent reduction, the Borrowers shall make a payment of
the outstanding Revolving Credit Loans equal to the excess, if any, of
(A) the aggregate principal amount of the Outstanding Revolving Credit
Amount over (B) the Revolving Credit Commitment, as so reduced, and
all accrued and unpaid interest thereon. Notice of a reduction, once
given, shall be irrevocable. All such reductions shall be without
penalty or premium (except for amounts owing pursuant to Section
2.1c(v) and Section 2.5e, if any).
(iv) Application of Reductions and Prepayments. Any and all
Revolving Credit Commitment reductions or prepayments (mandatory or
voluntary) made pursuant to any particular item of this Section 2.1c
shall be made in addition to, and not in lieu of, any and all
Revolving Credit Commitment reductions and prepayments (mandatory or
voluntary) to be made pursuant to any other item of this Section 2.1c.
All such mandatory and voluntary prepayments of Revolving Credit
Loans shall be accompanied by all accrued and unpaid interest thereon
and all amounts due pursuant to Section 2.1c(v) and Section 2.5h, if
any, and, in the case of a permanent reduction of the Revolving Credit
Commitment to zero, any other outstanding Obligations relating to the
Revolving Credit Commitment which are then due and payable. All such
mandatory and voluntary prepayments shall be applied by the Agent to
repay Base Rate Loans first, and then to repay LIBOR-Rate Loans.
(v) Funding Breakage Fee. In addition to all other amounts
payable hereunder, if and to the extent for any reason any part of any
Revolving Loan Tranche of any LIBOR-Rate Loan becomes due (by
acceleration or otherwise), or is paid, prepaid or converted to
another Interest Rate Option (whether or not such payment, prepayment
or conversion is mandatory or automatic and whether or not such
payment or prepayment is then due) on a day other than the last day of
the corresponding LIBOR-Rate Interest Period (the date such amount so
becomes due, or is so paid, prepaid or converted, being referred to as
the "Funding Breakage Date"), the Borrowers shall pay each Lender an
amount ("Funding Breakage Fee") determined by such Lender as follows:
(A) first, calculate the following amount (w) the principal
amount of such Revolving Loan Tranche of the Loans owing to such
Lender which so became due, or which was so paid, prepaid or
converted, times (x) the greater of (1) zero or (2) the rate of
interest applicable to such principal amount on the Funding Breakage
Date minus the Treasury Rate Applicable to LIBOR-Rate Loan Prepayment
as of the Funding Breakage Date, times (y) the number of days from and
including the Funding Breakage Date to but not including the last day
of such LIBOR-Rate Interest Period, times (z) l/360; and
<PAGE>
(B) the Funding Breakage Fee to be paid by the Borrowers to
such Lender shall be the amount equal to the present value as of the
Funding Breakage Date (discounted at the Treasury Rate Applicable to
LIBOR-Rate Loan Prepayment as of such Funding Breakage Date, and
calculated on the basis of a year of 360 days, as the case may be, and
actual days elapsed) of the amount described in the preceding clause
(A) (which amount described in the preceding clause (A) is assumed for
purposes of such present value calculation to be payable on the last
day of the corresponding LIBOR-Rate Interest Period).
Such Funding Breakage Fee shall be due and payable on demand, and each
Lender shall, upon making such demand, notify the Agent of the amount
so demanded. In addition, the Borrowers shall, on the due date for
payment of any Funding Breakage Fee, pay to such Lender an additional
amount equal to interest on such Funding Breakage Fee from the Funding
Breakage Date to but not including such due date at the Base Rate
Option (calculated on the basis of a year of 360 days and actual days
elapsed). The amount payable to each Lender under this Subsection
shall be determined in good faith by such Lender, and such
determination shall be conclusive.
2.1d Amount of Revolving Credit Loans. Except as required by
Section 2.4d, each Revolving Credit Loan shall be in a minimum amount
of $500,000, or if in excess of $500,000, in integral multiples of
$100,000; provided, however, that if the entire amount of Revolving
Credit Loans available to the Borrowers is less than $500,000, then
such Revolving Credit Loan shall be for such entire amount.
2.1e Interest Rate. The Revolving Credit Loans shall bear
interest at the rate or rates set forth in Section 2.5 hereof, unless
the Default Rate is in effect at that time, in which case the
Revolving Credit Loan shall bear interest at the Default Rate until
the Default Rate becomes inapplicable.
2.1f Repayments. Except for prepayments or repayments required
(i) pursuant to Section 2.1c and (ii) as otherwise provided herein,
each repayment of Revolving Credit Loans made by any Borrower shall be
in a minimum principal amount and an integral multiple of $50,000;
provided, however, that if the entire amount of Revolving Credit Loans
to such Borrower then outstanding is less than $50,000, then such
Borrower shall repay such entire lesser amount. On the Revolving
Credit Termination Date the entire Outstanding Revolving Credit
Amount, plus all accrued and unpaid interest thereon, any unpaid Fees
relating thereto and any other outstanding Obligations relating to the
Revolving Credit Commitment shall be due and payable in immediately
available funds.
<PAGE>
2.1g Revolving Credit Note. The obligation of the Borrowers to
repay, on or before the Revolving Credit Termination Date, the
aggregate unpaid principal amount of Revolving Credit Loans shall be
evidenced by Revolving Credit Notes, each substantially in the form of
Exhibit "A", (i) drawn by the Borrowers to the order of a Lender in
the maximum amount of that Lender's Commitment Percentage of the
Revolving Credit Commitment, (ii) duly executed by the Borrowers and
(iii) delivered to the Agent for redelivery to such Lender. The
principal amount actually due and owing each Lender under the
Revolving Credit Note payable to it shall be the aggregate unpaid
principal amount of all Revolving Credit Loans made by such Lender,
all as shown on the Loan Accounts established pursuant to Section 2.9.
2.2 Intentionally Left Blank.
2.3 Term Loan.
2.3a Term Loan: Term Loan Notes. The Lenders agree, severally
and not jointly, subject to the terms and conditions hereof and
relying upon the representations and warranties herein set forth, to
make the Term Loan to the Borrowers in an aggregate principal amount
of $7,000,000. The Term Loan shall be funded in one drawing and
amounts borrowed thereunder and repaid may not be reborrowed. The
obligation of the Borrowers to repay, on or before the Term Loan
Maturity Date shall be evidenced by the Term Loan Notes, each
substantially in the form of Exhibit "B," (i) drawn by the Borrowers
to the order of a Lender in the amount of that Lender's Commitment
Percentage of the Term Loan, (ii) duly executed by the Borrowers and
(iii) delivered to the Agent for redelivery to such Lender.
2.3b Commitments of the Lenders. Each Lender agrees, for itself
only, and subject to the terms and conditions of this Agreement, to
make the Term Loan to the Borrowers in an amount not to exceed the
principal amount equal to such Lender's Commitment Percentage of the
Term Loan. If any Lender fails to advance to the Borrowers its
Commitment Percentage of the Term Loan, the remaining Lenders shall
not be required to advance to the Borrowers the defaulting Lender's
share of the Term Loan.
2.3c Term Loan Scheduled Payments. Principal payments under the
Term Loan Notes shall be due and payable in consecutive monthly
installments beginning on January 31, 1999 and continuing thereafter
on the last day of each month, of $97,222.22 each, and otherwise in
accordance with the terms set forth in the Term Loan Notes.
On the Term Loan Maturity Date, any outstanding Obligations relating
to the Term Loan shall be due and payable.
<PAGE>
2.3d Prepayment of Term Loan
(i) Voluntary Prepayments. Any of the Borrowers may prepay the
outstanding principal of the Term Loan in amounts of $50,000 and any
integral multiple thereof (subject to the requirements of Section
2.5d) upon ten (10) days prior notice to the Agent specifying the
proposed date of prepayment and the amount to be prepaid (a "Term Loan
Prepayment Notice"). Each Term Loan Prepayment Notice shall be
irrevocable and upon delivery thereof to the Agent the amount
specified therein shall be and become due and payable on the date
specified therein.
(ii) Payment of Interest and Fees on Prepayment. Each prepayment
of principal of the Term Loan pursuant to this Subsection 2.3d shall
be accompanied by payment of all accrued and unpaid interest on the
amount prepaid. Prepayment shall be without premium or penalty,
provided that prepayment of any Term Loan Tranche bearing interest
under the LIBOR-Rate Option shall be accompanied by the Funding
Breakage Fee calculated in a manner consistent with Subsection 2.1c(v)
and all amounts owed pursuant to Section 2.5e, if any.
2.3e Interest Rate. The Term Loan shall bear interest at the
rate or rates set forth in Section 2.5 hereof, unless the Default Rate
is in effect at that time, in which case the Term Loan shall bear
interest at the Default Rate until the Default Rate becomes
inapplicable.
2.4 Intentionally Left Blank.
2.5 Interest.
2.5a Interest Rates; Base Rate and LIBOR-Rate Options. During
the term hereof the interest applicable to the Loans outstanding may
fluctuate in accordance with the terms and provisions of this Section
2.5a. Subject to the limitations set forth in Subsection 2.5b, each
Borrower may elect an interest rate (A) under the Base Rate Option
which shall accrue at a rate per annum equal to the sum of the Base
Rate plus the Applicable Margins as set forth on Annex B, and (B)
under the LIBOR-Rate Option which shall accrue at a rate per annum
equal to the sum of the LIBOR-Rate plus the Applicable Margins as set
forth on Annex B, and in all cases the Applicable Margin shall
fluctuate in accordance with the Funded Debt to EBITDA Ratio as set
forth on Annex B. The Applicable Margin for the Base Rate Loans and
the LIBOR-Rate Loans effective as of the Closing Date will be at the
Level on Annex B which corresponds to the Funded Debt to EBITDA Ratio
to be determined by the Lenders from the Closing Date Applicable
Margin Statements delivered to the Lenders by the Borrower.
<PAGE>
2.5b Adjustments to Interest Rates and Fees.
(i) Changes in Funded Debt to EBITDA Ratio. Interest rate and
Fee adjustments resulting from changes in the Funded Debt to EBITDA
Ratio shall be made without notice to the Borrowers, based on such
ratio as of the end of a Fiscal Quarter. The applicable interest rate
or Fee shall be reduced to a specified level only in the event that
(A) no Default or Event of Default exists as of the date of
determination and (B) the required Funded Debt to EBITDA Ratio has
been satisfied; provided, however, that if a Default or Event of
Default has been remedied as provided in Section 8.1 within any
applicable cure period set forth therein or waived by the Lenders in
writing, the applicable interest rate or Fee shall be reduced
effective as of the applicable date contemplated by Subsections (A)
through (C) below. All adjustments shall be determined by the Agent
and shall be effective as follows:
(A) the Agent shall make its interest rate determination
within five (5) Business Days of the receipt by the Lenders (the
"Review Period") of the Borrowers' consolidated quarterly or annual
financial statements and Compliance Certificate indicating that an
adjustment in the Applicable Margin or Fee is warranted;
(B) any reduction or increase in the Applicable Margin
after the Review Period with respect to a Revolving Loan Tranche or a
Term Loan Tranche for a LIBOR-Rate Loan shall be effective on the
first day following the maturity of a LIBOR-Rate Interest Period;
provided that if Funded Debt to EBITDA Ratio which warranted an
adjustment to the Applicable Margin has not been maintained for any
Fiscal Quarter pending maturity of such LIBOR-Rate Interest Period the
Applicable Margin shall not be reduced;
(C) any reduction or increase in the Applicable Margin with
respect to a Revolving Loan Tranche or a Term Loan Tranche for a Base
Rate Loan or any Fee shall be effective one (1) Business Day following
the Review Period; and
(D) if any financial statements necessary for calculation
of the Funded Debt to EBITDA Ratio provided for in this Section 2.5b
are not delivered to the Agent within the time periods specified in
Section 5.2, and such statements when ultimately delivered give rise
to an increase in the Applicable Margin or Fees, such increase shall
be retroactive to the date such financial statements were required to
be delivered pursuant to Section 5.2.
(ii) Changes in Base Rate. The Base Rate Option shall be
adjusted from time to time, without notice to the Borrower, as
necessary to reflect any changes in the Prime Rate, which adjustments
shall be automatically effective on the day of any such change.
(iii) Changes in LIBOR-Rate Reserve Percentage. The LIBOR-
Rate Option shall be adjusted from time to time, without notice to the
Borrowers, as necessary to reflect any changes in the LIBOR-Rate
Reserve Percentage, which adjustments shall be automatically effective
on the day of such change.
<PAGE>
(iv) Default Rate. Upon the occurrence of and during the
continuance of an Event of Default, the outstanding principal amount
of the Loans shall bear interest from the date of such occurrence at a
rate per annum which is equal to two percent (2%) in excess of the
rate then in effect (e.g. the Base Rate plus the Applicable Margin
plus 2%, or the LIBOR-Rate plus the Applicable Margin plus 2%);
provided that with respect to any sum other than principal of the
Loans which bears interest at the Default Rate pursuant to this
Agreement or any of the other Loan Documents, Default Rate shall mean
the Base Rate plus the Applicable Margin plus 2%.
2.5c Interest Rate Option Elections Renewals and Conversions.
Subject to the remaining provisions of this Agreement, each Borrower
shall have the option to elect to have all or any Revolving Loan
Tranche or Term Loan Tranche bear interest at either of the Interest
Rate Options and shall have the right to renew elections of Interest
Rate Options and convert Revolving Loan Tranches or Term Loan Tranches
to other Interest Rate Options. Notice of the Borrower's election
shall be made in accordance with Section 2.6. Elections of,
conversions to or renewals of the Base Rate Option shall continue in
effect until converted to the LIBOR-Rate Option. Elections of,
conversions to or renewals of the LIBOR-Rate Option shall expire as to
each such LIBOR-Rate Option at the expiration of the applicable LIBOR-
Rate Interest Period. Any Revolving Loan Tranche or Term Loan Tranche
outstanding for which no elections have been made shall bear interest
under the Base Rate Option.
2.5d Limitation on Election of LIBOR-Rate Options. Each election
of the LIBOR-Rate Option or the prepayment of all or any LIBOR-Rate
Loans shall be in the minimum principal amount of $500,000 or, if in
excess of $500,000, in integral multiples of $100,000. Upon the
occurrence and during the continuance of an Event of Default, each
Borrower's right to elect, renew or convert to LIBOR-Rate Loans shall
be suspended.
2.5e Special Provisions Relating to LIBOR-Rate Option.
(i) LIBOR-Rate Unascertainable. In the event that on any date
on which a LIBOR-Rate would otherwise be set the Agent shall have
determined in good faith (which determination shall be final and
conclusive) that, by reason of circumstances affecting the London
interbank market, adequate and reasonable means do not exist for
ascertaining the LIBOR-Rate, the Agent shall give prompt notice of
such determination to the Borrowers and the other Lenders, and until
the Agent notifies the Borrowers that the circumstances giving rise to
such determination no longer exist, the right of the Borrowers to
borrow under, renew or convert to the LIBOR-Rate Option shall be
treated as a request to borrow under, renew or convert to the Base
Rate Option.
<PAGE>
(ii) Illegality of Offering LIBOR-Rate. If the Agent shall
determine in good faith, which determination shall be final and
conclusive, that compliance by the Agent or any Lender with any
applicable Governmental Rule (whether or not having the force of law),
or the interpretation or application thereof by any Governmental
Authority has made it unlawful for such Lender to make or maintain
LIBOR-Rate Loans, the Agent shall give notice of such determination to
the Borrowers and the Lenders. Notwithstanding any provision of this
Agreement to the contrary, unless and until the Agent shall give
notice to the Borrowers that the circumstances giving rise to such
determination no longer apply:
(A) with respect to any LIBOR-Rate Interest Periods
thereafter commencing, interest on the corresponding LIBOR-Rate Loans
shall be computed and payable under the Base Rate Option; and
(B) on such date, if any, as shall be required by law, any
LIBOR-Rate Loans then outstanding shall be automatically renewed at
the Base Rate Option: and the Borrower shall pay to the Lenders the
accrued and unpaid interest on such LIBOR-Rate Loans to (but not
including) such renewal date. The Borrowers shall pay the Lenders any
additional amounts reasonably necessary to compensate the Lenders (on
an after-tax basis) for any out-of-pocket costs incurred by the
Lenders as a result of any renewal pursuant to item (B) above on a day
other than the last day of the relevant LIBOR-Rate Interest Period,
including, but not limited to, any interest or fees payable by the
Lenders to lenders of funds obtained by them to loan or maintain the
Loans so converted. The Lenders shall furnish to the Borrowers a
certificate showing the calculation of the amount necessary to
compensate the Lenders (on an after-tax basis) for such costs (which
certificate, in the absence of manifest error, shall be conclusive),
and the Borrowers shall pay such amount to the Lenders, as additional
consideration hereunder, within ten (10) days of the Borrowers'
receipt of such certificate.
(iii) Inability to Offer LIBOR-Rate. In the event that a
Lender shall determine, in its sole discretion, that it is unable to
obtain deposits in the London interbank market in sufficient amounts
and with maturities related to the LIBOR-Rate Loans which would enable
such Lender to fund such LIBOR-Rate Loans, then such Lender shall
immediately notify the Agent. The Agent shall then notify the
Borrowers that the right of the Borrowers to borrow under, convert to
or renew the LIBOR-Rate Option shall be suspended. Following
notification of the suspension of the LIBOR-Rate Option, the Borrowers
agree to negotiate with the affected Lender for a modified LIBOR-Rate
which will allow such Lender to realize its anticipated and bargained-
for yield. In the event that the Borrowers and the affected Lender
cannot agree on a modified LIBOR-Rate, any notice of borrowing under,
conversion to or renewal of the LIBOR-Rate Option which was to become
effective during the period of suspension shall be treated as a
request to borrow under, convert to or renew the Base Rate Option with
respect to the principal amount specified therein.
<PAGE>
(iv) Indemnity. In addition to the other provisions of this
Section 2.5e, the Borrowers hereby agree to indemnify the Agent and
the Lenders against any loss or expense which the Agent or any Lender
may sustain or incur as a consequence of any default by the Borrowers
in failing to make any borrowing, conversion or renewal hereunder to
bear interest at the LIBOR-Rate Option on the scheduled date, in
failing to make when due (whether by declaration, acceleration or
otherwise) any payment of any LIBOR-Rate Loan or in making any payment
or prepayment of any LIBOR-Rate Loan or any part thereof on any day
other than the last day of the relevant LIBOR-Rate Interest Period,
including but not limited to any loss of profit, premium or penalty
incurred by the Agent or any Lender in respect of funds borrowed by it
for the purpose of making or maintaining any LIBOR-Rate Loan as
determined in good faith by the Agent or any Lender in the exercise of
its sole but reasonable discretion. The affected Lender shall furnish
to the Borrowers a certificate showing the calculation of the amount
of any such loss or expense (which certificate, absent manifest error,
shall be conclusive), and the Borrowers shall pay such amount to the
affected Lender within ten days of the Borrowers' receipt of such
certificate.
2.5f Yield Protection. If any Governmental Rule or the
interpretation or application thereof by any court, any Governmental
Authority charged with the administration thereof or the compliance
with any guideline or request from any central bank or other
Governmental Authority, whether or not having the force of law:
(i) subjects the Agent or any Lender to any tax, levy, impost,
charge, fee, duty, deduction or withholding of any kind hereunder
(other than any tax imposed or based upon the income of the Agent or
such Lender and payable to any Governmental Authority or taxing
authority of the United States of America or any state thereof) or
changes the basis of taxation of the Agent or any Lender with respect
to payments by the Borrowers of principal, interest or other amounts
due from the Borrowers hereunder (other than any change which affects,
and to the extent that it affects, the taxation by the United States
of America or any state thereof of the total net income of the Agent
or such Lender); or
(ii) imposes, modifies or deems applicable any reserve, special
deposit, special assessment or similar requirements against assets
held by, deposits with or for the account of or credit extended by the
Agent or any Lender (other than such requirements which are included
in the determination of the LIBOR-Rate hereunder); or
(iii) imposes upon the Agent or any Lender any other
condition with respect to this Agreement; and the result of any of the
foregoing is to increase the cost to the Agent or the affected Lender,
reduce the income receivable by the Agent or such Lender, reduce the
rate of return on the Agent's or such Lender's capital or impose any
expense upon the Agent or such Lender by an amount which the Agent or
such Lender in its sole but reasonable discretion deems to be material
(each, a "Yield Protection Event"), the Agent or the affected Lender
shall from time to time notify the Agent of the amount determined by
such Lender (which determination absent manifest error, shall be
conclusive) to be reasonably necessary to compensate the Agent or such
Lender (on an after-tax basis) for such increase in cost, reduction in
income, reduction in rate of return or additional expense, and setting
forth the calculations therefor, and the Agent shall thereupon notify
<PAGE>
the Borrowers. The affected Lender shall notify the Borrowers of any
Yield Protection Event as promptly as possible. The Borrowers shall
pay such amount to the Agent or the affected Lender, as additional
consideration hereunder, within ten (10) days of the Borrowers'
receipt of such notice from the Agent.
2.5g Method of Calculation. In determining the amount due the
Agent and the Lenders hereunder by reason of the application of this
Section 2.5, the Agent and the Lenders may use any reasonable
averaging or attribution method; provided, however, that the Agent and
each Lender must use reasonable efforts to minimize such losses and
costs.
2.5h Interest Payment Dates. Interest due on all outstanding
Base Rate Loans shall be payable monthly in arrears on the last day of
each month, with the first such payment due on December 31, 1998.
Interest due on all outstanding LIBOR-Rate Loans shall be payable on
the last day of each LIBOR-Rate Interest Period and, for LIBOR-Rate
Interest Periods of in excess of thirty days, also on the 30th, 60th
and 90th day of such LIBOR-Rate Interest Period. After any maturity
of any Note or the Obligations, whether on a scheduled maturity date,
by acceleration or otherwise, all accrued and unpaid interest shall be
due and payable on demand until all amounts due hereunder are paid in
full.
2.5i Calculation of Interest. Interest under the Loans shall be
calculated on the basis of the actual number of days elapsed, using a
year of 360 days. Interest for any period shall be calculated from
and including the first day thereof to but not including the last day
thereof.
2.6 Requests for Loans, Interest Rate Options and Conversions. Each
request for a Revolving Credit Loan and for the election or renewal of
or conversion to an Interest Rate Option for any Loan shall be made to
the Agent orally or in writing by an Authorized Officer no later than
11:00 a.m. (Chicago time) (i) on the Business Day of such Loan or
Interest Rate Option election, renewal or conversion, with respect to
Base Rate Loans and (ii) at least three (3) Business Days prior
thereto, with respect to LIBOR-Rate Loans. Any oral request for a
Loan or an Interest Rate Option shall be followed immediately by the
applicable Borrower's written confirmation of such request executed by
an Authorized Officer, which confirmation must set forth the amount
and date of the Loan, if applicable, the Interest Rate Option selected
and, if applicable, the LIBOR-Rate Interest Period being selected and
the proposed effective date thereof. All written requests and
confirmations shall be made pursuant to a Loan Request in the form of
Exhibit "C." A request from a Borrower pursuant to this Section 2.6
with respect to a LIBOR-Rate Loan shall irrevocably commit that
Borrower to accept such LIBOR-Rate Loan on the date specified in such
request. The Agent shall promptly notify the Lenders of each request
for a Loan no later than by 12:00 p.m. (Chicago time) on the Business
Days referred to in clause (i) or (ii) above. Each Lender shall make
its Commitment Percentage of any Loan available to the requesting
Borrower in immediately available funds at the principal office of the
Agent prior to 2:00 p.m. (Chicago time) on the date such Loan is to be
made.
<PAGE>
2.7 Method of Disbursements and Payments. All Loans shall be made by
the Agent funding the account of the requesting Borrower maintained at
the Agent. All payments of principal, interest, Fees, costs and other
amounts due hereunder and under the other Loan Documents shall be made
by the applicable Borrower to the Agent at the Agent's principal
office at 135 South LaSalle Street, Chicago, Illinois 60603 not later
than 11:00 a.m. (Chicago time) on the due date, without presentment,
demand, protest or notice of any kind, all of which are hereby
expressly waived by all Borrowers, and without set-off, counterclaim
or other deduction of any nature, and an action therefor shall
immediately accrue. All such Loans and payments shall be made in cash
or shall be immediately good funds when either transferred by the
Agent into the applicable Borrower's account with the Agent, or when
delivered by any Borrower to the Agent, as the case may be.
2.8 Capital Adequacy. If (i) any adoption of, change in or
interpretation of any Governmental Rule, or (ii) compliance with any
guideline, request or directive of any central bank or other
Governmental Authority or quasi-Governmental Authority exercising
control over banks or financial institutions generally, including but
not limited to regulations set forth at 12 C.F.R. Part 3 (Appendix A)
12 C.F.R. Part 208 (Appendix A), 12 C.F.R. Part 225 (Appendix A) and
12 C.F.R. Part 325 (Appendix A) or any court requires that the
commitments of any Lender hereunder be treated as an asset or
otherwise be included for purposes of calculating the appropriate
amount of capital to be maintained by such Lender or any corporation
controlling such Lender (a "Capital Adequacy Event"), the result of
which is to reduce the rate of return on such Lenders capital as a
consequence of such commitments to a level below that which such
Lender could have achieved but for such Capital Adequacy Event, taking
into consideration such Lender's policies with respect to capital
adequacy, by an amount which such Lender deems to be material, such
Lender shall promptly deliver to the Agent and the Borrowers a
certificate of the amount necessary to compensate such Lender for the
reduction in the rate of return on its capital attributable to such
commitments (the "Capital Compensation Amount"), calculated in good
faith, using reasonable attribution and averaging methods, which
certificate, absent manifest error, shall be presumed to be correct.
Such amount shall be due and payable by the Borrowers to the affected
Lender ten (10) days after such notice is given.
2.9 Loan Accounts. Each Lender shall open and maintain on its books
a Loan Account in each Borrower's name with respect to Loans made,
repayments, prepayments, the computation and payment of interest, Fees
and other amounts due and sums paid to such Lender hereunder and under
the other Loan Documents. Except in the case of manifest error in
computation, such records shall be conclusive and binding on the
Borrowers as to the amount at any time due to such Lender from the
Borrowers.
2.10 Fees. The Borrowers shall pay the following Fees, all of which
shall be fully earned when due and nonrefundable:
2.10a Draw Fees. On the Closing Date, the Borrowers shall
pay the Agent, for the pro rata benefit of Lenders, a Term Loan Draw
Fee in the amount of .5% of the Term Loan.
<PAGE>
2.10b Unused Availability Fee. The Borrowers shall pay to
the Agent, for the pro rata benefit of Lenders, a fee in an amount
equal to the Revolving Credit Commitment less the sum of the average
daily balance of the Revolving Credit Loans of all the Borrowers
during the preceding month multiplied by the applicable Unused
Availability Fee (determined on the date such payment is due) in the
Pricing Matrix set forth in Annex B hereto, such fee to be calculated
quarterly on the basis of a 360 day year for the actual number of days
elapsed and to be payable quarterly in arrears on the last day of each
Fiscal Quarter following the Closing Date.
2.10c Fees Fully Earned. All Fees payable to the Agent
pursuant to any Loan Document shall be fully earned when due and shall
be non-refundable.
2.11 All Obligations to Constitute One Obligation. All Obligations of
a Borrower hereunder shall constitute one general obligation of such
Borrower, and shall be secured by the Agent's Lien on the Collateral
for the benefit of the Lenders and by all other Liens heretofore, now
or at any time or times hereafter granted by such Borrower to the
Agent.
2.12 Payment From Accounts Maintained by the Borrowers. The Agent is
hereby authorized to effect payment of principal, interest, and cash
management fees by debiting the demand deposit accounts of the
Borrowers now or in the future maintained with the Agent with
appropriate debits to the Loan Accounts for such amounts, provided
that the Agent shall give prompt notice thereof to the Borrowers.
ARTICLE 3. SET-OFF AND SECURITY INTERESTS
3.1 Set-Off. To secure the repayment of the Obligations, each
Borrower hereby gives to each Lender and any Participant a Lien and
security interest upon and in any of such Borrower's property,
credits, securities and Money which may at any time be delivered to,
or be in the possession of, or owed by such Lender and any Participant
in any capacity whatever, including the balance of any deposit account
maintained by such Borrower with such Lender or the Participant, as
the case may be. Each Borrower hereby authorizes each Lender and each
Participant, at any time and from time to time upon the occurrence and
during the continuance of an Event of Default, at such Lender's or the
Participant's option, to apply (through debit, set-off or otherwise),
at the discretion of such Lender or the Participant, to the payment of
the Obligations any and all such property, credits, securities or
Money now or hereafter in the hands of the Lender or the Participant
or belonging or owed to such Borrower.
3.2 Personal Property Interests. To secure the repayment of the
Obligations, each Borrower hereby grants to the Agent for and on
behalf of the Lenders, a Lien, subject only to Permitted Liens, in all
of its now owned or hereafter acquired Equipment, Fixtures, Goods,
Inventory, Accounts, Chattel Paper, Documents, General Intangibles,
Instruments and Investment Property, all as more fully described in
the Security Documents. To further evidence the grant of such Liens,
on or prior to the Closing Date and from time to time thereafter each
of the Borrower shall execute and will deliver to the Agent (i) the
Security Agreement substantially in the form of Exhibit "D," (ii) the
<PAGE>
Pledge Agreement substantially in the forms of Exhibit "E", if
applicable, (iii) a collateral assignment of Patents and Trademarks
substantially in the form of Exhibit "H" and (iv) all Uniform
Commercial Code financing statements reasonably requested by the
Agent, so that all times during the Term hereof each Borrower has
granted to the Agent a valid, first priority perfected Lien in and to
all personal property owned by it, subject only to the Permitted
Liens.
3.3 Real Property Interests. To secure the repayment of the
Obligations, each applicable Borrower hereby agrees to grant to the
Agent for and on behalf of the Lenders, a Lien, subject only to
Permitted Encumbrances and Permitted Liens, in all of its now owned or
hereafter acquired interests in the Mortgaged Parcels. To further
evidence the grant of such Liens, on or prior to the Closing Date and
from time to time thereafter, each applicable Borrower shall execute
and deliver to the agent a Mortgage or Deed of trust for each
Mortgaged Parcel, in recordable form, substantially in the form of
Exhibit "F."
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement
and to make the Loans herein provided for, each Borrower makes the
following representations and warranties to the Agent and the Lenders,
all of which shall survive the execution and delivery of this
Agreement and the making of the Loans:
4.1 Organization and Powers.
4.1a Corporations: Each of CSI, CST and SVPCCS is and shall at
all times be a corporation, is duly organized, validly existing and in
good standing under the laws of the state or territory of its
formation and is qualified to do business in all states in which it
owns Mortgaged Parcels and in the States listed on Schedule 4.1, which
represent all of the states in which the leasing of its property or
the operation of its business requires such corporation to be
qualified. Each of the CSI, CST and SVPCCS has all requisite
corporate power and authority to carry on its business as now
conducted and proposed to be conducted, to own and operate its
properties, and to enter into each Loan Document.
4.1b CSTLP: CSTLP is and shall at all times be a limited
partnership, is duly organized, validly existing and in good standing
under the laws of Tennessee and is qualified to do business in all
states in which it owns Mortgaged Parcels and in the states listed on
Schedule 4.1, which represent all of the States in which the leasing
of its property or the operation of its business requires such
corporation to be qualified. CST has all requisite corporate power
and authority to act as the general partner of CSTLP and to carry on
CSTLP's business as now conducted and proposed to be conducted, to own
and operate its properties, and to cause CSTLP to enter into each Loan
Document.
<PAGE>
4.2 Capitalization/Ownership. The authorized capital stock of each
of CSI, CST and SVPCCS is as set forth on Schedule 4.2. All issued
and outstanding shares of capital stock of such corporations are duly
authorized and validly issued, fully paid, nonassessable, and such
shares were issued in compliance with all applicable state and federal
laws concerning the issuance of securities. Except as set forth on
Schedule 4.2, there are no preemptive or other outstanding rights,
options, warrants, conversion rights or similar agreements or
understandings for the purchase or acquisition from CSI of any shares
of capital stock or other securities of any of its Subsidiaries.
Except as set forth in Schedule 4.2, Borrowers have no Subsidiaries.
Schedule 4.2A sets forth the owners of all of the partnership
interests of CSTLP and the percentage of partnership interests owned
by such owner.
4.3 Power and Authority. Each of the Borrowers is duly authorized to
enter into, execute, deliver and perform all of the terms and
provisions of this Agreement and the other Loan Documents to which it
is a party, to incur the Obligations and to perform its obligations
under the Loan Documents to which it is a party. All necessary
actions required to authorize the execution, delivery and performance
of this Agreement and the other Loan Documents to which such Borrower
is a party have been properly taken by such Borrower.
4.4 Validity; Binding Effect and Enforceability. This Agreement and
the other Loan Documents have been duly executed and delivered by the
Borrowers. This Agreement and the other Loan Documents constitute
legal, valid and binding obligations of the Borrowers, enforceable
against each Borrower in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws affecting the enforcement of creditors' rights generally
and except as such enforceability may be limited by the availability
of equitable remedies.
4.5 No Conflict. Neither the execution and delivery of this
Agreement and the other Loan Documents by any Borrower, nor the
consummation of the transactions herein or therein contemplated or
compliance with the terms and provisions hereof or thereof by such
Borrower, will conflict with, constitute a default under or result in
any breach of (i) the terms and conditions of such Borrower's Articles
of Incorporation, as amended, or By-Laws, as amended, or such
Borrower's Agreement of Limited Partnership (ii) any agreement or
instrument, or (iii) any order, writ, judgment, injunction or decree,
to which such Borrower is a party or by which it is bound or to which
it is subject, or will result in the creation or enforcement of any
Lien whatsoever upon any property, whether now owned or hereafter
acquired, of such Borrower, except for Permitted Liens and Permitted
Encumbrances.
<PAGE>
4.6 Financial Matters.
4.6a Historical Financial Statements. The Borrowers have
delivered to the Lenders the audited consolidated annual financial
statements of CSI and its Subsidiaries dated April 30, 1998, and the
related audited consolidated statements of income or operations,
shareholders' equity and cash flows for the fiscal year ended on April
30, 1998, and the unaudited consolidated quarterly financial
statements of financial condition of CSI and its Subsidiaries dated as
of July 31, 1998 and October 31, 1998, and the related unaudited
consolidated statements of income or operations, shareholders' equity
and cash flows for the fiscal quarter ended on July 31, 1998 and
September 30, 1998:
(1) were prepared in accordance with GAAP consistently
applied throughout the period covered thereby,
except as otherwise expressly noted therein;
(2) present fairly the consolidated financial
condition of CSI and its Subsidiaries as of the
date thereof and results of operations for the
period covered thereby; and
(3) show all material indebtedness and other
liabilities, direct or contingent of CSI and its
Subsidiaries as of the date thereof, including
liabilities for taxes, and any material changes to
the material commitments and contingent
obligations shown on the most recent audited
consolidated annual financial statement delivered
to the Lenders.
CSI has also delivered to Agent all other reports and documents
required to be filed with the Commission or required by the Commission
to be mailed to shareholders of the CSI within the last two years.
The financial statements of each of the Borrowers have been
consolidated in CSI's financial statements.
4.6b Financial Pro-Forma and Projections. The pro-forma
unaudited consolidated balance sheet of CSI dated as of the Closing
Date and delivered to the Lenders (the "Pro-Forma Balance Sheet") was
based upon the unaudited consolidated balance sheets of CSI as of
October 31, 1998 and reflects the financial condition of the Borrowers
after giving effect to the transactions contemplated by this Agreement
and the Silicon Valley Acquisition. CSI has delivered to the Lenders
financial projections of CSI and its Subsidiaries for the one-year
period beginning with the Fiscal Year ending April 30, 1998, including
detailed assumptions and updated operating statements. Such
projections set forth a reasonable estimate of possible results in
light of the history of CSI's business, present and foreseeable
conditions and the intentions of CSI's management, and were prepared
in good faith and on a basis determined CSI to be reasonable based on
the assumptions set forth therein, which CSI believes to be
reasonable. Such projections accurately reflect the liabilities of
the Borrowers owed to the Lenders upon consummation of the
transactions contemplated hereby including the Silicon Valley
Acquisition.
<PAGE>
4.7 Material Adverse Change. Since April 30, 1998, there has been no
Material Adverse Change and there have been no events or developments
that individually or in the aggregate have had a Material Adverse
Effect, except those restructuring charges recorded in the financial
statements filed with the Commission for the Fiscal Quarter ended July
31, 1998.
4.8 Litigation. There are no judgments outstanding against any of
the Borrowers as of the date hereof, and, except as set forth on
Schedule 4.8, there are no actions, suits, proceedings or
investigations pending or, to any Borrower's knowledge, threatened
against any Borrower, or any of their respective businesses,
operations, properties, prospects, profits or condition (financial or
otherwise), at law or in equity, before any Governmental Authority
which, individually or in the aggregate, if adversely determined,
could reasonably be expected to have a Material Adverse Effect, or
which purport to affect the rights and remedies of the Agent and the
Lenders pursuant to this Agreement or any other Loan Document or which
purport to restrain or enjoin (either temporarily, preliminarily or
permanently) the performance by any Borrower of any action
contemplated by any of the Loan Documents.
4.9 Compliance with Laws. Each of the Borrowers has duly complied
with, and its properties, business operations and leaseholds are in
compliance with, all Governmental Rules applicable to the Borrower,
its respective properties and the conduct of its business. The
Borrower's compliance with Environmental Law is set forth in the
Environmental Agreement, the form of which is attached hereto as
Exhibit G.
4.10 Material Contracts. All contracts material to the business of
the Borrowers are valid, binding and enforceable upon the applicable
Borrower and, to the best of such Borrower's knowledge, each of the
other parties thereto in accordance with their respective terms. No
Borrower is in default of any material provision of any such material
contract to which it is a party.
4.11 Labor Matters. Except as set forth on Schedule 4.11, no Borrower
is a party to any collective bargaining agreement, and there are no
strikes, work stoppages, material grievances, disputes or
controversies with any union or any other organization or known
threats of strikes, work stoppages or slowdowns, or any asserted
pending demands for collective bargaining by any union or organization
or other union organization effort. Except as set forth on Schedule
4.11, no Borrower has, within the two-year period preceding the date
hereof, taken any action which would have constituted or resulted in a
"plant closing" or "mass layoff" within the meaning of the Federal
Worker Adjustment and Retraining Notification Act of 1988 or any
similar applicable Governmental Rule. Any action taken by a Borrower
which constituted or resulted in such a "plant closing" or "mass
layoff" has complied in all material respects with the Federal Worker
Adjustment and Retraining Notification Act of 1988 or any similar
applicable Governmental Rule. The procedures by which each Borrower
has hired or will hire employees comply and will comply in all
respects with each collective bargaining agreement to which such
Borrower is a party and all applicable Governmental Rules.
<PAGE>
4.12 Account Warranties. Each of the Borrowers represents, warrants
and covenants as to each Account that, to the best knowledge of such
Borrower in the exercise of its normal credit procedures, as of the
date of the initial Borrowing Base Certificate and each subsequent
Borrowing Base Certificate (i) the Account is a valid, bona fide
account, representing an undisputed indebtedness incurred by the named
account debtor for goods actually sold and delivered or for services
completely rendered; (ii) there are no setoffs, offsets or
counterclaims, genuine or otherwise, against the Account, except as
taken into account in subsection (ix) of the definition of Account;
(iii) the Account does not represent a sale to an Affiliate (except as
permitted by this Agreement) or a consignment, sale or return or a
bill and hold transaction (except as permitted by this Agreement);
(iv) no agreement exists permitting any deduction or discount (other
than the discount stated on the invoice); (v) such Borrower is the
lawful owner of the Account and has the right to assign the same to
agent, for the benefit of Lenders; (vi) the Account is free of all
security interests, liens and encumbrances other than those in favor
of the Agent, on behalf of Lenders, and the Permitted Liens; (vii) the
Account is due and payable in accordance with its terms; (viii) there
are no facts, events or occurrences which in any material respect
impair the validity or enforcement of any Account; (ix) all Account
Debtors have the ability to contract and are solvent; and (x) there
are no proceedings or actions which are pending or threatened against
any Account Debtor which are reasonably expected to result in any
material adverse change in such Account Debtor's financial condition.
4.13 Names. Schedule 4.13 sets forth all names, trade names,
fictitious names and business names under which any Borrower currently
conducts business or has at any time during the past three Fiscal
Years conducted business.
4.14 Locations: Mortgaged Parcels. Schedule 4.14 sets forth the
location of the Borrowers' chief executive and principal places of
business, the location of each Borrower's books and records, the
location of all other offices of the Borrowers, a list of the
Mortgaged Parcels, and all Collateral locations, and such locations
are the Borrower's sole locations for its business and the Collateral.
The Borrowers' federal employer identification numbers are set forth
on the signatures page hereof.
4.15 Condition of and Title to Assets. Each Borrower has good,
marketable and legal title to its properties and assets, except for
defects in title which, taken as a whole, are not material to the
Borrower. As of the date hereof, none of the properties or assets of
the Borrowers is subject to any Liens, except for Permitted Liens and
Permitted Encumbrances in existence on the Closing Date. All of the
assets and properties of each Borrowers that are necessary for the
operation of its business are in good working condition, ordinary wear
and tear excepted, and are able to serve the functions for which they
are currently being used. Each Borrower as lessee of any real or
other property has the right under valid leases to occupy, use,
possess and control all such property as now occupied, used, possessed
or controlled by such Borrower.
<PAGE>
4.15a Real Property Owned by Any Borrower which is not a
Mortgaged Parcel. Each of the applicable Borrowers hereby represents:
(i) that such Borrower is lawfully seized of a fee simple
estate in the real property set forth in Schedule 4.15a (the "Owned
Property");
(ii) that the Owned Property is subject in all cases to no
lien, charge or encumbrance other than a Permitted Lien;
(iii) that there are no actions, suits or proceedings or
investigations at law or in equity pending, or to the knowledge of
Borrower threatened against or affecting the Owned Property, and such
Borrower is not in default with respect to any order, writ, judgment,
decree or demand of any court or any governmental authority;
(iv) that such Borrower's operation of the Owned Property is
in material compliance with all applicable laws, regulations, rules,
ordinances and restrictive covenants, including, without limitation,
all Environmental Laws;
(v) that such Borrower has paid all real property taxes and
assessments, and all other taxes and assessments of any kind or nature
whatsoever, which are assessed or imposed upon the Owned Property, or
become due and payable;
(vi) that the improvements now existing or hereafter erected
on the Owned Property are and shall be adequately insured;
(vii) that no portion of any Owned Property has been
targeted for condemnation or other taking;
(viii) that such Borrower has and shall maintain the Owned
Property and its improvements in good order, condition and repair, has
and shall comply in all material respects with all laws, ordinances
and regulations, and all other laws, regulations and requirements of
any governmental body or agency having jurisdiction over the Property,
or the use and occupancy thereof by such Borrower;
(ix) that the Owned Property does not contain any Hazardous
Materials (as defined in the Environmental Agreement) (except for
materials used in the ordinary course of business that are, in each
case, used in accordance with Environmental Laws);
Borrower hereby covenants and agrees to protect, defend,
indemnify and hold Lenders harmless from and against any and all loss,
cost (including reasonable attorneys' fees), liability, damage or
expense whatsoever incurred by Lenders by reason of a breach of the
representations and warranties contained in this Subsection 4.15a.
4.15b Leased Real Property. Each Lease of real property to
which any Borrower is a lessee is set forth in Schedule 4.15b. Each
Borrower has maintained and complied with, and during the term of this
Agreement shall continue to maintain and comply with, all leases
covering any real property used by such Borrower, in accordance with
their terms so as to prevent any default thereunder which may result
in the exercise or enforcement of any landlord's or other lien against
such Borrower unless Borrower is contesting in good faith, by an
appropriate proceeding, the validity, amount or imposition of any
lease charges or expenses while maintaining reserves, deemed adequate
<PAGE>
by the Agent in its sole discretion, to cover the above, and such
contest does not cause a Material Adverse Change in the financial
condition of the Borrowers and does not impair the Borrowers' ability
to perform its Obligations.
4.16 Tax Returns and Payments. Each Borrower (i) has filed all
Federal, state, local and other tax returns required by law to be
filed and (ii) has paid all taxes, assessments and other governmental
charges levied upon it or any of its properties, assets, income or
franchises which are due and payable, other than (A) those presently
payable without penalty or interest, (B) those which are being
contested in good faith by appropriate proceedings and (C) those
which, if not paid, would not, in the aggregate, have a Material
Adverse Effect; and as to each of items (A), (B) and (C) each Borrower
has set aside on its books reserves for such claim as are determined
to be adequate by application of GAAP consistently applied. The
charges, accruals, and reserves on the books of each Borrower in
respect of Federal, state, local and other taxes and assessments for
all fiscal periods to date are adequate, and no Borrower knows of any
unpaid assessments for additional Federal, state, local or other taxes
for any such fiscal period or any basis therefor relating to such
Borrower.
4.17 Intellectual Property. Each of the Borrowers, owns or licenses
all the material patents, patent applications, trademarks, trademark
applications, permits, service marks, trade names, copyrights,
copyright applications, licenses, franchises, authorizations and other
intellectual property rights that are necessary for the operations of
its business, without infringement upon or conflict with the rights of
any other Person with respect thereto. No slogan or other
advertising, device, product, process, method, substance, part or
component or other material now employed, or now contemplated to be
employed, by any Borrower infringes upon or conflicts with any rights
owned by any other Person, and no claim or litigation regarding any of
the foregoing is pending or threatened. No patent, invention, device,
application, and no statute, law, rule, regulation, standard or code
involving the Borrowers' intellectual property is pending or, to the
knowledge of any Borrower, proposed. All of the Borrowers' material
patents, trademarks, permits, service marks, trade names, copyrights,
licenses, franchises and authorizations are listed on Schedule 4.17.
4.18 Insurance. The Borrowers currently maintain insurance which
meets or exceeds the requirements of Section 5.8 hereof and the
applicable insurance requirements set forth in the other Loan
Documents, and such insurance is provided by insurers meeting the
requirements of Section 5.8 and is of such types and at least in such
amounts as are customarily carried by, and insures against such risks
as are customarily insured against by similar businesses similarly
situated and owning, leasing and operating similar properties to those
owned, leased and operated by the Borrowers. All of such insurance
policies, which are listed on Schedule 4.18, are valid and in full
force and effect. No notice has been given or claim made and no
grounds exist to cancel or avoid any of such policies or to reduce the
coverage provided thereby.
<PAGE>
4.19 Consents and Approvals. Except as listed on Schedule 4.19, no
order, authorization, consent, license, validation or approval of, or
notice to, filing, recording, or registration with any Governmental
Authority, or the exemption by any such Governmental Authority, is
required to authorize, or is required in connection with, (i) the
execution, delivery and performance of any of the Loan Documents, (ii)
the legality binding effect or enforceability of any Loan Document or
(iii) the Silicon Valley Acquisition.
4.20 Plans and Benefit Arrangements. Each Plan and Benefit
Arrangement has been maintained and administered in all material
respects in compliance with ERISA and the Internal Revenue Code and
all rules, orders and regulations issued thereunder. The Internal
Revenue Service has determined that each Plan and Benefit Arrangement
which constitutes an employee pension benefit plan as defined in
Section 3(2) of ERISA and which is intended to qualify under Section
401(a) of the Internal Revenue Code so qualifies under Section 401(a)
of the Internal Revenue Code, and that the trusts related thereto are
exempt from tax under the provisions of Section 501(a) of the Internal
Revenue Code. Nothing has occurred with respect to any such Plan or
Benefit Arrangement or to the related trusts since the date of the
most recent favorable determination letter issued by the Internal
Revenue Service which has adversely affected or may reasonably be
expected to affect adversely such qualification or exemption. No
Reportable Event for which notice is not waived under applicable
regulation, has occurred with respect to any Plan. No Borrower nor
any ERISA Affiliate currently contributes to, or is obligated to
contribute to, or is a member of, any Multiemployer Plan. No Borrower
nor any ERISA Affiliate has incurred, or is reasonably expected to
incur, any Withdrawal Liability to any Multiemployer Plan.
4.21 Solvency. After giving effect to the transactions contemplated
by the Silicon Valley Acquisition and the Loan Documents, each of the
Borrowers is, and at all times until the Obligations are satisfied in
full, shall be Solvent.
4.22 Margin Stock. No Borrower is engaged principally or as one of
its important activities in the business of extending credit for the
purpose, immediately, incidentally or ultimately, of purchasing or
carrying margin stock (within the meaning of Regulation U). No Loan
will be used, immediately, incidentally or ultimately, to purchase or
carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock, or for any other purpose which
would violate or be inconsistent with any of the regulations of the
Board of Governors of the Federal Reserve System.
4.23 Investment Company Act. No Borrower is an "investment company"
registered or required to be registered under the Investment Company
Act of 1940, as amended from time to time, or a company under the
"control" of an "investment company," as those terms are defined in
such Act, and shall not become such an "investment company" or under
such "control."
4.24 Public Utility Holding Company Act. No Borrower is a "holding
company or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or a "subsidiary company" of a
"holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended from time to time.
<PAGE>
4.25 Year 2000 Problem. Each of the Borrowers has reviewed the areas
within its business and operations which could be adversely affected
by, and have developed or are developing a program to address on a
timely basis, the "Year 2000 Problem" (that is, the risk that computer
applications used by such Borrower may be unable to recognize and
perform properly date-sensitive functions involving certain dates
prior to and any date on or after December 31, 1999), and have made
related appropriate inquiry of material suppliers and vendors to
determine where problems exist (the "Year 2000 Issues") and the
remedies which must be implemented to eliminate them. Based on such
review and program, each Borrower believes that the "Year 2000
Problem" will not have a Material Adverse Effect on such Borrower.
From time to time, at the request of the Bank, the Borrowers shall
provide to the Bank such updated information or documentation as is
requested regarding the status of their efforts to address the Year
2000 problem.
4.26 Full Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to the Agent or any Lender by or on
behalf of any Borrower pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and
therein, in light of the circumstances under which they were made, not
misleading. There is no fact known to any Borrower which materially
and adversely affects the business, property, assets, financial
condition, results of operations or prospects of such Borrower which
has not been set forth in this Agreement or in the other documents,
certificates and statements (financial or otherwise) furnished to the
Agent or any Lender by or on behalf of such Borrower prior to or on
the date hereof in connection with the transactions contemplated
hereby.
ARTICLE 5. AFFIRMATIVE COVENANTS
From the date hereof and thereafter until the termination of the
Revolving Credit Commitment and until the Loans and the other
Obligations of the Borrowers hereunder are paid in full, CSI agrees,
for the benefit of the Agent, the Co-Agent and the Lenders, that it
will comply, and shall cause the other Borrowers to comply, with each
of the following affirmative covenants:
5.1 Use of Proceeds. The Loans shall be used only for the following
purposes:
The Revolving Credit Loans and the Term Loan shall be used (A) to
repay on the Closing Date all outstanding Existing Bank Indebtedness,
(B) to provide funds for the Silicon Valley Acquisition, (C) to repay
certain of the assumed liabilities acquired pursuant to the Silicon
Valley Acquisition, (D) to repay existing machinery and equipment
loans, and (E) for working capital.
In addition, CSI may use no more than $3,000,000 of Revolving Credit
Loans to effect the repurchase of its common stock. The Agent shall
approve the stock purchase under the following conditions: (w) the
repurchase occurs in a single transaction or a group of transactions
which occur simultaneously; (x) for the two-month period prior to the
repurchase the available Borrowing Base for the Revolving Credit Loans
is in excess of $1,500,000 plus the amount of the repurchase, (y) for
two consecutive months following the repurchase the available
<PAGE>
Borrowing Base for the Revolving Credit Loans on a pro forma basis
remains at or in excess of $1,500,000, and (z) such repurchase does
not result in an Event of Default.
5.2 Delivery of Financial Statements and Other Information. During
the term hereof, CSI shall deliver or cause to be delivered to the
Agent and each Lender the following financial statements and other
information:
5.2a Annual Financial Statements. As soon as available and in
any event within ninety (90) days after the end of each Fiscal Year of
CSI, a consolidated balance sheet of CSI and its consolidated
Subsidiaries as of the end of such Fiscal Year and the related
consolidated statements of income, retained earnings and cash flows or
such other similar or additional statements then required by the
Commission for annual reports filed pursuant to the Securities
Exchange Act of 1934, as amended, for such Fiscal Year, setting forth
in each case in comparative form the figures for the previous Fiscal
Year, all prepared on a consolidated basis in accordance with GAAP
consistently applied and presenting fairly the financial condition of
CSI and its consolidated Subsidiaries in such reasonable detail and
scope as the Agent may request from time to time, all of the foregoing
to be audited and certified by a recognized certified public
accounting firm reasonably acceptable to the Agent, whose opinion
shall be unqualified.
5.2b Quarterly Budgets. As soon as possible and in any event
within fifteen (15) days of the beginning of each Fiscal Quarter, a
budget of income and retained earnings for such Fiscal Quarter and for
the period from the beginning of the then current Fiscal Year to the
end of such Fiscal Quarter, with projected cash flow statements to the
end of the Fiscal Quarter, accompanied by the same statements for the
Subsidiaries in such reasonable detail as the Agent may request from
time to time.
5.2c Monthly Statement of Operations. As soon as possible and in
any event within thirty (30) days of the end of each month, a
consolidated balance sheet of CSI as at the end of such month and the
related consolidated statements of income and retained earnings for
such month and for the period from the beginning of the then current
Fiscal Year to the end of such month, with related cash flow
statements at the end of each month setting forth in each case in
comparative form, figures for the corresponding periods in the
preceding fiscal year and as of a date one year earlier, all prepared
on a consolidated basis in accordance with GAAP consistent with Fiscal
Year financial statements but omitting notes and subject to year-end
adjustments, accompanied by the same statements for the Subsidiaries,
each presenting fairly the financial condition of CSI and its
Subsidiaries in such reasonable detail as the Agent may request from
time to time and each certified as accurate by an Authorized Officer;
<PAGE>
5.2d Compliance Certificate. Simultaneously with the delivery of
each set of annual financial statements and of each quarterly and
monthly financial statement referred to in Sections 5.2a, 5.2b and
5.2c, respectively an executed, completed Compliance Certificate
substantially in the form of Exhibit "J," executed by an Authorized
Officer and, in the case of the Compliance Certificate submitted with
the financial statements at the end of each month, containing
calculations with respect to Borrowers' compliance with each of the
financial covenants contained in this Agreement and such additional
information as the Agent may reasonably request from time to time;
5.2e Borrowing Base Certificate. Within ten (10) Business Days
following the end of each calendar month and on each date that any
Borrower requests a Loan to be made hereunder, a completed, executed
Borrowing Base Certificate substantially in the form of Exhibit "K"
for the calendar month just ended, executed by an Authorized Officer
and containing such additional information as may be requested by the
Agent from time to time;
5.2f Management Letters. Within ten (10) Business Days after
receipt by the Borrower of any management or similar letters or
reports from such certified public accountants, a copy of each
management letter or report;
5.2g Other Reports, Information and Notices. Within the time
periods set forth below, the following other reports, information and
notices:
(i) Notice of Defaults and Material Adverse Changes. Promptly
after any officer of any Borrower has learned of the occurrence or
existence of a Default or Event of Default or an event or set of
circumstances which has had or which may reasonably be expected to
have a Material Adverse Effect or which has caused or which may
reasonably be expected to cause a Material Adverse Change, telephonic
notice thereof specifying the details thereof, the anticipated effect
thereof and the action which the applicable Borrower has taken, is
taking or proposes to take with respect thereto, which notice shall be
promptly confirmed in writing within five days by an Authorized
Officer;
(ii) Notice of Litigation. (A) Promptly after the commencement
or threat thereof, written notice of any action, suit, proceeding or
investigation by or against the Borrower before any Governmental
Authority, court or arbitrator and, in any event, of any action, suit,
proceeding or investigation against any Borrower which involves a
potential claim in excess of $75,000 and (B) promptly after any
Authorized Officer has notice thereof, written notice of any decision,
ruling, judgment, appeal, reversal or other significant action in
connection with any existing action, suit, proceeding or investigation
before any Governmental Authority, court or arbitrator involving a
claim in excess $75,000;
(iii) ERISA Reports.
(A) as soon as possible, and in any event not later than
the date notice is sent to the PBGC, notice of any Reportable Event
for which notice is not waived under applicable regulation, regarding
any Plan and an explanation of any action which has been or which is
proposed to be taken with respect thereto;
<PAGE>
(B) promptly after receipt thereof, a copy of any notice
which any Borrower or any ERISA Affiliate may receive from the PBGC
relating to the intention of the PBGC to terminate any Plan, or to
appoint a trustee to administer any Plan, or to assert any liability
under Title IV of ERISA against any Borrower or any ERISA Affiliate;
and
(C) concurrent with the filing thereof, a copy of any
Notice of Intent to Terminate any Plan filed under Section 4041(c) of
ERISA.
(iv) Notices of Tax Audits. Promptly, and in any event within
five (5) Business Days after receipt thereof by the Borrower, a copy
of each notice from any Governmental Authority received by the
Borrower of such Governmental Authority's intention to audit any
Federal tax return of any Borrower or any of the Subsidiaries which
audit could result in a potential liability in excess of $75,000, and
a copy of each subsequent notice with respect thereto from any such
Governmental Authority;
(v) Notice of Name Change. As soon as possible, and in any
event at least thirty (30) Business Days prior to the effective date
thereof, written notice of any change of the Borrower's or any
Subsidiary's name; and
(vi) Labor Matters. Within two (2) Business Days after any
Authorized Officer of a Borrower has knowledge thereof, written notice
of (A) any demand for collective bargaining by any union or
organization, (B) any other union organizing effort, (C) any actual or
threatened strike, work stoppage or slowdown, or (D) any material
grievance, dispute or controversy involving any labor union or other
organization.
(vii) Annual Forecast. Within sixty (60) days following the
end of each Fiscal Year of CSI, an annual forecast for the forthcoming
fiscal year, which shall include, without limitation, (i) a projected
consolidated balance sheet and statements of income, retained earnings
and cash flows of CSI, and (ii) a projected balance sheet and
statements of income, retained earnings and cash flows of its
Subsidiaries, each accompanied by a written explanation of material
changes to or variances from prior projections.
5.2h Statements and Reports: Promptly after the same are sent,
copies of all financial statements and reports which CSI sends to its
shareholders; and promptly after the same are filed, copies of all
financial statements and regular, periodical or special reports which
the CSI or any of its Subsidiaries makes to, or files with, the
Commission or any successor or similar Governmental Authority.
5.2i SEC Reports. Promptly upon the filing thereof, a copy of
all reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which
CSI shall have filed with the Commission.
<PAGE>
5.2j Additional Information; Visitation. The Borrowers shall
deliver to the Agent and each Lender such additional financial
statements, reports, financial projections, and other information,
whether or not financial in nature, as the Agent and the Lenders may
reasonably request from time to time. The Borrowers will permit the
Agent, the Lenders and their respective designated employees and
agents to have access, at any time and from time to time, upon
reasonable notice and during normal business hours, to visit any of
the properties of any Borrower or any Subsidiary thereof, to examine
and make copies of its books of record and account and such reports
and returns as such Borrower or any such Subsidiary may file with any
Governmental Authority and discuss such Borrower's affairs and
accounts with, and be advised about them by, any Authorized Officer
and such Borrower's accountants; provided, however, that no notice of
a visitation need be given when a Default or Event of Default exists.
5.3 Preservation of Existence; Qualification. At its own cost and
expense, each Borrower will to do all things necessary to preserve and
keep in full force and effect its existence and qualification under
the laws of the State or territory of its incorporation or formation
and be and remain qualified to transact business in each state where
due to the nature of its activities or the ownership of its
properties, qualification to transact business is required.
5.4 Compliance with Laws, Contracts and Licenses. Each Borrower
shall (i) comply with all applicable material Governmental Rules
including but not limited to the Securities Act of 1933, the
Securities Exchange Act of 1934, the Fair Labor Standards Act, and
Environmental Laws, (ii) comply with all material provisions of each
material contract and agreement to which it is a party, and
(iii) shall maintain in full force and effect all material
Governmental Approvals and other material contracts and agreements
which are necessary or advisable for the operation of their respective
businesses as now conducted and in compliance with all applicable
material Governmental Rules.
5.5 Continuance of Business. Each Borrower shall (i) do or cause to
be done all things reasonably necessary to preserve and keep in full
force and effect all of its material permits, rights and privileges
necessary for the proper conduct of its businesses and (ii) continue
to engage in the Business.
5.6 Accounting System: Books and Records. Each Borrower shall
maintain a system of accounting established and administered in
accordance with GAAP consistently applied and will set aside on its
books all such proper reserves as shall be required by GAAP. Further,
each Borrower shall maintain proper books of record and account in
accordance with GAAP in which full, true and correct entries shall be
made of all of its properties, assets, dealings and business affairs.
5.7 Payment of Taxes and Other Liabilities. Each Borrower shall
promptly pay and discharge all obligations, accounts and liabilities
which are owned by it, to which it is subject or which are asserted
against it, including but not limited to all taxes, assessments and
governmental charges and levies upon it or upon any of its income,
profits, or property prior to the date on which penalties attach
thereto; provided, however, that for purposes of this Agreement, a
<PAGE>
Borrower shall not be required to pay any tax, assessment, charge or
levy (i) the payment of which is being contested in good faith by
appropriate and lawful proceedings diligently conducted and (ii) as to
which that Borrower shall have set aside on its books reserves for
such claim as are determined to be adequate by the application of GAAP
consistently applied, but only to the extent that failure to discharge
any such liabilities would not result in any additional liability
which would have a Material Adverse Effect; and provided, further,
that the Borrower shall pay all such contested liabilities forthwith
if a lien will attach as security therefor.
5.8 Insurance. Each Borrower shall maintain at all times adequate
insurance to the reasonable satisfaction of the Agent with the
insurers shown on Schedule 4.18 or other financially sound and
reputable insurers acceptable to the Agent against such risks of loss
as are customarily insured against and in amounts customarily carried
by Persons owning, leasing or operating similar properties, including,
but not limited to (i) fire and theft and extended coverage insurance
in an amount at least equal to the total full insurable value of their
respective insurable property, (ii) liability insurance on account of
injury to persons or property, (iii) insurance which complies with all
applicable workers compensation, unemployment and similar laws: (iv)
business interruption insurance; (v) flood insurance, for any real
property of any Borrower designated by any Governmental Authority to
be in an area of special flood hazard, and (vi) product liability,
larceny embezzlement or other criminal misappropriation, all of the
foregoing to be acceptable to the Agent at all times during the term
hereof. All policies of insurance shall provide for thirty (30) day
written minimum cancellation notice to the Agent. Prior to the first
borrowing under this Agreement and thereafter within ninety (90) days
of the close of each Fiscal Year, CSI shall deliver to the Agent a
schedule indicating all insurance coverage then in effect for the
Borrowers, in such detail as the Agent may reasonably request from
time to time, along with evidence satisfactory to the Agent showing
that Agent is the named mortgagee and loss payee for the insurance
described in this Section 5.8 pursuant to standard long-term mortgagee
and loss payee clauses.
5.9 Maintenance of Properties. Each Borrower shall maintain,
preserve, protect and keep its properties in good repair, working
order and condition (ordinary wear and tear excepted), and make all
necessary and proper repairs, renewals and replacements so that its
business carried on in connection therewith may be properly and
advantageously conducted at all times.
5.10 Plans and Benefit Arrangements. Each Borrower shall, and shall
cause each ERISA Affiliate to, comply with ERISA, the Internal Revenue
Code and all other applicable laws which are applicable to Plans and
Benefit Arrangements, except where the failure to do so, alone or in
conjunction with any other failure, would not result in a Material
Adverse Change.
<PAGE>
5.11 Access to Accountants and Management. Each Borrower authorizes
the Agent and the Lenders to discuss the financial condition and
financial statements of the Borrower with such Borrower's independent
public accountants upon reasonable notice to such Borrower of its
intention to do so, and authorizes such accountants to respond to all
of the Agent's inquiries and to provide the Agent with copies of or
access to books, records or documents made available by the
accountants to such Borrower; provided, however, that when a Default
or Event of Default exists, 24 hours shall be deemed reasonable notice
to such Borrower. Each Lender may with the consent of the Agent,
which will not be unreasonably denied, confer with any Authorized
Officer directly regarding any Borrower's business, operations and
financial condition.
5.12 Audit. The Agent shall conduct one audit of Collateral each
Fiscal Year at the Borrowers' expense (which shall not exceed $7,000
for such annual audit), which audit process shall generate a report of
ineligible accounts and ineligible inventory of the Borrowers for
Borrowing Base purposes. The Agent may, at its option and as it deems
necessary, conduct additional audits of Collateral during any Fiscal
Year at the Borrowers' expense, which audit process shall generate a
report of ineligible accounts and ineligible inventory of the
Borrowers for Borrowing Base purposes.
5.13 Collateral Locations. Each Borrower will keep the Collateral
consisting of personal property at the locations specified on Schedule
5.13 (except for Collateral in transit in the ordinary course of
business), unless such Borrower complies with the terms and provisions
of this Section. A Borrower will give the Agent at least thirty (30)
day's advance written notice of any change in such Borrower's
principal place of business, any change in the location of its books
and records or the personal property Collateral or any new location
for its books and records or other personal property Collateral. With
respect to any new location of a Borrower (which in any event shall be
within the continental United States), the applicable Borrower will
execute such documents and take such actions as the Agent deems
necessary to perfect and protect the security interests of the Agent,
on behalf of the Lenders, in the Collateral prior to the transfer or
removal of any Collateral to such new location.
5.14 Updates to Representations, Warranties and Schedules. Should any
of the representations and warranties set forth herein or in any of
the other Loan Documents, or any of the Information or disclosures
provided on any of the Schedules hereto or to any of the other Loan
Documents, become outdated or incorrect in any material respect at any
time during the term of this Agreement, CSI shall promptly provide the
Agent in writing with such revisions or updates as may be necessary or
appropriate to update or correct same; provided, however, that no such
representation, warranty or Schedule shall be deemed to have been
amended, modified or superseded by any such correction or update, nor
shall any breach of warranty or representation resulting from such
inaccuracy or incompleteness be deemed to have been cured thereby,
unless and until the Required Lenders, in their sole and absolute
discretion, shall have accepted in writing such revisions or updates.
<PAGE>
5.15 Further Assurances: Power of Attorney. At any time and from time
to time, upon the Agent's reasonable request, the Borrowers shall
make, execute and deliver to the Agent, and where appropriate shall
cause to be recorded or filed, and from time to time thereafter to be
re-recorded and refiled at such time and in such offices and places as
shall be deemed desirable by the Agent any and all such further
Security Documents, certificates and other documents and instruments
as the Agent may reasonably consider necessary or desirable in order
to effectuate, complete, perfect, continue or preserve the Obligations
of the Borrowers hereunder or under the other Loan Documents and the
Liens created thereby including, without limitation, (i) any documents
or assignments the Agent deems necessary to perfect its Liens in any
intellectual property rights of any Borrower, and (ii) any
documentation required by the Federal Assignment of Claims Act for
U.S. Government accounts. Each Borrower hereby appoints the Agent,
and any of its officers, directors, employees and authorized agents,
as its attorney-in-fact, with full power of substitution, upon any
failure by the Borrower to take or cause to be taken any action
described in the preceding sentence, to make, execute, record, file,
re-record or refile any and each such Security Document, instrument
certificate and document for and in the name of such Borrower. The
power of attorney granted pursuant to this Section is coupled with an
interest and shall be irrevocable until all of the Obligations are
paid in full and the Revolving Credit Commitment is terminated.
5.16 Key Man Life Insurance Policy. On or before January 11, 1999,
CSI shall deliver or cause to be delivered to Agent an assignment of a
term life insurance policy in the amount of Ten Million Dollars
($10,000,000) insuring the life of D.S. Patel, said assignment to be
in substantially the form attached hereto as Exhibit I, and shall
maintain or cause to be maintained said policy in full force and
effect and assigned to Agent throughout the term of this Agreement.
5.17 Primary Banking Relationship. Throughout the term of this
Agreement, CSI shall maintain its primary banking relationship and
substantially all of its demand deposit accounts with the Agent,
including, without limitation, its lockbox accounts, balance
reporting, operating accounts and control disbursement services;
provided, however, the Borrowers shall be permitted to maintain local
depository accounts.
5.18 Ownership of Subsidiaries. Throughout the term of this
Agreement, CSI shall be and remain the owner and holder of 100% of the
issued and outstanding stock of CST, SVPCCS and Circuit Systems
Foreign Sales Corp., a Virgin Islands corporation.
5.19 Silicon Valley Acquisition. The Silicon Valley Acquisition shall
have been completed, and SVPCCS shall have succeeded to substantially
all of the assets and certain of the liabilities of Silicon Valley
substantially as described in Purchase and Sale Agreement attached
hereto as Exhibit O on or before January 4, 1999.
<PAGE>
ARTICLE 6. NEGATIVE COVENANTS
From the date hereof and thereafter until the Term Loan Maturity
Date and until the Loans and the other Obligations of the Borrowers
hereunder are paid in full, each Borrower agrees to comply, for the
benefit of the Agent and the Lenders, with the following negative
covenants:
6.1 Indebtedness. No Borrower shall create, incur, assume or permit
to exist or remain outstanding any Indebtedness, except for:
(i) The Obligations owed by the Borrower to the Lenders
hereunder;
(ii) Indebtedness existing as of the Closing Date which shall
continue to be outstanding after the Closing Date, all as shown on
Schedule 6.1 hereto;
(iii) Indebtedness consisting of Capitalized Lease
Obligations up to the aggregate principal amount outstanding not to
exceed $5,000,000 during any Fiscal Year, the documents relating to
such liens to be in form acceptable to Agent. Capitalized Lease
Obligations in excess of such amounts shall be subject to the approval
of the Agent on a case by case basis;
(iv) Indebtedness represented by any Permitted Lien other than
the Permitted Lien described in clause (ix) of the definition of
Permitted Lien; and
(v) Indebtedness incurred in connection with any interest rate
hedge agreement (i.e., any type of agreement or arrangement designed
to provide protection against fluctuations in interest rates) entered
into with respect to Indebtedness described in Subsection (i) or (ii).
6.2 Guarantees. No Borrower shall enter into any Guaranty, except
endorsements of negotiable instruments for deposit and collection and
similar transactions in the ordinary course of business, and
guaranties approved by the Lenders in writing.
6.3 Liens: Negative Pledge. No Borrower shall create, assume, incur,
suffer or permit to exist any Lien upon any of its assets and
properties, whether tangible or intangible, whether now owned or in
existence or hereafter acquired or created and wherever located, nor
acquire nor agree to acquire any assets or properties subject to any
Lien except for Permitted Liens (including without limitation the
Liens described on Schedule 6.3) and Permitted Encumbrances. No
Borrower shall make or enter into any agreement to grant Liens for the
benefit of any Person.
6.4 Financial Covenants.
6.4a Minimum EBITDA. As of the Closing Date, the Borrowers'
EBITDA shall be no less than $7,800,000 (calculated as of October 31,
1998 for the previous 12 months). Thereafter the Borrowers' EBITDA
shall be no less that the amounts set forth in the table below for the
applicable periods. In all cases, EBITDA shall be determined
quarterly, based on a rolling twelve month basis.
<PAGE>
Fiscal Quarter Periods Minimum EBITDA
---------------------- -----------
From Closing Date to and including January 31, 1999 $ 8,000,000
From February 1, 1999 to and including April 30, 1999 $10,000,000
From May 1, 1999 and at all times thereafter $10,000,000
6.4b Adjusted Debt Service Ratio. As of the last day of each
Fiscal Quarter and the three immediately preceding Fiscal Quarters
treated as a single accounting period, calculated on a consolidated
basis, the ratio of (i) EBITDA for such period less "unfinanced
capital expenditures" ("unfinanced capital expenditures" shall equal
Capital Expenditures minus increased long term debt) less income tax
expenses to (ii) Debt Service for such period shall not be less than:
Fiscal Quarter Periods Ratio
---------------------- -----
From Closing Date to and including January 31, 1999 .8 to 1.0
From February 1, 1999 and thereafter 1.0 to 1.0
6.4c Minimum Tangible Net Worth. As of the last day of each
Fiscal Quarter, Tangible Net Worth of the Borrowers shall be not less
than $11,000,000.
6.4d Maximum Debt to Tangible Net Worth Ratio. As of the last
day of each Fiscal Quarter, the ratio of Debt to Tangible Net Worth of
the Borrowers shall be no more than 5 to 1.0.
6.4e Capital Expenditures. Capital Expenditures for all
Borrowers shall not exceed $5,000,000 in the aggregate in any Fiscal
Year.
6.4f Operating Lease Expense. Operating lease expenses for all
Borrowers, determined and calculated in accordance with GAAP on a
consolidated basis, shall not exceed $1,000,000 in the aggregate in
any given Fiscal Year.
6.5 Distribution Restriction. No Borrower shall declare or make any
Shareholder Distribution unless such Shareholder Distribution is made
to a Borrower.
6.6 Liquidations, Mergers, Consolidations, Acquisitions, Etc. No
Borrower shall dissolve, liquidate or wind up its affairs,
recapitalize or become a party to any merger or consolidation, or
acquire by purchase, lease or otherwise all or substantially all of
the assets, or any capital stock or other equity or ownership interest
of any other Person, or permit a majority of its capital stock to be
acquired by any Person except as permitted by Section 6.13.
6.7 Subsidiaries. No Borrower shall form or acquire any new
Subsidiary, without the prior written consent of the Lenders, which
consent shall not be unreasonably withheld.
<PAGE>
6.8 Loans and Other Advances and Payments.
6.8a Loans. No Borrower shall make loans, payments or other
advances of funds to any Person, except for:
(i) payments in the ordinary course of business for goods and
services, taxes and other assessments, and other ordinary course
payments; and
(ii) advances for expenses made to the Borrower's employees in
reasonable amounts and in the ordinary course of business.
6.8b Prepayments. No Borrower shall prepay, redeem, purchase,
defease or otherwise satisfy prior to the scheduled maturity thereof
in any manner, or make any payment in violation of any Indebtedness,
other than the prepayment of the Notes in accordance with the terms of
this Credit Agreement and regularly scheduled or required repayments
or redemptions of existing Indebtedness, or amend, modify or change in
any manner any term or condition of any existing Indebtedness, or
other than to prepay intercompany Indebtedness.
6.9 Investments. No Borrower shall at any time purchase, acquire or
own any stocks, bonds, notes, or securities of, or any partnership
interest (whether general or limited) in, or any other interest in, or
make any capital contribution to, any other Person, or become a joint
venture partner in any joint venture, or repurchase any of its stock
or partnership interests, or enter into any interest hedge agreement
for purposes of speculation, or agree, become or remain liable to do
any of the foregoing, except for:
(i) debt securities having a maturity of not more than one year
issued or guaranteed by the United States government or by an agency
or instrumentality thereof;
(ii) certificates of deposit, bankers acceptances and time
deposits, which in each case mature within one year from the date of
purchase thereof and which are issued by a Qualified Lender;
(iii) commercial paper maturing in 270 days or less from the
date of issuance which, at the time of acquisition by a Borrower
either (A) is accorded the highest rating by Standard and Poor's
Rating Group, a division of McGraw-Hill, Inc. or Moody's Investors
Service, Inc. or (B) is issued by a Qualified Lender;
(iv) direct obligations of the United States of America or any
agency or instrumentality of the United States of America, the payment
or guarantee of which constitutes a full faith and credit obligation
of the United States of America in each case maturing in 12 months or
less from the date of acquisition;
(v) cash management "sweep accounts" made available to CSI by
the Agent which invest directly or indirectly through common
investment funds, repurchase agreements or otherwise in securities of
the type described in items (i) through (iv) above; and
(vi) mutual funds made available by the Agent or its affiliates
which are invested in the types of investments described in items (i)
through and including (iv) above.
<PAGE>
6.10 Affiliate Transactions. No Borrower shall enter into or carry
out any transaction with an Affiliate (including, without limitation,
purchasing or leasing property or services from or selling or leasing
property or services to any Affiliate) unless such transaction (i) is
not otherwise prohibited by this Agreement (ii) is entered into in the
ordinary course of business upon fair and reasonable arm's-length
terms and conditions which are fully disclosed to the Lenders and
(iii) is in accordance with all applicable Governmental Rules.
6.11 Change of Business. No Borrower shall engage in any business
other than the Business.
6.12 ERISA. No Borrower shall:
(i) (A) with respect to any Plan, incur any material liability
for failure to make timely payment of any contribution or installment
required under Section 302 of ERISA and Section 412 of the Internal
Revenue Code, whether or not waived, or otherwise materially fail to
comply with the funding provisions set forth therein (B) with respect
to any Plan or suffer to exist any lien under Section 302(f) of ERISA
or Section 41 2(n) of the Internal Revenue Code against the property
and rights to property of the Borrower or any ERISA Affiliate or (C)
terminate, or permit any ERISA Affiliate to terminate, any such Plan
in a manner which could reasonably be expected to result in the
imposition of a lien upon the property or rights to property of the
Borrower or any ERISA Affiliate pursuant to Section 4068 of ERISA; and
(ii) engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code)
with respect to any "employee benefit plan" (as defined in Section
3(3) of ERISA) for which a statutory or administrative exemption is
not available under Section 408 of ERISA or Section 4975 of the
Internal Revenue Code.
6.13 Capital Expenditure Limits. The aggregate amount of all
Borrowers' Capital Expenditures (excluding trade-ins and excluding
Capital Expenditures in respect of replacement assets to the extent
funded with casualty insurance proceeds) will not exceed $5,000,000 in
any Fiscal Year.
In the event that any Borrower enters into a Capitalized Lease or
other contract with respect to fixed assets, for purposes of
calculating Capital Expenditures under this Section only, the amount
of the Capitalized Lease or contract initially capitalized on such
Borrower's balance sheet prepared in accordance with GAAP shall be
considered expended in full on the date that such Borrower enters into
such Capitalized Lease or contract.
6.14 Asset Dispositions. No Borrower shall sell, lease, assign
transfer or otherwise dispose of any of its respective rights, title
or interest in and to the Collateral, excepting only sales of
inventory in the ordinary course of business and sales or other
dispositions of obsolete equipment or equipment being replaced in the
ordinary course of the business of such Borrower.
<PAGE>
ARTICLE 7. CONDITIONS TO EXTENSIONS OF CREDIT
7.1 All Loans. The obligation of the Lenders to make each Loan is
subject to the satisfaction of each of the following conditions
precedent:
7.1a Request for Loan or Application. Receipt by the Agent of a
Loan Request satisfying the requirements of Section 2.6, and, if the
proceeds are to be used in connection with the Silicon Valley
Acquisition, the Borrowers shall describe such use in the Loan
Request.
7.1b Borrowing Base Certificate. Receipt by the Agent of an
executed Borrowing Base Certificate in the form attached as Exhibit K.
7.1c No Default or Event of Default. The Borrowers shall have
performed and complied with all agreements and conditions in the Loan
Documents required to be performed or complied with prior to any Loan
being made and, at the time such Loan is made or as a result of making
such Loan, no Default or Event of Default has occurred and is
continuing or will be caused by the making of such Loan.
7.1d Representations Correct. The representations and warranties
contained in Article 4 hereof and otherwise made in writing by or on
behalf of the Borrowers in connection with the transactions
contemplated by this Agreement shall be (i) correct when made and
(ii) correct in all material respects at the time of the making of
each Loan.
Each request for a Loan, whether made orally or in writing, shall
be deemed to be, as of the time made, a representation and warranty by
the Borrowers as to the accuracy of the matters set forth in Sections
7.1c and 7.1d.
7.1e Landlord Waivers and Consent. With respect to existing
landlords, Borrowers shall obtain the Landlord Waivers and Consents
substantially in the form of Exhibit "M" attached hereto prior to the
Closing Date. With respect to leases of real property entered into
after the date hereof, and each renewal of any lease of real property
(whether existing or entered into after the date hereof), Borrowers
shall deliver to Agent a Landlord Waiver and Consent substantially in
the form of Exhibit "M" hereto and reasonably satisfactory to Agent
prior to occupying the premises subject to any such leases or the
commencement of the renewal term, as applicable.
7.1f Loans for Silicon Valley Acquisition. In addition to the
conditions set forth in this Section 7.1, in order to make a Loan the
proceeds of which will be used for the Silicon Valley Acquisition, the
Borrowers must also meet the conditions set forth in Section 7.3
hereof.
7.2 Initial Extension of Credit. The obligation of the Lenders to
make the first Loan hereunder is subject to the satisfaction of each
of the following conditions precedent, in addition to the applicable
conditions precedent set forth in Section 7.1, all of which must be in
form and substance satisfactory to the Agent and the Lenders:
<PAGE>
7.2a Closing Documents. Receipt by the Agent of the following
fully and duly executed documents:
(i) this Agreement executed by the Borrowers;
(ii) all schedules to this Agreement and the other Loan
Documents;
(iii) the Revolving Credit Notes executed by the Borrowers
and payable to each Lender for redelivery to each Lender;
(iv) the Term Notes executed by the Borrowers and payable to each
Lender for redelivery to each Lender;
(v) the Security Agreement, the Pledge Agreement and an
Assignment of Patents and Trademarks, each executed by the Borrowers;
(vi) UCC-1 financing statements requested by it, signed by the
applicable Borrowers, and the filing of such financing statements by
the Agent in the appropriate filing offices;
(vii) a Mortgage or Deed of Trust for each Mortgaged Parcel
in recordable form and the recordation thereof in the appropriate
recording office;
(viii) a Borrowing Base Certificate; and
(ix) the Closing Certificate.
7.2b Lien Searches. Receipt by the Agent of Lien and judgment
searches with results reasonably satisfactory to the Lenders.
7.2c Termination Statements, Etc. Receipt by the Agent of all
Uniform Commercial Code termination statements, mortgage
satisfactions, releases of pledge agreements and other documents and
instruments of termination and release necessary so that the security
interests granted to the Agent for the benefit of the Lenders pursuant
to the Security Documents are first priority Liens, subject only to
Permitted Liens or Permitted Encumbrances.
7.2d Title Insurance. The Borrowers shall deliver or cause to be
delivered to the Agent on the Closing Date, ALTA loan title insurance
policies issued by title insurers reasonably satisfactory to the Agent
(the "Mortgage Policies") and in amounts reasonably satisfactory to
the Agent insuring the Agent that the Mortgages are valid and
enforceable first priority mortgage liens on the respective Mortgaged
Parcel, free and clear of all defects and encumbrances except the
permitted encumbrances which are reasonably acceptable to the Agent
and are listed or described in each Mortgage (the "Permitted
Encumbrances"). The Mortgage Policies shall (i) have all standard
preprinted general exceptions deleted, (ii) include an endorsement
insuring against any gap, the effect of future advances under this
Agreement, for mechanics' liens and for any other matter that the
Agent may reasonably request, and (iii) provide for affirmative
insurance as the Agent may reasonably request. All taxes with respect
to each Mortgaged parcel must be paid to the Closing Date if due and
payable.
<PAGE>
7.2e Surveys. Receipt by the Agent of a current survey meeting
the Minimum Standard Detail Requirements for Land Title Survey jointly
established by ALTA and ACSM in 1992 (or similar requirements
reasonably acceptable to the Agent) for each Mortgaged Parcel prepared
by a licensed registered surveyor and conforming to the Agent's
standard survey guidelines previously delivered to the Borrower. All
such surveys shall be sufficient to allow the title insurer of the
Mortgage Policies to issue an ALTA loan policy for each Mortgage
Parcel with the standard survey exceptions deleted.
7.2f Site Assessments. Receipt by the Agent of a Phase I, and if
reasonably requested by the Agent, a Phase II Environmental Site
Assessment, for each Mortgaged Parcel prepared by an environmental
engineering firm acceptable to Bank which complies with the Standard
Practice for Environmental Site Assessments: Phase I Environmental
Site Assessment Process published by the American Society for Testing
and Materials, and otherwise satisfactory to the Agent and revealing
no environmental defects unacceptable to the Agent.
7.2g Environmental Agreement. Receipt by the Agent of the
Environmental Agreement duly executed by the Borrowers.
7.2h Appraisals. Receipt by the Agent of (i) an appraisal by an
independent valuation firm acceptable to the Agent of the machinery
and equipment of Borrowers and (ii) a self-contained appraisal by a
qualified and licensed appraiser of each Mortgaged Parcel, each
satisfactory to the Lenders.
7.2i Audit of Accounts and Inventory. Each Lender shall have
satisfactorily completed its audit of the Accounts and Inventory of
the Borrowers, and the results thereof shall be satisfactory to the
Lenders in their sole discretion.
7.2j Hazard and Liability Insurance. Receipt by the Agent of (i)
a schedule of all of the current insurance coverage, and (ii) current
insurance certificates, with long-form loss payee and mortgagee's
endorsements, showing that the Borrowers, respectively, are in
compliance with Section 5.8 and the insurance requirements set forth
in the other Loan Documents.
7.2k Flood Insurance. Receipt by the Agent of evidence
satisfactory to it of flood insurance for each Mortgaged Parcel or
other plants or facilities of the Borrowers which are located in a
special flood hazard area or other similarly designated area.
7.2l Termination of Existing Bank Credit Agreement. The
Borrowers shall have authorized the Agent in writing to pay in full
the Existing Bank Indebtedness on the Closing Date with proceeds of
the first Loans made hereunder.
7.2m Organizational Documents. Receipt by the Agent of the
following documents: (i) a copy of the Articles of Incorporation and
any amendments thereto, certified as of a recent date by the Secretary
of State of the State of Illinois or other state or territory of
formation for CSI, CST, and SVPCCS; (ii) a copy of each such
corporation's by-laws and any amendments thereto, certified by the
Secretary or Assistant Secretary of such corporation as being true,
correct, complete and in effect; (iii) a copy of the Agreement of
Limited Partnership for CSTLP, as amended to and including the Closing
<PAGE>
Date, certified by CST; (iv) a certificate of existence issued by the
Secretary of State of the State of formation for each Borrower and
CST; (v) an incumbency certificate, showing the names of the Persons
designated as authorized officers of each such Borrower, their
respective titles and containing their true signatures; (vi) the
certificates of good standing or existence for each Borrower issued by
the appropriate governmental agency from each State in which a
Mortgaged Parcel is located and those listed on Schedule 4.1; (vii) a
resolution authorizing the borrowing hereunder, execution of documents
and the consummation of the transactions contemplated hereby; and
(vii) a signature authorization certificate.
7.2n Intentionally Left Blank.
7.2o Opinion of Counsel. Receipt by the Agent of opinion letters
addressed to the Lenders from counsel to the Borrowers in all respects
reasonably satisfactory to the Lenders.
7.2p Intentionally left blank.
7.2q Governmental Approvals. All Governmental Approvals required
in connection with the execution, delivery and performance of this
Agreement shall have been obtained and be in full force and effect as
of the Closing Date. Any consent, approval, order or authorization
of, and any waiting period imposed by any Governmental Authority in
connection with the Silicon Valley Acquisition shall have been
obtained or, in the case of any waiting period, shall have expired.
7.2r Performance of Agreements. The Borrowers shall have
performed in all material respects all agreements and satisfied all
conditions which any Loan Document provides shall be performed by it
on or before the Closing Date.
7.2s Request for Initial Loans. Receipt by the Agent of written
instructions addressed to the Agent and executed by the Borrowers,
instructing the Agent as to the extensions of credit to be made
hereunder on the Closing Date, and containing complete wire transfer
instructions.
7.2t Assignment of Life Insurance Policy. Receipt by the Agent
of a collateral assignment of a term life insurance Policy in the
amount of Ten Million Dollars ($10,000,000) insuring the life of D.S.
Patel.
7.2u Landlord Waivers and Consents. Compliance by Borrowers with
the provisions of Section 7.1d., relating to each parcel of real
property leased by Borrower identified on Schedule 4.14.
7.2v Solvency Certificate. Receipt by the Agent of an acceptable
Financial Certificate of the Borrowers, with the Pro-forma Balance
Sheet referenced in Section 4.6b attached, and the Lenders shall be
satisfied with the Borrower's financial condition and ability to meet
its obligations.
7.2w No Deterioration. The Lenders shall have determined that
there has been no material deterioration of the Borrowers' financial
position since September 30, 1998.
<PAGE>
7.2x No Litigation. No litigation or other proceeding shall have
been commenced or threatened which could have a Material Adverse
Effect on the Business, the Silicon Valley Acquisition, the Collateral
or the Loans.
7.2y Closing Date Applicable Margin Statement. The Lenders shall
have received the Closing Date Applicable Margin Statements certified
by the Borrowers as being accurate and complete, accompanied by an
initial Compliance Certificate.
7.2z Payment of Fees. Receipt by Agent of all Fees and any other
fees and Expenses due as of the Closing Date hereunder and under the
other Loan Documents.
7.3 Conditions for Loans Made for the Silicon Valley Acquisition.
The obligation of the Lenders to make any Loan, the proceeds of which
are to be used in connection with the Silicon Valley Acquisition, is
subject to the satisfaction of each of the following conditions
precedent, in addition to the conditions precedent set forth in
Section 7.1, all of which must be in form and substance satisfactory
to the Agent and the Lenders. The Agent shall have received:
7.3a Purchase and Sale Agreement. A copy of the Purchase and
Sale Agreement and all ancillary documents, certified by an Authorized
Officer to be true and correct with no amendments thereto, and
evidence that all conditions to the consummation of the acquisition
(other than the payment of the purchase price) have been satisfied in
accordance with the terms of the Purchase and Sale Agreement. The
acquisition price shall not exceed $7,000,000 and no more than
$3,000,000 of that sum is to paid in cash.
7.3b UCC-1 Financing Statements. UCC-1 financing statements
requested by it, signed by SVPCCS and covering the assets acquired in
the acquisition, and the filing of such financing statements by the
Agent in the appropriate filing offices.
7.3c Lien Searches. Lien and judgment searches on the acquired
assets of Silicon Valley with results reasonably satisfactory to the
Lenders.
7.3d Termination Statements, Etc. All Uniform Commercial Code
termination statements, pay-off letters executed by secured parties
indicating all conditions of issuance of executed UCC termination
statements (in forms satisfactory to Agent in its sole discretion)
and/or other documents and instruments (reasonably satisfactory to
Agent) of termination and release necessary so that the security
interests granted to the Agent for the benefit of the Lenders pursuant
to the Security Documents are first priority Liens, subject only to
Permitted Liens or Permitted Encumbrances.
7.3e Termination of Existing Indebtedness. Evidence that all
existing bank indebtedness with respect to assets acquired pursuant to
the Silicon Valley Acquisition has been paid and satisfied in full.
7.3f Opinion of Counsel. Opinion letters addressed to the
Lenders from counsel to SVPCCS with respect to the Silicon Valley
Acquisition in all respects reasonably satisfactory to the Lenders.
<PAGE>
7.3g Governmental Approvals. Evidence that any consent,
approval, order or authorization of, and any waiting period imposed by
any Governmental Authority in connection with the Silicon Valley
Acquisition has been obtained or, in the case of any waiting period,
has expired.
7.3h Landlord Waivers and Consents. Evidence that Borrowers have
complied with the provisions of Section 7.1d., relating to each parcel
of real property leased by Borrowers in California identified on
Schedule 4.14.
7.3i Solvency Certificate. An acceptable Financial Certificate
of the Borrowers, with the Pro-forma Balance Sheet referenced in
Section 4.6b attached, and the Lenders shall be satisfied with the
Borrowers' financial condition and ability to meet its obligations.
7.3j No Deterioration. The Borrowers have provided the Agent
with pro forma financial statements which indicate to the Agent's
satisfaction that there has been no material deterioration of the
Borrowers' financial position since September 30, 1998, giving effect
(on a pro forma basis) to the Silicon Valley Acquisition.
ARTICLE 8. EVENTS OF DEFAULT; REMEDIES
8.1 Events of Default. Each of the following events shall constitute
an Event of Default:
8.1a Nonpayment of Any Borrower's Obligations. Nonpayment by any
Borrower (i) of any payment of principal of the Loans when due, or of
the payment of interest on any Loans when due, and either default in
payment shall have continued for a period of five (5) calendar days
after such due date, or (ii) in the payment of any of the Fees,
expenses or other amounts due hereunder or under any of the other Loan
Documents when due, and such default in payment of interest, Fees,
expenses or other amounts shall have continued for a period of five
(5) calendar days after notice of such due date has been given to CSI
by the Agent.
8.1b Violations Under Other Indebtedness and Obligations. Any
Borrower shall (i) default in the payment of any other Indebtedness,
or (ii) default in the performance of any other term of any agreement
or instrument under which any other Indebtedness with an aggregate
principal outstanding balance of $500,000 or more is created or by
which it is governed or evidenced, or in any mortgage covering any
real property owned by any Borrower, if the effect of any such default
described in this clause (ii) is to cause such Indebtedness to become,
or if the holder or holders of such Indebtedness (or any Person on
behalf of such holder) declares such Indebtedness, due prior to its
expressed maturity.
<PAGE>
8.1c Insolvency, Etc.
(i) Involuntary Proceedings. A proceeding shall have been
instituted in a court having jurisdiction seeking a decree or order
for relief in respect of any Borrower in an involuntary case under the
Federal bankruptcy laws, or any other similar applicable Federal or
state law, now or hereafter in effect, or for the appointment of a
receiver, liquidator, trustee, sequestrator or similar official for
any Borrower or for a substantial part of their respective property,
or for the winding up or liquidation of its affairs, and such shall
remain undismissed or unstayed and in effect for a period of sixty
(60) days.
(ii) Voluntary Proceedings. Any Borrower shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent
to the filing of a bankruptcy proceeding against it, or shall file a
petition or answer or consent seeking reorganization under the Federal
bankruptcy laws, or any other similar applicable Federal or state law
now or hereafter in effect, or shall consent or acquiesce to the
filing of any such petition, or shall consent to or acquiesce in the
appointment of a receiver, liquidator, trustee, sequestrator or
similar official for any Borrower or for a substantial part of their
respective property, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or action shall be taken by any Borrower
in furtherance of any of the foregoing.
8.1d Dissolution; Cessation of Business. Any Borrower shall
terminate its existence, cease to exist, dissolve, permanently cease
operations or abandon the operation of any of its material plants or
facilities.
8.1e ERISA. One or more of the following events occur: (i) a
Notice of Intent to Terminate any Plan (including any Plan of an ERISA
Affiliate) is filed under Section 4041(c) of ERISA; (ii) proceedings
shall be instituted for the appointment of a trustee by the
appropriate United States court to administer any Plan (including any
Plan of an ERISA Affiliate); or (iii) the PBGC shall institute
proceedings to terminate any Plan (including any Plan of an ERISA
Affiliate) or to appoint a trustee to administer any such Plan.
8.1f Change of Control. The occurrence of a Change of Control.
8.1g Adverse Judgments. The aggregate amount of unpaid final
judgments against the Borrowers for which no further appellate review
exists shall, at any one time, exceed for a period of thirty (30)
calendar days, by $1,000,000 or more, the aggregate amount of
insurance proceeds available to pay such judgments.
8.1h Failure to Comply with Loan Documents.
(i) Failure to Comply with Negative Covenants. Any default
shall occur or exist under a negative covenant contained in Section
6.1, 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.11, 6.13 or 6.14 of this
Agreement.
<PAGE>
(ii) Failure to Comply with Other Covenants. Any Borrower shall
default in the due performance or observance of any term, agreement,
covenant, condition or provision set forth in this Agreement (other
than occurrences described in other provisions of this Section 8.1) or
any default thereunder shall occur or exist, and such default
described in this item (ii) shall not be remedied to the satisfaction
of the Agent for a period of twenty (20) Business Days after the
earlier of (A) such default becoming known to any Authorized Officer
or (B) notice of such default being delivered by the Agent to CSI.
(iii) Defaults under or Failure to Comply with Other Loan
Documents. (A) An "Event of Default" shall occur or exist as such
term is defined in the Security Agreement, or in any Mortgage of a
Mortgaged Parcel to which the Borrower is a party, or in the Pledge
Agreement, or (B) any Borrower shall default in the due performance of
any covenant, condition or provision set forth in any other Loan
Document not listed in (A) to which such Borrower is a party, or any
default thereunder shall occur or exist (other than occurrences
described in other provisions of this Section 8.1h), and such default
shall not be remedied to the satisfaction of the Agent (x) within the
cure or grace period provided within any Loan Document, or (y) if no
such cure or grace period is provided, for a period of twenty (20)
Business Days after the earlier of (1) such default becoming known to
any Authorized Officer or (2) notice of such default being delivered
by the Agent to CSI.
8.1i Misrepresentation. Any representation or warranty made by
any Borrower or in any Loan Document to which it is a party is untrue
in any material respect as of the date made, or any schedule,
statement, report, notice, certificate or other writing furnished by
any Borrower to the Agent or any Lender is untrue in any material
respect on the date as of which the facts set forth therein are stated
or certified.
8.1j Invalidity, Etc. of Loan Documents. The validity or
enforceability of any material provision of this Agreement or any
other Loan Documents shall be contested by any Borrower or any
Governmental Authority, or any Borrower shall deny that it has any or
further liability or obligation under any Loan Document to which it is
a party.
8.1k Material Adverse Change. The occurrence of any Material
Adverse Change.
8.1l Agent's Lien. The Agent's Lien upon any material portion of
the Collateral, through no fault or inaction on the part of the Agent,
is or becomes unperfected or no longer constitutes, subject to
Permitted Liens or to Permitted Encumbrances, a valid, first priority
perfected Lien, and such failure is not remedied to the satisfaction
of the Agent for a period of five (5) Business Days after the earlier
of (i) such failure becomes known to any Authorized Officer or (ii)
notice of such failure being delivered by the Agent to CSI.
8.1m Post-Closing Preformance. The Borrowers fail to perform any
of the post-closing covenants set forth in a side letter among the
Borrowers and Agent dated January __, 1999 within the time period set
forth therein.
<PAGE>
8.2 Remedies.
8.2a Events of Default Under Sections 8.1c and 8.1d. Upon the
occurrence of an Event of Default set forth in Sections 8.1c and 8.1d
and upon the occurrence of any violation of Paragraph 14 of the
Mortgages (Due on Sale Clause) executed by the Borrowers, the
Revolving Credit Commitment shall automatically terminate and the
Revolving Credit Notes, the Term Notes, interest accrued thereon and
all other Obligations of the Borrowers to the Lenders and the Agent
shall become immediately due and payable, without the necessity of
demand, presentation, protest, notice of dishonor or notice of
default, all of which are hereby expressly waived by the Borrowers.
Thereafter, the Lenders shall have no further obligation to make any
additional Loans hereunder.
8.2b Remaining Events of Default. Upon the occurrence and during
the continuance of any Event of Default set forth in sections 8.1a,
8.1b, 8.1e, 8.1f, 8.lg, 8.1h, 8.1i, 8.1j, 8.1k, or 8.1l the Lenders
may, at their option, declare the Revolving Credit Commitment
terminated and the Revolving Credit Notes, the Term Notes, interest
accrued thereon and all other Obligations of the Borrower to the
Lenders and the Agent to be due and payable, without the necessity of
demand, presentation, protests notice of dishonor or notice of
default, all of which are hereby expressly waived by the Borrower.
Thereafter, the Lenders shall have no further obligation to make any
additional Loans hereunder.
8.2c Additional Remedies. In addition to the remedies set forth
above, upon the occurrence of any Event of Default, the Lenders and
the Agent shall have all of the rights and remedies granted to them
under this Agreement and the other Loan Documents and all other rights
and remedies granted by law to creditors.
8.2d Exercise of Remedies; Remedies Cumulative. No delay on the
part of the Agent or the Lenders, and no failure by the Agent or the
Lenders to exercise any power, right or remedy under this Agreement or
are other Loan Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any power, right or remedy or any
abandonment or discontinuance of steps to enforce such right, power or
remedy preclude other or further exercises thereof, or the exercise of
any other powers right or remedy No waiver of any Event of Default
shall extend to any other or future Event of Default. No forbearance
on the part of the Agent in enforcing the Agent's or any of the
Lender's rights shall constitute a waiver of any of their respective
rights. The rights and remedies in this Agreement and the other Loan
Documents are cumulative and not exclusive of any rights or remedies
(including, without limitation, the right of specific performance)
which the Agent and the Lenders would otherwise have.
ARTICLE 9. AGREEMENT AMONG LENDERS
9.1 General; No Third Party Beneficiary. The provisions of this
Article are solely for the benefit of the Agent and the Lenders, and
the Borrowers shall not have any rights as a third-party beneficiary
to any provisions hereof. In performing its functions and duties
under this Agreement and under the other Loan Documents, the Agent
shall act solely as agent of the Lenders and does not assume and shall
not be deemed to have assumed any obligation towards or relationship
of agency or trust with or for the Borrowers.
<PAGE>
9.2 Appointment and Grant of Authority. Each Lender hereby
irrevocably appoints and authorizes LaSalle National Bank and LaSalle
National Bank hereby agrees to act as the Agent under this Agreement
and the other Loan Documents. The Agent shall have and may exercise
such powers under this Agreement as are specifically delegated to it
by the terms hereof or of the other Loan Documents, together with such
other powers as are incidental thereto. Without limiting the
foregoing, the Agent, on behalf of the Lenders, is authorized to
execute all of the Loan Documents (other than this Agreement) for and
on behalf of the Lenders and to accept all of the Loan Documents and
all other agreements, documents or instruments reasonably required to
carry out the intent of the parties to this Agreement.
9.3 Non-Reliance on the Agent. Each Lender agrees that it has,
independently and without reliance on the Agent, and based on such
documents and information as it has deemed appropriate, made its own
credit analysis of the Borrowers and its own decision to enter into
this Agreement and that it will, independently and without reliance
upon the Agent, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis
and decisions in taking or not taking action under this Agreement.
Except as otherwise provided herein, the Agent shall have no duty to
keep the Lenders informed as to the performance or observance by the
Borrowers of this Agreement or any other Loan Document referred to or
provided for herein or to inspect the properties or books of the
Borrowers; provided, however, that the Agent shall notify each Lender
of any request received from the Borrowers for a waiver of any
material term of, or any amendment to, any Loan Document, and shall
furnish to the Lenders upon request copies of results of any field
exams or audits of the Borrowers' business or the Collateral conducted
by the Agent. The agent, in the absence of gross negligence or
willful misconduct, shall not be liable to any Lender for its failure
to relay or furnish to the Lender any information.
9.4 Responsibility of the Agent and Other Matters.
9.4a Ministerial Nature of Duties. As between the Lenders and
itself, the Agent shall not have any duties or responsibilities except
those expressly set forth in this Agreement or in the other Loan
Documents, and those duties and responsibilities shall be subject to
the limitations and qualifications set forth in this Article 9. The
duties of the Agent shall be ministerial and administrative in nature.
9.4b Limitation of Liability. As between the Lenders and itself,
neither the Agent nor any of its directors, officers, employees or
agents shall be liable, in the absence of gross negligence or willful
misconduct, for any action taken or omitted (whether or not such
action taken or omitted is within or without the Agent's
responsibilities and duties expressly set forth in this Agreement)
under or in connection with this Agreement, any other Loan Document,
or any other instrument or document in connection herewith. Without
limiting the foregoing, neither the Agent nor any of its directors,
officers, employees or agents shall be responsible for, or have any
duty to examine (i) the genuineness, execution, validity,
effectiveness, enforceability, value or sufficiency of this Agreement
or any of the other Loan Documents or any other document or instrument
furnished pursuant to or in connection with this Agreement; (ii) the
collectibility of any amounts owed by the Borrowers to the Lenders;
<PAGE>
(iii) the truthfulness of any recitals, statements, representations or
warranties made to the Agent or the Lenders in connection with this
Agreements the other Loan Documents or any other document or
instrument furnished pursuant to or in connection with this Agreement;
(iv) any failure of any party to this Agreement to receive any
communication sent, including any telegram, telex, teletype, telecopy,
bank wire, cable, radiogram or telephone message or any writing,
application, notice, report, statement, certificate, resolution,
request, order, consent letter or other instrument, paper or
communication entrusted to the mails or to a delivery service; or (v)
the assets, liabilities, financial condition, results of operations,
business, prospects or creditworthiness of the Borrowers or any of its
properties.
9.4c Reliance. The Agent shall be entitled to act, and shall be
fully protected in acting upon, any telegram, telex, teletype,
telecopy, bank wire, cable or radiogram or any writing, application,
notice, report, statement, certificate, resolution, request, order,
consent letter, other instrument, paper or communication believed by
the Agent in good faith to be genuine and correct and to have been
signed or sent or made by a proper Person. The Agent may consult
counsel and shall be entitled to act, and shall be fully protected in
any action taken in good faith, in accordance with advice given by
counsel. The Agent may employ agents and attorneys-in-fact and shall
not be liable for the default or misconduct of any such agents or
attorneys-in-fact selected by the Agent with reasonable care. The
Agent shall not be bound to ascertain or inquire as to the performance
or observance of any of the terms, provisions or conditions of this
Agreement or any of the other Loan Documents on the part of the
Borrowers. The Agent may deem and treat the payee of any note as the
owner thereof for all purposes hereof unless and until a written
notice of the assignment or transfer thereof shall have been filed
with the Agent and the provisions of Section 10.5 have been satisfied.
Any requests, authority or consent of any Person who at the time of
making such request or giving such authority or consent is the holder
of any Note shall be conclusive and binding on any subsequent holder,
transferee or assignee at that Note or of any Note or Notes issued in
exchange therefor or replacement thereof.
9.5 Action on Instructions. The Agent shall be entitled to act or
refrain from acting, and shall be fully protected in acting or
refraining from acting, under this Agreement, the other Loan Documents
or any other instrument or document in connection herewith or
therewith, in accordance with written instructions from the Required
Lenders or, in the case of the matters set forth in Section 10.1, from
all of the Lenders. For purposes of this Agreement and the other Loan
Documents, unless expressly stated otherwise, all determinations by,
requests by, or other references to "Lenders" shall mean the Required
Lenders.
9.6 Action Upon Occurrence of a Default or Event of Default. If a
Default or Event of Default has occurred, the Lenders shall
immediately consult with one another in an attempt to agree upon a
mutually acceptable course of conduct.
<PAGE>
9.7 Indemnification. To the extent the Borrowers do not reimburse
and save harmless the Agent according to the terms hereof for and from
all out-of-pocket costs, expenses and disbursements in connection
herewith, such costs, expenses and disbursements shall be borne by the
Lenders ratably in accordance with their respective Commitments. Each
Lender hereby agrees on such basis (i) to reimburse the Agent for such
Lender's pro rata share of all such out-of-pocket costs, expenses and
disbursements on request and (ii) to the extent of each such Lender's
pro rata share, to indemnify and save harmless the Agent against and
from any and all losses, obligations, penalties, actions, judgments
and suits and other costs, expenses and disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted
against the Agent, other than as a consequence of gross negligence or
willful misconduct on the part of the Agent, arising out of or in
connection with this Agreement, the other Loan Documents or any other
agreement, instrument or document in connection herewith or therewith,
or any request of the Required Lenders, including without limitation
the out-of-pocket costs, expenses and disbursements in connection with
defending itself against any claim or liability related to the
exercise or performance of any of its powers or duties under this
Agreement, the other Loan Documents, or any of the other agreements,
instruments or documents delivered in connection herewith or the
taking of any action under or on connection with any of the foregoing.
9.8 Agent's Rights as a Lender. With respect to the Commitments of
the Agent as a Lender hereunder, and any Loans of the Agent under this
Agreement, the other Loan Documents and any other agreements,
instruments and documents delivered pursuant hereto, the Agent shall
have the same rights, powers, duties and obligations under this
Agreement, the other Loan Documents or other agreements, instruments
or documents as any Lender, and may exercise such rights and powers
and shall perform such duties and fulfill such obligations as though
it were not the Agent. The Agent may accept deposits from, lend money
to, and generally engage, and continue to engage in any kind of
business with the Borrowers as if it were not the Agent.
9.9 Loan Advances by the Agent. Unless the officers of the Agent
responsible for administering this Agreement shall have been notified
in writing by a Lender prior to the date and time specified herein of
any Loan that such Lender will not make the amount which would
constitute its pro rata share of such Loan available to the Agent on
or prior to the date of such Loan, the Agent may (but shall not be
required to) assume that such Lender has made such amount available to
the Agent on the date of such Loan and the Agent may, in reliance upon
such assumption make available to the Borrowers a corresponding
amount. If such pro rata share is made available to the Agent by a
Lender on a date after the date of such Loan, such Lender shall pay to
the Agent on demand an amount equal to the product of (i) the average,
computed for the period referred to in clause (iii) below, of the
weighted average interest rate for federal funds as determined by the
Agent during each day included in such period, times (ii) the amount
of such Lender's pro rata share of such Loan, times (iii) a fraction,
the numerator of which is the number of days that elapsed from and
including the date of such Loan, to the date on which such pro rata
share of such Loan became immediately available to the Agent, and the
denominator of which is 365. A statement of the Agent submitted to
any Lender with respect to any amounts owing under this Section 9.9
shall be prima facie evidence as to the amount owed by that Lender to
<PAGE>
the Agent. If such Lender's pro rata share is not in fact made
available to the Agent by such Lender within three (3) Business Days
of the date of any Loan, such Lender shall pay such amount, with
interest thereon at the rate per annum then applicable under the Base
Rate Option during such period, on demand, to the Agent.
9.10 Payment to Lenders. Promptly after receipt from the Borrowers of
any principal repayment of the Loans, interest due on the Loans, and
any Fees or other amounts due under any of the Loan Documents which
are for the benefit of all the Lenders, the Agent shall distribute to
each Lender that Lender's Commitment Percentage of the funds so
received. Such delivery shall be accomplished in such a manner as to
allow each Lender to receive its share of such payment in immediately
available funds on the same day that the funds representing payment
due from the Borrowers are collected funds in the possession of the
Agent. If the Agent fails to make such a payment to a Lender on the
same day that the funds are received, such Lender shall be entitled to
receive a premium based upon such Lender's calculations made in
accordance with the same formula set forth in Section 9.9.
9.11 Pro Rata Sharing. Any sums obtained from the Borrowers by any
Lender by reason of the exercise of its rights of setoff or banker's
lien shall be shared pro rata among the Lenders. Nothing in this
Section 9.11 shall be deemed to require the sharing among the Lenders
of collections specifically relating to, or of the proceeds of
collateral which is not subject to or contemplated by the Security
Documents specifically securing, any other Indebtedness of the
Borrowers to any Lender.
9.12 Notice of Event of Default. Each Lender shall use its best
efforts to notify the Agent immediately in writing of any Default or
Event of Default of which it becomes aware. Upon receipt of any such
notice, the Agent shall use its best efforts to notify the Lenders
immediately in writing of such Default or Event of Default. The Agent
shall notify each Lender of any Default or Event of Default as soon as
practicable after obtaining knowledge thereof.
9.13 Successor Agent. The Agent may resign as the Agent upon thirty
(30) calendar days' notice to the Lenders and the CSI only in the
event that an Event of Default shall occur, be continuing and declared
by the Lenders. If such notice shall be given, the Lender shall
appoint from among the Lenders a successor agent for the Lenders,
during such thirty (30) day period, which successor agent shall be
reasonable satisfactory to the Borrowers, to serve as agent under the
Loan Documents. If at the end of such thirty (30) day period the
Lenders have not appointed such a successor, the Agent shall procure a
successor reasonably satisfactory to the Lenders and the Borrowers, to
serve as agent for the Lenders under the Loan Documents, any such
successor agent shall succeed to the rights, powers and duties of the
Agent. Upon the appointment of such successor agent or upon the
expiration of such thirty (30) day period (or any longer period to
which the Agent has agreed), the former Agent's rights, powers and
duties as the Agent shall be terminated, without any other or further
act or deed on the part of such former Agent or any of the parties to
this Agreement. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article 9 shall inure to the benefit of
such retiring Agent as to any actions taken or omitted to be taken by
it while it was the Agent under this Agreement.
<PAGE>
ARTICLE 10. GENERAL PROVISIONS
10.1 Amendments and Waivers.
(i) Subject to the remaining provisions of this Section 10.1,
the Required Lenders, or the Agent with the consent of the Required
Lenders, and the Borrower may from time to time enter into amendments,
extensions, supplements and replacements to and of this Agreement and
the other Loan Documents to which they are parties, and the Required
Lenders may from time to time waive compliance with a provision of any
of the Loan Documents or consent to action taken by the Borrower.
Subject to the remaining provisions of this Section 10.1, no
amendment, extension, supplement, replacements waiver or consent shall
be effective unless it is in writing and is signed by the Required
Lenders and the Borrower. Each waiver and consent shall be effective
only for the specific instance and for the specific purpose for which
it is given.
(ii) The foregoing notwithstanding, no such amendment,
extensions, supplement, replacement or waiver shall, without the
consent of all the Lenders:
(A) increase the Revolving Credit Commitment or the maximum
principal amount of the Revolving Credit Loans or the Term Loans which
may be outstanding hereunder;
(B) reduce any of the Interest Rate Options hereunder or
any of the Fees due hereunder or under any of the other Loan
Documents;
(C) extend the Revolving Credit Termination Date the Term
Loan Maturity Date, or postpone any scheduled payment date of
principal (including any scheduled date tor a mandatory or voluntary
principal prepayment), interest or Fees hereunder or under any of the
other Loan Documents;
(D) release any obliger under any Loan Document or all or
any part of the Collateral;
(E) amend the percentages set forth in the definition of
"Borrowing Base," or amend in any material respect the definitions of
"Eligible Account" or "Eligible Inventory";
(F) determine the rights or remedies to be exercised after
the declaration of an Event of Default by the Required Lenders,
provided that any consent or waiver to be obtained from the Lenders
after the declaration of an Event of Default (other than matters
described in other provisions of this Subsection 10.1(ii)) shall be
effective if it is in writing and is signed by only the Required
Lenders;
(G) change, amend or waive any financial covenant set forth
in Section 6.4;
(H) forgive or reduce any principal or interest of any
Loans which are outstanding;
<PAGE>
(I) change, amend or waive any of the covenants set forth
in Section 6.1(iii) or (iv) or 6.3;
(J) change, amend or waive the covenants set forth in
Section 6.13 only to the extent that an acquisition or acquisitions in
any given Fiscal Year or in the aggregate exceed twenty-five percent
(25%) of the payment amounts provided in such Section;
(K) change the definition of "Required Lenders"; or
(L) amend this Section 10.1.
10.2 Taxes. The Borrowers shall pay any and all stamp, document,
transfer and recording taxes, filing fees and similar impositions
payable or hereafter reasonably determined by the Agent to be payable
in connection with this Agreement, the other Loan Documents and any
other documents, instruments and transactions pursuant to or in
connection with any of the Loan Documents. Each of the Borrowers
agrees to save the Agent and the Lenders harmless from and against any
and all present and future claims or liabilities with respect to, or
resulting from, any delay in paying or failure to pay any such taxes
or similar impositions. The obligations of the Borrowers pursuant to
this Section 10.2 shall survive the termination of this Agreement and
the repayment of the Obligations.
10.3 Expenses. The Borrowers shall pay:
(i) All (A) out-of-pocket costs and expenses incurred by the
Agent in connection with the preparation, negotiation, execution and
delivery of this Agreement, the other Loan Documents, and any and all
other documents and instruments prepared in connection herewith,
including the Agent's reasonable legal fees and expenses in connection
therewith; and (B) all reasonable costs and expenses of the Agent
(including but not limited to reasonable fees and expenses of the
Agent's counsel) in connection with all amendments, waivers, consents
and other documents and instruments prepared or entered into from time
to time in connection with this Agreement and the other Loan
Documents, after the Closing Date; and
(ii) All reasonable costs and expenses of the Agent and the
Lenders (including without limitation the reasonable fees and
disbursements of the Lenders' counsel) in connection with (A) the
enforcement of this Agreement and the other Loan Documents arising
pursuant to a breach by any Person of any of the terms, conditions,
representations, warranties or covenants of any Loan Document or the
occurrence of a Default or an Event of Default; (B) the sale or other
action taken with respect to any of the Collateral; and (C) defending
or prosecuting any actions, suits or proceedings relating to any of
the Loan Documents.
All of such costs and expenses shall be payable by the Borrowers
to the Agent, for the benefit of the Lenders where appropriate, upon
demand or as otherwise agreed upon by the Agent and the Borrowers,
shall constitute Obligations under this Agreement, and shall bear
interest at the Default Rate if not paid when due. The Borrowers'
obligations to pay such costs and expenses shall survive the
termination of this Agreement and the repayment of the Obligations.
<PAGE>
10.4 Notices.
10.4a Notice to the Borrowers. All notices required to be
delivered to the Borrowers pursuant to this Agreement shall be in
writing and shall be sent to CSI at the following address, by hand
delivery, recognized national overnight courier service, telecopier or
other means of electronic data communication:
Circuit Systems, Inc.
2400 East Lunt Avenue
Elk Grove Village, Illinois 60007
Attention: James E. Robbs
Fax: 847/439-2093
With copies to:
Rieck and Crotty, P.C.
55 West Monroe Street
Suite 3390
Chicago, Illinois 60603
Attention: Thomas Rieck
Fax: 312/726-0647
Receipt by CSI of any such notice shall be deemed receipt by all
Borrowers.
10.4b Notice to the Agent. All notices required to be
delivered to the Agent pursuant to this Agreement shall be in writing
and shall be sent to the following address, by hand delivery,
recognized national overnight courier service, telecopier or other
means of electronic data communication:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Heather J. Bartell
Fax: 312/904-6457
With copies to:
Jenner & Block
One IBM Plaza
Suite 4000
Chicago, Illinois 60611
Attention: Craig R. Culbertson
Fax: 312/923-2637
10.4c Notice to the Lenders. All notices required to be
delivered to any Lender pursuant to this Agreement shall be in writing
and shall be sent to the address set forth on Annex A hereto or to the
Assignment and Assumption Agreement to which such Lender is a party,
by hand delivery, recognized national overnight courier service,
telecopier or other means of electronic data communication.
10.4d Effectiveness of Notices. All such notices shall be
effective on the date of telecopy transmission or when received,
whichever is earlier. The parties hereto may each change the address
for service of notice upon it by a notice in writing to the other
party hereto.
<PAGE>
10.5 Assignments.
10.5a Assignments. Subject to the remaining provisions of
this Subsection 10.5a, any Lender may at any time, in the ordinary
course of its commercial banking business, in accordance with
applicable law, sell to one or more Purchasing Lenders (which
Purchasing Lenders may be affiliates of the Transferor Lender), a
portion of its rights and obligations under this Agreement, the Notes
then held by it and the other Loan Documents pursuant to an Assignment
and Assumption Agreement substantially in the form of Exhibit "N" and
satisfactory to the Agent, executed by the Transferor Lender, such
Purchasing Lender, the Agent and the Borrowers: subject, however to
the following requirements:
(i) Agent may sell any portion of its rights and obligations
under this Agreement pursuant to this Section 10.5 so long as its
Commitment Percentage remains not less than 50%;
(ii) The Borrowers and the Agent must give their prior consent to
any such assignment, which consents shall not be unreasonably
withheld;
(iii) Following an assignment permitted under this Section
there shall be no more than three (3) Lenders unless approved in
writing by the Borrowers and the Agent in their sole discretion;
(iv) Each assignment to a Purchasing Lender which is not a Lender
immediately prior to such assignment must be in a minimum amount of
$5,000,000, and each assignment to a Purchasing Lender which is a
Lender immediately period to such assignment may be in any amount; and
(v) Each Transferor Lender shall pay to the Agent a $3,500
service fee, for its sole benefit, in connection with each assignment
made by it;
provided, however, that (A) if an Event of Default shall have
occurred, be continuing and declared by the Lenders the restrictions
set forth in item (i) above shall not be applicable, and (B) after the
occurrence of and during the continuance of an Event of Default (1)
the restrictions set forth in item (iii) above shall not be applicable
and (2) the consents or agreements of the Borrowers contemplated in
item (ii) above shall not be required.
Upon the execution, delivery, acceptance and recording of any
such Assignment and Assumption Agreement, from and after the Transfer
Effective Date determined pursuant to such Assignment and Assumption
Agreement, (i) the Purchasing Lender thereunder shall be a party
hereto as a Lender and, to the extent provided in such Assignment and
Assumption Agreement, shall have the rights and obligations of a
Lender hereunder with a Commitment as set forth therein, and (ii) the
Transferor Lender thereunder shall, to the extent provided in such
Assignment and Assumption Agreement, be released from its obligations
under this Agreement as a Lender. Such Assignment and Assumption
Agreement shall be deemed to amend this Agreement to the extent, and
only to the extent, necessary to reflect the addition of such
Purchasing Lender as a Lender and the resulting adjustments of
Commitment Percentages arising from the purchase by such Purchasing
Lender of all or a portion of the rights and obligations of such
<PAGE>
Transferor Lender under this Agreement and the Notes. On or prior to
the Transfer Effective Date, the Borrowers shall execute and deliver
to the Agent, in exchange for the surrendered Notes held by the
Transferor Lender, new Notes to the order of such Purchasing Lender in
an amount equal to the Commitment or the Loans assumed by it and
purchased by it pursuant to such Assignment and Assumption Agreement,
and new Notes to the order of the Transferor Lender in an amount equal
to the Commitment or the Loans retained by it hereunder.
10.5b Assignment to Federal Reserve Bank. In addition to the
assignments permitted above, any Lender may assign and pledge all or
any portion of its Loans and Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A of the Board of Governors
of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank. No such assignment shall release the
assigning Lender from its obligations and duties hereunder or under
the other Loan Documents.
10.5c Assignment Register. The Agent shall maintain at its
address referred to in Section 10.4 a copy of each Assignment and
Assumption Agreement delivered to it and a register (the "Register")
for the recordation of the names and addresses of the Lenders and the
amount of the Loans owing to each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrowers, the Agent and the Lenders may treat
each Person whose name is recorded in the Register as the owner of the
Loans recorded therein for all purposes of this Agreement. The
Register shall be available at the office of the Agent set forth in
Section 10.4 for inspection by the Borrowers or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
10.6 Participations.
10.6a Sale of Participations. The Lenders may, in the
ordinary course of their commercial banking business and in accordance
with applicable law, and after first obtaining the consent of the
Agent, which consent shall not be unreasonably withheld, at any time
sell to one or more Participants (which Participants may be Affiliates
of a Lender) Participations in the Revolving Credit Commitment, the
Loans, the Notes and the other interests of the Lenders hereunder. In
the event of any such sale of a Participation, the selling Lender's
obligations under this Agreement to the Borrowers shall remain
unchanged, such Lender shall remain solely responsible for its
performance under this Agreement, such Lender shall remain the holder
of the Notes made payable to it for all purposes under this Agreement,
the Borrowers shall continue to deal solely and directly with the
selling Lender in connection with such Lender's rights and obligations
under this Agreement and the other Loan Documents and Participants
shall not be permitted to have any voting rights.
10.6b Right of Setoff. Each Borrower agrees that if amounts
outstanding under this Agreement and the Notes are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to
have, to the extent permitted by applicable law, the right of setoff
in respect of its Participation in amounts owing under this Agreement
and the Notes to the same extent as if the amount of its Participation
were owing directly to it as a lender under this Agreement or the
Notes.
<PAGE>
10.7 Indemnity. Each Borrower hereby agrees to indemnify the Agent,
the Lenders, each of their respective Controlling Persons, if any, and
the directors, officers, employees, attorneys, agents and Affiliates
or all of the foregoing (each of the foregoing an "Indemnified
Person") against and hold each of them harmless from, any loss,
liabilities, damages, claims, costs and expenses (including reasonable
attorneys' fees and disbursements) suffered or incurred by any
Indemnified Person arising out of, resulting from or in any manner
connected with, the execution, delivery and performance of each of the
Loan Documents, the Obligations and any and all transactions related
to or consummated in connection with the Obligations, other than as a
consequence of the gross negligence or willful misconduct on the part
of any Indemnified Person including, without limitation, losses,
liabilities, damages, claims, costs and expenses suffered or incurred
by any Indemnified Person arising out of or related to investigating,
preparing for, defending against, or providing evidence, producing
documents or taking any other action in respect of any commenced or
threatened litigation administrative proceeding or investigation under
any Federal securities law or any other Governmental Rule of any
jurisdiction, or at common law or otherwise, that is alleged to arise
out of or is based on (i) any untrue statement or alleged untrue
statement of any material fact of any Borrower or any Affiliate of the
Borrowers in any document or schedule filed with the Commission or any
other Governmental Authority; (ii) any omission or alleged omission to
state any material fact required to be stated in such document or
schedule, or necessary to make the statements made therein, in light
of the circumstances under which made, not misleading; (iii) any
actual or alleged acts, practices or omissions of any Borrower or any
of its respective directors, officers, employees, attorneys, agents or
Affiliates, related to the making of any acquisition, purchase of
shares or assets pursuant thereto, financing of such purchases or the
consummation of any other transactions contemplated by any such
acquisitions that are alleged to be in violation of any Federal
securities law or of any other statute, regulation or other law of any
jurisdiction applicable to the making of any such acquisition, the
purchase of shares or assets pursuant thereto, the financing of such
purchases or the consummation of the other transactions contemplated
by any such acquisition; or (iv) any withdrawals, termination or
cancellation of any such proposed acquisition for any reason
whatsoever. The indemnity set forth in this Section 10.7 shall be in
addition to any other obligations or liabilities of the Borrower to
the Agent or the Lenders, or at common law or otherwise. The
provisions of this Section 10.7 shall survive the payment of the
Obligations and the termination of this Agreement and the other Loan
Documents.
10.8 Successors and Assigns. This Agreement shall be binding upon the
Borrowers, the Agent, the Lenders and their respective successors and
assigns, and shall inure to the benefit of the Borrowers, the Agent,
the Lenders and their respective successors and assigns; provided
however, that no Borrower shall assign its rights or duties hereunder
or under any of the other Loan Documents without the prior written
consent of all of the Lenders and the Agent and the Lenders may only
assign as permitted in this Agreement.
<PAGE>
10.9 Confidentiality. The Agent and the Lenders shall keep
confidential and not disclose to any Person, other than to their
respective directors, officers, employees, Affiliates and agents, and
to actual and potential Purchasing Lenders and Participants, all non-
public information concerning the Borrowers and the Borrowers'
Affiliates which comes into the possession of the Agent or the Lenders
during the term hereof. Notwithstanding the foregoing, the Agent and
the Lenders may disclose information concerning any Borrower (i) in
accordance with normal banking practices and the Agent's or such
Lender's policies concerning disclosure of such information, (ii)
pursuant to what the Agent or such Lender believes to be the lawful
requirements or request of any Governmental Authority regulating banks
or banking, (iii) as required by Governmental Rule, judicial process
or subpoena and (iv) to their respective attorneys, accountants and
auditors who shall also be bound by the terms of this Section.
10.10 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
enforceability without invalidating the remaining portions hereof or
affecting the validity or enforceability of such provision in any
other jurisdiction.
10.11 Survival. All representations, warranties, covenants and
agreements of the Borrowers contained herein or in the other Loan
Documents or made in writing in connection herewith shall survive the
issuance of the Notes and shall continue in full force and effect so
long as any Borrower may borrow hereunder and so long thereafter until
payment in full of the Notes and the Obligations is made.
10.12 Governing Law. This Agreement and the other Loan Documents
shall be governed by and construed in accordance with the laws of the
State of Illinois, without regard to the principles thereof regarding
conflict of laws, excepting applicable federal law, except only to the
extent precluded by the mandatory application of the law of another
jurisdiction and except as expressly set forth in any of the other
loan documents.
10.13 Forum. THE PARTIES HERETO AGREE THAT THE COURTS OF THE
STATE OF ILLINOIS LOCATED IN CHICAGO, ILLINOIS, AND THE FEDERAL COURTS
LOCATED IN THE NORTHERN DISTRICT OF ILLINOIS, COOK COUNTY, HAVE
EXCLUSIVE JURISDICTION OVER ANY AND ALL ACTIONS AND PROCEEDINGS
INVOLVING THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS TO WHICH THE
BORROWERS ARE PARTIES AND EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES TO SUBMIT TO THE JURISDICTION OF SUCH COURTS
FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING. EACH PARTY HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING, INCLUDING ANY CLAIM THAT SUCH COURT IS AN INCONVENIENT
FORUM, AND CONSENTS TO SERVICE OF PROCESS PROVIDED THE SAME IS IN
ACCORDANCE WITH THE TERMS HEREOF. FINAL JUDGMENT IN ANY SUCH
PROCEEDING AFTER ALL APPEALS HAVE BEEN EXHAUSTED OR WAIVED SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT.
<PAGE>
10.14 Non-Business Days. Whenever any payment of principal,
interest, Fees or any other amounts hereunder or under any of the
other Loan Documents is due and payable on a day which is not a
Business Day, except as otherwise provided in this Agreement such
payment may be made on the next succeeding Business Day, and such
extension of time shall in each such case be included in computing
interest, Fees or other amounts in connection with such payment.
10.15 Integration. This Agreement is the entire agreement among
the parties relating to this financing transaction and it supersedes
all prior understandings and agreements, whether written or oral,
between the parties hereto relating to the transactions provided for
herein.
10.16 Joint and Several Obligations. Notwithstanding anything to
the contrary herein or in any other Loan Document, CSI, CSTLP, and
SVPCCS hereby agree that all of the obligations of any party are the
joint and several obligations of all parties, including but not
limited to, the obligations of any or all parties to pay any and all
Obligations.
10.17 Headings. Article, Section, Subsection and other headings
used in this Agreement are intended for convenience only and shall not
affect the meaning or construction of this Agreement.
10.17 Counterparts. This Agreement and any amendment hereto may
be executed in several counterparts and by each party on a separate
counterpart, each of which, when so executed and delivered, shall be
an original, but all of which together shall constitute but one and
the same instrument. In proving this Agreement, it shall not be
necessary to produce or account for more than one such counterpart
signed by the other party against whom enforcement is sought.
10.18 WAIVER OF JURY TRIAL. EACH BORROWER, EACH LENDER AND THE
AGENT EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY COURT AND
IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWERS, THE
LENDERS, THE AGENT, OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS
IS A PARTY, AS TO ALL MATTERS AND THINGS ARISING OUT OF THIS
AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, IN EACH CASE WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have caused this Credit Agreement to be executed by
their respective duly authorized officers as of the date first written
above.
CIRCUIT SYSTEMS, INC., an Illinois corporation
By: /s/___________________________
Name: ____________________________
Title:____________________________
FEIN: ____________________________
CIRCUIT SYSTEMS OF TENNESSEE, L.P, a Tennessee limited partnership,
by Circuit Systems of Tennessee, Inc., its general partner
By: /s/___________________________
Name: ____________________________
Title: ___________________________
FEIN: ____________________________
SVPC CIRCUIT SYSTEMS, INC, a California corporation
By: /s/___________________________
Name: ____________________________
Title: ___________________________
FEIN: ____________________________
LA SALLE NATIONAL BANK, a national
banking association
By: /s/____________________________
Name:______________________________
Title:_____________________________
<PAGE>
ANNEX A
Commitments of Lenders
and Addresses
for Notices to Lenders
Amount of Amount of
Commitment for Commitment
Revolving for Term Commitment
Credit Loans Loan Percentage
---------- --------- ----
Name: LaSalle National
Bank
Address: 135 South
LaSalle Street
Chicago,
Illinois 60603
$18,000,000 $7,000,000 100%
Attention:
Telephone: 312/904----
Telecopy: 312/904----
<PAGE>
ANNEX B
Pricing Matrix
Applicable Margin for the Revolving Credit Loans:
Funded LIBOR + PRIME +
Debt/EBITDA
x > 4.5 2.75% .5%
3.5 < x 4.5 2.5% .5%
2.5 < x < 3.5 2.25% .25
x < 2.5 2.0% 0%
Applicable Margin for the Term Loan:
Funded LIBOR + PRIME +
Debt/EBITDA
x > 4.5 2.75% .75%
3.5 < x 4.5 2.5% .5%
2.5 < x < 3.5 2.25% .5%
x < 2.5 2.0% 0%
Unused Availability Fee for the Revolving Credit Commitment:
Funded Unused
Debt/EBITDA Availability Fee
x > 4.5 3/8%
3.5 < x 4.5 1/4%
2.5 < x < 3.5 1/4%
x < 2.5 1/8%
<PAGE>
EXHIBITS
Exhibit Exhibit Principal
Designation Section
Reference
=========== ------- ---------
A Form of Revolving 2.1a
Credit Note
B Form of Term Loan Note 2.3a
C Form of Loan Request 2.6
D Form of Security 3.2
Agreement
E Form of Pledge 3.2
Agreement
F Form of Mortgage 3.3
G Form of Environmental 7.2g
Agreement
H Form of Assignment of 3.2
Patents and Trademarks
I Assignment of Term 5.17
Life Insurance Policy
J Compliance Certificate 5.2c
K Form of Borrowing Base 5.2d
Certificate
L Closing Certificate 7.2a
M Form of Landlord 7.1d
Waiver and Consent
N Assignment and 10.5a
Assumption Agreement
O Purchase and Sale 4.25
Agreement
<PAGE>
ANNEXES AND SCHEDULES
Annex Designation Annex
----------------- -----
A Lenders; Commitments; Notice Addresses
B Pricing Matrix
Schedule Schedule
Designation
----------- --------
4.1 Organization and Powers
4.2 Capitalization
4.2A Partnership Interests
4.8 Litigation
4.11 Labor Matters
4.13 Names
4.14 Locations; Mortgaged Parcels
4.15a Owned Real Property
4.15b Leased Real Property
4.17 Intellectual Property
4.18 Insurance
4.19 Consents and Approvals
6.1 Indebtedness
6.3 Permitted Liens
REVOLVING CREDIT NOTE
Chicago, Illinois
$18,000,000 January 6, 1999
This Revolving Credit Note is executed and delivered under and
pursuant to the terms of that certain Credit Agreement dated as of
January 6, 1999 entered into by and among Circuit Systems, Inc., an
Illinois corporation, Circuit Systems of Tennessee, L.P., a Tennessee
limited partnership, SVPC Circuit Systems, Inc., a California
corporation, their successors and assigns (each a "Borrower" and
collectively, the "Borrowers"), the lenders which are parties thereto
and LaSalle National Bank, a national banking association, as the
Agent (in such capacity, the "Agent") together with all extensions,
renewals, amendments, restatements, substitutions and replacements
thereto and thereof (the "Credit Agreement").
FOR VALUE RECEIVED, on or before the Revolving Credit Termination
Date, each of the Borrowers promises to pay to the order of LaSalle
National Bank, its successors and assigns (the "Lender") at the office
of the Agent at 135 South LaSalle Street, Chicago, Illinois 60603 the
principal sum of EIGHTEEN MILLION DOLLARS ($18,000,000) or so much of
the aggregate unpaid principal amount of the Revolving Credit Loans
made by the Lender to the Borrowers which are outstanding pursuant to
the Credit Agreement, together with per annum interest on the
outstanding principal balance existing from time to time in accordance
with the terms of the Credit Agreement.
This Revolving Credit Note is one of the Revolving Credit Notes
referred to in the Credit Agreement and evidences Revolving Credit
Loans which may be advanced and repaid and readvanced from time to
time as Revolving Credit Loans as provided in the Credit Agreement.
This Revolving Credit Note is secured by the Liens granted pursuant to
the Credit Agreement and the other Loan Documents. All capitalized
terms used in this Revolving Credit Note as defined terms which are
not defined herein but which are defined in the Credit Agreement shall
have the meanings given them in the Credit Agreement. Reference is
made to the Credit Agreement for provisions requiring prepayment of
principal and for the acceleration of the maturity of this Revolving
Credit Note. All of the terms, conditions, covenants, representations
and warranties of the Credit Agreement are incorporated herein by
reference as if such terms, conditions, covenants, representations and
warranties were fully set forth herein. This Revolving Credit Note is
secured by the Liens granted pursuant to the Credit Agreement and the
other Loan Documents.
The sums advanced under this Revolving Credit Note shall bear
interest commencing on the date hereof until maturity at the
applicable Interest Rate Option as provided in the Credit Agreement.
Interest on the unpaid principal balance hereof shall be due and
payable and shall be calculated in accordance with the terms of the
Credit Agreement, including, without limitation, at the Default Rate,
whether or not judgment has been entered on this Revolving Credit
Note.
The interest rate accruing hereunder will be adjusted, when
necessary and if appropriate, in accordance with the terms of the
Credit Agreement.
<PAGE>
All outstanding principal hereunder, together with all accrued
and unpaid interest hereon and all outstanding Obligations relating to
the Revolving Credit Loans, shall be due and payable on the Revolving
Credit Termination Date. All payments of principal and interest shall
be made at the office of the Agent set forth above.
Upon the occurrence of any Event of Default specified in the
Credit Agreement, the principal hereof and accrued interest hereon may
become forthwith due and payable and the Lender may exercise any other
rights and remedies, including, without limitation, its rights and
remedies against the Collateral given to secure the repayment of this
Revolving Credit Note, all as provided in the Credit Agreement.
All amounts payable under the terms of this Revolving Credit Note
shall be payable with expenses of and costs of collection, including
reasonable attorneys' fees, and without relief from valuation and
appraisement laws. All payments on account of this Revolving Credit
Note shall be applied first to expenses and costs of collection, next
to all accrued and unpaid interest, to any unpaid Fees under the
Credit Agreement, and to any other outstanding Obligations relating to
the Revolving Credit Commitment, and only after the satisfaction of
all of such expenses, fees, interest and costs, to principal.
Demand, presentation, protest, notice of dishonor and notice of
default are hereby waived.
Time is of the essence of this Revolving Credit Note and each and
every provision hereof.
EACH BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY
COURT AND IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH ANY
BORROWER IS A PARTY AS TO ALL MATTERS AND THINGS ARISING OUT OF THIS
REVOLVING CREDIT NOTE WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
IN WITNESS WHEREOF, this Revolving Credit Note has been duly
executed and delivered as of this _______ day of January, 1999.
Circuit Systems, Inc.
By: /s/______________________
Name: James E. Robbs
Title: VP Finance
Circuit Systems of Tennessee, L.P.
By Circuit Systems of Tennessee, Inc.,
its general partner
By: /s/______________________
Name: James E. Robbs
Title: VP Finance
SVPC Circuit Systems, Inc.
By: /s/______________________
Name: James E. Robbs
Title: VP Finance
TERM LOAN NOTE
Chicago, Illinois
$7,000,000 January 6, 1999
This Term Loan Note is executed and delivered under and pursuant
to the terms of that certain Credit Agreement dated as of January 6,
1999 entered into by and among Circuit Systems, Inc., an Illinois
corporation, Circuit Systems of Tennessee, L.P., a Tennessee limited
partnership, SVPC Circuit Systems, Inc., a California corporation,
their successors and assigns (each a "Borrower" and collectively, the
"Borrowers"), the lenders which are parties thereto and LaSalle
National Bank, a national banking association, as the Agent (in such
capacity, the "Agent") together with all extensions, renewals,
amendments, restatements, substitutions and replacements thereto and
thereof (the "Credit Agreement").
FOR VALUE RECEIVED, the Borrowers promise to pay to the order of
LaSalle National Bank, its successors and assigns (the "Lender") at
the office of the Agent at 135 South LaSalle Street, Chicago, Illinois
60603, or at such other place as Agent may from time to time designate
to Borrowers in writing, the principal sum of Seven Million Dollars
($7,000,000), together with interest, without relief from valuation
and appraisement laws, principal and interest to be paid as follows:
(a) the principal payable in consecutive monthly
installments of $97,222.22, beginning on January 31, 1999 and
continuing thereafter on the last day of each month, until the Term
Loan Maturity Date, at which time all of the unpaid principal of this
Term Loan Note shall be and become due and payable, and
(b) interest on the unpaid principal sum of this Term Loan
Note shall accrue from the date hereof at the applicable interest Rate
Option and shall. be calculated in accordance with the terms of the
Credit Agreement, including without limitation, at the Default Rate
(as defined in the Credit Agreement), whether or not judgment has been
entered on this Term Loan Note, payable monthly in arrears on the last
day of each month commencing on January 31, 1999 and continuing
through the Term Loan Maturity Date.
This Term Loan Note is one of the Term Loan Notes referred to in
the Credit Agreement. This Term Loan Note is secured by the Liens
granted pursuant to the Credit Agreement and the other Loan Documents.
All capitalized terms used in this Term Loan Note as defined terms
which are not defined herein but which are defined in the Credit
Agreement shall have the meanings given them in the Credit Agreement.
Reference is made to the Credit Agreement for provisions requiring
prepayment of principal and for the acceleration of the maturity of
this Term Loan Note. All of the terms, conditions, covenants,
representations and warranties of the Credit Agreement are
incorporated herein by reference as if such terms, conditions,
covenants, representations and warranties were fully set forth herein.
All payments of principal and interest shall be made at the
office of the Agent set forth above.
<PAGE>
Upon the occurrence of any Event of Default specified in the
Credit Agreement, the principal hereof and accrued interest hereon may
become forthwith due and payable and the Lender may exercise any other
rights and remedies, including, without limitation, its rights and
remedies against the Collateral given to secure the repayment of the
Term Loan Note, all as provided in the Credit Agreement.
All amounts payable under the terms of this Term Loan Note shall
be payable with expenses of collection, including reasonable
attorneys' fees, and without relief from valuation and appraisement
laws. All payments on account of this Term Loan Note shall be applied
first to expenses and costs of collection, including reasonable
attorney's fees, next to all accrued and unpaid interest, to any
unpaid Fees under the Credit Agreement and to any other outstanding
Obligations relating to this Term Loan Note, and only after the
satisfaction of all of such expenses, fees, interest and costs, to
principal.
Demand, presentation, protest, notice of dishonor and notice of
default are hereby waived.
Time is of the essence of this Term Loan Note and each and every
provision hereof.
EACH OF THE BORROWERS HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN
ANY COURT AND IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH ANY
BORROWER IS A PARTY AS TO ALL MATTERS AND THINGS ARISING OUT OF THIS
TERM LOAN NOTE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
IN WITNESS WHEREOF, this Term Loan Note has been duty executed
and delivered as of this _ day of January, 1999.
Circuit Systems, Inc.
/s/
__________________
Name: James E. Robbs
Title: VP Finance
Circuit Systems of Tennessee, L.P.,
by Circuit Systems of Tennessee, Inc.,
its general partner
/s/
By:_______________________
Name: James E. Robbs
Title: VP Finance:
SVPC Circuit Systems, Inc.
/s/
By:_______________________
Name: James E. Robbs
Title: VP Finance
CIRCUIT SYSTEMS, INC.
FORM 10-K FOR THE YEAR ENDING
APRIL 30, 1999
Exhibit 21.1
Subsidiaries
Circuit Systems of Tennessee, L.P., a Tennessee limited partnership
Circuit Systems of Tennessee, Inc., a Tennessee corporation
SVPC Circuit Systems, Inc., a California corporation
Circuit Systems Foreign Sales Corp., a U.S. Virgin Islands corporation
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 1,463,336
<SECURITIES> 0
<RECEIVABLES> 13,223,378
<ALLOWANCES> 175,000
<INVENTORY> 9,532,462
<CURRENT-ASSETS> 25,035,883
<PP&E> 71,928,521
<DEPRECIATION> 28,082,923
<TOTAL-ASSETS> 79,915,768
<CURRENT-LIABILITIES> 19,568,367
<BONDS> 41,512,694
0
0
<COMMON> 2,191,168
<OTHER-SE> 14,087,629
<TOTAL-LIABILITY-AND-EQUITY> 79,915,768
<SALES> 88,997,269
<TOTAL-REVENUES> 88,997,269
<CGS> 77,947,292
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<LOSS-PROVISION> (195,220)
<INTEREST-EXPENSE> 3,407,109
<INCOME-PRETAX> 118,118
<INCOME-TAX> 115,000
<INCOME-CONTINUING> 3,118
<DISCONTINUED> 0
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<NET-INCOME> 3,118
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