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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended July 31, 1997
Commission File Number 0-23248
SigmaTron International, Inc.
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(Exact Name of Registrant, as Specified in its Charter)
Delaware 36-3918470
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(State or other Jurisdiction of (I.R.S. Employer)
Incorporation or Organization) Identification Number)
2201 Landmeier Road, Elk Grove Village, Illinois 60007
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(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (847) 956-8000
No Change
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(Former Name, Address, or Fiscal Year, if Changed Since Last Reports)
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
--- ---
On September 5, 1997, there were 2,881,227 shares of the Registrant's Common
Stock outstanding.
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SigmaTron International, Inc.
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: Page No.
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets--July 31, 1997
and April 30, 1997 3
Consolidated Statements of Income--Three Months
Ended July 31, 1997 and 1996 4
Consolidated Statements of Cash Flows--Three Months
Ended July 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About 9
Market Risks
PART II. OTHER INFORMATION
Item 6. Exhibits 10
</TABLE>
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SIGMATRON INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JULY 31, April 30,
1997 1997
(UNAUDITED) (Audited)
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<S> <C> <C>
ASSETS
Current assets:
Cash $97,171 $323,223
Accounts receivable, less allowance for doubtful
accounts of $ 125,000 at July 31,
1997 and $80,000 at April 30, 1997 10,888,096 8,770,457
Inventories 19,035,354 17,665,600
Equipment lease receivables from affiliate 1,109,988 892,435
Prepaid expenses 246,126 225,780
Refundable income taxes - 98,666
Deferred incomes taxes 231,245 231,245
Other assets 786,473 512,206
----------- -----------
Total current assets 32,394,453 28,719,612
Machinery and equipment, net 10,257,659 10,343,060
Intangible assets, net of amortization of
$183,140 and $178,119 at July 31, 1997 and April
30, 1997, respectively 9,115 14,136
Equipment lease receivables from affiliate, less
current portion 2,007,722 1,467,336
Investment and advances with affiliate 531,720 527,238
Other assets 1,425,967 1,017,057
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Total assets $46,626,636 $42,088,439
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Bank 166,668 166,668
Notes payable - Related parties 10,649 42,596
Trade accounts payable 7,569,617 3,244,537
Trade accounts payable - Related parties 677,815 736,893
Accrued expenses 1,251,199 1,680,721
Income taxes payable 25,603 -
Capital lease obligations 1,677,103 1,199,212
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Total current liabilities 11,378,654 7,070,627
Notes payable - Banks, less current portion 13,244,918 14,714,943
Capital lease obligations, less current portion 3,936,225 2,469,372
Deferred income taxes 818,853 818,853
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value; 6,000,000 shares
authorized, 2,881,227 and 2,875,227 shares issued and
outstanding at July 31, 1997 and April 30, 1997, respectively 28,812 28,752
Capital in excess of par value 9,415,699 9,373,759
Retained earnings 7,803,475 7,612,133
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Total stockholders' equity 17,247,986 17,014,644
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Total liabilities and stockholders' equity $46,626,636 $42,088,439
=========== ===========
See accompanying notes.
</TABLE>
3
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SigmaTron International, Inc.
Condensed Consolidated Statements of Income
( Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS Three Months
ENDED Ended
JULY 31, 1997 July 31, 1996
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<S> <C> <C>
Net sales $17,155,318 $18,480,335
Cost of products sold 15,271,015 15,624,911
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1,884,303 2,855,424
Selling and administrative expenses 1,255,187 1,449,965
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Operating income 629,116 1,405,459
Equity in net (income) loss of affiliate (4,482) 3,283
Interest expense - banks and capital lease obligations 408,791 424,863
Interest expense - related party 523 3,820
Interest income - related party (96,328) (101,982)
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312,986 326,701
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Income before income taxes 320,612 1,075,475
Income taxes 129,270 430,191
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Net income $191,342 $645,284
=========== ===========
Net income per common and common equivalent share $0.06 $0.22
=========== ===========
Weighted average number of common and common
equivalent shares outstanding 2,984,601 2,885,585
=========== ===========
Net income per common share -
assuming full dilution $0.06 $0.22
=========== ===========
Weighted average number of common shares
outstanding - assuming full dilution 2,984,601 2,889,120
=========== ===========
See accompanying notes.
</TABLE>
4
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SIGMATRON INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $191,342 $645,284
Adjustments to reconcile net income
to net cash provided by (used in)operating activities:
Depreciation 286,323 226,530
Equity in net loss of affiliate (4,482) 3,283
Amortization 5,021 5,977
Changes in operating assets and liabilities:
Provision for doubtful accounts 45,000 0
Accounts receivable (2,162,639) (1,593,602)
Inventories (1,369,754) 1,528,774
Prepaid expenses (20,345) (194,427)
Other assets (584,512) (174,668)
Deferred income taxes 0 0
Trade accounts payable 4,325,080 (1,166,810)
Trade accounts payable - related parties (59,078) (559,239)
Accrued expenses (429,522) (378,277)
Income tax payable 25,603 416,189
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Net cash provided by (used in) operating activities 248,037 (1,240,986)
INVESTING ACTIVITIES:
Purchases of machinery and equipment (200,922) (680,420)
Proceeds from sale and leaseback of machinery 1,429,899
and equipment 0 0
Advances to affiliate 0 0
Proceeds from affiliate subleases 104,049 64,645
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Net cash provided by (used in) investing activities 1,333,026 (615,775)
FINANCING ACTIVITIES:
Repayment of term loan and other notes payable (31,947) (50,001)
Net payments under capital lease obligations (347,142) (252,053)
Issuance of common stock 42,000 53,375
Net (payments) proceeds under line of credit (1,470,025) 2,105,440
---------- ----------
Net cash provided by (used in) financing activities (1,807,114) 1,856,761
Change in cash (226,051) 0
Cash at beginning of period 2,500 2,500
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Cash at end of period $2,500 $2,500
========== ==========
See accompanying notes.
</TABLE>
5
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SigmaTron International, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 31, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
period ended July 31, 1997 are not necessarily indicative of the results that
may be expected for the year ending April 30, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's Annual Report for the year ended April 30, 1997.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
July 31, April 30,
1997 1997
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<S> <C> <C>
Finished products $ 2,259,241 $ 2,966,415
Work-in-process 1,797,713 1,079,985
Raw materials 14,978,400 13,619,200
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$19,035,354 $17,665,600
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</TABLE>
6
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NOTE C -- SALE/LEASEBACK
In July 1997, the Company refinanced some machinery and equipment under
a sale/leaseback arrangement. The equipment was sold for approximately $1.4
million in cash which was equal to the net book value of the equipment. The
transaction has been accounted for as a financing, wherein the property remains
on the books and will continue to be depreciated. A financing obligation
representing the proceeds has been recorded, to be reduced based on payments
under the lease. The lease has a term of 4 years and requires monthly payments
of $35,324 through July 2001. The Company has the option to purchase the
property at the end of the lease for $1.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NOTE: To the extent any statements in this Form 10-Q may be deemed to be
forward-looking, such statements should be evaluated in the context of the
risks and uncertainties inherent in the Company's business, including the
Company's continuing dependence on certain major customers, the anticipated
seasonality of its business, the timing of or rescheduling of customer orders
and other risks and uncertainties set forth in the Company's Annual Report on
Form 10-K for the fiscal year ended April 30, 1997.
RESULTS OF OPERATIONS:
Net sales decreased from $18,480,335 for the three month period ended
July 31, 1996 to $17,155,318 for the three month period ended July 31, 1997.
The decrease in net sales was a function of softer demand from SigmaTron's
customer base. This is the result of timing of orders from SigmaTron's
customers. The Company has not lost any significant customers. Historically,
the Company's highest levels of revenues are achieved in its second and third
quarter. This seasonality trend has caused the Company to experience quarterly
fluctuations in its revenues and earnings.
Gross profit decreased during the three month period ended July 31,
1997 to $1,884,303 from $2,855,424 for the same period of the prior fiscal
year. The decrease in gross profit in the first quarter of fiscal 1998
compared to the same period in the prior year is primarily due to a lower sales
volume. In addition, overhead increased as a result of the Company's plan to
increase capacity, which will allow growth with new and existing customers.
The expansion has caused the Company to incur higher levels of expenses, which
will continue for the next several quarters.
Selling and administrative expenses decreased from $1,449,965 or 7.8% of net
sales during the three month period ended July 31, 1996 to $1,255,187 or 7.3%
of net sales. This decrease is due to a decrease in commission expense
related to the lower revenue volume and a reduction in bonus accruals.
Interest expense for bank debt and capital lease obligations for the three
month period ended July 31, 1997 was $408,791 compared to $424,863 for the same
period in the prior year. This decrease was attributable to a lower interest
rate on the line of credit obligation.
As a result of the foregoing, net income decreased from $645,284 for the three
month period ended July 31, 1996 to $191,342. Net earnings per share for the
quarter ended July 31, 1997 were $ .06 compared to $ .22 for the same period in
the prior year.
8
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LIQUIDITY AND CAPITAL RESOURCES:
During the first quarter of fiscal 1998 the Company financed its growth
through net income and a sale leaseback agreement. The Company's primary
source of liquidity has been cash provided by borrowings from its secured
lender. The Company had working capital of $21,015,799 at July 31, 1997 and
$21,019,447 at July 31, 1996, representing a current ratio of 2.8 and 3.6 for
these periods, respectively.
For the three month period ended July 31, 1997, the cash provided from
operations was due to an increase in accounts payable. The net cash provided
from investing activities for the period ended July 31, 1997 was attributable
primarily to proceeds received in connection with a machinery and equipment
sale/leaseback.
To the extent that the Company provides the funds necessary to operate its
Mexican operations, the amount of funds available for use in the Company's
domestic operations may be depleted. For the quarter ended July 31, 1997 the
funds used for the Company's Mexican operation were $1,175,000, which were
derived from borrowing under its revolving credit facility. The Company
provides funding in U.S. dollars, which are exchanged for pesos as needed.
ITEM 3. Not applicable
9
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SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
July 31, 1997
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.34 Lease agreement between SigmaTron International, Inc.
and GE Capital dated July 14, 1997.
Exhibit 27 Financial Data Schedule (EDGAR version only)
(b) No report on Form 8-K was filed during the quarter ended July 31, 1997.
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGMATRON INTERNATIONAL, INC.
<TABLE>
<CAPTION>
<S> <C>
Gary R. Fairhead 9/11/97
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Gary R. Fairhead Date
President and CEO (Principal Executive Officer)
Linda K. Blake 9/11/97
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Linda K. Blake Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
</TABLE>
10
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Exhibit 10.34
MASTER LEASE AGREEMENT
(QUASI)
THIS MASTER LEASE AGREEMENT, dated as of 3/27/97 ("AGREEMENT"), between
GENERAL ELECTRIC CAPITAL CORPORATION, with an office at 4 North Park Drive
Suite 500, Hunt Valley, MD, 21030 (hereinafter called, together with its
successors and assigns, if any, "LESSOR"), and SIGMATRON INTERNATIONAL, INC., a
CORPORATION organized and existing under the laws of the State of Delaware with
its mailing address and chief place of business at 2201 Landmeier Rd., Elk
Grove Village, IL 60007 (hereinafter called "LESSEE").
WITNESSETH:
I. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees to lease
to Lessee, and Lessee agrees to lease from Lessor, the equipment ("EQUIPMENT")
described in Annex A to any schedule hereto ("SCHEDULE"). Terms defined in a
Schedule and not otherwise defined herein shall have the meanings ascribed to
them in such Schedule. (b) The obligation of Lessor to purchase Equipment from
the manufacturer or supplier thereof ("SUPPLIER") and to lease the same to
Lessee under any Schedule shall be subject to receipt by Lessor, prior to the
Lease Commencement Date (with respect to such Equipment), of each of the
following documents in form and substance satisfactory to Lessor: (i) a
Schedule relating to the Equipment then to be leased hereunder, (ii) paid in
full invoice or other evidence of ownership of the Equipment, (iii) evidence of
insurance which complies with the requirements of Section IX, and (iv) such
other documents as Lessor may reasonably request. As a further condition to
such obligations of Lessor, Lessee shall, upon delivery of such Equipment (but
not later than the Last Delivery Date specified in the applicable Schedule)
execute and deliver to Lessor a Certificate of Acceptance (in the form of Annex
C to the applicable Schedule) covering such Equipment. Lessor hereby appoints
Lessee its agent for inspection and acceptance of the Equipment from the
Supplier. Upon execution by Lessee of any Certificate of Acceptance, the
Equipment described thereon shall be deemed to have been delivered to, and
irrevocably accepted by, Lessee for lease hereunder.
II. TERM, RENT AND PAYMENT:
(a) The rent payable hereunder and Lessee's right to use the Equipment shall
commence on the date of execution by Lessee of the Certificate of Acceptance
for such Equipment ("LEASE COMMENCEMENT DATE"). The term of this Agreement
shall be the period specified in the applicable Schedule. If any term is
extended, the word "term" shall be deemed to refer to all extended terms, and
all provisions of this Agreement shall apply during any extended terms, except
as may be otherwise specifically provided in writing. (b) Rent shall be paid
to Lessor at its address stated above, except as otherwise directed by Lessor.
Payments of rent shall be in the amount set forth in, and due in accordance
with, the provisions of the applicable Schedule. If one or more Advance
Rentals are payable, such Advance Rental shall be (i) set forth on the
applicable Schedule, (ii) due upon acceptance by Lessor of such Schedule, and
(iii) when received by Lessor, applied to the first rent payment and the
balance, if any, to the final rental payment(s) under such Schedule. In no
event shall any Advance Rental or any other rent payments be refunded to
Lessee. If rent is not paid within ten days of its due date, Lessee agrees to
pay a late charge of five cents ($0.05) per dollar on, and in addition to, the
amount of such rent but not exceeding the lawful maximum, if any.
III. TAXES:
Lessee shall have no liability for taxes imposed by the United States of
America or any State or political subdivision thereof which are on or measured
by the net income of Lessor. Lessee shall report (to the extent that it is
legally permissible) and pay promptly all other taxes, fees and assessments
due, imposed, assessed or levied against any Equipment (or the purchase,
ownership, delivery, leasing, possession, use or operation thereof), this
Agreement (or any rentals or receipts hereunder), any Schedule, Lessor or
Lessee by any foreign, federal, state or local government or taxing authority
during or related to the term of this Agreement, including, without
limitation, all license and registration fees, and all sales, use, personal
property, excise, gross receipts, franchise, stamp or other taxes, imposts,
duties and charges, together with any penalties, fines or interest thereon (all
hereinafter called "TAXES"). Lessee shall (i) reimburse Lessor upon receipt of
written request for reimbursement for any Taxes charged to or assessed against
Lessor, (ii) on request of Lessor, submit to Lessor written evidence of
Lessee's payment of Taxes, (iii) send a copy thereof to Lessor.
IV. REPORTS:
<PAGE> 2
(a) Lessee will notify Lessor in writing, within ten days after any tax or
other lien shall attach to any Equipment, of the full particulars thereof and
of the location of such Equipment on the date of such notification. (b) Lessee
will within 90 days of the close of each fiscal year of Lessee, deliver to
Lessor, Lessee's balance sheet and profit and loss statement, certified by a
recognized firm of certified public accountants. Upon request Lessee will
deliver to Lessor quarterly, within 90 days of the close of each fiscal quarter
of Lessee, in reasonable detail, copies of Lessee's quarterly financial report
certified by the chief financial officer of Lessee. (c) Lessee will permit
Lessor to inspect any Equipment during normal business hours. (d) Lessee will
keep the Equipment at the Equipment Location (specified in the applicable
Schedule) and will promptly notify Lessor of any relocation of Equipment. Upon
the written request of Lessor, Lessee will notify Lessor forthwith in writing
of the location of any Equipment as of the date of such notification. (e)
Lessee will promptly and fully report to Lessor in writing if any Equipment is
lost or damaged (where the estimated repair costs would exceed 10% of its then
fair market value), or is otherwise involved in an accident causing personal
injury or property damage. (f) Within 60 days after any request by Lessor,
Lessee will furnish a certificate of an authorized officer of Lessee stating
that he has reviewed the activities of Lessee and that, to the best of his
knowledge, there exists no default (as described in Section XI) or event which
with notice or lapse of time (or both) would become such a default.
V. DELIVERY, USE AND OPERATION:
(a) All Equipment shall be shipped directly from the Supplier to Lessee. (b)
Lessee agrees that the Equipment will be used by Lessee solely in the conduct
of its business and in a manner complying with all applicable federal, state,
and local laws and regulations. (c) LESSEE SHALL NOT ASSIGN, MORTGAGE, SUBLET
OR HYPOTHECATE ANY EQUIPMENT, OR THE INTEREST OF LESSEE HEREUNDER, NOR SHALL
LESSEE REMOVE ANY EQUIPMENT FROM THE CONTINENTAL UNITED STATES, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE LESSOR. (d) Lessee will keep the Equipment free
and clear of all liens and encumbrances other than those which are granted in
favor of or result from acts of Lessor.
VI. SERVICE:
(a) Lessee will, at its sole expense, maintain each unit of Equipment in good
operating order, repair, condition and appearance in accordance with
manufacturer's recommendations, normal wear and tear excepted. Lessee shall,
if at any time requested by Lessor, affix in a prominent position on each unit
of Equipment plates, tags or other identifying labels showing ownership thereof
by Lessee and Lessor's security interest therein. (b) Lessee will not, without
the prior consent of Lessor, affix or install any accessory, equipment or
device on any Equipment if such addition will impair the originally intended
function or use of such Equipment. All additions, repairs, parts, supplies,
accessories, equipment, and devices furnished, attached or affixed to any
Equipment which are not readily removable shall be made only in compliance with
applicable law; and shall become subject to the lien of Lessor. Lessee will
not, without the prior written consent of Lessor and subject to such conditions
as Lessor may impose for its protection, affix or install any Equipment to or
in any other personal or real property. (c) Any alterations or modifications
to the Equipment that may, at any time during the term of this Agreement, be
required to comply with any applicable law, rule or regulation shall be made at
the expense of Lessee.
VII. STIPULATED LOSS VALUE:
Lessee shall promptly and fully notify Lessor in writing if any unit of
Equipment shall be or become worn out, lost, stolen, destroyed, irreparably
damaged in the reasonable determination of Lessee, or permanently rendered
unfit for use from any cause whatsoever (such occurrences being hereinafter
called "CASUALTY OCCURRENCES"). On the rental payment date next succeeding a
Casualty Occurrence (the "PAYMENT DATE"), Lessee shall pay Lessor the sum of
(x) the Stipulated Loss Value of such unit calculated as of the rental payment
date next preceding such Casualty Occurrence ("CALCULATION DATE"); and (y) all
rental and other amounts which are due hereunder as of the Payment Date. Upon
payment of all sums due hereunder, the term of this lease as to such unit shall
terminate and (except in the case of the loss, theft or complete destruction of
such unit) Lessor shall be entitled to recover possession of such unit.
VIII. LOSS OR DAMAGE:
Lessee hereby assumes and shall bear the entire risk of any loss, theft, damage
to, or destruction of, any unit of Equipment from any cause whatsoever from the
time the Equipment is shipped to Lessee.
IX. INSURANCE:
Lessee agrees, at its own expense, to keep all Equipment insured for such
amounts and against such hazards as Lessor may require, including, but not
limited to, insurance for damage to or loss of such Equipment and liability
coverage for personal injuries, death or property damage, with Lessor named as
additional insured and with a loss payable clause in favor of Lessor, as its
interest may appear, irrespective of any breach of warranty or other act or
omission of Lessee. The insurance shall provide (i) liability coverage in an
amount equal to at least ONE MILLION U.S. DOLLARS ($1,000,000.00) total
liability per occurrence, and (ii) casualty/property damage coverage in an
amount equal to the higher of the Stipulated Loss value or the full replacement
cost of the Equipment; or at
<PAGE> 3
such other amounts as may be required by Lessor. All such policies
shall be with companies, and on terms, satisfactory to Lessor. Lessee agrees
to deliver to Lessor evidence of insurance satisfactory to Lessor. No
insurance shall be subject to any co-insurance clause. Lessee hereby appoints
Lessor as Lessee's attorney-in-fact to make proof of loss and claim for
insurance, and to make adjustments with insurers and to receive payment of and
execute or endorse all documents, checks or drafts in connection with payments
made as a result of such insurance policies. Any expense of Lessor in
adjusting or collecting insurance shall be borne by Lessee. Lessee will not
make adjustments with insurers except (i) with respect to claims for damage to
any unit of Equipment where the repair costs do not exceed 10% of such unit's
fair market value, or (ii) with Lessor's written consent. Said policies shall
provide that the insurance may not be altered or canceled by the insurer until
after thirty (30) days written notice to Lessor. Lessor may, at its option,
apply proceeds of insurance, in whole or in part, to (i) repair or replace
Equipment or any portion thereof, or (ii) satisfy any obligation of Lessee to
Lessor hereunder.
X. RETURN OF EQUIPMENT:
(a) Upon any expiration or termination of this Agreement or any Schedule,
Lessee shall promptly, at its own cost and expense: (i) perform any testing
and repairs required to place the affected units of Equipment in the same
condition and appearance as when received by Lessee (reasonable wear and tear
excepted) and in good working order for their originally intended purpose; (ii)
if deinstallation, disassembly or crating is required, cause such units to be
deinstalled, disassembled and crated by an authorized manufacturer's
representative or such other service person as is satisfactory to Lessor; and
(iii) return such units to a location within the continental United States as
Lessor shall direct. (b) Until Lessee has fully complied with the requirements
of Section X(a) above, Lessee's rent payment obligation and all other
obligations under this Agreement shall continue from month to month
notwithstanding any expiration or termination of the lease term. Lessor may
terminate such continued leasehold interest upon ten (10) days notice to
Lessee.
XI. DEFAULT:
(a) Lessor may in writing declare this Agreement in default if: Lessee breaches
its obligation to pay rent or any other sum when due and fails to cure the
breach within ten (10) days; Lessee breaches any of its insurance obligations
under Section IX; Lessee breaches any of its other obligations to Lessor
hereunder or under any instrument, document or agreement between Lessor and
Lessee and fails to cure that breach within thirty (30) days after written
notice thereof; any representation or warranty made by Lessee in connection
with this Agreement shall be false or misleading in any material respect;
Lessee becomes insolvent or ceases to do business as a going concern; any
Equipment is illegally used; or a petition is filed by or against Lessee under
any bankruptcy or insolvency laws. Such declaration shall apply to all
Schedules except as specifically excepted by Lessor. (b) After default, at the
request of Lessor, Lessee shall comply with the provisions of Section X(a).
Lessee hereby authorizes Lessor to enter, with or without legal process, any
premises where any Equipment is believed to be and take possession thereof.
Lessee shall, without further demand, forthwith pay to Lessor (i) as liquidated
damages for loss of a bargain and not as a penalty, the Stipulated Loss Value
of the Equipment (calculated as of the rental next preceding the declaration of
default), and (ii) all rentals and other sums then due hereunder. Lessor may,
but shall not be required to, sell Equipment at private or public sale, in bulk
or in parcels, with or without notice, and without having the Equipment present
at the place of sale; or Lessor may, but shall not be required to, lease,
otherwise dispose of or keep idle all or part of the Equipment; and Lessor may
use Lessee's premises for any or all of the foregoing without liability for
rent, costs, damages or otherwise. The proceeds of sale, lease or other
disposition, if any, shall be applied in the following order of priorities:
(1) to pay all of Lessor's costs, charges and expenses incurred in taking,
removing, holding, repairing and selling, leasing or otherwise disposing of
Equipment; then, (2) to the extent not previously paid by Lessee, to pay Lessor
all sums due from Lessee hereunder; then (3) to reimburse to Lessee any sums
previously paid by Lessee as liquidated damages; and (4) any surplus shall be
retained by Lessor. Lessee shall pay any deficiency in (1) and (2) forthwith.
(c) The foregoing remedies are cumulative, and any or all thereof may be
exercised in lieu of or in addition to each other or any remedies at law, in
equity, or under statute. Lessee waives notice of sale or other disposition
(and the time and place thereof), and the manner and place of any advertising.
Lessee shall pay Lessor's actual attorney's fees incurred in connection with
the enforcement, assertion, defense or preservation of Lessor's rights and
remedies hereunder, or if prohibited by law, such lesser sum as may be
permitted. Waiver of any default shall not be a waiver of any other or
subsequent default. (d) Any default under the terms of this or any other
agreement between Lessor and Lessee may be declared by Lessor a default under
this and any such other agreement.
XII. ASSIGNMENT:
Lessor may, without the consent of Lessee, assign this Agreement or any
Schedule. Lessee agrees that if Lessee receives written notice of an
assignment from Lessor, Lessee will pay all rent and other amounts payable
under any assigned Equipment Schedule to such assignee or as instructed by
Lessor. Lessee further agrees to confirm in writing receipt of a notice of
assignment as may be reasonable requested by assignee. Lessee hereby waives
and agrees not to assert against any such assignee any defense, set-off,
recoupment claim or counterclaim which Lessee has or may at any time have
against Lessor for any reason whatsoever.
XIII. NET LEASE; NO SET-OFF, ETC:
<PAGE> 4
This Agreement is a net lease. Lessee's obligation to pay rent and other
amounts due hereunder shall be absolute and unconditional. Lessee shall not be
entitled to any abatement or reductions of, or set-offs against, said rent or
other amounts, including, without limitation, those arising or allegedly
arising out of claims (present or future, alleged or actual, and including
claims arising out of strict tort or negligence of Lessor) of Lessee against
Lessor under this Agreement or otherwise. Nor shall this Agreement terminate
or the obligations of Lessee be affected by reason of any defect in or damage
to, or loss of possession, use or destruction of, any Equipment from whatsoever
cause. It is the intention of the parties that rents and other amounts due
hereunder shall continue to be payable in all events in the manner and at the
times set forth herein unless the obligation to do so shall have been
terminated pursuant to the express terms hereof.
XIV. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its
agents, employees, successors and assigns from and against any and all losses,
damages, penalties, injuries, claims, actions and suits, including legal
expenses, of whatsoever kind and nature, in contract or tort, whether caused by
the active or passive negligence of Lessor or otherwise, and including, but not
limited to, Lessor's strict liability in tort, arising out of (i) the
selection, manufacture, purchase, acceptance or rejection of Equipment, the
ownership of Equipment during the term of this Agreement, and the delivery,
lease, possession, maintenance, uses, condition, return or operation of
Equipment (including, without limitation, latent and other defects, whether or
not discoverable by Lessor or Lessee and any claim for patent, trademark or
copyright infringement or environmental damage) or (ii) the condition of
Equipment sold or disposed of after use by Lessee, any sublessee or employees
of Lessee. Lessee shall, upon request, defend any actions based on, or arising
out of, any of the foregoing. (b) All of Lessor's rights, privileges and
indemnities contained in this Section XIV shall survive the expiration or other
termination of this Agreement and the rights, privileges and indemnities
contained herein are expressly made for the benefit of, and shall be
enforceable by Lessor, its successors and assigns.
XV. DISCLAIMER:
LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE
FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR
SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER
EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED
HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY
AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR
WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION,
SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks,
as between Lessor and Lessee, are to be borne by Lessee. Without limiting the
foregoing, Lessor shall have no responsibility or liability to Lessee or any
other person with respect to any of the following, regardless of any negligence
of Lessor (i) any liability, loss or damage caused or alleged to be caused
directly or indirectly by any Equipment, any inadequacy thereof, any deficiency
or defect (latent or otherwise) therein, or any other circumstance in
connection therewith; (ii) the use, operation or performance of any Equipment
or any risks relating thereto; (iii) any interruption of service, loss of
business or anticipated profits or consequential damages; or (iv) the delivery,
operation, servicing, maintenance, repair, improvement or replacement of any
Equipment. If, and so long as, no default exists under this Lease, Lessee
shall be, and hereby is, authorized during the term of this Lease to assert and
enforce, at Lessee's sole cost and expense, from time to time, in the name of
and for the account of Lessor and/or Lessee, as their interests may appear,
whatever claims and rights Lessor may have against any Supplier of the
Equipment.
XVI. REPRESENTATIONS AND WARRANTIES OF LESSEE:
Lessee hereby represents and warrants to Lessor that on the date hereof and on
the date of execution of each Schedule: (a) Lessee has adequate power and
capacity to enter into, and perform under, this Agreement and all related
documents (together, the "DOCUMENTS") and is duly qualified to do business
wherever necessary to carry on its present business and operations, including
the jurisdiction(s) where the Equipment is or is to be located. (b) The
Documents have been duly authorized, executed and delivered by Lessee and
constitute valid, legal and binding agreements, enforceable in accordance with
their terms, except to the extent that the enforcement of remedies therein
provided may be limited under applicable bankruptcy and insolvency laws. (c)
No approval, consent or withholding of objections is required from any
governmental authority or instrumentality with respect to the entry into or
performance by Lessee of the Documents except such as have already been
obtained. (d) The entry into and performance by Lessee of the Documents will
not: (i) violate any judgment, order, law or regulation applicable to Lessee
or any provision of Lessee's Certificate of Incorporation or By-Laws; or (ii)
result in any breach of, constitute a default under or result in the creation
of any lien, charge, security interest or other encumbrance upon any Equipment
pursuant to any indenture, mortgage, deed of trust, bank loan or credit
agreement or other instrument (other than this Agreement) to which Lessee is a
party. (e) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or
affecting Lessee, which will have a material adverse effect on the ability of
Lessee to fulfill its obligations under this Agreement. (f) The Equipment
accepted under any Certificate of Acceptance is and will remain tangible
personal property. (g) Each Balance Sheet and Statement of Income delivered to
Lessor has been prepared in accordance with
<PAGE> 5
generally accepted accounting principles, and since the date of the
most recent such Balance Sheet and Statement of Income, there has been no
material adverse change. (h) Lessee is and will be at all times validly
existing and in good standing under the laws of the State of its incorporation
(specified in the first sentence of this Agreement). (i) The Equipment will at
all times be used for commercial or business purposes.
XVII. OWNERSHIP FOR TAX PURPOSES, GRANT OF SECURITY INTEREST;
USURY SAVINGS:
(a) For income tax purposes, the parties hereto agree that it is their mutual
intention that Lessee shall be considered the owner of the Equipment.
Accordingly, Lessor agrees (i) to treat Lessee as the owner of the Equipment on
its federal income tax return, (ii) not to take actions or positions
inconsistent with such treatment on or with respect to its federal income tax
return, and (iii) not to claim any tax benefits available to an owner of the
Equipment on or with respect to its federal income tax return. The foregoing
undertakings by Lessor shall not be violated by Lessor's taking a tax position
inconsistent with the forgoing sentence to the extent such a position is
required by law or is taken through inadvertence so long as such inadvertent
tax position is reversed by Lessor promptly upon its discovery. Lessor shall
in no event be liable to Lessee if Lessee fails to secure any of the tax
benefits available to the owner of the Equipment . (b) Lessee hereby grants to
Lessor a first security interest in the Equipment, together with all additions,
attachments, accessions, accessories and accessions thereto whether or not
furnished by the Supplier of the Equipment and any and all substitutions,
replacements or exchanges therefor, and any and all insurance and/or other
proceeds of the property in and against which a security interest is granted
hereunder. Notwithstanding anything to the contrary contained elsewhere in
this Agreement, to the extent that Lessor asserts a purchase money security
interest in any items of Equipment ("PMSI EQUIPMENT"): (i) the PMSI Equipment
shall secure only those sums which have been advanced by Lessor for the
purchase of the PMSI Equipment, or the acquisition of rights therein, or the
use thereof (the "PMSI INDEBTEDNESS"), and (ii) no other Equipment shall secure
the PMSI Indebtedness. (c) It is the intention of the parties hereto to comply
with any applicable usury laws to the extent that any Schedule is determined to
be subject to such laws; accordingly, it is agreed that, notwithstanding any
provision to the contrary in any Schedule or the Lease, in no event shall any
Schedule require the payment or permit the collection of interest in excess of
the maximum amount permitted by applicable law. If any such excess interest is
contracted for, charged or received under any Schedule or the Lease, or in the
event that all of the principal balance shall be prepaid, so that under any of
such circumstances the amount of interest contracted for, charged or received
under any Schedule or the Lease shall exceed the maximum amount of interest
permitted by applicable law, then in such event (a) the provisions of this
paragraph shall govern and control, (b) neither Lessee nor any other person or
entity now or hereafter liable for the payment hereof shall be obligated to pay
the amount of such interest to the extent that it is in excess of the maximum
amount of interest permitted by applicable law, (c) any such excess which may
have been collected shall be either applied as a credit against the then unpaid
principal balance or refunded to Lessee, at the option of the Lessor, and (d)
the effective rate of interest shall be automatically reduced to the maximum
lawful contract rate allowed under applicable law as now or hereafter construed
by the courts having jurisdiction thereof. It is further agreed that without
limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received under any Schedule or the Lease which are
made for the purpose of determining whether such rate exceeds the maximum
lawful contract rate, shall be made, to the extent permitted by applicable law,
by amortizing, prorating, allocating and spreading in equal parts during the
period of the full stated term of the indebtedness evidenced hereby, all
interest at any time contracted for, charged or received from Lessee or
otherwise by Lessor in connection with such indebtedness; provided, however,
that if any applicable state law is amended or the law of the United States of
America preempts any applicable state law, so that it becomes lawful for Lessor
to receive a greater interest per annum rate than is presently allowed, the
Lessee agrees that, on the effective date of such amendment or preemption, as
the case may be, the lawful maximum hereunder shall be increased to the maximum
interest per annum rate allowed by the amended state law or the law of the
United States of America.
XVIII. EARLY TERMINATION:
(a) On or after the First Termination Date (specified in the applicable
Schedule), Lessee may, so long as no default exists hereunder, terminate this
Agreement as to all (but not less than all) of the Equipment on such Schedule
as of a Rent Payment Date ("TERMINATION DATE") upon at least 90 days prior
written notice to Lessor. (b) Lessee shall, and Lessor may, solicit cash bids
for the Equipment on an AS IS, WHERE IS BASIS without recourse to or warranty
from Lessor, express or implied ("AS IS BASIS"). Prior to the Termination
Date, Lessee shall (i) certify to Lessor any bids received by Lessee and (ii)
pay to Lessor (A) the Termination Value (calculated as of the rental due on the
Termination Date) for the Equipment, and (B) all rent and other sums due and
unpaid as of the Termination Date. (c) Provided that all amounts due hereunder
have been paid on the Termination Date, Lessor shall (i) sell the Equipment on
an AS IS BASIS for cash to the highest bidder and (ii) refund the proceeds of
such sale (net of any related expenses) to Lessee up to the amount of the
Termination Value. If such sale is not consummated, no termination shall occur
and Lessor shall refund the Termination Value (less any expenses incurred by
Lessor) to Lessee. (d) Notwithstanding the foregoing, Lessor may elect by
written notice, at any time prior to the Termination Date, not to sell the
Equipment. In that event, on the Termination Date Lessee shall (i) return the
Equipment (in accordance with Section X) and (ii) pay to Lessor all amounts
required under Section XVIII(b) less the amount of the highest bid certified by
Lessee to Lessor.
XIX. EARLY PURCHASE OPTION:
<PAGE> 6
(a) Provided that the Lease has not been earlier terminated and provided
further that Lessee is not in default under the Lease or any other agreement
between Lessor and Lessee. Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN
270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OF LESSEE'S IRREVOCABLE ELECTION TO
EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment
listed and described in this schedule on any Rent Payment Date following the
First Termination Date as set forth in this Schedule, and prior to the date
which is the scheduled expiration of this Lease, (the "EARLY PURCHASE DATE")
for a price equal to (i) the Termination Value (calculated as of the Early
Purchase Date) for the Equipment, and (ii) all rent and other sums due and
unpaid as of the Purchase Date (the "EARLY OPTION PRICE"), plus all applicable
sales taxes on an AS IS BASIS. (The purchase option granted by this subsection
shall be referred to herein as the "EARLY PURCHASE OPTION"). (b) If Lessee
exercises its Early Purchase Option with respect to the Equipment leased
hereunder, then on the Early Purchase Date, Lessee shall pay to Lessor any rent
and other sums due and unpaid on the Early Purchase Date and Lessee shall pay
the Early Option Price, plus all applicable sales taxes, to Lessor in cash.
XX. PURCHASE OPTION:
(a) So long as no default exists hereunder and the lease has not been earlier
terminated, Lessee may at lease expiration purchase all (but not less than all)
of the Equipment in any Schedule on an AS IS, WHERE IS BASIS for cash equal to
the amount indicated in such Schedule (the "OPTION PAYMENT"). The Option
Payment shall be due and payable in immediately available funds on the
Expiration Date. (b) Lessee shall be deemed to have waived this option unless
it provides Lessor with written notice of its irrevocable election to exercise
the same not less than 90 days prior to the Expiration Date.
XXI. MISCELLANEOUS:
(a) LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY,
THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND
LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED
TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE
AND LESSOR. The scope of this waiver is intended to be all encompassing of any
and all disputes that may be filed in any court (including, without limitation,
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE,
ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS
TRANSACTION OR ANY RELATED TRANSACTION. In the event of litigation, this Lease
may be filed as a written consent to a trial by the court. (b) Unless and
until Lessee exercises its rights under Section XIX above, nothing herein
contained shall give or convey to Lessee any right, title or interest in and to
any Equipment except as a lessee. Any cancellation or termination by Lessor,
pursuant to the provision of this Agreement, any Schedule, supplement or
amendment hereto, or the lease of any Equipment hereunder, shall not release
Lessee from any then outstanding obligations to Lessor hereunder. All
Equipment shall at all times remain personal property of Lessor regardless of
the degree of its annexation to any real property and shall not by reason of
any installation in, or affixation to, real or personal property become a part
thereof. (c) Time is of the essence of this Agreement. Lessor's failure at
any time to require strict performance by Lessee of any of the provisions
hereof shall not waive or diminish Lessor's right thereafter to demand strict
compliance therewith. Lessee agrees, upon Lessor's request, to execute any
instrument necessary or expedient for filing, recording or perfecting the
interest of Lessor. All notices required to be given hereunder shall be
deemed adequately given if sent by registered or certified mail to the
addressee at its address stated herein, or at such other place as such
addressee may have designated in writing. This Agreement and any Schedule and
Annexes thereto constitute the entire agreement of the parties with respect to
the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR
ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN
WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.
/
- -------------------------------------------------------------------
initials
(d) In case of a failure of Lessee to comply with any provision of this
Agreement, Lessor shall have the right, but shall not be obligated to, effect
such compliance, in whole or in part; and all moneys spent and expenses and
obligations incurred or assumed by Lessor in effecting such compliance shall
constitute additional rent due to Lessor within five days after the date Lessor
sends notice to Lessee requesting payment. Lessor's effecting such compliance
shall not be a waiver of Lessee's default. (e) Any rent or other amount not
paid to Lessor when due hereunder shall bear interest, both before and after
any judgment or termination hereof, at the lesser of eighteen percent per annum
or the maximum rate allowed by law. Any provisions in this Agreement and any
Schedule which are in conflict with any statute, law or applicable rule shall
be deemed omitted, modified or altered to conform thereto.
<PAGE> 7
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
<TABLE>
<CAPTION>
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION SIGMATRON INTERNATIONAL, INC.
<S> <C>
BY: signed BY: signed
--------------------------------------- ------------------------------
NAME: Kevin G. Wortman NAME: Linda K. Blake
TITLE: Credit Manager TITLE: CFO
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) the
Consolidated Balance Sheet as of 7/31/97 and the Consolidated Earnings for the
quarter ended 7/31/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 97171
<SECURITIES> 0
<RECEIVABLES> 10888096
<ALLOWANCES> 125000
<INVENTORY> 19035354
<CURRENT-ASSETS> 32394453
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 46626636
<CURRENT-LIABILITIES> 11378654
<BONDS> 0
0
0
<COMMON> 28812
<OTHER-SE> 17219174
<TOTAL-LIABILITY-AND-EQUITY> 17247986
<SALES> 17155318
<TOTAL-REVENUES> 17155318
<CGS> 15271015
<TOTAL-COSTS> 1250705
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 312986
<INCOME-PRETAX> 320612
<INCOME-TAX> 129270
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 191342
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
