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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 DECEMBER 31, 1995
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
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COMMISSION FILE NUMBER 0-17743
COMPTRONIX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0860282
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
Three Maryland Farms
Suite 140
Brentwood, Tennessee 37027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (205) 582-1800
_________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value per share
6 3/4% Convertible Subordinated Debentures Due 2002
Series A Convertible Preferred Stock, without 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 of this Form 10-K. [X]
At March 26, 1996 the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $17,761,552 assuming that
all shares beneficially held by members of the registrant's Board of Directors
and designated executive officers are shares owned by "affiliates," a status
which each of such persons individually disclaims. At March 26, 1996, there
were 13,298,410 outstanding shares of the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 1996
Annual Meeting of Stockholders to be held on or about June 4, 1996 are
incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1.
BUSINESS
GENERAL
Comptronix Corporation provides contract manufacturing services to original
equipment manufacturers ("OEMs"), including producers of computers, computer
peripherals, industrial instruments, communications equipment, medical devices
and test equipment. The Company specializes in assembling printed circuit
boards with computer-automated equipment using a variety of component
interconnection techniques including pin-through-hole and surface mount
technology. The Company also provides a full range of "next higher assembly"
manufacturing and test services including total product assembly and order
fulfillment (direct distribution of finished goods to its customers' customer).
The Company provides its manufacturing services primarily on a purchased
material or "turnkey" basis. Turnkey manufacturing consists of a package of
services for the production of printed circuit boards and/or next higher
assembly "box build" products in accordance with customer specifications. These
services include the procurement of the components to be assembled, the assembly
and testing of the printed circuit board, and post assembly and testing of "box
build" products. The Company also provides various services independently of
its turnkey manufacturing services, including in-circuit test development,
functional test development, manufacturing and test-related consultation
services, and consignment assembly (i.e. assembly of components consigned by the
customer rather than purchased for the customer by the Company). The Company's
principal strategy is to establish long-term relationships with a diverse group
of OEMs in a broad range of industries which have intensive manufacturing
requirements typically associated with products in the earlier stages of their
life cycles and to provide manufacturing services for successive generations of
these products. The Company generally does not seek to be a manufacturer of
low-cost, high-volume components for consumer-oriented products.
The Company was formed in 1984, with the opening of its manufacturing facility
in Guntersville, Alabama. In 1989, the Company opened a manufacturing facility
in San Jose, California (the "Orchard Parkway Facility"). In 1990, the Company
purchased certain assets associated with the printed circuit board assembly
operations of Ampex Corporation and in connection therewith opened a
manufacturing facility in Colorado Springs, Colorado. In 1992, the Company
opened a second manufacturing facility in Guntersville and completed the
acquisition of certain assets associated with the printed circuit card assembly
operations of Exicom Technologies, Inc. ("Exicom") and lease of its facilities
located in San Jose, California (the "Trimble Facility"). During 1993 the
Company closed its Orchard Parkway Facility and consolidated its operations in
San Jose into its Trimble Facility. During 1994, the Company made the strategic
decision to sell its San Jose division to eliminate excess capacity involving
both plant space as well as equipment and other fixed assets. The Company
completed the sale of substantially all of the assets associated with its San
Jose division to Sanmina Corporation in October 1994. During 1995, the Company
moved its corporate offices to Brentwood, Tennessee. In the second quarter of
1995, the Company closed its Colorado Springs facility and consolidated it with
the two plants in Guntersville, Alabama. In January 1996, the Company opened a
new 30,000 square foot manufacturing facility in Empalme, Sonora, Mexico.
The Company has incurred operating losses during the last seven years.
Management has implemented various operating plans and strategies intended to
increase sales, gross margins and profitability and to further control expenses
while improving operating efficiencies. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Currently
Identifiable Factors Anticipated to Affect 1996 Results" located at Part II,
Item 7 for additional information on management's plan for 1996 and other
relevant factors. The Company's future success will depend, in part, on its
ability to continue to provide quality, on-time products and services to its
customers, on its ability to meet its ongoing obligations to its suppliers and
on its ability to maintain its lending relationships. The Company believes it
has successfully maintained its relationships with customers, suppliers and
lenders to date.
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The Company's Guntersville facilities' quality assurance systems are registered
to the International Organization for Standardization's ISO-9002 Quality
Assurance Standard. This registration is an internationally recognized standard
indicating the Company's compliance with specified quality programs and
standards. ISO-9002 registration is based on successful implementation of
quality assurance requirements and a subsequent compliance audit conducted by an
independent third party. The registration process covers examinations of every
facet of a company's business practices to produce a quality product.
THE CONTRACT MANUFACTURING INDUSTRY
Contract manufacturers manufacture or assemble electronic products on a
contractual basis for other companies. These products are most often
sub-assemblies, such as finished printed circuit boards, which are utilized in
a variety of finished products. Contract manufacturers originally functioned
as back-up capacity for in-house manufacturing, fulfilling the need of large
OEMs to add production during the peak periods of demand. However, during the
past decade, OEMs have made increasing use of contract manufacturing firms such
as the Company, often reducing or curtailing their in-house manufacturing.
Manufacturers of computer and peripheral equipment were the first to utilize
the services of contract manufacturers, and, according to analyst estimates,
still accounts for over 50% of the circuit telecommunications, industrial
electronics, automotive, and medical devices. According to industry analyst
estimates, the contract manufacturing industry was over $10 billion in revenues
in 1995 and is projected to surpass $25 billion in revenues by the year 2000.
Contract manufacturing enables OEMs to focus their efforts on product research,
design and development and marketing by reducing the need for capital intensive
manufacturing capabilities. In addition, OEMs use contract manufacturers to
improve inventory management, purchasing power and manufacturing quality, and
reduce the manufacturing time of their products. However, the growth of
contract manufacturing has been primarily driven by the increasing capital
intensive nature of electronics manufacturing coupled with rapidly evolving
technologies for circuit board assembly, specifically the advent of surface
mount technology.
Surface mount technology is a largely automated process which allows for the
attachment of semiconductor devices directly to the surface of both sides of a
printed circuit board. The surface mount process is an advancement over the
more mature pin-through-hole technology, which normally permits electronic
components to be attached to only one side of a circuit board by inserting the
components into holes drilled through the board.
Surface mount technology affords OEMs three principal advantages in the
assembly of complex printed circuit boards. First, OEMs have sought to take
advantage of decreasing semiconductor sizes either to increase the processing
power or reduce the size of their products. As the range of functions
performed by semiconductor devices has increased, so has the number of
input/output leads required to be connected to the devices at the board level.
The surface mount process allows OEMs to use state-of-the art circuitry, while
at the same time permitting the placement of a greater number of components on
a circuit board without having to increase the size of the board. Second, by
allowing increasingly complex circuits to be packaged with the components
placed in closer proximity to each other, surface mount technology enhances
overall board and system performance and functionality. Finally, the surface
mount process allows a reduction in the number of circuit boards required per
system and allows the use of more fully automated production processes.
Because the cost of the raw printed circuit board is a major element of the
overall cost of board-level assembly, the use of the surface mount assembly
process may permit OEMs to lower their product costs by allowing the use of
smaller boards.
Surface mount technology has been adopted for several major electronics
products, including personal computers, high capacity disk drives and personal
computer peripherals, as well as telecommunications
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equipment and medical electronics. The shift to surface mount technology has
been accompanied by an increase in the utilization of outside electronic
manufacturing companies for several reasons. First, compared with in-house
pin-through-hole facilities, fewer in-house surface mount facilities are in
place. In addition, surface mount production facilities require a
significantly larger investment in assets than pin-through-hole facilities.
Finally, successful implementation of surface mount technology requires
extensive know-how and process controls that are significantly different from
that required for pin-through-hole production. Development of such technical
expertise generally requires a contract manufacturer to assemble a significant
number of printed circuit boards utilizing surface mount technology.
Accordingly, many OEMS have insufficient volume levels to achieve economies of
scale utilizing in-house surface mount facilities.
When surface mount technology reaches its practical limit on size and pin
count, contract manufacturers will be required to offer the next generation of
interconnection technologies, which may include ball grid arrays ("BGA"), tape
automated bonding ("TAB"), multi-chip modules ("MCM") and chip-on-board ("COB")
assembly technologies, as well as other fine pitch technologies. The Company
believes that such advances in manufacturing technology will serve to further
motivate OEMs to outsource their manufacturing to the contract manufacturing
industry.
As contract manufacturing has grown, the industry has developed from simply
offering manufacturing expertise to providing an array of services to OEMs,
including design and engineering support, turnkey operations and systems
integration. OEM customers have become increasingly sophisticated consumers of
contract manufacturing, and many regard their contract manufacturers as
extensions of their own operations. OEMs expect strict quality control, prompt
turnaround and flexible response to design changes. Competition in the
industry is based on these factors as well as price, overall service level, and
the ability to deliver finished products on a timely basis.
ORGANIZATIONAL STRUCTURE
The Company believes that its customers expect it to serve as much as possible
as an extension of the customer's operations, to assist in management of the
risks and changes inherent in the manufacturing process, to control costs and
to provide continuous quality improvements. To meet these customer
expectations, the Company has organized itself to maximize the flow of
information and focus on speed, yield and flexibility in all of its activities.
To that end, the Company has implemented an internal organizational structure
to facilitate smooth communications both with customers and between various
functions within the Company. Under the Company's structure, a business team
is assigned to each of the Company's customers, with each business team being
responsible for four to six customers. Each business team includes those
disciplines which are required to serve a customer's needs including material
planning, purchasing, test, quality and manufacturing engineering and, in some
cases, stockroom, material handling and manufacturing personnel. The business
teams are primarily responsible and accountable for customer service, quality
and financial results of the product lines assigned to them. The Company has
placed considerable emphasis on developing information systems to provide the
business teams with information on quality, customer service, inventory
management, financial performance and other pertinent matters on a weekly or
daily basis as appropriate. The various disciplines represented on the
business teams are located in close proximity to each other and attend frequent
meetings which encourage the free flow of information. Senior management meets
with each business team monthly. In addition to internal communications, the
business team members seek to develop independent communications with their
counterparts at the Company's customers which serves to foster faster, more
efficient decision-making and problem solving and, the Company believes,
significantly strengthens its relationships with its customers.
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SERVICES OFFERED
The Company's turnkey manufacturing services include component procurement and
testing, printed circuit board assembly using surface mount, pin-through-hole
and post assembly testing. The Company also provides various services
independent of its turnkey manufacturing services, including in-circuit test
development, functional test development, manufacturing and test-related
consultation services and consignment assembly. For certain of its customers,
the Company completes the assembly of the customer's products at the Company's
facilities. These "box build" services involve integration of printed circuit
boards into the other components of a customer's product. Finally, for certain
customers, the Company provides order fulfillment or direct distribution
services, shipping completed products directly to its customer's customers.
Since turnkey manufacturing may be a substitute for all or a portion of a
customer's in-house manufacturing capability, continuous technical and
administrative communication between the Company and the customer is required.
As discussed above, the Company relies on customer-focused business teams to
facilitate such communication. A business team is assigned to, and takes
responsibility for, a prospective customer during the bidding and pricing
process, assuring that the guidelines and expectations for delivery, customer
service and related matters are established appropriately. The business team
is responsible for coordinating the start-up of each order with technical
personnel from the customer. The set-up process typically begins with an
evaluation of the circuit board design by the Company's engineering staff to
assure compatibility with the Company's automated assembly equipment and to
attain optimal efficiency in the overall assembly process. Component
procurement is commenced after component specifications are verified and
approved sources are confirmed with the customer. Concurrently, assembly and
testing procedures and workmanship standards are established and the assembly
and test equipment and control software is developed. At all stages of the
process, the business team coordinates the Company's efforts to provide
flexible and timely responses to customers requirements, including changes in
design, order size and requested delivery dates.
The Company also offers testing of completed boards or assemblies.
"In-circuit" tests verify that components have been properly inserted and meet
certain functional standards. These tests are performed on industry standard
test equipment using proprietary software developed either by the customer or
by the Company on a contract basis. In-circuit tests are normally performed on
all assembled circuit boards. In addition, under protocols specified by the
customer, the Company performs customized functional tests designed to ensure
that the board or assembly will perform its intended functions. The Company's
post-assembly testing facilities include the capability to perform
environmental stress screening procedures to identify product imperfections
that could otherwise cause a product to fail in the field. Accordingly, it is
customary to precondition certain complex components by subjecting them to
controlled environmental stresses (typically thermal and/or electrical
stresses) that simulate the effects of operational use without affecting the
useful life of the component.
The materials procurement element of the Company's turnkey services consists of
the planning, purchasing, expediting, warehousing and financing of the
components and material required to assemble a printed circuit board or
system-level assembly. OEMs generally have required contract manufacturers to
purchase all or some components directly from component manufacturers or
distributors and to warehouse and finance the components and materials. In
establishing a turnkey relationship with a contract manufacturer, OEMs must
incur expense in determining that a contract manufacturer and, in some cases,
its sources of component supply meet technical and operational requirements
established by the OEM. With this relationship established, the Company
believes the OEMs typically experience significant difficulty in expeditiously
reassigning a turnkey project to a new contract manufacturer or in taking on
the project themselves because of significant start up costs and the technical
expertise already developed by the existing contract manufacturer. OEMs
therefore seek sources of turnkey manufacturing services that they perceive
will be able to meet their production requirements over a long period of time
and successive product generations. Additionally, the
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Company believes that the range and depth of relationships that members of its
business teams develop with their counterparts at the Company's customers also
serve to solidify its customer relationships. Accordingly, the Company
believes that increasing turnkey business results in greater stability of the
Company's customer base.
CUSTOMERS AND MARKETING
The Company markets its services to potential customers through its senior
management, direct marketing personnel and its independent manufacturers'
representatives located throughout the United States. In addition, the
Company's business team leaders and general managers continually market its
services to the accounts they manage.
Historically, the Company has had substantial recurring sales from existing
customers. Approximately 94% and 79% of the Company's net sales during the year
ended December 31, 1995 were derived from customers which were also customers
during 1994 and 1993, respectively.
The following chart illustrates the Company's percentage of net sales during
1995 by the markets served by its customers. The Company expects that the
amount of business it does in each of these markets will fluctuate from year to
year.
<TABLE>
<CAPTION>
Percentage
Market Served by Customer of Net Sales
------------------------- ------------
<S> <C>
Communications 46%
Medical 18%
Personal Computers and Peripherals 13%
Industrial and Commercial 10%
Consumer Electronics 8%
Automotive and other 5%
---
Total 100%
===
</TABLE>
The Company seeks to serve a sufficiently large number of customers to avoid
dependence on any one customer or industry. Nevertheless, individual customers
are, and will be, responsible for significant portions of the Company's sales
and, to that extent, the Company's success is dependent on certain customers.
During the year ended December 31, 1995, Highway Master and American Sterilizer
Company accounted for 15% and 12% of net sales, respectively.
SEASONALITY; FLUCTUATIONS IN OPERATING RESULTS
In general, the Company does not believe the services provided by the Company
are subject to seasonal fluctuations. Nevertheless, the Company's turnkey
manufacturing services business, which currently represents most of the
Company's sales, may include significant revenues or expenditures relating to
particular orders which are reflected in a particular financial period.
Furthermore, such services, particularly
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those in which the Company procures some or all the components necessary for
production, typically generate higher net sales with lower gross profit margins
because of the inclusion in the Company's operating results of sales and costs
associated with such materials. Thus, the Company's financial statements for a
particular financial period may fluctuate depending on the receipt of large
turnkey manufacturing projects.
WORKING CAPITAL REQUIREMENTS
Working capital is necessary to finance the purchase of inventory and to carry
accounts receivable once products are shipped. In addition to the Company's
regular working capital requirements, various forms of short and long-term
financing are incurred to finance the Company's capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" located at Part II, Item 7. The
Company will continue to depend on its revolving line of credit with the CIT
Group/Business Credit, Inc. to finance its working capital needs. To control
working capital requirements, management of the Company has implemented
inventory reporting and purchasing control procedures.
BACKLOG
The Company's backlog was approximately $75 million at December 31, 1995 and $69
million at March 17, 1996 compared to approximately $56 million at December 31,
1994. Backlog consists of firm purchase orders which typically are to be filled
within three to twelve months. Backlog may not increase at the same rate as the
Company's net sales due to the increasing trend for OEMs to reduce their
lead-time for purchase orders. Since orders may be rescheduled or canceled by
payment of cancellation charges, backlog does not necessarily reflect future
sales levels. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" located at Part II, Item 7.
SUPPLIERS
The Company uses numerous suppliers of electronic components and other material
for its operations. Components generally are ordered when the Company has a
firm purchase order or a letter of intent from a customer to purchase the
completed assemblies. Because of the present capitalization of the Company and
relative size of the Company's purchase orders from its suppliers, the Company
may not be able to obtain product components used in the Company's business on
as favorable pricing terms as its competitors who purchase in larger quantities
or who have greater financial resources. Although the Company will work with
customers and suppliers to minimize the impact of any component shortages,
component shortages have had, and are expected to have from time to time,
short-term adverse effects on Company sales. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" located at Part II,
Item 7.
COMPETITION
The contract manufacturing services provided by the Company are available from
many independent sources as well as in-house manufacturing capabilities of
current and potential customers. Some of the Company's competitors, including
SCI Systems, Inc. and Solectron Corporation, have greater financial,
manufacturing and marketing resources than the Company. The Company believes
the primary bases of competition are quality, service, price and the ability to
deliver finished products on a timely and reliable basis. The Company believes
that it competes favorably with respect to these factors. Due to significantly
lower labor rates, offshore contract manufacturers have become significant
competitors, particularly with respect to high-volume products or those with a
high labor content. The Company believes with the opening of its Empalme,
Sonora, Mexican facility it will be competitive with other offshore contract
manufacturers.
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PATENTS AND TRADEMARKS
The Company does not hold any patent or trademark rights. The Company does not
believe that patent or trademark protection is an important competitive factor
in the contract manufacturing industry.
GOVERNMENTAL REGULATION
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management, health and
safety matters. Management believes that the Company's business is operated in
compliance with all material applicable environmental, waste management, health
and safety regulations. New or modified requirements, not presently
anticipated, could be adopted creating additional expense for the Company.
EMPLOYEES
As of March 10, 1996, the Company employed approximately 843 employees, of whom
approximately 691 were engaged in manufacturing, engineering and operations, 94
in material control and procurement and 58 in finance, administration and
sales. The Company expects to continuously monitor appropriate levels of
staffing at its facilities. None of the Company's employees is subject to a
collective bargaining agreement. The Company believes its relationship with
its employees is good.
EXECUTIVE OFFICERS
Officers of the Company are elected by the Board of Directors annually and
serve at the pleasure of the Board of Directors. There are no family
relationships among any current executive officers. The following table sets
forth certain information concerning the executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Executive Officer Since Position
- ---- --- ----------------------- --------
<S> <C> <C> <C>
E. Townes Duncan 42 1992 Chairman of the Board, Chief Executive
Officer and President
Joseph G. Andersen 39 1994 Vice President, Chief Financial Officer
and Secretary
Paul D. Johns 62 1994 Vice President
David E. Nesbit 47 1992 Vice President
Michael C. Thompson 42 1993 Vice President
</TABLE>
The following is a brief summary of the business experience of each of the
executive officers of the Company:
E. TOWNES DUNCAN was appointed Chairman of the Board and Chief Executive
Officer in April 1993 by the Board of Director, and assumed the position of
President in July, 1995. Prior to April 1993, Mr. Duncan had served the
Company as Interim Chairman of the Board and Chief Executive Officer since
November 1992. Mr. Duncan has been a director of the Company since 1988. From
March 1985 to November 1993 when Mr. Duncan resigned to devote his full time
efforts to the Company, he served as a vice president and a principal of Massey
Burch Investment Group, Inc., a venture capital organization headquartered in
Nashville, Tennessee. Previously, Mr. Duncan was an associate with the law
firm of Bass, Berry & Sims in Nashville from July 1978 until September 1983 and
a partner in that firm from September 1983 until he joined Massey Burch
Investment Group, Inc. Mr. Duncan is a director of Volunteer Capital
Corporation, an owner of restaurants in six states, and Sirrom Capital
Corporation, a small business investment company.
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JOSEPH G. ANDERSEN is Vice President, Chief Financial Officer and Secretary,
and is responsible for the Company's finance and accounting functions. Prior
to his promotion in October 1994, Mr. Andersen served as Corporate Controller
of the Company from July 1993 to October 1994. Prior to joining the Company,
Mr. Andersen was employed by Augat, Inc., an international electronics
manufacturer based in Mansfield, Massachusetts, from December 1983 to July
1993. During his tenure with Augat, he held a series of increasingly senior
accounting positions with the Company and its subsidiaries in its U.S.,
European, and Mexican operations. Mr. Andersen's previous experience includes
accounting positions with Raytheon, High Voltage Engineering and the public
accounting firm formerly known as Ernst & Whinney. Mr. Andersen holds a BBA in
accounting from the University of Notre Dame and is a certified public
accountant.
PAUL D. JOHNS is Vice President of Human Resources and is responsible for
personnel and organizational development. Prior to joining the Company in
January 1994, Mr. Johns was employed as President and Chief Operating Officer
of Interactive Health Network, Inc. from 1989 to July 1992. Interactive Health
Network, Inc., a company which sells, installs and performs systems integration
services for customers in the long-term health care market. Prior to such
time, Mr. Johns was the Executive Vice President and Operating Officer of the
Saddlebrook Corporation from 1984 to 1989. Prior to joining the Saddlebrook
Corporation, Mr. Johns held senior marketing and management positions at a
number of rapidly growing hardware manufacturers, software and service firms
including a 20 year career with IBM Corporation.
DAVID E. NESBIT is Vice President of Sales and, prior to assuming such
responsibilities in the second quarter of 1995, Mr. Nesbit was Vice President
and General Manager of the Company's Colorado Springs division. Before joining
the Company in May 1992, Mr. Nesbit was employed by Ampex Corporation as
Operations Services Manager since 1989. Mr. Nesbit previously was employed at
IBM Corporation, in its IBM/ROLM division for ten years in various management
positions.
MICHAEL C. THOMPSON is Vice President of Business Development and is
responsible for all corporate purchasing and strategic relationships. Prior to
joining the Company in July 1993, Mr. Thompson was employed by Philips
Electronics of North America as Senior Director of Logistics for the Philips
Circuit Assemblies contract manufacturing operation since June 1992. Prior to
such time, Mr. Thompson served as Vice President of Operations for MGV
Manufacturing in 1990 and 1991, and as material control manager of Avex
Electronics from 1987 to 1990.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is including the following
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in forward
looking statements of the Company made by, or on behalf of, the Company.
RISK FACTORS
Absence of Profitable Operations. Following discovery of the improper
accounting scheme engaged in by former members of management, the Company
restated its financial statements for each of the fiscal years ended December
31, 1989, 1990 and 1991 and determined that the Company has sustained losses
from its operations for each of the fiscal years since 1989. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and related notes located at Part II, Item 7 and Part
II, Item 8, respectively. Over the last several years, the Company has taken
several steps to improve its operations. In 1994, the Company sold its San
Jose division and, in 1995, the Company consolidated the operations of its
Colorado Springs division into its Guntersville facilities. The Company also
has made significant reductions in its cost structure. While the Company has
made significant reductions of its net losses, there can be no assurance that
the Company's results of operations will continue to improve or that the
Company will be profitable in the future.
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Financial Position of the Company. Because of the operating losses incurred by
the Company and indebtedness incurred by former members of management, the
Company has a substantial amount of indebtedness. In addition, the Company is
dependent upon the revolving credit facility provided by its primary lender to
finance its operations. The agreement contains financial covenants, and the
Company has had to seek waivers from time to time of its failure to comply with
such covenants. The Company has negotiated and implemented revised covenants,
which, management of the Company believes, based on the Company's current
business plan, will be met. If, however, the Company does not comply with these
covenants, the Company will be required to seek a waiver from its primary
lender in order to continue borrowing under that facility and to avoid
potential acceleration of the indebtedness outstanding. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" located at Part II, Item 7.
Reliance on Major Customers. The Company seeks to serve a sufficiently large
number of customers to avoid dependence on any one customer or industry.
Nevertheless, individual customers are, and will be, responsible for
significant portions of the Company's sales and, to that extent, the Company's
success is dependent on certain customers. During the year ended December 31,
1995, Highway Master and American Sterilizer Company accounted for 15% and 12%
of net sales, respectively. In addition, the Company's success also largely is
dependent on the performance of certain industries which account for a
substantial percentage of the Company's net sales. These industries include
communications (46%), medical (18%), personal computer and peripherals (13%)
and industrial and commercial (10%). The loss of any of these significant
customers or group of customers could have a material adverse affect on the
Company.
Changing Markets for Customer's Products. The markets in which the Company's
customers compete are characterized by rapidly changing technology, evolving
industry standards and continuous improvements in products and services. These
conditions frequently result in short product life cycles. The Company's
success will depend to a significant extent on the success achieved by its
customers in developing and marketing their products, some of which are new and
untested. If technologies or standards supported by the Company's or its
customers' products become obsolete or fail to gain widespread commercial
acceptance, the Company's business may be materially adversely affected.
Competition. The electronics contract manufacturing industry comprises
hundreds of companies and is highly fragmented and intensely competitive. The
Company competes against numerous domestic and foreign contract manufacturers,
and current and prospective customers also evaluate the Company's capabilities
against the merits of captive production. The Company believes there are a
substantial number of contract manufacturers which each have annual revenues
above $100 million. Certain of the Company's competitors, including Solectron
Corporation and SCI Systems, have substantially greater manufacturing,
financial, research and development and marketing resources than the Company.
The Company believes that the principal competitive factors in the segments of
the contract manufacturing industry in which it operates are cost,
responsiveness and flexibility, delivery cycles, product quality and range of
services available. See "Business -- Competition."
Variability of Operating Results. The Company's annual and quarterly operating
results are affected by a number of factors. The primary factors affecting
operating results are the level and timing of customer orders, fluctuations in
materials costs and the mix in materials costs versus labor and manufacturing
overhead costs. The level and timing of orders placed by a customer vary due
to the customer's attempts to balance its inventory, changes in a customer's
manufacturing strategy and variation in demand for a customer's products due
to, among other things, product life cycles, competitive conditions and general
economic conditions. In the past, changes in orders from customers have had a
significant effect on results of operations due to corresponding changes in the
level of overhead absorption. Other factors affecting the Company's annual and
quarterly operating results include price competition, the Company's level of
experience in manufacturing a particular product, the degree of automation used
in the assembly process, the efficiencies achieved by the Company in managing
inventories and fixed assets, the timing of expenditures in anticipation of
increased
10
<PAGE> 11
sales, customer product delivery requirements and shortages of components or
labor. Any one of these factors or a combination thereof could adversely
affect the Company's annual and quarterly results of operations in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" located at Part II, Item 7.
Limited Availability of Components. Much of the Company's net revenue is
derived from turnkey manufacturing in which the Company provides both materials
procurement and assembly. In turnkey manufacturing, the Company typically
bears the risk of component price increases, which could adversely affect the
Company's gross profit margins. Almost all the products manufactured by the
Company require one or more components that are ordered from only one source,
and most assemblies require one or more components that are available from only
a single source. Some of these components are allocated in response to supply
shortages. In some cases, supply shortages will substantially curtail
production of all assemblies using a particular component. In addition, at
various times there have been industry wide shortages of electronic components,
particularly memory and logic devices. Such circumstances have produced
significant levels of short term interruption of the Company's operations in
the past. There can be no assurance that such shortfalls will not have a
material adverse effect on the Company's results of operations in the future.
See "Business - Suppliers."
Environmental Compliance. The Company is subject to a variety of environmental
regulations relating to the use, storage, discharge and disposal of hazardous
chemicals used during its manufacturing process. Although the Company is
currently in substantial compliance with all material environmental
regulations, any failure by the Company to comply with present and future
regulations could subject it to future liabilities or the suspension of
production. In addition, such regulations could restrict the Company's ability
to expand its facilities or could require the Company to acquire costly
equipment or to incur significant expense to comply with environmental
regulations. See "Properties" located at Part I, Item 2.
ITEM 2.
PROPERTIES
The Company's largest facility in Guntersville, Alabama contains approximately
160,000 square feet and is leased by the Company under an industrial revenue
bond financing covering both the Guntersville facility and certain of the
Company's equipment. The Company has the option to purchase the Guntersville
facility for a payment of $18,000 at maturity of the bonds in 1997 and certain
other circumstances. In 1991, the Company opened a second manufacturing
facility in Guntersville. This facility contains approximately 104,000 square
feet and is leased by the Company under an industrial revenue bond financing
covering the facility and certain of the Company's equipment. The Company has
the option to purchase the second Guntersville facility for a payment of $10.00
at maturity of the bonds in 2008 and in certain other circumstances. The
Company previously leased a 77,000 square foot facility in Colorado Springs,
Colorado. The lease at the Company's Colorado Springs facility was terminated
effective September 1995 by the landlord so that the landlord could reoccupy
the facility. As a result, the Company made the strategic decision to
consolidate its Colorado Springs operations with the two plants in
Guntersville. In January 1996, the Company commenced operations in a 30,000
square foot manufacturing facility in Empalme, Sonora, Mexico, approximately
300 miles south of Tucson, Arizona. The Company's operations are housed in a
newly constructed facility located in an industrial park owned and operated
under a Maquiladora shelter program by Offshore International of Tucson. In
connection with the new Empalme manufacturing facility, the Company provides
U.S. based warehouse and shipping services located in Tucson, Arizona for its
Mexican operations. The Company opened executive offices in Brentwood,
Tennessee in March 1995, and is leasing approximately 2,130 square feet
pursuant to a lease agreement which expires in January 1999. The Company
believes that its facilities are suitable for its current operations.
11
<PAGE> 12
ITEM 3.
LEGAL PROCEEDINGS
None.
ITEM 4.
MATTERS SUBMITTED TO STOCKHOLDERS' VOTE
No matters were submitted to a vote of Stockholders during the fourth quarter
ended December 31, 1995.
PART II
ITEM 5.
MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock presently is traded on the OTC Bulletin Board
through broker/dealers that currently make a market in the Company's
securities. At March 26, 1996, there were approximately 957 stockholders of
record. The following table shows the high and low sales prices as reported in
the NASDAQ National Market for each quarterly period from January 1, 1994 to
June 22, 1994 and as reported on the OTC Bulletin Board from June 23, 1994 to
date. The price quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
<TABLE>
1995 1994
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $1 15/16 $1 1/4 $6 1/16 $3 3/4
Second Quarter 3 3/8 1 5/8 5 1/8 1 3/4
Third Quarter 3 1/16 2 2 1/8 1 3/8
Fourth Quarter 2 1/16 1 1/4 1 1/2 1 1/16
</TABLE>
The Company has never declared or paid a cash dividend on its Common Stock and
it is anticipated that the Company will reinvest any earnings in its business
and will not pay cash dividends. In addition, declaration of cash dividends is
prohibited by certain restrictive covenants contained in the Company's credit
agreements.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The selected data presented below under the captions "Operations Data," "Cash
Flow Data" and "Balance Sheet Data" for, and as of the end of, each of the
years in the five-year period ended December 31, 1995 are derived from the
Company's audited financial statements.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA: (in thousands, except per share data)
Sales $92,211 $119,998 $184,137 $139,086 $88,754
Cost of sales 85,954 117,894 181,010 130,674 83,735
-----------------------------------------------------------
Gross profit 6,257 2,104 3,127 (a) 8,412 5,019
-----------------------------------------------------------
Marketing, general and
administrative expenses 5,847 6,555 7,227 7,258 5,539
Interest expense 3,870 4,588 5,417 3,867 2,685
Interest income (15) (107) (1,048) (10) (20)
Loss on sale of San Jose division - 5,535 - - -
Other expense 194 97 935 239 40
Settlement with Exicom - - 1,837 - -
-----------------------------------------------------------
9,896 16,668 14,368 11,354 8,244
-----------------------------------------------------------
Loss from operations (3,639) (14,564) (11,241) (2,942) (3,225)
Restructuring costs (b) - - - (2,306) -
Settlement and related costs (c) - - - (15,280) -
-----------------------------------------------------------
Loss before preferred stock
dividends (3,639) (14,564) (11,241) (20,528) (3,225)
Preferred stock dividends (1,076) (760) (162) - -
-----------------------------------------------------------
Net loss applicable to common shares $(4,715) $(15,324) $(11,403) $(20,528) $(3,225)
===========================================================
Net loss per common share $ (.36) $ (1.38) $ (1.04) $ (1.90) $ (.34)
===========================================================
Weighted average common shares 13,135 11,081 10,966 10,806 9,586
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Net cash provided by (used
in) operating activities $ 909 $ 6,974 $ 17,769 $(23,510) $(5,322)
Net cash provided by (used
In) investing activities (841) 5,967 (1,085) (23,879) (8,993)
Net cash provided by (used
in) financing activities (240) (13,441) (15,835) 46,392 15,092
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (in thousands)
Working capital $18,391 $ 17,182 $ 33,304 $ 42,984 $27,681
Total assets 47,711 50,476 80,923 129,193 60,438
Current maturities of long-term debt 1,559 2,517 2,322 7,451 753
Long-term debt excluding
current maturities 17,098 16,380 30,017 36,316 29,531
Subordinated convertible debentures 29,230 34,500 34,500 34,500 -
Stockholders' equity/(deficit) (12,480) (13,991) 489 9,429 18,778
EBITDA DATA:
EBITDA (d) 5,187 1,112 11,492 8,344 3,974
</TABLE>
(a) Includes additional non-cash charges of $6,922,000 for inventory reserves
and to write off certain program start-up costs.
(b) The Company wrote off $806,000 of assets and provided a $1,500,000
accrual for restructuring costs in 1992.
(c) The Company provided a charge of $15,280,000 in 1992 for the proposed
settlement in its class action lawsuit and related investigation and other
costs.
(d) EBITDA consists of income (loss) from operations, before interest, income
taxes, depreciation and amortization. The 1994 amount includes the
$3,037,000 operating loss of the Company's former San Jose division from
the first half of 1994 but excludes the loss on sale of the San Jose
division (including third quarter operating loss) and other non-recurring
charges of $5,535,000. The 1993 amount does not include the charges of
$1,837,000 for the satisfaction of certain payments owing from the Company
to Exicom in connection with the purchase of certain assets of Exicom by
the Company, or the additional non-cash charges of $7,609,000 for
inventory reserves and to write off certain program start-up costs. The
1992 amount does not include the restructuring costs of $2,306,000 or the
accrual for settlement, investigation and other costs of $15,280,000.
EBITDA is not intended to represent net income, cash flow or any other
measures of performance in accordance with generally accepted accounting
principles, but is included because management believes certain parties
find it to be a useful tool for measuring the Company's performance.
14
<PAGE> 15
ITEM 7.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Comptronix Corporation provides contract manufacturing services to original
equipment manufacturers ("OEMs") in the electronics industry, including
computers, computer peripherals, producers of industrial instruments,
communications equipment, medical devices and test equipment. The Company
operates facilities in Guntersville, Alabama, and Empalme, Sonora, Mexico.
Operating results are generally affected by a number of factors, including the
relative mix of high volume/lower margin business and lower volume/higher
margin business, price competition, raw material costs, labor efficiencies, the
degree of automation that can be used in the assembly process and the
efficiencies achieved by the Company in managing inventories and fixed assets.
Over the past several years, the Company has increased the percentage of sales
it derives from turnkey manufacturing in which the Company procures some or all
the components necessary for production.
The Company has incurred operating losses for the last seven years. Management
has implemented plans and strategies intended to increase sales, gross
margins, and to further control costs while improving operating efficiencies.
See "Results of Operations" and "Currently Identifiable Factors Anticipated to
Affect 1996 Results".
The financial information and the discussion below should be read in
conjunction with the selected financial data and the audited financial
statements and notes thereto included in this Form 10-K. This discussion also
will address certain factors which are anticipated to affect the Company's 1996
results and financial condition.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
sales of certain items in the Statements of Operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1995 1994 1993
-----------------------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 93.2 98.2 98.3
-----------------------------
Gross profit 6.8 1.8 1.7(b)
Marketing, general and administrative expense 6.3 5.5 3.9
Interest expense 4.2 3.8 3.0
Interest income - - (.6)
Loss on sale of San Jose division - 4.6 -
Settlement with Exicom - - 1.0
Other expense .2 - .5
-----------------------------
Loss from operations (3.9)% (12.1)%(a) (6.1)% (c)
=============================
</TABLE>
(a) Includes loss on sale of San Jose division of $5.5 million. Without such
charges, the loss from operations percentage would have been (7.5)%.
15
<PAGE> 16
(b) Includes additional charges of $6.9 million. Without such charges, the
gross profit percentage would have been 5.5%.
(c) Includes additional charges of $7.6 million and Exicom settlement of $1.8
million. Without such charges, the loss from operations percentage would
have been (1.0%)
1995 Compared to 1994
With the accounting for the disposition of the San Jose operations effective
July 3, 1994, the third and fourth quarter of 1994 Company sales and expenses
do not include any effects of the San Jose operations.
Sales for 1995 were $92.2 million, a decrease of 23.2% as compared to the 1994
sales of $120.0 million. Excluding the San Jose sales for the first half of
1994, sales for 1995 decreased by 10.8% over 1994 sales. The Company
experienced a reduction in sales in the third and fourth quarters of 1995 as
compared to the first and second quarters of 1995. In the second quarter of
1995 the Company closed its Colorado Springs division and consolidated such
operations with its two Guntersville facilities. The decrease in sales is
primarily attributable to inefficiencies and lost production days with the
transition of the Company's Colorado Springs division to the Guntersville
facilities. Sales for the latter part of 1995 were also impacted by lower than
anticipated demand for certain customers' products, in particular the consumer
electronics and personal computer industries. In the fourth quarter of 1995,
sales increased by 18% as compared to the immediately preceding quarter as a
result of improved productivity and meeting customer demand upon completion of
the Colorado Springs consolidation into the Guntersville facilities.
Gross profit for 1995 increased to $6.3 million, 6.8% of sales as compared to
$2.1 million, 1.8% of sales for 1994. Although gross margin improved from 1.8%
to 6.8% from 1994 to 1995 reflecting the Company's ongoing efforts to control
costs and improve productivity, gross margins in 1995 were adversely affected
by the inefficiencies associated with consolidation of operations of the
Colorado Springs division in Guntersville and increased costs incurred by the
Company to meet customers' production schedules during the third and fourth
quarters of 1995 after the move.
Marketing, general and administrative expense decreased from $5.8 million in
1995 to $6.6 million in 1994 to as a result of the Company's cost control
measures described above. Despite the decrease in absolute dollars of
marketing and administrative expense, rose as a percentage of sales to 6.3%
in 1995 from 5.5% in 1994 reflecting the Company's lower sales base.
Interest expense decreased to $3.9 million in 1995 from $4.6 million in 1994
reflecting the Company's decreased borrowings for lower levels of inventory and
receivables as well as the debt reductions following the sale of the San Jose
division in the fourth quarter of 1994. Interest expense increased to 4.2% of
sales in 1995 from 3.8% of sales in 1994 reflecting the lower sales base in
1995.
On October 17, 1994 the Company completed the sale of its San Jose facility to
Sanmina Corporation for a purchase price of approximately $6.4 million in cash
and the assumption of approximately $1.6 million in liabilities. The San Jose
disposition resulted in a loss of $5.1 million which includes the loss from
operations from July 3, 1994 to October 14, 1994 of $423,000. In addition, the
Company identified certain San Jose related assets to be held for sale at the
Guntersville facility. These assets were written down in 1994 to net
realizable value which resulted in a $400,000 loss.
Including the effect of the loss on sale of the San Jose facility, the
Company's loss from operations decreased to $3.6 million in 1995 from $14.6
million in 1994.
16
<PAGE> 17
1994 Compared to 1993
With the accounting for the disposition of the San Jose operations effective
July 3, 1994, the third and fourth quarters of 1994 Company sales and expenses
do not include any San Jose operations. For the 1993 third and fourth
quarters, San Jose sales and expenses are included in their respective
categories.
Sales for 1994 were $120.0 million, a decrease of 34.8% as compared to the 1993
sales of $184.1 million. Excluding the San Jose sales for the second half of
each year, sales for 1994 decreased by 23.7% over 1993 sales. During the early
part of 1994, the Company continued to experience decreases in sales resulting
from what it believes to be factors affecting certain of its customers'
industries, in particular the personal computer and medical capital equipment
industries as well as factors unique to certain large customers in the
telecommunications and industrial electronics markets reducing those customers
demand for the Company's services significantly. As these conditions
continued, the Company made the strategic decision to dispose of its San Jose
division to decrease the Company's manufacturing capacity and the attendant
costs associated with the operation of such facility. In the fourth quarter of
1994, sales increased by 16.4% as compared to the immediately preceding quarter
as a result of increasing seasonal demand from customers in the consumer
electronics industry and as a result of sales to new customers generally. By
the end of 1994, the Company's sales and marketing efforts had resulted in
sales to 14 new customers accounting for $24.3 million in business during 1994.
The balance of the Company's revenues represented recurring revenues from the
Company's customer base.
Gross profit for 1994 decreased to $2.1 million as compared to $3.1 million for
1993. Gross profit for 1993 includes additional charges of $6.9 million for
reserves against contingencies related to inventories and to write-off of
certain program start-up costs. During 1994, the Company incurred lower gross
margins at San Jose and Colorado Springs in comparison to 1993. As a result,
the Company made the strategic decision to disengage from several customers in
1993 and 1994 which adversely affected gross margins due to inventory and other
writedowns and expenses. In addition, during the latter part of 1994, the
Company began to implement additional steps to improve gross margins, including
new customers with better operating efficiencies and margins and reductions in
overhead and direct costs. Additional measures were also taken to improve
labor and material efficiencies. Excluding San Jose costs for the second half
of the year, manufacturing overhead costs were reduced from $25.6 million in
1993 to $20.6 million in 1994.
Marketing, general and administrative expense decreased to $6.6 million in 1994
from $7.3 million in 1993 as a result of cost control measures implemented by
the Company in the fourth quarter 1993. Despite the decrease in the dollar
amount of marketing and administrative expense, it rose as a percentage of
sales from 3.9% in 1993 to 5.5% in 1994 reflecting the Company's lower sales
base.
Interest expense decreased to $4.6 million in 1994 from $5.4 million in 1993
reflecting the Company's decreased borrowings for lower levels of inventory and
receivables as well as the debt reductions following the sale of the San Jose
division in the fourth quarter of 1994. Interest expense increased from 3.0%
of sales in 1993 to 3.7% of sales in 1994 reflecting the lower sales base in
1994.
On October 17, 1994 the Company completed the sale of its San Jose facility to
Sanmina Corporation for a purchase price of approximately $6.4 million in cash
and the assumption of approximately $1.6 million in liabilities. The San Jose
disposition resulted in a loss of $5.1 million which includes the loss from
operations from July 3, 1994 to October 14, 1994 of $423,000. In addition, the
Company identified certain San Jose related assets to be held for sale at the
Guntersville facility. These assets were written down to net realizable value
which resulted in a $400,000 loss.
During 1993, the Company recognized a one-time non recurring charge of $1.8
million related to an agreement with Exicom for the satisfaction of certain
payments owing from the Company to Exicom in
17
<PAGE> 18
connection with the purchase of certain assets of Exicom by the Company. Under
the terms of the revised agreement, the Company agreed to pay Exicom an
aggregate of $.36 million in cash and issue $1.75 million of Series A Preferred
Stock in lieu of ongoing cash payments required by the initial acquisition
agreement.
Other expense decreased to $.1 million for 1994 as compared to $.9 million for
1993. The 1993 other expenses included additional charges for the write-off of
deferred financing costs associated with the Company's refinancing of its
credit facilities and the write-off of certain fixed assets no longer in
service.
The Company's loss from operations before the loss on sale of the San Jose
facility was $9.0 million. Including the effect of the loss on sale of the San
Jose facility, the Company's loss from operations increased to $14.6 million in
1994 from $11.2 million in 1993.
CERTAIN CURRENTLY IDENTIFIABLE FACTORS ANTICIPATED TO AFFECT 1996 RESULTS
Based upon the Company's current assessment of its business, there are several
currently identifiable factors which are likely to affect 1996 operating
results. In addition, factors which are likely to effect the Company's
liquidity and uses of funds during 1996 are discussed below.
The Company believes that it has taken several important steps which will
improve its results of operations through 1996. First, the Company made the
strategic decision to sell its San Jose division to reduce the level of fixed
costs that the Company's revenue base must absorb. The sale was completed in
late 1994 and significantly reduced the Company's fixed costs throughout 1995.
During 1995, the Company consolidated its Colorado Springs division with the
Guntersville facilities, further reducing the Company's fixed costs during the
latter half of 1995. Further, the Company has taken steps to diversify its
customer base to reduce, to some extent, the vulnerability it experienced as a
result of decreased shipments to the personal computer and medical capital
equipment industries beginning in late 1994. It has been the Company's
experience that a substantial portion of its revenues comes from its customer
base on a recurring basis, but that new business is an important source of
revenue to counteract conditions applicable to that recurring base of revenue.
In January 1996 the Company announced its opening of the Empalme, Sonora,
Mexico facility. The opening of an offshore contract manufacturing facility
will allow the Company to compete in a lower labor cost market.
In addition to the level of revenues and costs, in general, the Company
believes that its results for 1996 will be significantly affected by the mix of
business that it is able to attract. Different products and services
contribute varying amounts of gross margin dollars to the Company's results.
In general, higher volume production results in lower gross margin dollars per
unit while lower volume more specialized services should result in higher gross
margin dollars per unit. However, the Company must optimize the mix of these
customers to achieve profitability and, since revenues to any particular
customers are dependent upon the timing of orders, the Company may not always
be able to manage the mix of business to the extent necessary to produce
optimum results. To accomplish these objectives, the Company has reduced its
fixed costs and reorganized its manufacturing overhead personnel into business
teams to improve productivity while still enabling the Company to provide
quality manufacturing services to its customers. The Company has also
implemented improved management information systems to monitor revenues and
expenses by customer. Finally, the Company targets a mix of customers in its
sales efforts to attempt to strike the proper balance.
In addition to these factors which are anticipated to affect the results of
operations, the Company continually monitors its liquidity and financial
position. The Company's primary lender, The CIT Group/Business Credit Inc.
("CIT"), became the Company's primary lender in late 1993 and has continued to
provide the Company's working capital financing. Nevertheless, because of the
factors described above which have affected results of operations during that
period, the Company has had to seek, from time to time, waivers of certain of
the covenants contained in the credit agreement with CIT to continue borrowing
under such agreement and to avoid potential acceleration of the indebtedness
outstanding. During early 1996, the Company and CIT
18
<PAGE> 19
reached an agreement on a new set of quarterly and annual financial covenants
which are based upon the Company's 1996 business plan. As described below,
under "- Liquidity and Capital Resources", the Company currently believes that
it will comply with those covenants; however, should it fail to do so, the
Company would be forced to seek a waiver of noncompliance related to those
covenants from CIT.
LIQUIDITY AND CAPITAL RESOURCES
The Company has made significant progress in reducing its accounts receivable
and inventory balances to more acceptable levels, and used the excess working
capital to reduce debt and accounts payable balances. The Company reduced
total indebtedness (other than convertible debt) from $44 million at December
31, 1992, to $19 million at December 31, 1995, and reduced trade payables from
$30 million at December 31, 1992 to $8 million at December 31, 1995.
Management of the Company recognizes the strategic importance of generating
greater working capital from operations and is focusing on improving inventory
turns, reducing work in process cycle times and improving asset utilization to
measure the Company's future success in this area. As a result, inventories
have been reduced from $50.9 million (including $17.1 million of San Jose
inventory) at December 31, 1992 to $18.2 million at December 31, 1995. During
the period from December 31, 1994 to December 31, 1995 inventories increased
from $16.1 million to $18.2 million which resulted in trade payables increasing
from $7 million to $8 million at the end of 1995. Management of the Company
continues to focus on improving inventory turns and reducing trade payables.
For the year ended December 31, 1993, the Company's net cash provided by
operating activities was $17.8 million. This amount reflects improvements in
inventory, receivable and payables management and a more stable level of
revenues which did not require an increase in receivables and inventory. For
the year ended December 31, 1994, the Company's net cash provided by operating
activities was $6.9 million. This amount continues to reflect improvements in
inventory, receivable and payables management with a reduced level of sales as
compared to 1993. For the year ended December 31, 1995, the Company's net cash
provided by operating activities was $.9 million. This amount reflects a $2.0
million increased investment in inventory to support the Company's business as
compared to 1994.
The Company's net capital expenditures used in investing activities were $.8
million, $.4 million and $1.1 million in 1995, 1994, and 1993, respectively.
These uses principally relate to additions of buildings, leasehold improvements
and machinery and equipment as the Company's business has expanded. The
Company's net cash flows provided by investing activities was $6.0 million for
1994 which principally relates to the sale of the San Jose division in the
third quarter of 1994.
The Company's net cash flows used in financing activities were $.2 million,
$13.4 million and $15.8 million in 1995, 1994, and 1993, respectively. The
uses for 1995 and 1994 are principally related to payments on bank debt.
The Company obtained a $40.0 million credit facility from The CIT
Group/Business Credit, Inc. (CIT) in 1993. The agreement with CIT provided for
a $34.0 million three (3) year revolving credit facility and a $6.0 million
five (5) year term loan. Amounts which may be borrowed under the revolving
credit facility are subject to a borrowing base test of 85% of the Company's
eligible accounts receivable and 50% of the Company's eligible inventory. At
December 31, 1995, the Company had borrowed $14.1 million under the revolving
credit facility on a total availability of $15.2 million. The agreement also
contains various financing covenants which limit the Company's ability to incur
additional indebtedness, purchase and dispose of equipment and declare or pay
cash dividends. In March 1996, the Company amended the credit agreement with
CIT based upon the Company's 1996 business plan. The amended loan agreement
included new covenants for EBITDA and a fixed charge coverage ratio and
extended the maturity date to November 1998. See Note 4 of Notes to Financial
Statements. The CIT Credit Agreement requires that the Company achieve
quarterly specified levels of EBITDA and a Fixed Charge Coverage Ratio as
follows:
19
<PAGE> 20
<TABLE>
<CAPTION>
Applicable Period EBITDA Required
----------------- ---------------
<S> <C>
For the three (3) months ended March 31, 1996 $ .5 million
For the six (6) months ended June 30, 1996 $2.0 million
For the nine (9) months ended September 30, 1996 $4.0 million
</TABLE>
<TABLE>
<CAPTION>
Fixed Charge Coverage
Applicable Period Ratio Required
----------------- ---------------------
<S> <C>
For the twelve (12) months ending
December 31, 1996 1.0 to 1
For the twelve (12) months ending March 31, 1997
and for the twelve (12) months ending on
each fiscal quarter end thereafter 1.25 to 1
</TABLE>
Based on the Company's current projections and business plan, management
currently believes the Company will meet these covenants. This opinion is
based on the Company's results for the fourth quarter of 1995, operations to
date in the first quarter of 1996 as well as anticipated levels of business for
the balance of the year. If it does not comply with these covenants, the
Company will be required to seek a waiver or amendment to the CIT Credit
Agreement in order to continue borrowing under such agreement and to avoid
potential acceleration of the indebtedness outstanding. Management also has
identified contingent plans to reduce expenses, if necessary, to remain in
compliance with these covenants.
In 1993, the Company's bank lenders agreed to retain a four (4) year term loan
of $3.0 million secured by one of the Company's manufacturing facilities in
Guntersville, Alabama. At December 31, 1995 the amounts outstanding under the
term loan were $2.5 million.
Total current maturities of long-term debt at December 31, 1995 are
approximately $1.6 million. The Company believes that cash generated from
operations together with borrowings under its credit facility described above
will be sufficient for the Company to meet its obligations during 1996,
including debt principal payments and trade creditor obligations.
EBITDA
The Company has presented earnings before interest, income taxes, depreciation
and amortization ("EBITDA") for each of the foregoing periods as a supplement
to the discussion of the Company's operating income and cash flow from
operations analysis because the Company believes that certain parties find it
to be a useful tool for measuring the Company's performance and ability to
service debt. EBITDA is not a substitute for generally accepted accounting
principles (GAAP) operating and cash flow data. Management, however, believes
that EBITDA does supplement this information for several reasons. First,
EBITDA supplements data regarding the Company's cash flow because EBITDA is the
principal performance covenant in the CIT Credit Agreement. In addition, the
Company also has made significant investments in capital equipment, primarily
through borrowings. Therefore, the Company is incurring a significant amount
of depreciation on this equipment reflected in its results of operations. As a
result, the Company believes that information with respect to EBITDA should be
read in conjunction with the discussion of results of operations and the
discussion of liquidity and capital resources.
20
<PAGE> 21
QUARTERLY RESULTS
Although the Company does not believe its business is affected by seasonal
factors, the Company's sales and net income may vary from quarter to quarter,
depending primarily upon the timing of large manufacturing orders and the
related shipments to customers. The operating results for any particular
quarter may not be indicative of results for any future quarter.
INFLATION
Inflation has not had any significant impact on the Company's business to date.
ACCOUNTING PRINCIPLES NOT YET ADOPTED
In 1995, the Financial Accounting Standards Board ("FASB") issued Statements of
Financial Accounting Standards Number 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Adoption of SFAS 121 is required for fiscal years beginning after December 15,
1995. The Company plans to adopt SFAS 121 in the first quarter of 1996 and
does not expect adoption to have a material effect on the Company's financial
position.
In October 1995, the FASB issued Statement No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation". This statement requires new disclosures in the
notes to the financial statements about stock-based compensation plans based on
the fair value of equity instruments granted. Companies also may base the
recognition of compensation cost for instruments issued under stock-based
compensation plans on these fair values. The Company anticipates adopting SFAS
123 in 1996, but currently does not plan to change its method of accounting for
these plans.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following index outlines the financial statements and supplementary data of
the Company included herein.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Responsibility for Financial Statements 23
Report of Independent Public Accountants 24
Balance Sheets as of December 31, 1995 and 1994 25-26
Statements of Operations for each of the years in the three-year
period ended December 31, 1995 27
Statements of Stockholders' Equity/(Deficit) for each of the years in the
three-year period ended December 31, 1995 28
Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1995 29-30
Notes to Financial Statements 31-40
Financial Statement Schedule 46
</TABLE>
22
<PAGE> 23
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Company has prepared the Financial Statements and related financial
information included in this report. Management has the primary responsibility
for the integrity of the financial statements and other financial information
included and for ascertaining that the data accurately reflects the financial
position and the results of operations of the company. The financial
statements were prepared in accordance with generally accepted accounting
principles appropriate in the circumstances, and necessarily include amounts
that are based on best estimates and judgments with appropriate consideration
to materiality. Financial information included elsewhere in the annual report
is consistent with the financial statements.
The Company has implemented a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and the books and records
reflect the authorized transactions of the Company. Limitations exist in any
system of internal control based upon the recognition that the cost of the
system should not exceed the benefits derived. The company believes its system
of internal accounting controls, augmented by its internal auditing function,
appropriately balances the cost/benefit relationship.
Arthur Andersen, the Company's independent public accountants, have audited
management's financial statements and their report appears on page 24. The
auditors' report expresses an informed opinion that the financial statements,
considered in their entirety, present fairly, in all material respects, the
Company's financial position and operating results in conformity with generally
accepted accounting principles. As required by generally accepted auditing
standards, the independent public accountants obtained a sufficient
understanding of the Company's internal controls to plan their audit and
determine the nature, timing and extent of their tests to be performed.
The Board of Directors pursues its responsibility for the Company's financial
statements through its Audit Committee which is comprised solely of directors
who are not officers or employees of the Company. The Audit Committee meets
regularly with the independent public accountants and management. The
independent public accountants have direct access to the Audit Committee, with
and without the presence of management representatives, to discuss the scopes
and results of their audit work and their comments on the adequacy of internal
controls and the quality of financial reporting.
We believe that the policies and procedures provide reasonable assurance that
our operations are conducted in conformity with the law and with a high
standard of business conduct.
/s/ E. Townes Duncan /s/ Joseph G. Andersen
E. Townes Duncan Joseph G. Andersen
Chairman of the Board Vice President, Chief Financial Officer
and Chief Executive Officer and Secretary
23
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
COMPTRONIX CORPORATION:
We have audited the accompanying balance sheets of Comptronix Corporation (a
Delaware Corporation) as of December 31, 1995 and 1994 and the related
statements of operations, stockholders' equity/(deficit) and cash flows for
each of the years in the three-year period ended December 31, 1995. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Comptronix Corporation as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in the accompanying index on page 22 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not otherwise a required part of the basic
financial statements. This financial schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 14, 1996
24
<PAGE> 25
COMPTRONIX CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
-----------------------
(in thousands)
<S> <C> <C>
Current Assets:
Cash $ 225 $ 397
Accounts receivable - trade, net of allowances of
$165 and $751 for 1995 and 1994, respectively 13,042 13,683
Inventories 18,165 16,119
Prepaid expenses and other assets 822 570
-----------------------
Total current assets 32,254 30,769
-----------------------
Property, plant and equipment, including assets under
capital leases:
Land 295 295
Buildings and improvements 7,366 7,395
Construction in progress 177 168
Machinery and equipment 32,818 33,369
-----------------------
40,656 41,227
Less accumulated depreciation and amortization (26,344) (23,508)
-----------------------
14,312 17,719
-----------------------
Deferred financing costs and other, net 1,145 1,988
-----------------------
Total assets $ 47,711 $ 50,476
=======================
</TABLE>
(continued)
25
<PAGE> 26
COMPTRONIX CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
-----------------------
(in thousands)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 1,559 $2,517
Accounts payable 8,158 7,474
Accrued payroll and related expenses 876 1,034
Accrued interest 845 947
Other payables and accruals 2,425 1,615
-----------------------
Total current liabilities 13,863 13,587
Long-term debt, excluding current maturities 17,098 16,380
Subordinated convertible debentures 29,230 34,500
Commitments and contingencies
Stockholders' equity/(deficit):
Redeemable convertible preferred stock Series A-6%
dividend - no par value per share; authorized
5,000,000 shares, issued and outstanding 1,899,319
shares in 1995 plus $286 dividend accretion,
1,274,787 shares in 1994 plus $203 dividend
accretion (stated at liquidation preference value
of $10.00 per share) 19,279 12,951
Common stock - par value $.01 per share; authorized
50,000,000 shares, issued and outstanding 13,298,410
and 11,153,194 shares in 1995 and 1994, respectively 133 111
Unearned compensation - restricted stock (390) (375)
Additional paid-in capital 30,139 30,248
Accumulated deficit (61,641) (56,926)
-----------------------
Total stockholders' deficit (12,480) (13,991)
-----------------------
Total liabilities and stockholders' equity/(deficit) $ 47,711 $50,476
=======================
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 27
COMPTRONIX CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1995 1994 1993
---------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Sales $92,211 $119,998 $184,137
Cost of sales 85,954 117,894 181,010
---------------------------------------------------
Gross profit 6,257 2,104 3,127
---------------------------------------------------
Marketing, general and
administrative expenses 5,847 6,555 7,227
Interest expense 3,870 4,588 5,417
Interest income (15) (107) (1,048)
Loss on sale of San Jose division - 5,535 -
Settlement with Exicom - - 1,837
Other expense 194 97 935
---------------------------------------------------
9,896 16,668 14,368
---------------------------------------------------
Net loss (3,639) (14,564) (11,241)
Dividend in kind on preferred stock 1,076 760 162
---------------------------------------------------
Net loss applicable to common shares $(4,715) $(15,324) $(11,403)
===================================================
Net loss per common share $ (.36) $ (1.38) $ (1.04)
===================================================
</TABLE>
See accompanying notes to financial statements
27
<PAGE> 28
COMPTRONIX CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
Redeemable
Redeemable Convertible Unearned
Convertible Preferred Compensation Additional
Preferred Stock Issued and Common Restricted Paid-In Accumulated
Stock To be Issued Outstanding Stock Stock Capital Deficit Total
---------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,1992 $ 10,500 $ - $109 $ - $29,019 $(30,199) $ 9,429
Issuance of common stock to lenders - - 1 - 399 - 400
Options exercised - - - - 126 - 126
Issuance of Series A preferred stock (10,500) 12,275 - - - - 1,775
Series A preferred stock dividend - 162 - - - (162) -
Net loss - - - - (11,241) (11,241)
---------------------------------------------------------------------------------------------
Balance, December 31, 1993 - 12,437 110 - 29,544 (41,602) 489
Issuance of common stock - - - - 34 - 34
Series A preferred stock dividend - 760 - - - (760) -
Conversion of Series A preferred
stock to common stock - (246) - - 246 - -
Issuance of restricted common stock - - 1 - 424 - 425
Unamortized restricted common stock - - - (375) - - (375)
Net loss - - - - - (14,564) (14,564)
---------------------------------------------------------------------------------------------
Balance, December 31, 1994 - 12,951 111 (375) 30,248 (56,926) (13,991)
Issuance of preferred stock and common
stock in exchange for debentures - 5,270 21 - (196) - 5,095
Series A Preferred Stock Dividend - 1,076 - - - (1,076) -
Conversion of Series A Preferred
Stock Dividend - (18) - - 18 - -
Issuance of restricted common stock - - 1 (66) 65 - -
Unamortized restricted common stock - - - 51 4 - 55
Net Loss - - - - - (3,639) (3,639)
---------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ - $19,279 $133 $(390) $30,139 $(61,641) $(12,480)
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
28
<PAGE> 29
COMPTRONIX CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1995 1994 1993
--------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,639) $(14,564) $(11,241)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on sale of San Jose division - 5,535 -
Non-cash expenses settled with
preferred stock - - 1,775
Depreciation and amortization 4,971 5,660 8,918
Bad debt provision (586) 171 238
Provision for inventory reserves and
asset retirements - - 7,244
Decrease in accounts receivable - trade 1,227 4,636 13,467
Decrease in income tax refund receivable - 229 6,731
(Increase) decrease in inventories (2,046) 5,748 15,442
(Increase) decrease in prepaid expenses
and other assets (252) 492 (835)
Increase (decrease) in accounts payable 684 1,442 (22,725)
Decrease in accrued payroll and
related expenses (158) (128) (1,259)
Increase (decrease) in other payables
and accruals 708 (2,281) 14
------- -------- --------
Net cash provided by operating activities 909 6,940 17,769
------- -------- --------
Cash flows from investing activities:
Capital expenditures, net (841) (433) (1,085)
Proceeds from sale of San Jose division - 6,400 -
------- -------- --------
Net cash provided by (used in)
investing activities (841) 5,967 (1,085)
------- -------- --------
</TABLE>
(Continued)
29
<PAGE> 30
COMPTRONIX CORPORATION
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1995 1994 1993
------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Payment of settlement and restructuring costs - - (3,932)
Payment of loan costs - - (601)
Net payments on revolving line of credit - - (19,973)
Net proceeds (payments) on new revolving line
of credit 2,337 (9,262) 21,006
Proceeds from issuance of other long-term debt - - 9,200
Principal payments on other long-term debt (2,577) (4,179) (21,661)
Proceeds from issuance of common stock - 34 126
------- -------- --------
Net cash used in financing activities (240) (13,407) (15,835)
------- -------- --------
Net increase (decrease) in cash (172) (500) 849
Cash at beginning of period 397 897 48
------- -------- --------
Cash at end of period $ 225 $ 397 $ 897
======= ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest $ 3,972 $ 4,728 $ 5,281
Noncash investing and financing activities:
Common stock issued for financing costs - - 400
Issuance of Series A preferred stock 1,076 760 -
Issuance of restricted common stock 66 425 -
Issuance of preferred stock and common stock
in exchange for debentures 5,270 - -
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 31
COMPTRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company (a Delaware corporation) is engaged in the contract manufacturing
and testing of products and assemblies for use in the computer, communications,
medical, instrumentation, consumer and peripherals industries throughout the
United States. The Company currently has two operating facilities in
Guntersville, Alabama and a facility in Empalme, Sonora, Mexico.
Results of Operations
The Company has incurred operating losses for the last seven years. The
Company has had to seek, from time to time, waivers of certain of the covenants
contained in the credit agreement with CIT to continue borrowing under such
agreement and to avoid potential acceleration of the indebtedness outstanding.
Management has implemented plans and strategies intended to increase sales,
gross margins, and to further control costs while improving operating
efficiencies. Further, the Company has taken steps to diversify its customer
base to reduce, to some extent, the vulnerability it experienced as a result of
decreased shipments to the personal computer and medical capital equipment
industries. It has been the Company's experience that a substantial portion of
its revenues comes from its customer base on a recurring basis, but that new
business is an important source of revenue to counteract conditions applicable
to that recurring base of revenue. The Company has reduced its fixed costs and
reorganized its manufacturing overhead personnel into business teams to improve
productivity while still enabling the Company to provide quality manufacturing
services to its customers.
Revenue Recognition
Revenue from product sales to customers is recognized when the units are
shipped.
Inventories
Inventories include material, labor and overhead and are stated at the lower of
cost or market using the first-in, first-out (FIFO) method. Recoverable costs
incurred in connection with the start-up of new projects, which are not in
excess of estimated realizable values, are deferred and amortized over the life
of the contract.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed
by the straight-line method over five to seven years for machinery and
equipment and 19 years for buildings and improvements, including leasehold
improvements. Depreciation includes the amortization of assets under capital
leases.
Expenditures for repairs and maintenance are charged against income as
incurred. The Company removes the costs and related allowances from the
accounts for properties sold or retired, and any resulting gains or losses are
included in other income (expense).
31
<PAGE> 32
Deferred Financing Costs
Deferred financing costs are amortized on a straight-line basis over the terms
of the related loans.
Accrued Liability for Employee Insurance Claims
The Company is self-insured for medical claims and certain workmen's
compensation claims. The estimated liability for incurred claims is based
primarily on historical payment experience on an individual claim basis and an
estimate for unreported claims. Predetermined loss limits have been insured to
limit the Company's per occurrence liability.
Income Taxes
The Company has adopted SFAS No. 109 for the financial reporting of income
taxes. The statement generally requires the Company to record deferred income
taxes for the differences between book and tax bases in its assets and
liabilities.
Concentration of Credit Risks
The Company's credit risks relate primarily to accounts receivable. Accounts
receivable consist primarily of amounts due from original equipment
manufacturers for units shipped. The Company's customers are located
throughout the United States. The Company performs credit evaluations of its
customers and maintains allowances for doubtful accounts on these accounts
receivable. See Note 12 for information regarding major customers.
Losses Per Share
Losses per common share are computed on the basis of the weighted average
number of common shares outstanding. Common stock equivalents are not included
in each period as inclusion of their effect would be antidilutive. Fully
diluted earnings per share, which considers common stock equivalents and
convertible subordinated debentures, is not presented as it is antidilutive for
each year.
Weighted average shares used in the computation of losses per share for the
years ended December 31, 1995, 1994, and 1993 were 13,135,000, 11,081,000 and
10,966,000, respectively.
Use of Estimates
The preparation of financial statements in conformity with general 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 2 DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of financial instruments were as
follows as of December 31, 1995:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
--------------- ----------
<S> <C> <C>
Long-term debt $18,657 $18,657
Subordinated convertible debentures $29,230 $15,200
</TABLE>
32
<PAGE> 33
The carrying amount of long-term debt is assumed to approximate fair value as
substantially all of it bears interest at a floating rate. The fair value of
the subordinated convertible debentures was determined by obtaining quotes from
dealers.
NOTE 3 INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1994
------------------
(in thousands)
<S> <C> <C>
Raw materials $13,589 $11,601
Work in process and finished goods 6,030 5,608
Reserve for excess and obsolete material (1,454) (1,090)
------------------
$18,165 $16,119
==================
</TABLE>
The Company has incurred certain start-up costs that are assignable to units
not yet produced. The aggregate amount incurred, which is included in
work-in-process, is approximately $200,000 and $300,000 as of December 31, 1995
and 1994, respectively.
33
<PAGE> 34
NOTE 4 NOTES PAYABLE AND LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
----------------------------
(in thousands)
<S> <C> <C>
Industrial Development Revenue bonds, 10 year
amortization at rates ranging from 7.5% to 8.7%,
secured by buildings and equipment, principal and
interest payments are due quarterly $ 640 $ 960
Revolving line of credit at prime plus 1 1/2% 14,080 11,747
Equipment term loan at prime plus 1 3/4% due in
20 quarterly installments beginning June 1, 1994,
secured by equipment 2,500 3,700
Senior Notes at 10%, due in quarterly payments of
principal and interest, final maturity in 1995,
secured by certain equipment - 990
Bank Loan at prime plus 2% due in 24 monthly
installments, beginning November 1, 1995, with a
lump sum payment on November 1, 1997, secured by
real property 1,437 1,500
------- -------
Total long-term debt 18,657 18,897
Current maturities (1,559) (2,517)
------- -------
Total long-term debt, excluding current maturities $17,098 $16,380
======= =======
</TABLE>
Maturities of long-term debt, in thousands, are as follows:
<TABLE>
<S> <C>
1996 $ 1,559
1997 16,998
1998 100
-------
Total $18,657
=======
</TABLE>
The prime rate was 9.0% and 8.5% at December 31, 1995, and 1994, respectively.
The Company does not currently have any interest rate cap or swap agreements in
place.
In November 1993, the Company obtained a new credit facility with The CIT
Group/Business Credit, Inc. The new credit facility consists of a $34.0
million revolving line of credit secured by accounts receivable and inventory
maturing in November 1998 and a $6.0 million five-year term loan secured by
equipment. The borrowings under the revolving line of credit are limited to 85%
of the Company's eligible accounts receivable and 50% of the Company's eligible
inventory (a total availability of $15.2 million at December 31, 1995). CIT
has also provided a $.3 million letter of credit for a certain vendor which
reduces the Company's line of credit. Following the sale of the Company's San
Jose division in October of 1994, the Company made
34
<PAGE> 35
additional payments of $4,561,000 on the revolver, and $1,400,000 on the term
loan. The agreement also contains various financing covenants which limit the
Company's ability to incur additional indebtness, purchase and dispose of
equipment and declare or pay cash dividends. In March of 1996, the Company
amended the credit agreement with CIT based upon the Company's 1996 business
plan. The amended loan agreement added new covenants for earnings before
interest, income taxes, depreciation and amortization (EBITDA) and a fixed
charge coverage ratio as follows:
EBITDA:
The Company shall have EBITDA for the applicable periods below of not less
than:
<TABLE>
<CAPTION>
Fiscal Period EBITDA
- ------------- ------
<S> <C>
For the three (3) months ending March 31, 1996 $ 500,000
For the six (6) months ending June 30, 1996 $2,000,000
For the nine (9) months ending September 30, 1996 $4,000,000
</TABLE>
Fixed Charge Coverage Ratio:
The Company shall have at all times during the applicable fiscal periods below,
a Fixed Charge Coverage Ratio of not less than:
<TABLE>
<CAPTION>
Fiscal Periods Ratio
- -------------- -----
<S> <C>
For the twelve (12) months ending December 31, 1996 1.0 to 1
For the twelve (12) months ending March 31, 1997
and for the twelve (12) months ending on each
fiscal quarter thereafter 1.25 to 1
</TABLE>
Based on its current plan for 1996, the Company believes it will comply with
such covenants. If it does not comply with those covenants, the Company will
be required to seek a waiver of noncompliance or amendment to the agreement in
order to continue borrowing under such agreement and to avoid potential
acceleration of the indebtedness.
The Company also has a term loan for $3.0 million which is secured by real
property. The loan balance was reduced to $1.5 million in December 1993 after
the payment to the lenders of $1.5 million of the income tax refund proceeds.
The Company believes that cash generated from operations together with proceeds
of the new CIT credit facility described above should be sufficient for the
Company to meet its obligations during 1996, including debt settlement and
trade creditor obligations.
In connection with the financing agreements, The CIT Group/Business Credit,
Inc. was granted a warrant to purchase 100,000 shares of the Company's common
stock at a price of $4.50 per share, expiring November 1998. No value has been
assigned to the warrant as the exercise price was equivalent to the market
price of the warrant on the grant date.
In addition, as part of its credit agreement restructuring costs in March 1993,
the Company issued an aggregate of 50,000 shares of common stock to its former
bank lenders and 50,000 shares of common stock to its term lenders. The term
lenders also were granted a warrant to purchase 50,000 shares at $4.00 per
share
35
<PAGE> 36
exercisable for five years. The value of the shares of approximately $400,000
is being amortized over the life of the credit agreements. The portion
associated with the retired bank debt has been fully amortized. The senior
lenders were granted an additional 50,000 warrants following the sale of the
San Jose division. The warrants were issued at $1.50 per share and expire
October 12, 1999.
The Company's two buildings and the majority of its machinery and equipment in
Guntersville are leased by the Company under two industrial revenue bond
financings. The 1987 bonds are held by a third-party and reflected as debt
outstanding above. The Company has the option to purchase the facility under
this lease for $18,000 in 1997. The other bond issue was induced in 1991 and
completed in 1993, and the bonds were purchased by the Company and pledged to
its bank lenders. The respective investment in the bonds and the related lease
obligations together with the related interest income and expense have been
netted in the accompanying financial statements. The facility leased under
this bond issue can be purchased in 2008 for nominal consideration. Nominal
additional payments are required at maturity for the equipment under capital
lease.
The Company is contingently liable under a letter of credit in the amount of
approximately $1,007,600 issued by one of its bank lenders as additional
collateral for an Industrial Development Revenue Bond.
NOTE 5 PREFERRED STOCK
On May 12, 1989, the Company's stockholders approved a class of 5,000,000
shares of Preferred Stock which may be issued in one or more series with such
rights, preferences, privileges and restrictions as the Board of Directors may
determine.
On December 17, 1993, the Company issued 1,050,000 shares of Series A
redeemable convertible preferred stock, without par value, in settlement of the
class action lawsuit and 175,000 shares pursuant to the settlement with Exicom
Technologies. The stock is subject to mandatory redemption on April 1, 2003,
or annual redemption at the option of the holder beginning April 1, 1998 at a
price equal to $10.00 per share. The redemption may be either in cash or, in
the sole discretion of the Company, in shares of common stock at the current
market price on the date such shares are redeemed. The stock is convertible at
$8.00 per share and carries a dividend rate of 6% payable in kind at the
Company's election. In 1995, the Company recorded dividends of $1.1 million of
which $286,000 had not been issued at December 31, 1995.
NOTE 6 CONVERTIBLE SUBORDINATED DEBENTURES
On March 17, 1992, the Company sold $34,500,000 of 6 3/4% convertible
subordinated debentures. The debentures mature on March 1, 2002 and pay
interest semi-annually at March 1 and September 1. The debentures are
convertible at the option of the holder at any time prior to maturity, unless
previously redeemed, into common shares at a conversion price of $11.625
(reduced from $17.75 per share as a result of the shareholder litigation
settlement). The Company may redeem the debentures on or after April 1, 1998
at par plus premiums declining to par at April 1, 2001. The debentures are
subordinate to all existing and future senior indebtedness, as defined in the
indenture. The indenture contains certain covenants and other terms for events
of default. At December 31, 1995, the Company was in compliance with such
covenants.
On January 25, 1995, the company completed a privately negotiated exchange of
$5,270,000 of debentures for shares of the Company's common and Series A
preferred stock. This exchange provided the exchanging debenture holders an
aggregate of 2,108,000 shares of common stock and 527,000 shares of Series A
preferred stock.
36
<PAGE> 37
NOTE 7 STOCK OPTION PLAN
The Company's 1985 Employee Incentive Stock Option Plan and 1989 Employee Stock
Incentive Plan provide for the granting of options to purchase shares of the
Company's common stock at not less than fair market value on the date of grant.
The stock options issued under the plans are subject to certain terms,
conditions and restrictions. The awards which may be granted include stock
options, stock appreciation rights (SARs) and/or other stock based awards. The
plans also provide that if there is a change in control or a potential change
in control, SARs and limited SARs outstanding for at least six months, and any
stock options which are not then exercisable will become fully exercisable and
vested. The Company also has granted non-qualified options to certain
Directors under the Company's Outside Directors Stock Option Program to
purchase shares of common stock at the fair market value on the date of grant.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
Options Granted
------------------------------------------------------------------
$1.19 $2.25 $5.00 $10.00 $15.00
to $2.24 to $4.99 to $9.99 to $14.99 to $22.99
per share per share per share per share per share Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992 - 175,188 225,488 303,813 179,350 883,839
Granted - 55,600 797,803 7,000 1,000 861,403
Canceled or expired - (33,263) (189,238) (299,813) (180,350) (702,664)
Exercised - (40,162) - - - (40,162)
------------------------------------------------------------------
Balances, December 31, 1993 - 157,363 834,053 11,000 - 1,002,416
Granted 290,700 181,004 138,250 - - 609,954
Canceled or expired (11,500) (57,025) (158,855) - - (227,380)
Exercised - (9,750) - - - (9,750)
------------------------------------------------------------------
Balances, December 31, 1994 279,200 271,592 813,448 11,000 - 1,375,240
Granted 866,764 136,600 - - - 1,003,364
Canceled or expired (179,359) (206,307) (730,703) (11,000) - (1,127,369)
Exercised - - - - - -
------------------------------------------------------------------
Balances, December 31, 1995 966,605 201,885 82,745 - - 1,251,235
==================================================================
</TABLE>
In January 1994, the Board of Directors approved a restatement of prior
amendments to the plans together with a new amendment to the 1989 Incentive
Stock Option Plan to authorize an aggregate of 910,000 additional shares of
common stock.
In November 1993, the Company granted a restricted stock award of 100,000 of
common stock shares to its Chief Executive Officer under the 1989 Plan. These
shares vest ratably over a ten year period beginning November 30, 1993 provided
that his employment continues with the Company or become fully vested if there
is a change in control event, as defined in his employment agreement. In May
1995, the Company granted to certain executive officers of the Company an
aggregate of 20,000 shares of Common Stock pursuant to restricted stock awards
under the 1989 Plan. These shares contain restrictions on transfer which lapse
in annual 20% increments, with accelerated vesting upon a change of control.
Compensation expense
37
<PAGE> 38
will be recognized over the vesting period for the restricted shares. Upon
termination of employment, any shares which are still restricted shall revert
to the Company.
NOTE 8 SALE OF THE SAN JOSE DIVISION
On October 17, 1994, the Company completed the sale of its San Jose facility to
Sanmina Corporation for a purchase price of approximately $6.4 million in cash
and the assumption of approximately $1.6 million in liabilities. The San Jose
disposition resulted in a year to date loss of $5.1 million which includes a
loss from operations from July 3, 1994 of $423,000. In addition, the Company
identified certain assets to be held for sale. These assets were written down
to net realizable value which resulted in a $400,000 loss.
NOTE 9 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Current Deferred Tax Assets
Inventory and inventory reserves $ 1,120,207 $ 763,039
Asset allowances and liabilities not yet tax deductible 118,038 425,875
Less valuation allowance (1,238,245) (1,188,914)
------------ ------------
Net current deferred tax assets $ - $ -
============ ============
Non-Current Deferred Tax Assets
Net operating loss carry forwards $ 23,140,623 $ 23,299,254
Less valuation allowance (21,889,447) (21,902,459)
------------ ------------
Total non-current deferred tax assets 1,251,176 1,396,795
------------ ------------
Non-Current Deferred Tax Liabilities
Tax in excess of book depreciation and amortization (1,251,176) (1,396,795)
------------ ------------
Total non-current deferred tax liabilities (1,251,176) (1,396,795)
------------ ------------
Net non-current deferred tax liabilities $ - $ -
============ ============
</TABLE>
No income tax expense has been recorded as of December 31, 1995, 1994 and 1993
due to the losses from operations. A valuation allowance has been recorded
equal to the remaining deferred tax assets after considering deferred tax
assets that can be realized through offsets to existing taxable temporary
differences. The tax operating loss carry forwards begin expiring in 2004.
NOTE 10 COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities under operating leases and has other
operating leases for automobiles and office equipment. The future minimum
lease payments under the facilities and automobile leases are as follows (in
thousands):
<TABLE>
<S> <C>
1996 $110
1997 84
1998 66
1999 22
</TABLE>
38
<PAGE> 39
The minimum payments for the office equipment is not material. The Company's
rental expense related to operating leases was approximately $1,242,000 in
1995, $1,764,000 in 1994 and $1,968,000 in 1993.
The Company has an employment agreement with its chief executive officer which
includes a non-compete agreement and provides for severance compensation for
one year if terminated for any reason without cause.
The Company's Bylaws provide for indemnification of its officers and directors
to the extent permitted by Delaware law. Additionally at December 31, 1995,
the Company has a directors and officers liability insurance policy which
provides up to $5.0 million of coverage.
The Company is involved in various legal actions arising in the normal course
of business. After taking into consideration legal counsel's evaluation of
such actions, management is of the opinion that the outcomes will not have a
significant effect on the Company's financial position or results of
operations.
NOTE 11 ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board ("FASB") issued Statements of
Financial Accounting Standards Number 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Adoption of SFAS 121 is required for fiscal years beginning after December 15,
1995. The Company plans to adopt SFAS 121 in the first quarter of 1996 and
does not expect adoption to have a material effect on the Company's financial
position.
In October 1995, the FASB issued Statement No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation". This statement requires new disclosures in the
notes to the financial statements about stock-based compensation plans based on
the fair value of equity instruments granted. Companies also may base the
recognition of compensation cost for instruments issued under stock-based
compensation plans on these fair values. The Company anticipates adopting SFAS
123 in 1996, but currently does not plan to change its method of accounting for
these plans.
NOTE 12 MAJOR CUSTOMERS
The Company provides contract manufacturing services to producers of electronic
equipment in the computer, communication, medical, instrumentation, consumer
and peripherals industries. Accordingly, the ultimate collectibility of a
substantial portion of the Company's receivables are susceptible to changes in
the market conditions in these industries.
Significant concentrations of sales and accounts receivable are summarized
below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------
Accounts Accounts Accounts
Sales Receivable Sales Receivable Sales Receivable
-------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Customer A $ 8,482 $1,046 $13,050 $1,173 $19,510 $1,275
Customer B 14,260 3,074 12,434 4,060 - -
Customer C 7,172 30 7,047 1,653 - -
Customer D 11,305 696 - - - -
Customer E 122 - 11,314 113 18,765 893
</TABLE>
39
<PAGE> 40
The Company generally does not require collateral or other security from its
customers and would incur an accounting loss equal to the carrying value of the
accounts receivable if its customers failed to perform according to the terms
of the credit arrangement.
NOTE 13 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain unaudited quarterly information with
respect to the Company's results of operations for the years 1995 and 1994.
<TABLE>
<CAPTION>
1995 Quarters
----------------------------------------------
1st 2nd 3rd 4th
----------------------------------------------
<S> <C> <C> <C> <C>
Sales $27,503 $22,737 $19,282 $22,689
Gross Profit 2,230 1,262 1,699 1,066
Net Income (Loss) 73 (1,599) (532) (1,581)
Preferred Stock Dividends 234 277 293 272
Net Loss Applicable to Common Shares (161) (1,876) (825) (1,853)
Loss Per Common Share (0.01) (0.14) (0.06) (0.14)
1994 Quarters
----------------------------------------------
1st 2nd 3rd 4th
----------------------------------------------
Sales $30,556 $33,181 $25,612 $30,649
Gross Profit (Loss) 1,040 (1,789) 876 1,977
Net Loss (1,653) (a) (8,776) (a) (3,867) (268)
Preferred Stock Dividends 186 189 190 195
Net Loss Applicable to Common Shares (1,839) (8,965) (4,057) (463)
Loss Per Common Share (0.17) (0.81) (0.36) (0.04)
</TABLE>
(a) Includes loss on sale of San Jose division of $3,500 in the second
quarter and $2,000 in the third quarter.
40
<PAGE> 41
ITEM 9.
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
The Proxy Statement to be issued in connection with the Annual Meeting of
Stockholders to be held on or about June 4, 1996 will contain, under the
captions "Election of Directors," and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934," information required by Item 10 of Form 10-K
and is incorporated herein by reference. Pursuant to General Instruction G(3)
of Form 10-K, certain information concerning executive officers of the Company
is included under the caption "Executive Officers" in Part I of this Form 10-K.
ITEM 11.
EXECUTIVE COMPENSATION
The Proxy Statement to be issued in connection with the Annual Meeting of
Stockholders to be held on or about June 4, 1996 will contain, under the
caption "Executive Compensation," information required by Item 11 of Form 10-K
and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT
The Proxy Statement to be issued in connection with the Annual Meeting of
Stockholders to be held on or about June 4, 1996, will contain, under the
caption "Security Ownership of Management," the information required by Item 12
of Form 10-K and is incorporated herein by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The Proxy Statement to be issued in connection with the Annual Meeting of
Stockholders to be held on or about June 4, 1996 will contain, under the
caption "Certain Transactions," the information required by Item 13 of Form
10-K and is incorporated herein by reference.
41
<PAGE> 42
PART IV
ITEM 14.
EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Financial Statements:
Report of Independent Public Accountants
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for each of the years in the three year period
ended December 31, 1995.
Statements of Stockholders' Equity/(Deficit) for each years in the
three-year period ended December 31, 1995.
Statements of Cash Flows for each of the years in the three year period
ended December 31, 1995.
Notes to Financial Statements
2. Financial Statement Schedule:
Report of Independent Public Accountants (included in report described
in (a) (1) above)
Schedule VIII - Valuation and Qualifying Accounts
3. Management Contracts and Compensatory Plans and Arrangements:
Comptronix Corporation 1985 Employee Incentive Stock Option Plan (included
as Exhibit 10.2 below).
Comptronix Corporation 1989 Employee Stock Incentive Plan, as amended
(included as Exhibit 10.3 below).
Comptronix Corporation Non-Employee Directors' Equity Program (included as
Exhibit 10.4 below).
Comptronix Corporation 1993 Outside Directors' Stock Plan (included as
Exhibit 10.5 below).
Employment Agreement, dated November 1, 1993, between the Company and E.
Townes Duncan (included as Exhibit 10.6 below).
Form of Indemnification Agreement entered into between the Company and each
of its directors and executive officers (included as Exhibit 10.7
below).
4. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.3 of the Company's Registration Statement on Form
S-1, Registration No. 33-27914).
3.2 Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2
of the Company's Registration Statement on Form S-1, Registration No.
33-27914).
3.3 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of the Company. (incorporated by reference
to Exhibit 4.1 of the Company's registration statement on Form S-1,
Registration No. 33-71834).
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C>
4.1 Form of Indenture relating to 6 3/4% Convertible Subordinated Debentures
Due 2002 including Form of Debenture (incorporated by reference to
Exhibit 4.4 of the Company's Registration Statement on Form S-1,
Registration No. 33-45843).
4.2 Supplemental Indenture, dated December 17, 1993, between the Company and
NationsBank of Georgia, National Association (incorporated by reference
to Exhibit 4.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
10.1 Trust Indenture, Transfer, Assignment and Pledge Agreement and Security
Agreement, dated as of November 1, 1987 between the Industrial
Development Board of the City of Guntersville, Alabama and First
American National Bank of Nashville, as Trustee and related documents
(incorporated by reference to Exhibit 10.10 of the Company's
Registration Statement on Form S-1, Registration No. 33-27914).
10.2 Comptronix Corporation 1985 Employee Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.15 of the Company's
Registration Statement on Form S-1, Registration No. 33-27914).
10.3 Comptronix Corporation 1989 Employee Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 10.16 of the Company's
Registration Statement on Form S-1, Registration No. 33-27914 and the
Company's Proxy Statement dated May 2, 1994 for the Annual Meeting of
Stockholders held on June 7, 1994).
10.4 Comptronix Corporation Non-Employee Directors' Equity Program
(incorporated by reference to the Company's Proxy Statement dated March
30, 1992 for the Annual Meeting of Stockholders held on April 24, 1992).
10.5 Comptronix Corporation 1993 Outside Directors' Stock Plan (incorporated
by reference to the Company's Proxy Statement dated May 2, 1994 for the
Annual Meeting of Stockholders held on June 7, 1994).
10.6 Employment Agreement, dated November 1, 1993, between the Company and E.
Townes Duncan (incorporated by reference to Exhibit 10.5 of the
Company's Registration Statement on Form S-1, Registration No.
33-71834).
10.7 Form of Indemnification Agreement entered into between the Company and
each of its directors and executive officers (incorporated by reference
to Exhibit 10.23 of the Company's Registration Statement on Form S-1,
Registration No. 33-27914).
10.8 Second Amended and Restated Loan Agreement, dated November 22, 1993,
among SouthTrust Bank of Alabama, National Association, First American
National Bank, Compass Bank F/K/A Central Bank of the South, First Union
Bank of Tennessee F/K/A Dominion Bank of Middle Tennessee and related
documents (incorporated by reference to Exhibit 10.9 of the Company's
Registration Statement on Form S-1, Registration No. 33-71834).
10.9 Stock Purchase Warrant, dated May 7, 1993, by and between the Company
and How & Co. (nominee for Xerox Financial Services Life Insurance
Company) (incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended April 4, 1993).
</TABLE>
43
<PAGE> 44
10.10 Amendment to Stock Purchase Warrant, dated October 14, 1994, by and
between the Company and How & Co. (nominee for Xerox Financial Services
Life Insurance Company) (incorporated by reference to Exhibit 10.14 of
the Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.11 Stock Purchase Warrant, dated May 7, 1993, by and between the Company
and TNB Stock Company F/A/O Texas Life Insurance Company (incorporated
by reference to Exhibit 10.3 of the Company's Quarterly Report on Form
10-Q for the quarter ended April 4, 1993).
10.12 Amendment to Stock Purchase Warrant, dated October 14, 1994, by and
between the Company and TNB Stock Company F/A/O Texas Life Insurance
Company (incorporated by reference to Exhibit 10.16 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.13 Mortgage and Indenture of Trust, Lease Agreement, Guaranty, Pledge
Agreement and related documents, dated as of February 1, 1993 between
the Industrial Development Board of the City of Guntersville, Alabama
and SouthTrust Bank of Alabama, National Association, as Trustee,
(incorporated by reference to Exhibit 10.15 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992).
10.14 Stipulation of Settlement, dated August 27, 1993, between Plaintiffs and
Defendants the Company, Duncan, Ritch, Kimsey, Adler and Tillett
(incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended October 3, 1993).
10.15 Financing Agreement, dated November 22, 1993, by and between The CIT
Group/Business Credit, Inc. and the Company, as amended (incorporated by
reference to Exhibit 10.21 of the Company's Registration Statement in
Form S-1, Registration No. 33-71834, Exhibit 10 of the Company's
Quarterly Reports on Form 10-Q for each of the quarters ended July 3,
1994 and October 2, 1994 and Exhibit 99 of the Company's Current Report
on Form 8-K, dated December 8, 1994).
10.16 Waiver and Amendment Letter, dated March 4, 1996, by and between the
Company and The CIT Group/Business Credit, Inc.
10.17 Warrant to Purchase Shares of Common Stock of the Company, dated
November 22, 1993, by and between The CIT Group/Business Credit, Inc.
and the Company (incorporated by reference to Exhibit 10.22 of the
Company's Registration Statement on Form S-1, Registration No. 33-71834)
10.18 Registration Agreement, dated as of March 28,1994, by and between the
Company and The CIT Group/Business Credit, Inc. (incorporated by
reference to Exhibit 10.23 of the Company's Registration Statement in
Form S-1, Registration No. 33-71834)
10.19 Shelter Plan Service Agreement, dated December 11, 1995, by and between
the Company and Offshore International, Inc.
23 Consent of Arthur Andersen LLP.
24 Power of Attorney (included in page 45).
27 Financial Data Schedule (for SEC use only).
(b) No current Reports on Form 8-K were filed by the Company during the year
ended December 31, 1995.
44
<PAGE> 45
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.
COMPTRONIX CORPORATION
By: /s/ E. Townes Duncan
--------------------------
E. Townes Duncan
Chairman of the Board and
Chief Executive Officer
Dated: April 1, 1996
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints E. Townes Duncan and Joseph G. Andersen,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ E. Townes Duncan Chairman of the Board and April 1, 1996
- ---------------------- Chief Executive Officer
E. Townes Duncan (Principal Executive Officer)
/s/ Joseph G. Andersen Vice President, Chief Financial Officer April 1, 1996
- ---------------------- and Secretary
Joseph G. Andersen (Principal Financial and Accounting
Officer)
/s/ Lonnie J. Stout II Director April 1, 1996
- ----------------------
Lonnie J. Stout II
/s/ Richard W. Oliver Director April 1, 1996
- ----------------------
Richard W. Oliver
/s/ J C. Bowling Director April 1, 1996
- ----------------------
J C. Bowling
/s/ Howard Graham Director April 1, 1996
- ----------------------
Howard Graham
</TABLE>
45
<PAGE> 46
SCHEDULE VIII
COMPTRONIX CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANTS
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
Balance at the Additions Charged
Beginning of the to Costs and Bad Debt Write Balance
Description Period Expenses Offs End of Period
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the year ended
December 31, 1993
- -Allowance for bad
debt reserve $608 $ 238 $(315) $531
For the year ended
December 31, 1994
- -Allowance for bad
debt reserve $531 $ 452 $(232) $751
For the year ended
December 31, 1995
- -Allowance for bad
debt reserve $751 $(384) $(202) $165
</TABLE>
46
<PAGE> 1
EXHIBIT 10.16
WAIVER AND AMENDMENT LETTER
March 4, 1996
Comptronix Corporation
1800 Comptronix Drive
Guntersville, AL 35976
Gentlemen:
We refer to the Financing Agreement between us dated November 22, 1993 as
amended (the "Financing Agreement"). Capitalized terms used herein and defined
in the Financing Agreement shall have the same meanings as specified therein
unless otherwise specifically defined herein.
You have advised us that you are in violation of the financial covenants set
forth in Section 7, Paragraph 16 (Fixed Charge Coverage Ratio) of the Financing
Agreement for the fiscal period ending December 31, 1995.
This letter is to confirm our agreement that, solely with respect to said
fiscal period, the foregoing violations and/or breaches of the Financing
Agreement shall not be deemed to be Defaults and/or Events of Default under the
Financing Agreement. On and after the date hereof you shall be in compliance
with all of the terms and provisions of the Financing Agreement (including,
without limitation, the financial covenants referred to above) as amended
hereby.
In addition, effective immediately, the Financing Agreement shall be, and
hereby is, amended as follows:
(1) the Fixed Charge Coverage Ratio covenant contained in Paragraph 16 of
Section 7 of the Financing Agreement shall be, and hereby is, amended in
its entirety to read as follows:
"16.(a) The Company shall have on the last day of the applicable fiscal
periods below a Fixed Charge Coverage Ratio of not less than:
<PAGE> 2
<TABLE>
<CAPTION>
Fiscal Period Ratio
------------- -----
<S> <C>
"For the twelve (12) months ending
December 31, 1996 1.0 to 1
For the twelve (12) months ending
March 31, 1997 and for the twelve (12)
months ending on each fiscal quarter end
thereafter 1.25 to 1"
</TABLE>
(b) The Company shall achieve an EBITDA of at least the amount specified
below for the applicable period:
<TABLE>
<CAPTION>
Fiscal Period EBITDA
------------- ------
<S> <C>
Three (3) months ending March 31, 1996 $ 500,000
Six (6) months ending June 30, 1996 $2,000,000
Nine (9) months ending September 30, 1996 $4,000,000
</TABLE>
"EBITDA" shall mean, in any period, all earning of the Company before all
extraordinary charges or extraordinary income and before all depreciation,
amortization of intangibles, interest and tax obligations of the Company
for said period, determined in accordance with GAAP.
(2) the definition of "Early Termination Date" shall be, and hereby is, amended
by deleting the phrase "the third or any Anniversary Date subsequent to the
third Anniversary Date" therefrom and inserting the following in lieu
thereof:
"the fifth or any Anniversary Date subsequent to the fifth Anniversary
Date"
(3) the definition of "Early Termination Fee" shall be, and hereby is, amended
by deleting the phrase "the third or the next subsequent Anniversary Date"
therefrom and inserting the following in lieu thereof:
"the fifth or the next subsequent Anniversary Date"
(4) we will within the Line of Credit and so long as no Default or Event of
Default has occurred under the Financing Agreement, at your request and as
an accommodation to you, during the period from the date hereof through
March 31, 1996, make available to you loans and advances in excess of the
maximum available amount to you as computed pursuant to Section 3 ,
Paragraph 1 of the Financing Agreement (herein the "Overadvance Facility"),
provided, that:
(a) the aggregate amount of such Overadvance Facility shall not exceed
$2,000,000 (as reduced pursuant hereto) at any time;
(b) such Overadvance Facility shall be reduced as follows:
<TABLE>
<CAPTION>
Maximum
Date of Amount of Overadvance
Reduction Reduction Amount
--------- --------- ------
<S> <C> <C>
March 12, 1996 $500,000 $1,500,000
March 19, 1996 $500,000 $1,000,000
March 26, 1996 $500,000 $ 500,000
</TABLE>
<PAGE> 3
(c) such Overadvance Facility shall be reduced to zero and repaid in full
on March 31, 1996, and
(d) such Overadvance Facility shall (i) be made subject to, and in
accordance with, all of the terms, provisions and conditions of the
Financing Agreement, (ii) bear interest at the rate set forth in Section 8,
Paragraph 1 of the Financing Agreement, and (iii) constitute Obligations
under the Financing Agreement and be secured by all liens upon, and
security interest in, all Collateral under the Financing Agreement and any
other of your assets or property now or hereafter subject to a lien or
security interest in our favor or for our benefit.
(5) You have advised us that you intend to move certain Equipment which is more
fully described on Exhibit A hereto to your new plant in Guaymas, Sonora,
Mexico (herein the "Specific Equipment"). This letter is to confirm (a) our
consent to your moving the Specific Equipment and (b) our agreement that
the foregoing action solely as it relates to the Specific Equipment shall
not constitute a Default or Event of Default under the Financing Agreement.
In consideration of (i) our execution of this Waiver and Amendment Letter and
(ii) the preparation of this agreement by our-in-house legal department you
agree to pay to us an Accommodation/Documentation Fee of $125,000. Such fee
may, at our option, be charged to your Revolving Loan Account on the specific
due dates thereof and shall be due to payable as follows: (i) $75,000 on the
date hereof; (ii) $25,000 on April 1, 1996; and (iii) $25,000 on May 1, 1996.
Any unpaid installment of such fee shall be immediately due and payable upon
any termination of the Financing Agreement.
Except to the extent set forth herein, no other waiver of, or change in any of
the terms, provisions or conditions of the Financing Agreement is intended or
implied. This agreement shall not constitute a waiver of any other existing
Defaults or Events of Default under the Financing Agreement (whether or not we
have knowledge thereof), and shall not constitute a waiver of any future
Defaults or Events of Default whatsoever.
If the foregoing is in accordance with your understanding of our agreement,
kindly so indicate by signing and returning the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC.
By: /s/ M. H. Hampton
---------------------------
Title: Assistant Vice President
Read and Agreed to:
COMPTRONIX CORPORATION
By: /s/ Joseph G. Andersen
---------------------------
Title: Chief Financial Officer
<PAGE> 4
EXHIBIT A
<TABLE>
<CAPTION>
Equipment Located in Guntersville
Estimated
Model Description Asset No. Book Value Auction Value
<S> <C> <C> <C> <C>
Universal Dek Printer #265 6647-600 $ 98,521.08 $50,000.00
Fuji GL II Adhesive Dispensing Module 6611-600 $ 48,418.95 $20,000.00
Universal Sanyo 4785A Chip Placer 6526-600 $156,993.96 $55,000.00
Universal Omni Integrated Circuit Placer 2943-600 $ 0.00 $30,000.00
Universal Board Loader with Conveyor 5717-600 $ 15,262.74 $ 6,000.00
Universal Sanyo Slide Conveyor 5709-600 $ 4,207.17 $ 1,000.00
Universal Sanyo 44" Slide Conveyor w/Lights 6685-600 $ 5,627.20 $ 1,000.00
Equipment Located in Tucson
Estimated
Model Description Asset No. Book Value Book Value
Vitronics SMD #722 IR Oven 3680-600 $ 14,578.18 $ 5,000.00
Smart Sonic Stencil Cleaner #3000 6649-600 $ 17,819.77 $ 5,000.00
Hot Shot SMT Rework Station #4460 6008-600 $ 11,132.88 $ 1,000.00
Hot Shot SMT Rework Station #4460 6008-601 $ 375.15 $ 0.00
Shelf Stencil Rocks 6514-600 $ 358.94 $ 0.00
Total Surface Mount Line 1 $373,296.02 $174,000.00
</TABLE>
<PAGE> 1
EXHIBIT 10.19
SHELTER PLAN
SERVICE AGREEMENT
This AGREEMENT is entered into November, 1995, by and between
Comptronix Corporation, a corporation organized and existing under the laws of
the State of Delaware, having corporate offices in Brentwood, Tennessee,
hereinafter referred to as CLIENT, and OFFSHORE INTERNATIONAL, INC., a
corporation organized and existing under the laws of the State of Arizona,
hereinafter referred to as OFFSHORE.
RECITALS:
OFFSHORE has an existing established contractual relationships with
Maquilas Teta Kawi S.A. de C.V., a Mexican corporation, for the furnishing of
manufacturing space, labor, and services in Guaymas/Empalme, Sonora, Mexico,
and has sufficient receiving warehouse space in Tucson, Arizona, for
consolidation of shipments.
CLIENT is desirous of using OFFSHORE'S services in connection with the
manufacture of CLIENT'S products, all on the terms and conditions set forth
herein.
AGREEMENTS:
ARTICLE I - MANUFACTURING AND WAREHOUSE SPACE
A. Within ten (10) days after the execution of this agreement,
CLIENT will deliver to OFFSHORE a complete list of CLIENT'S requirements for
the Mexican Facility and all other requirements for CLIENT'S manufacturing
operation. OFFSHORE will undertake the necessary steps to provide facilities
in Mexico and the United States that meet CLIENT'S
<PAGE> 2
requirements, and will provide all necessary coordination between the Mexican
contractors and CLIENT.
B. CLIENT will provide OFFSHORE a written description of all
CLIENT'S equipment to be used in its manufacturing process in Mexico, together
with an explanation of all electrical requirements, not later than 30 days
prior to the date scheduled for installation of electrical utilities at the
Mexican Facility, as agreed to by the parties.
C. OFFSHORE will make available to CLIENT, for its use in
carrying out the manufacturing process in Mexico pursuant to this Agreement, a
Mexican Facility that consists of approximately 30,000 square feet of
manufacturing space for a period of twelve (12) months commencing November 1,
1995. In addition, OFFSHORE agrees to make available to CLIENT dock space that
is sufficient for CLIENT'S receiving and shipping requirements. A compressor
room, a chemical room, and a trash area are included in the manufacturing
facility. A portion of the patio associated with the CLIENT'S space will be
part of the CLIENT'S facility.
D. OFFSHORE will provide an office for the CLIENT'S on-site
manager within the Manufacturing Facility.
E. Thirty (30) days prior to the scheduled date for commencement
of its operations at the Mexican Facility pursuant to this Agreement, CLIENT
may install in the Manufacturing Facility, its tools, machines, other equipment
that is necessary or appropriate for its manufacturing process, and may stock
the material, parts, and other property required in CLIENT'S manufacturing
operations.
<PAGE> 3
F. OFFSHORE will also make available for CLIENT up to 1,000
square feet of shipping and receiving space at a facility in Tucson, Arizona.
Additional warehouse space or office space may be negotiated separately.
OFFSHORE shall make available to CLIENT warehouse personnel in Tucson at the
rate of $15.00/hr. CLIENT shall be billed for this service per article VI.
G. OFFSHORE will make available to CLIENT on or before the
Contract Start Date approximately 3,000 square feet of office space within
OFFSHORE'S Tucson facility located at 777 E. MacArthur Circle, Suite 1. Said
space shall be provided on a year-to-year basis. The rental charge for the
first 12 months shall be based on a rate of $.55 US per square foot per month.
In addition, CLIENT shall pay an additional $180.00 per month as its pro rata
share for the rental of the office "common areas including the lobby,
conference room, bathrooms and cafeteria. The rental charge includes utilities,
building common area charges and janitorial. All costs associated with the
"move in" including phone systems will be the responsibility of CLIENT.
H. OFFSHORE will make available to CLIENT on or before the
Contract Start Date approximately 7,000 square feet of warehouse space within
OFFSHORE'S Tucson facility located at 777 E. MacArthur Circle, Suite #5. Said
space shall be provided on a year-to-year basis. The rental charge for the
first 12 months shall be based on a rate of $.37 US per square foot per month.
The rental charge includes utilities and common area charges.
I. OFFSHORE will provide fire, casualty and such other insurance
that it deems necessary or appropriate for the building that will be the site
of CLIENT'S manufacturing operations in Mexico (the "Mexican Facility"). CLIENT
will obtain and maintain any and all
3
<PAGE> 4
insurance that it deems necessary or appropriate for its material and
equipment, whether located in the Mexican Facility or elsewhere. Upon CLIENT'S
written request, OFFSHORE will acquire, through qualified brokers and at
CLIENT'S expense, Mexican insurance covering CLIENT'S material and equipment.
ARTICLE II - SERVICES, REPAIR AND MAINTENANCE
A. In addition to the foregoing, OFFSHORE agrees that the
following items will be provided at the Mexican Facility during the term of
this Agreement:
Lighting; electric power for light assembly equipment, power
tools, machines, and appliances; toilet rooms; water and
adequate supplies for toilet rooms; heating and cooling as
appropriate.
B. OFFSHORE will furnish one (1) private telephone line and two
(2) extensions in the Mexican Facility. CLIENT agrees to reimburse OFFSHORE
its actual cost for any additional private lines installed at CLIENT'S request.
C. OFFSHORE will keep the Mexican Facility in good repair at all
times, it being expressly understood and agreed that all maintenance and
repairs of the premises will be the responsibility of OFFSHORE. However, the
cleaning of the production area within the Mexican Facility will be the
responsibility of CLIENT.
4
<PAGE> 5
ARTICLE III - LABOR
A. OFFSHORE agrees to provide for CLIENT'S screening, acceptance,
and training, the personnel necessary to conduct CLIENT'S manufacturing
operations under this Agreement.
B. CLIENT will have the right to select from the potential
workers provided by OFFSHORE, those who meet CLIENT'S minimum requirements. The
labor force will include production line workers, material handlers, group
leaders, and inspectors. In addition to the foregoing labor force, which will
be paid on an hourly basis, OFFSHORE will provide CLIENT with a pool of workers
from whom CLIENT can select such salaried personnel as CLIENT may deem
necessary for the better implementation of this Agreement.
Once CLIENT has accepted the workers, hourly or salaried, furnished by
OFFSHORE, CLIENT will have full authority and responsibility to train,
supervise, retain, and dismiss these workers. CLIENT represents, warrants and
agrees that CLIENT has sole responsibility and authority for assuring that the
manufacturing process and the products manufactured meet CLIENT'S standards for
product quality.
C. Since the workload hereunder may not be at a continuous and
steady rate, it may become necessary from time to time to fluctuate the total
work force utilized in CLIENT'S operations at the Mexican Facility.
Accordingly, OFFSHORE agrees to use its best efforts to assist the CLIENT, when
requested by CLIENT, in reducing the work force in order to minimize the labor
charges to CLIENT hereunder.
D. The labor rates paid by OFFSHORE to the Mexican workers are
based on Mexican Labor Laws (as described in Exhibit "A" attached hereto) and
include Social
5
<PAGE> 6
Security, taxes, and all other benefits prescribed by Mexican Law. It is agreed
that any increase in such wage caused by an act of the Government of Mexico, or
by direction of the CLIENT, will be paid by CLIENT to OFFSHORE.
E. OFFSHORE warrants that in providing CLIENT with personnel for
the performance of this Agreement, it will in all respects conform to the laws,
rules, regulations, and orders of appropriate Mexican governmental authorities.
ARTICLE IV - SHIPPING, CUSTOMS AND PERMITS
A. United States' Customs and Duties: CLIENT will retain title to
all of its materials, products, machinery, and equipment used in connection
with its operations hereunder. Therefore, for U.S. Customs purposes, CLIENT
will be the importer and exporter of record and will be responsible for all
U.S. tariffs, duties, bonds, and U.S. Customs broker's charges.
B. Mexican Customs and Duties: OFFSHORE will assist CLIENT in
arranging with Mexican officials the passage of CLIENT'S goods and equipment to
and from Mexico. CLIENT understands and agrees that, in order for OFFSHORE to
be able to fulfill its obligations under this subparagraph, CLIENT must supply
OFFSHORE, on a timely basis, with all pertinent information, including, without
limitation, complete descriptions, make, model and serial numbers, weights,
costs, and country of origin, in order for OFFSHORE to process the shipments
and obtain the necessary permits on behalf of CLIENT. CLIENT will pay,
promptly when due, all Mexican Customs tariffs, duties, bonds, and Mexican
Customs broker's charges. CLIENT hereby acknowledges that it takes
approximately thirty (30) days
6
<PAGE> 7
to obtain the initial Mexican permits once the application process is
commenced. Special permits needed to meet CLIENT'S specific requirements may
take a longer period of time.
C. Administrative Services: OFFSHORE will provide necessary
administrative services to effect shipment of material to and from
Guaymas/Empalme, Sonora, Mexico.
D. Reimbursable Expenses: All freight charges, customs and
brokerage fees, tariffs, duties, other payments to the government of Mexico,
and other costs and expenses incurred by OFFSHORE in the performance of its
duties under this Agreement, are incurred for the account of CLIENT. CLIENT
will reimburse OFFSHORE for all amounts so paid for its account in accordance
with Article VI, subparagraph A.
ARTICLE V - FEES AND COSTS
A. CLIENT agrees to pay the following fees during the term of
this Agreement.
(i) Facilities Fee. A fee (the "Facilities Fee") of
$.42/sq. ft. for each month of CLIENT'S use of the Mexican Facility. The
Facilities Fee will be due and payable in weekly installments.
[(ii) Intentionally omitted.]
(ii) Shelter Plan Fee. CLIENT agrees to pay OFFSHORE a
weekly fee for its services hereunder (the "Shelter Plan Fee"), which will be
comprised of the following two components:
(1) The Non-Salaried Worker Component will be
calculated by multiplying 1) the number of actual hours worked during the week
by CLIENT in its manufacturing process, by 2) the applicable hourly rate set
forth in the following schedule.
7
<PAGE> 8
Offshore Shelter Plan Fee Schedule
per Worker Hour*
Start-up Phase:
January 2, 1996 - April 26, 1996
<TABLE>
<CAPTION>
MONTH SHELTER RATE MINIMUM BILLING
---------------------------------------------------------------------------------------
<S> <C> <C>
January $1.37 per hour $5,000 per month/$1154 per week
(approx 18 direct average per month)
February-April $1.37 per hour $10,000 per month/$2308 per week
(approx 36 direct average per month)
</TABLE>
May 1996, the following contract prices will be in effect, with a
$10,000 minimum per month/ $2308 per week (approx 33 direct average
per month)
<TABLE>
<CAPTION>
No of Employees Shelter Plan Fee
--------------------------------------------
<S> <C>
1-100 $1.50 per hour
101-200 $1.37 per hour
201-300 $1.17 per hour
301-400 $1.02 per hour
401-500 $0.82 per hour
501-750 $0.77 per hour
751-1000 $0.67 per hour
</TABLE>
(2) The Salaried Worker Component will be calculated at the
rate of $___0___ per salaried worker per month.
*CLIENT agrees that the rate to be used to determine weekly Shelter Plan
Fee will be the rate applicable to the highest number of non-salaried workers
employed in connection with the manufacture of CLIENT'S products during any
single day of the week for which payment is being calculated.
8
<PAGE> 9
B. Reimbursable Costs. CLIENT further agrees to reimburse
OFFSHORE for the following costs and charges incurred by OFFSHORE in connection
with this Agreement in accordance with the procedures described in Article VI
hereof:
(i) All payments made by OFFSHORE, for CLIENT'S account,
to all workers utilized by CLIENT for the performance of this Agreement. CLIENT
understands and agrees that the payments to workers will be comprised of wages
and fringe benefits. An example of the composition of the wages and fringe
benefits is set forth on Exhibit "A" attached hereto, which uses the May 1995
entry level wage. The actual amount of wages and fringe benefits (the "Weekly
Compensation Amount") will be computed weekly, and the corresponding amount to
be reimbursed to OFFSHORE will be based on the U.S. dollar-Mexican peso
exchange rate at which OFFSHORE purchased pesos from a reputable financial
institution for the applicable week.
CLIENT further agrees to reimburse OFFSHORE for any overtime hours
authorized by CLIENT at the overtime premium paid by OFFSHORE for CLIENT'S
account. Overtime payments will be calculated by the sum of (1) the applicable
Shelter Plan Fee, and (2) the wages and fringe benefits multiplied by 2 for
double time (or multiplied by 3 for triple time).
Double time Example for the 201-300 worker range:
$1.17 + .748 + .748 = $2.666
Triple time Example for the 201-300 worker range:
$1.17 + .748 + .748 = $3.414
(ii) All costs incurred by OFFSHORE in connection with
services provided at CLIENT'S written request that are not otherwise referred
to herein. CLIENT'S request for
9
<PAGE> 10
additional services must be made in writing on CLIENT'S "Purchase Requisition"
form and must be signed by CLIENT'S representative.
(iii) The cost of electrical power consumed by CLIENT in
the Mexican facility. OFFSHORE (at CLIENT'S cost) shall coordinate the
installation of an electrical meter for the facility.
(iv) All other payments made by OFFSHORE, for CLIENT'S
account, in the performance of this Agreement.
C. Worker Termination Costs. CLIENT will have the sole
responsibility to pay any and all costs associated with the severance or
termination of any and all workers, including production line workers, material
handlers, group leaders and inspectors, supervisory workers, monthly salaried
administrative, technical workers and confidential workers hired at the request
of the CLIENT. CLIENT will reimburse OFFSHORE for any and all costs that
OFFSHORE incurs in connection with the severance or termination of any workers.
D. Unless otherwise specifically stated herein, all monetary
units referred to herein are U.S Dollars. All amounts payable to OFFSHORE
hereunder are to be paid in U.S. Dollars.
10
<PAGE> 11
ARTICLE VI - INVOICES AND PAYMENT
A. OFFSHORE will submit invoices for amounts that it is owed
under this Agreement to CLIENT on a weekly basis.
B. Each invoice will contain the following information:
(i) The total number of basic, non-overtime hours worked
during the relevant week;
(ii) The total overtime hours and the associated overtime
premium cost; and
(iii) A summary of costs incurred by OFFSHORE for the
CLIENT'S account pursuant hereto, including, but not limited to, a) freight for
moving CLIENT'S materials, equipment, and finished products across the border;
b) Mexican brokerage charger; and c) supplies.
C. Each invoice will be accompanied by paid receipts or third
party invoices for costs incurred by OFFSHORE for CLIENT'S account pursuant to
this Agreement and for which OFFSHORE is seeking reimbursement. Additionally,
with respect to costs incurred by OFFSHORE in Mexico (other than freight and
customs charges), the invoice will be accompanied by a document signed by
CLIENT'S on-site representative, whose signature will conclusively signify the
accuracy of (i) the number of basic and overtime hours worked during the
relevant work week, (ii) the number of salaried and non-salaried workers
utilized during the relevant period, and (iii) the costs incurred in Mexico
(other than freight and customs charges) for which reimbursement is sought in
the invoice. The approval of such Mexican costs, as evidenced by the signature
of CLIENT'S on-site representative, will constitute the
11
<PAGE> 12
binding agreement of CLIENT to reimburse OFFSHORE for the such approved Mexican
costs.
D. CLIENT hereby agrees to pay OFFSHORE the amount of each such
invoice within 10 days after the date of such invoice. If any portion of the
invoice is disputed by CLIENT, CLIENT agrees that it will pay the undisputed
portion of the invoice as if there were no such dispute about the remainder of
the invoiced amount.
ARTICLE VII - TERM AND TERMINATION
A. The term of this Agreement is for a period of one (1) year
commencing on the Contract Start Date.
B. This Agreement may be terminated by CLIENT at any time during
the first year of the term of this Agreement by giving OFFSHORE ninety (90)
days written notice of its intention to terminate. At the time of giving such
notice, CLIENT will pay OFFSHORE a termination fee equal to the immediately
preceding 90-day billing for the Shelter Plan Fee and the Facilities Fee under
Article V hereof. The parties agree that OFFSHORE will suffer damages as a
result of CLIENT'S early termination of this Agreement, and that such damages
will be difficult to accurately quantify. The termination fee is intended to
approximate the damages to be suffered by OFFSHORE as a result of such
termination and not as a penalty.
12
<PAGE> 13
ARTICLE VIII - OPTION TO RENEW
A. As long as there has not theretofore occurred an event of
default hereunder, CLIENT may renew this Agreement for four separate,
additional periods of one (1) year each. CLIENT may exercise its right to renew
this Agreement for the next succeeding year by giving OFFSHORE written notice
of its intention no fewer than one hundred twenty (120) days prior to the then
scheduled expiration of the Agreement.
B. Within ten (10) business days after receipt of CLIENT'S notice
of its intention to renew this Agreement, OFFSHORE will notify CLIENT of the
Shelter Plan Fee that will be applicable during the renewal term. The increase
will be determined in accordance with the procedure set forth herein and will
equal the percentage increase, if any, in the cost of living for the preceding
year based upon the United Sates Consumer Price Index - All Items - U.S. City
Average, All Urban Consumers issued by the Bureau of Labor Statistics of the
United States Department of Labor (the base year and price for said Index in
1967 equals 100). In the event the Index ceases to be published, the most
comparable substitute shall be used thereafter as selected by the mutual
agreement of the parties.
C. This Agreement may not be terminated by CLIENT during any
renewal term of this Agreement without the consent of OFFSHORE.
13
<PAGE> 14
ARTICLE IX - INDEMNIFICATION
CLIENT hereby indemnifies, and agrees to protect, defend and hold
OFFSHORE harmless against all demands, obligations, claims, costs, expenses,
judgments, awards and liabilities of any nature, claimed or asserted by any
person, and against all losses in any way suffered, incurred, or paid or that
may be suffered, incurred, or paid by OFFSHORE as a result of, or in any way
arising out of, or consequential to (i) the design, manufacture, use, delivery,
consumption, or integration into other products of any of CLIENT'S products,
whether such demands, obligations, claims, liabilities, or losses arise in the
context of products liability or otherwise, or (ii) other than whatever may be
caused by OFFSHORE'S gross negligence or willful misconduct, any injury to, or
death by any person or loss or damage to property on or about the Mexican
Facility.
ARTICLE X - LAWS, RULES AND REGULATIONS
OFFSHORE agrees to comply, and warrants that it will exert its best
efforts to cause its subcontractors to comply, with all of the laws, rules, and
regulations of governmental authorities of Mexico.
ARTICLE XI - APPLICABLE LAW
This Agreement will be interpreted and construed in accordance with,
and will be governed by, the laws of the State of Arizona.
14
<PAGE> 15
ARTICLE XII - OWNERSHIP, BAILMENT
All right, title, and interest to materials, products, machinery,
tools and equipment used in connection with CLIENT'S manufacturing process at
the Mexican Facility will remain at all times the property of CLIENT. If and to
the extent that OFFSHORE takes possession of any such materials, products,
machinery, tools, or equipment, it does so as bailee on behalf of CLIENT. At no
time will OFFSHORE be deemed to have any ownership interest in such property.
ARTICLE XIII - SUBCONTRACT
Without in any way relieving it of any obligation or duty otherwise
undertaken hereunder, OFFSHORE will have the right to enter into a subcontract
with Maquilas Teta Kawi S.A. de C.V., a Mexican corporation, to provide
services hereunder in Mexico.
ARTICLE XIV - CONFIDENTIAL INFORMATION
The parties acknowledge and agree that the performance of this
Agreement by either of them, or of any subcontractor of either of them, will
not entail the disclosure, whether voluntary or involuntary, by either party to
the other of any trade secrets or any proprietary or confidential information.
In the event that at any time during the term of this Agreement either party
proposes to disclose to the other party, or to utilize in connection with its
operations under this Agreement, any such trade secret or proprietary or
confidential information, the disclosing party will promptly notify the other
party prior to making such disclosure or utilization. The parties agree that,
promptly after the receipt of such notice, they
15
<PAGE> 16
will negotiate an amendment hereto providing for safeguarding such trade secret
or proprietary or confidential information.
ARTICLE XV - ARBITRATION
Any controversy arising between the parties or any person claiming
under either of them relating to this Agreement or the performance or breach of
any provisions hereof will be settled by arbitration in Pima County, Arizona,
in accordance with the governing rules of the American Arbitration Association;
provided, however, the parties will be entitled to pursue all the discovery
that would be available to them under, and in accordance with the rules,
applicable to actions in the Superior Court of Pima County, Arizona.
Each party will be entitled to, and promptly after receipt of notice
of the filing of an arbitration claim, will appoint a person to act as
arbitrator from a panel of qualified arbitrators of the American Arbitration
Association. The two selected arbitrators will promptly appoint a third
arbitrator.
Judgment may be entered by any court of competent jurisdiction upon
any award or decree made by the arbitrators. The prevailing party in any such
matter will be entitled to recover its costs and expenses, including attorneys'
fees, from the non-prevailing party.
Nothing contained in this Article XVI will limit the right of any
party to exercise self help remedies or to obtain any provisional or ancillary
remedies, including, but not limited to, injunctive relief or appointment of a
receiver, from a court of competent jurisdiction.
16
<PAGE> 17
ARTICLE XVI - TIMING; SECURITY
A. Time is of the essence hereof of this Agreement.
B. CLIENT hereby agrees to deposit with OFFSHORE at the time of
execution of this Agreement the amount of $12,000.00 (the "Security Deposit"),
which OFFSHORE may use, from time to time and in OFFSHORE'S sole discretion, to
pay amounts to be reimbursed by CLIENT hereunder. CLIENT is not hereby relieved
of the responsibility to pay all reimbursable costs when requested by OFFSHORE
in accordance with this Agreement. Any amount so reimbursed after OFFSHORE has
used the Security Deposit to pay such reimbursable cost, will be used by
OFFSHORE to replenish the Security Deposit. OFFSHORE may intermingle the
Security Deposit with its own funds and it not required to pay interest
thereon. As long as no Event of Default, then exists hereunder, OFFSHORE will
release the Security Deposit to CLIENT at the termination of this Agreement.
ARTICLE XVII - DEFAULTS AND REMEDIES
If CLIENT fails to pay or perform its duties in strict compliance with
this Agreement, such failure by CLIENT will, at OFFSHORE'S sole discretion and
without notice, be considered to be an Event of Default hereunder. Upon the
occurrence of an Event of Default, OFFSHORE, as secured party shall have such
rights and remedies as provided under the Uniform Commercial Code as adopted in
the State of Arizona, and shall be entitled to exercise a right of offset.
CLIENT expressly agrees that OFFSHORE may pursue its remedies in person or
through its agents, including, without limitation, Maquilas Teta Kawi S.A. de
C.V., a Mexican corporation. No failure or delay on the part of OFFSHORE to
exercise any such
17
<PAGE> 18
right, power or remedy and no notice or demand which may be given to or made
upon CLIENT by OFFSHORE with respect to any such remedies shall operate as a
waiver thereof, or limit or impair OFFSHORE'S right to take any action or to
exercise any power or remedy hereunder, without notice or demand, or prejudice
its rights as against CLIENT in any respect.
ARTICLE XVIII - SALES AND BUSINESS REFERRALS
It is recognized by both parties that CLIENT'S primary business in
Contract Manufacturing services is the assembly and test of electronic products
including printed circuit board assemblies and other functional assemblies for
OEM customers.
Similarly, both parties understand that OFFSHORE and it's NAMCO
affiliate provides Contract Manufacturing Services in mechanical, molded, and
electrical piece parts including cables and harnesses, but not printed circuit
board assemblies.
It is agreed that either party may discover and direct sales leads to
the other party for their mutual benefit. CLIENT, at its option, may act as
the prime contractor, and if mutually beneficial to both parties and CLIENT'S
customers, utilize NAMCO for various piece part sub-contract services.
Similarly, OFFSHORE and NAMCO may direct its customers and sales leads
where possible, to utilize CLIENT'S Empalme or USA services.
CLIENT will develop a Sales Commission/Finders Fee Agreement with
OFFSHORE Sales Representatives firms, provided the arrangement is in CLIENT'S
best interests and is not in conflict with existing CLIENT Sales
Representatives customers and regions. OFFSHORE
18
<PAGE> 19
may develop a Sales Commission/Finders Fee Agreement with CLIENT Sales
Representative firms on any leads they may direct to OFFSHORE and NAMCO for its
sole benefit.
The Sales and Marketing Departments of CLIENT and OFFSHORE shall
coordinate the above agreements and will also work to refer leads to each other
for their mutual benefit.
ARTICLE XIX - ENTIRE AGREEMENT
The terms and provisions contained herein constitute the entire
Agreement between the parties and supersede all previous communications and
understandings, either oral or written, between the parties hereto with respect
to the subject matter hereof. No agreements or understandings varying or
extending the terms of this Agreement will be binding upon either party hereto
unless in writing signed by a duly authorized officer or representative thereof
of each party.
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto execute this Agreement on
12/11/95 (date).
- --------
For purposes of this Agreement, the CONTRACT START DATE shall be
12/11/95 (date).
- --------
OFFSHORE INTERNATIONAL, INC.
an Arizona corporation
/s/ Duane N. Boyett
-----------------------------------
Duane N. Boyett
Chairman / C.E.O.
[Offshore]
COMPANY: Comptronix Corp.
------------------------------
By: /s/ E. Townes Duncan
--------------------------------
Its: Chairman & CEO
-------------------------------
[Client]
20
<PAGE> 21
DIRECT WAGE & FRINGE CALCULATION
Exhibit A
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DIRECT WAGE & FRINGE CALCULATION
OFFSHORE INTERNATIONAL INC. ** CONTRACT SAMPLE **
- -------------------------------------------------------------------------------------------------------------
Rate of Exchange 6.0000
Daily Summary 21.98
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Working Days: 300.000 6594.000
Paid Sundays: 52.000 1142.960
Paid Holidays: 7.000 153.860
Paid Vacations: 6.000 131.880
Paid Vacation Bonus: 1.500 32.970
Paid Christmas Bonus: 15.000 329.700
Paid Profit Sharing: 6.000 131.880
Total Gross Salary 8517.250
- -------------------------------------------------------------------------------------------------------------
Social Security Tax: 16.6907% 1421.589
Federal Labor Tax: 0.0000% 0.000
Housing Tax: 5.0000% 425.863
SAR Tax: 2.0000% 170.345
State Tax: 2.0000% 170.345
UNISON Tax: 0.2000% 17.035
JPB Tax 0.3000% 25.552
Total Taxes: 2230.727
- -------------------------------------------------------------------------------------------------------------
Total Pay and Total Taxes 10747.977
Absenteeism 1.0731 23.587
- -------------------------------------------------------------------------------------------------------------
Fully Fringed Pesos 4.488/Hr.
Fully Fringed Dollars 0.748/Hr.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The foregoing wages and benefits are subject to change resulting from
government action.
21
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Comptronix Corporation:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 14, 1996, appearing in this Form 10-K
for each of the years in the three year period ended December 31, 1995, in the
Company's previously filed Registration Statement No. 33-32987 on Form S-8 for
the Comptronix Corporation 1985 Employee Incentive Stock Option Plan and
Outside Directors Stock Option Program, the Registration Statement No. 33-31694
on Form S-8 for the Comptronix Corporation 1989 Employee Stock Incentive Plan,
the Registration Statement No. 33-83612 on Form S-8 for the Comptronix
Corporation Registration of Additional Shares Under the 1989 Employee Stock
Incentive Plan, As Amended, and the Registration Statement No. 33-83684 on Form
S-8 for the Comptronix Corporation 1991 Non-Employee Director's Equity Program
and 1993 Outside Directors' Stock Plan.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Nashville, Tennessee,
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF COMPTRONIX CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 225
<SECURITIES> 0
<RECEIVABLES> 13,207
<ALLOWANCES> (165)
<INVENTORY> 18,165
<CURRENT-ASSETS> 32,254
<PP&E> 40,656
<DEPRECIATION> (26,344)
<TOTAL-ASSETS> 47,711
<CURRENT-LIABILITIES> 13,863
<BONDS> 29,230
0
19,279
<COMMON> 133
<OTHER-SE> (31,502)
<TOTAL-LIABILITY-AND-EQUITY> 47,711
<SALES> 92,211
<TOTAL-REVENUES> 92,211
<CGS> 85,954
<TOTAL-COSTS> 91,801
<OTHER-EXPENSES> 194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,855
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<INCOME-TAX> 0
<INCOME-CONTINUING> (3,639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,715)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
