UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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- - -----
Commission File Number 0-23426
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REPTRON ELECTRONICS, INC.
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(Exact name of registrant as specified in its charter)
Florida 38-2081116
- - ------------------------------------------ -----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
14401 McCormick Drive, Tampa, Florida 33626
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 854-2351
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- - ------------------- -----------------------------------------
Common Stock, $.01 par value None
6 3/4 Convertible Subordinated Notes, due 2004 None
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item
405 of Regulation S-K is not contained herein, and will not be
contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any
amendment to this Form 10-K. (X)
The aggregate market value of shares of the registrant's common stock
held by
non-affiliates of the registrant as of March 22 2000, was
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approximately $56,202,659.
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The number of shares of the registrant's common stock issued and
outstanding
as of March 22, 2000 was 6,167,119.
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Documents Incorporated by Reference:
Parts of the Company's definitive proxy statement for the Annual
Meeting of
the Company's Shareholders to be held on May 22, 2000 are incorporated
by
reference into Part III of this Form.
REPTRON ELECTRONICS, INC.
FORM 10-K
Fiscal Year ended December 31, 1999
Item
Number in
Form 10-K PART I Page
- - --------- ----
1. Business............................................. 1
2. Properties........................................... 13
3. Legal Proceedings.................................... 14
4. Submission of Matters to a Vote of Security Holders. 14
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters......................... 15
6. Selected Financial Data............................. 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 17
7a. Quantitative and Qualitative Disclosures about
Market Risk......................................... 21
8. Financial Statements and Supplementary Data......... 21
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............. 21
PART III
10. Directors and Executive Officers of the Registrant.. 21
11. Executive Compensation.............................. 21
12. Security Ownership of Certain Beneficial Owners
and Management...................................... 21
13. Certain Relationships and Related Transactions...... 21
PART IV
14. Exhibits, Financial Statements, Schedule,
and Reports on Form 8-K............................. 22
PART I
This document contains certain forward-looking statements that
involve
a number of risks and uncertainties. Such forward-looking statements
are
within the meaning of that term in Section 27A of the Securities Act
of
1933, as amended and Section 21E of the Securities Exchange Act of
1934, as
amended. Factors that could cause actual results to differ materially
include the following: business conditions and growth in Reptron's
industry
and in the general economy; competitive factors; risks due to shifts
in
market demand; the ability of Reptron to complete acquisitions; and
the
risk factors listed from time to time in Reptron's reports filed with
the
Securities and Exchange Commission as well as assumptions regarding
the
foregoing. The words "believe", "plans", "estimate", "expect",
"intend",
"anticipate", and similar expressions and variations thereof identify
certain of such forward-looking statements, which speak only as of the
dates on which they were made. Reptron undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. Readers are
cautioned that any such forward-looking statements are not guarantees
of
future performance and involve risks and uncertainties, and that
actual
results may differ materially from those indicated in the forward-
looking
statements as a result of various factors. Readers are cautioned not
to
place undue reliance on these forward-looking statements.
Item 1. Business
General
Reptron Electronics, Inc. ("Reptron") is one of the leading
electronics
manufacturing supply chain services company providing demand creation
distribution of electronic components, custom logistics and supply
chain
management services, engineering services, display integration
services and
electronic manufacturing services through its three business units,
Reptron Distribution, K-Byte Manufacturing and Applied Instruments.
These business units, although operated independently, are
complimentary,
enabling Reptron to provide customers with a wide range of products
and
value-added services, as well as a single source for their product,
material
logistics, engineering, assembly and test requirements. Reptron
believes
that its approach of total customer solutions serving the supply chain
needs
of its customers distinguishes it in the electronics industry,
provides a high
level of value to its customer base and enables it to obtain sole
source
relationships with an increasing number of its customers. As a result
of
Reptron's business strategy, it has increased net sales from
approximately
$164.0 million in 1994 to $359.2 million in 1999.
Reptron was incorporated under the laws of Michigan in 1973 and
reincorporated under the laws of Florida in 1993. Reptron's principal
executive offices are located at 14401 McCormick Drive, Tampa, Florida
33626, and its telephone number is (813) 854-2351.
The Electronics Distribution and Contract Manufacturing Industry
Distribution. Most manufacturers of electronics components rely
on
independent distributors, such as Reptron, to extend their marketing
operations. As a stocking, marketing and financial intermediary, a
distributor relieves the manufacturer of part of the costs associated
with the stocking and selling of its products, including otherwise
potentially sizeable investments in inventories, accounts receivable
and
personnel. At the same time, the distributor offers to a broad range
of
customers the convenience of diverse inventory, flexible deliveries
and a wide range of value-added services to help manage material
procurement requirements. The growth of the electronic component
distribution industry has been fueled by the growing number of
electronic component manufacturers that view their distributors as
essential extensions of their marketing organizations and
by customers who recognize the value that distributors add to the
total material procurement process.
In recent years, two important trends have developed recently
in the U.S. electronic component distribution industry. First,
manufacturers of electronic components are reducing the number of
distributors who are authorized to sell their products, while
maintaining or growing their respective market share. Consequently,
the reduced number of authorized distributors must be able to
service the market historically addressed by the previous and
larger pool of distributors. This trend is the result of the need
for original electronic component manufacturers to reduce their
operating costs. Engaging a smaller number of distributors allows
the manufacturer to reduce support staff.
3
A second trend in the industry is the increasing percentage of
distribution sales associated with value-added services. This trend
is the result of original equipment manufacturers ("OEMs") need
to reduce their operating costs. By interacting with distributors
through the use of in-plant stores, automated inventory replenishment
systems utilizing traditional electronic data interchange ("EDI")
or the emerging e-commerce technology and outsourcing of product
assembly, among other actions, OEMs may reduce their total materials
acquisition cost. The distributor assumes a larger role in the
management of the supply chain in these types of engagements.
Electronics Manufacturing Services ("EMS"). The EMS industry has
experienced rapid growth over the past several years as an increasing
number of OEMs have chosen to outsource to electronics manufacturing
specialists such as K-Byte Manufacturing for the assembly of printed
circuit board assemblies and Applied Instruments for display products,
integration and assembly. As a result of outsourcing manufacturing
services, industry sources estimate that the electronics manufacturing
industry has grown at an average annual rate of 25%. Factors driving
OEMs to favor outsourcing to electronics manufacturing
specialists include:
- Reduced Time to Market. Because of the intense competitive
pressures and rapidly progressing technology in the electronics
industry, OEMs are faced with increasingly short product life-cycles
and therefore have a growing need to reduce the time required to
bring a product to market. OEMs can reduce their time to market
by using a electronics manufacturer's established manufacturing
expertise and infrastructure.
- Minimized Capital Investment. As electronic products have
become more technologically advanced, the manufacturing process
has become increasingly automated and highly intricate, and
manufacturers have had to invest in new capital equipment at an
accelerated rate. By outsourcing to electronics
manufacturing specialists, OEMs are able to lower their investment
in inventory, facilities and equipment, thereby enabling them to
allocate capital to other activities such as sales and marketing
and research and development.
- Focused Resources. Because the electronics industry is
experiencing greater levels of competition and more rapid
technological change, many OEMs increasingly seek to focus
their resources on activities and technologies that add greater
value. By offering turnkey manufacturing services and comprehensive
electronic assembly, electronics manufacturing specialists permit
OEMs to focus on their core business activities, such as product
development, marketing and distribution.
- Access to Leading Edge Manufacturing Technology. Electronic
products and electronics manufacturing technology have become
increasingly sophisticated and complex. OEMs desire to work with
electronics manufacturing specialists in order to gain access to their
technological expertise in process development and control.
- Improved Inventory Management and Purchasing Power. Electronics
industry OEMs are faced with increasing difficulties in planning,
procuring and managing their inventories efficiently due to frequent
design changes, short product life-cycles, large investments in
electronic components, component price fluctuations and the need
to achieve economies of scale in materials procurement. Electronics
manufacturing specialists are able to manage both procurement and
inventory, and have demonstrated proficiency in purchasing
components at improved pricing.
Strategy
Reptron's principal business objective is to expand its presence
as a leading electronics supply chain services company. In order to
implement its objective, Reptron has formulated a strategy based upon
the following key elements:
- Continue to Leverage Complimentary Businesses. Reptron operates
as an electronics supply chain services company that provides
value-added distribution of electronic components and targeted
electronics manufacturing services. Reptron Distribution emphasizes
its value-added services as a method to lower the customer's total
material acquisition costs. K-Byte Manufacturing provides
turnkey manufacturing, including materials management, board
assembly and post production testing. Applied Instruments provides
design engineering and
4
systems integration of display solutions, including turnkey
manufacturing and testing. These three business units, although
operated independently,are complimentary, enabling Reptron to provide
customers with a wide range of products and value-added services,
as well as a single source for their product, material, logistics,
engineering, and assembly and test requirements.
- Increase Sales from Value-Added Services. Reptron seeks to
enhance sales by providing total customer solutions through its
value-added services. Reptron Distribution has developed a
comprehensive value-added service offering which includes inventory
control programs (e.g., bonded, consigned, just-in-time), in-plant
stores, automated inventory replenishment systems utilizing EDI and
other e-commerce technology, custom supply chain logistics services,
component programming, custom display solutions (through Applied
Instruments) and electronics manufacturing (through K-Byte
Manufacturing). These value-added programs allow the OEMs to reduce
their total acquisition costs for materials. An increasing percentage
of industry sales are being generated from value-added engagements and
management believes Reptron is well positioned to capitalize on this
trend. In 1999, approximately 25% of Reptron Distribution sales were
generated through value-added services.
- Target Manufacturing Customers in Specific Market Segments.
K-Byte Manufacturing follows a well-defined strategy in its EMS
business. K-Byte Manufacturing focuses on complex assemblies in
low-to-medium volumes for commercial and industrial customers.
Additionally, K-Byte Manufacturing seeks customers that will utilize
its ability to assemble customers' products by integrating printed
circuit board assemblies into other elements of the customers'
products (sometimes referred to as total "box build"). K-Byte
Manufacturing also seeks customer relationships in which K-Byte
Manufacturing is the primary source and avoids engagements requiring
an overflow supplier. K-Byte Manufacturing targets customers in a
variety of industries to establish diversity among customers and
industries served.
- Leverage Investments Made in its Manufacturing Facilities.
Reptron has invested in facilities that will allow it to expand its
business. Reptron believes its combined manufacturing facilities,
including Hibbing Electronics Corporation ("Hibbing") can accommodate
approximately $300 million in annual contract manufacturing net sales
based on the types of business currently transacted by K-Byte
Manufacturing. K-Byte Manufacturing's 1999 combined sales totaled
approximately $159 million. Consequently, there is
substantial capacity to support future sales growth.
- Expand Through Business Combinations and Internal Growth.
Reptron
seeks to expand its operations by further enhancing its supply chain
services offerings through the addition of services such as power
supply
integration and cable and harness assembly. Further, Reptron believes
that significant opportunities exist to expand its operations into
geographic areas that it currently does not serve and to increase its
presence in existing markets. This expansion of services and presence
can be attained through business combinations, by opening new sales
offices or by creating new business operations.
Recent Developments
On October 27, 1999, Reptron completed its acquisition of Applied
Instruments, of Fremont, California. Founded in 1987, Applied
Instruments provides display design engineering, systems integration
and turnkey manufacturing services to its OEM customers. Applied
Instruments has approximately 65 employees and generated approximately
$18 million in net sales in 1999. The transaction was recorded as an
asset purchase. At closing, Reptron paid $7.5 million cash and
assumed, among other stated liabilities, $1.4 million of bank debt.
Additional purchase consideration will be paid in annual installments
over the next three years based upon Applied Instruments performance.
Each of the annual installments cannot exceed $3.5 million.
Certain Considerations
Dependence upon Key Vendors. Many of the components distributed
by
Reptron Distribution are currently manufactured by a relatively small
number of independent vendors. Four vendors collectively accounted
for
approximately 34.2% and 32.0% of Reptron Distribution's net sales in
1999
and 1998, respectively (18.9% and 16.6% of Reptron's total 1999 and
1998
5
net sales, respectively). Reptron does not have long-term
distribution
contracts with its vendors. These contracts are non-exclusive and
typically are cancelable upon 30 days written notice.
Additionally, management believes that vendors are consolidating their
distribution relationships. Reptron's future success will depend, in
large part, on maintaining its vendor relationships. The loss of, or
significant disruptions in the relationship with, one or more of
Reptron's principal vendors could have a material adverse effect on
Reptron's future operating results. See "Reptron Distribution -
Vendors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Customer Concentration and Other Factors Affecting Operating
Results.
Reptron's business units have certain customers that account for a
significant part of their respective net sales. Reptron
Distribution's ten largest customers collectively represented 25.4%
of its net sales in both 1999 and in 1998 (14.0% and 13.2% of
Reptron's total net sales in 1999 and 1998, respectively). K-Byte
Manufacturing currently transacts business with approximately 83
customers with the largest three customers accounting
for approximately 11.1%, 7.7% and 6.9% of its net sales in 1999,
respectively, and 10.0%, 9.8% and 7.1% of its net sales in 1998,
respectively, (5.0%, 3.4% and 3.1% of Reptron's total net sales
in 1999, respectively, and 4.8%, 4.7% and 3.4% of Reptron's total
net sales in 1998, respectively). Applied Instruments transacted
business with approximately 10 customers in 1999 with total sales
less than 2% of Reptron's total net sales. The loss of one or more
of these major customers, or a reduction in their level of purchasing,
could have a material adverse effect on Reptron's business, results
of operations and financial condition. K-Byte Manufacturing's
operating results are affected by a number of factors, including
fixed plant utilization, price competition, K-Byte's ability to keep
pace with technological developments, the degree of automation that
can be used in an assembly process, efficiencies that can be achieved
by K-Byte in managing inventories and fixed assets, the timing of
rders from major customers, the timing of capital expenditures in
anticipation of increased sales, incurring substantial start-up costs
on new assemblies, customer product delivery requirements and
increased costs and shortages of components and labor. In addition,
because of the limited number of K-Byte Manufacturing's customers and
the corresponding concentration of its accounts receivable, the
insolvency or other inability or unwillingness of its customers to
pay for manufacturing services could have a material adverse effect
on Reptron's operating results. See - "Reptron Distribution -
Marketing and Customers" and "K-Byte Manufacturing - Marketing and
Customers."
Integration of Applied Instruments Acquisition. The successful
integration of Applied Instruments will depend upon several factors
including: (i) maintaining significant customers previously serviced
by Applied Instruments, (ii) maintaining key management of Applied
Instruments, and (iii) the ability to leverage the Reptron
Distribution sales force for future customers. There can be no
assurance that the expected benefits of this acquisition will be
realized or that this acquisition will not adversely affect the future
operating results of Reptron.
The Volume and Timing of Customer Sales May Vary. The volume and
timing of purchase orders placed by K-Byte Manufacturing's customers
are affected by a number of factors, including variation in demand for
customers' products, customer attempts to manage inventory and changes
in the customers' manufacturing strategies. K-Byte Manufacturing
typically does not obtain long-term purchase orders or commitments
but instead works with its customers to develop nonbinding forecasts
of future requirements. Based on such nonbinding forecasts, K-Byte
Manufacturing makes commitments regarding the level of business
that it will seek and accept, the timing of production schedules and
the levels and utilization of personnel and other resources. A
ariety of conditions, both specific to each individual customer and
generally affecting each customer's industry, may cause customers
to cancel, reduce or delay orders that were either previously
made or anticipated. Generally, customers may cancel, reduce or
delay purchase orders and commitments without penalty, except for
payment for services rendered, materials purchased and, in certain
circumstances, charges associated with such cancellation, reduction
or delay. Significant or numerous cancellations, reductions or delays
in orders by customers, or any inability by customers to pay for
services provided by Reptron or to pay for components and materials
purchased by Reptron on such customers' behalf, could have a material
adverse effect on Reptron's operating results.
Competition; Effects on Gross Margin. Reptron faces substantial
competition. Many of Reptron's competitors have international
operations and significantly greater manufacturing, financial,
marketing and research and development resources and broader name
recognition. Reptron Distribution faces competition from hundreds
of electronic component distributors of various sizes, locations
and market focuses (e.g., military, commercial, consumer) and competes
principally on the basis of product selection, reputation and customer
service. Vendor
representation and product diversity create segmentation among
distributors. Reptron Distribution has several primary competitors
that carry similar lines.
6
K-Byte Manufacturing and Applied Instruments compete in a highly
fragmented market composed of a diverse group of EMS providers.
Reptron believes that the key competitive factors in its markets are
manufacturing flexibility, price, manufacturing quality, advanced
manufacturing technology and reliable delivery. Additionally, K-Byte
Manufacturing faces the potential risk that its customers may elect
to produce their products internally thereby, eliminating
manufacturing
opportunities for K-Byte Manufacturing. There can be no assurance
that Reptron will be able to continue to compete effectively with
existing or potential competitors. In addition, gross margins in
the businesses in which Reptron compete have experienced fluctuation
depending upon market forces. See " - Competition."
Availability of Components. Reptron relies on third-party
suppliers for electronic components. Component shortages may have
a material adverse effect on Reptron's ability to service its
customers. At various times, there have been shortages of components
in the electronics industry and from time to time the supply of
certain
electronic components is subject to limited allocations. Many types
of
electronic components are currently on allocation from manufacturers
as overall demand is exceeding available supply. If shortages of
these or other components should continue to occur, Reptron may be
forced to delay shipment or to purchase components at higher prices
(that may not be able to be passed on to its customers), which may
have a material adverse effect on customer demand, Reptron's ability
to service customer needs or gross margins.
Any of these events could have a material adverse effect on Reptron's
operating results.
Dependence Upon Key Personnel. The success of Reptron to date
has been largely dependent upon the efforts and abilities of
Reptron's key managerial and technical employees. The loss of the
services of certain of these key employees or an inability to attract
or retain qualified employees could have a material adverse effect on
Reptron.
Management of Growth. Reptron has grown rapidly in recent years,
with combined net sales increasing from approximately $164.0 million
in 1994 to approximately $359.2 million in 1999. The ability to
continue this growth rate will depend upon several factors,
including Reptron's ability to recruit, train and retain a skilled
workforce to support its expanding operations. There can be no
assurance that Reptron will be able to sustain its historic rates
of net sales growth, develop the required workforce or manage any
future growth successfully. See "-Reptron
Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Volatility of Component Pricing. Reptron Distribution sells a
significant amount of commodity-type components that have
historically experienced volatile pricing. These components
include dynamic random access memory ("DRAM") and static random
access memory ("SRAM") products. If market pricing for these
components decreases significantly, Reptron may
experience periods when its investment in component inventory
exceeds the market price of such components. Such market conditions
could have a negative impact on sales and gross profit margins.
Most of the components sold through the memory module division
are not supplied under distribution agreements and consequently,
this inventory is not subject to those contractual protections
afforded under standard distribution agreements. See "-Reptron
Distribution - Vendors."
7
Reptron Distribution
Reptron was founded in 1973 in Detroit as a distributor of
electronic components. From 1973 through 1989, Reptron expanded
its operations by opening nine sales offices in the midwestern
and southeastern U.S. Additionally, sales offices were added
through a series of acquisitions: Reptron Distribution now
operates from 22 sales offices that allow Reptron to market to
over 85% of the total available electronic components market
in the U.S.
Products. Reptron Distribution represents over 60 vendor
lines and distributes more than 45,000 separate items. The products
that Reptron distributes can be broadly divided into three
main groups: semiconductors, passive products and electromechanical
components.
Semiconductors accounted for approximately 71% of Reptron
Distribution's net sales in 1999. Reptron Distribution's product
offering includes application specific integrated circuits
("ASICs"), flat panel displays, a variety of memory devices
(e.g., dynamic, static, programmable) and microprocessors and
controllers produced by over 25 vendors. Reptron represents a
number of leading semiconductor manufacturers, including
Hitachi, Sharp, OKI, and Samsung. Passive products and
electromechanical components accounted for the remaining 29% of
net sales of Reptron Distribution in 1999. Among these components
are capacitors, resistors, relays, power supplies and connectors
manufactured by over 35 vendors, such as Astec, Dale/Vishay,
Potter & Brumfield and Sprague/Vishay. Reptron Distribution's
largest four vendor lines represented 32.9% of Reptron Distribution's
net sales in 1999 (18.9% of Reptron's total net sales in 1999).
See "Certain Considerations-Dependence Upon Key Vendors."
Reptron Distribution's Memory Module division is devoted
solely to selling memory modules. This Memory Modules division
employs a separate sales and support staff that focuses on a different
market niche and customer base than is serviced by Reptron
Distribution. This division sells primarily to computer
integrators, retail stores, internet retailing and value-added
resellers. Sales in this niche are generally characterized by higher
volumes, lower gross profit margins and lower selling, general and
administrative expenses than other electronic component sales
generated by Reptron Distribution. Sales from the memory module
division accounted for 13.4% and 12.7% of Reptron Distribution's
net sales in 1999 and 1998, respectively (7.4% and 6.6% of
Reptron's total net sales in 1999 and 1998, respectively).
Services. Reptron Distribution sells to approximately 7,000
customers representing diverse industries including: robotics,
telecommunications, computers and computer peripherals, consumer
electronics, healthcare, industrial controls and contract
manufacturing. Services provided to these customers include
component sales, inventory replenishment programs, in-plant stores,
component programming and EDI, and other internet based
communications. During 1999 and 1998, approximately 26% and 31%,
respectively, of Reptron Distribution's net sales were generated
through these value-added services. Reptron believes that an
increasing percentage of Reptron Distribution's net sales will be
generated through its value-added services as customers continue
to search for ways to reduce costs. Reptron has invested
significantly in information technology and support staff to help
increase net sales from value-added services. For its vendors,
Reptron Distribution has developed product promotion and customer
identification programs that help vendors build recognition of
individual products and target and market to specific types of
customers.
Vendors. In selecting vendors to represent, Reptron Distribution
considers numerous factors, including product demand, availability
and compatibility with existing product lines. Reptron Distribution
has non-exclusive, geographically limited agreements with its
vendors for the sale of their products, which is customary in the
industry. Reptron Distribution's agreements with vendors do not
restrict Reptron from selling similar products manufactured by its
vendors competitors, and typically allow termination by either
party upon 30 to 90 days' notice.
Reptron Distribution's franchised vendors generally protect
Reptron
against potential write-downs of inventories based upon vendors' price
reductions or technological change. Under the terms of most of
Reptron
Distribution's franchised distributor agreements, if Reptron complies
with certain conditions, the vendor is required, pursuant to price
protection privileges, to credit Reptron for decreases in inventory
value resulting from reductions in the vendor's list prices of the
items. In addition, under the stock rotation terms of Reptron
Distribution's franchised distributor agreements, Reptron has the
right to return to the vendor for credit against current obligations
or future orders, a specified portion of those inventory items
purchased within a designated period. A vendor that elects to
8
terminate a distributor agreement is generally required to purchase
from Reptron the total amount of its products carried in inventory.
Reptron believes that its distributor agreements are on terms and
conditions consistent with industry standards. Most of the
components sold through the Memory Module division are not
supplied under distribution agreements with Reptron's vendors,
and consequently, this inventory is not subject to the price
protection and stock rotation privileges.
Marketing and Customers. Reptron Distribution has developed a
focused sales strategy. Large key accounts are identified in
each market and field sales personnel are assigned to serve
these accounts directly. All other customers in each market
are served by a corporate sales team which operates from Reptron's
corporate headquarters. The corporate sales team
also services customers in regions of the country where Reptron
does not have a sales office.
Reptron Distribution has approximately 7,000 customers located
throughout the United States. Reptron Distribution's customers
are in diverse industries, including robotics, telecommunications,
computers and computer peripherals, consumer electronics, healthcare,
industrial controls and contract manufacturing.
Property and Offices. Reptron owns a 77,500 square-foot
facility in Tampa, Florida, which houses centralized division
support personnel, the corporate sales team, management staff
and executive offices for Reptron Distribution. Reptron
Distribution's main warehouse is located in a portion
of a 150,000-square foot facility located adjacent to Reptron's
Tampa headquarters. Substantially all Reptron Distribution shipments
Originate from this warehouse. Reptron leases 22 office suites
serving
as sales offices for Reptron Distribution. These offices average
approximately 2,000 square feet in size and contain a small space for
warehousing of inventory and sales materials. Lease terms on
these facilities range from three to five years and expire at
various dates through August 2004. One of these facilities,
located in the Detroit area, is owned by the chief
executive officer of Reptron. The table below shows the location
of each office and the date it was established.
Office Date Established
Detroit, Michigan 1973
Chicago, Illinois 1979
Tampa, Florida 1982
Atlanta, Georgia 1985
Ft. Lauderdale, Florida 1985
Minneapolis, Minnesota 1986
Cleveland, Ohio 1988
Huntsville, Alabama 1988
Raleigh, North Carolina 1989
Philadelphia, Pennsylvania 1993
Baltimore, Maryland 1993
San Jose, California 1994
Boston, Massachusetts 1995
Hartford, Connecticut 1995
Hauppauge (Long Island), New York 1995
Irvine, California 1995
Los Angeles, California 1995
Portland, Oregon 1995
San Diego, California 1995
Seattle, Washington 1995
Salem, New Hampshire 1996
Dallas, Texas 1997
K-Byte Manufacturing
Reptron entered into the electronic manufacturing services
business through its acquisition of K-Byte Manufacturing in 1986.
K-Byte Manufacturing's net sales have grown from approximately
$2 million in 1986 to $159 million in 1999.
9
Manufacturing Operations. K-Byte Manufacturing provides turnkey
manufacturing services, including the purchase of customer-specified
components from its extensive network of component suppliers
(including Reptron Distribution), assembly of components on
printed circuit boards and performance of post production testing.
In addition, total box build assembly generated approximately
19.6% of K-Byte Manufacturing's 1999 net sales. K-Byte
Manufacturing attempts to perform as much of a given
manufacturing process as is feasible and generally does not perform
labor-only, consignment assembly functions unless management
believes that such engagements may provide a direct route to
turnkey contracts.
K-Byte Manufacturing provides design-for-manufacturability
engineering services as well as surface mount technology ("SMT")
conversion and pin through hole ("PTH") interconnection
technologies and printed circuit board layout services for existing
products. K-Byte Manufacturing also provides test process design
capabilities that include the design and development of
test fixtures and procedures and software for both in-circuit
tests and functional tests of circuit boards, components and products.
SMT is a computer-automated process that allows the placement
of a higher density of components directly on both sides of a printed
circuit board. The SMT process is more advanced than the PTH
technology which normally permits electronic components to be
attached to only one side of a printed circuit board by inserting
components into holes drilled through the board.
The SMT process allows OEMs to use advanced circuitry, while at
the same time permitting the placement of a greater number of
components on a printed
circuit board without having to increase the size of the board.
By allowing increasingly complex circuits to be packaged with the
components placed in closer proximity to each other, SMT greatly
enhances circuit processing speed and thus board and system
performance.
The SMT process allows a reduction in the number of printed circuit
boards required per system and allows the use of more fully automated
production processes.
K-Byte Manufacturing performs PTH assembly both manually and
with computer-automated component insertion and soldering equipment.
Although SMT is the leading interconnection technology, K-Byte
Manufacturing intends to continue providing PTH assembly services
for its customers. PTH is of continuing viability because most
printed circuit boards assembled using SMT require some PTH
assembly. In addition, certain current and prospective customers
have not shifted or do not wish to change their
manufacturing process to utilize SMT.
K-Byte Manufacturing is able to efficiently manage its materials
procurement and inventory management functions. The inherent
scheduling
and procurement challenges in low-to-medium volume production of a
large
number of different circuit board assemblies requires a high level of
expertise in material procurement. K-Byte Manufacturing obtains its
electronic components from a wide variety of manufacturers and
distributors, some of which are procured through Reptron Distribution.
Marketing and Customers. K-Byte Manufacturing follows a well-
defined
marketing strategy, which includes the following key elements:
- Target Customers Requiring Low-to-Medium Volume Production of
Multiple
Products. K-Byte Manufacturing focuses on complex assemblies in low-
to-
medium volumes for customers primarily in the telecommunications,
healthcare, industrial/instrumentation, banking and office products
industries. K-Byte Manufacturing does not manufacture high volume
printed
circuit board assemblies for the personal computer, consumer products
or
automotive industries. K-Byte Manufacturing targets customers
requiring a
high number of different circuit board assemblies, thereby seeking to
minimize its exposure to any one product made for a specific customer.
K-
Byte Manufacturing focuses on the low-to-medium volume batch business
because of its reduced volatility. K-Byte Manufacturing gains access
to a
significant number of these kinds of customers through its
relationship
with Reptron Distribution and the efforts of its direct sales force.
Additionally, K-Byte Manufacturing is still expanding its market and
customer development through independent sales representatives.
- Target Customer Relationships where K-Byte Manufacturing is the
Primary Source. K-Byte Manufacturing seeks engagements with customers
that have decided to strategically outsource substantially all circuit
board assembly. Consequently, K-Byte Manufacturing markets its
services
as a "partnership" with the customer and encourages the customer to
view
K-Byte Manufacturing as an extension of its own manufacturing
capabilities.
10
K-Byte Manufacturing attempts to avoid relationships where K-Byte
Manufacturing is used as an overflow supplier to manage volume
requirements.
- Maintain a Diverse Customer and Industry Base. K-Byte
Manufacturing
targets customers primarily in the telecommunications, healthcare,
industrial/instrumentation, banking and office products industries and
seeks to maintain a diversity of customers among these industries and
within each industry. In addition, K-Byte Manufacturing believes that
the
industries that it targets make products that generally have longer
life
cycles, more stable demand and less price pressure compared to
consumer
oriented products. Nevertheless, K-Byte Manufacturing's customers
from
time to time, experience downturns in their respective businesses
resulting
in fluctuations in demand for K-Byte Manufacturing's services. See
"-Certain Considerations - The Volume and Timing of Customer Sales may
Vary."
The marketing cycle for customers meeting these criteria typically
spans six-to-twelve months. Additionally, the start-up phase for an
engagement may run an additional six months. Typically, during this
phase,
significant investments are made by K-Byte Manufacturing and the
customer
to successfully launch a high number of different, complex circuit
board
assemblies. K-Byte Manufacturing works closely with its customers in
all
phases of design, start-up and production, and through this
cooperative
effort develops a close working relationship with the customer. These
relationships, and the investments made both in time and financial
resources by the customer and K-Byte Manufacturing, promote long-term
customer loyalty. K-Byte Manufacturing intends to deploy a broad
marketing
approach which includes the Reptron Distribution sales force,
manufacturers' sales representatives and a direct sales force.
K-Byte Manufacturing seeks to maintain diversity within its
customer
base and industries served. During 1999, K-Byte Manufacturing had
approximately 83 principal customers, with the largest three customers
representing 11.1%, 7.6% and 6.8% of K-Byte Manufacturing's 1999 net
sales (5.0%, 3.4% and 3.1% of total Reptron net sales). During 1998,
K-Byte Manufacturing had 89 principal customers, with the largest
three
customers representing 10.0%, 9.8% and 7.1% of K-Byte Manufacturing's
1998 net sales (4.8%, 4.7% and 3.4% of total Reptron net sales). The
following table sets forth the number of principal customers and
percentage
of K-Byte Manufacturing sales derived from various industries for 1998
and 1999.
1998 1999
Industry Customers % of Sales Customers % of
Sales
- - ------------------------- --------- ---------- --------- --------
- - --
Telecommunications 15 27.1% 19 16.9%
Healthcare 17 27.0% 17 22.1%
Industrial/Instrumentation 39 24.5% 41 31.0%
Banking 2 12.1% 2 9.4%
Office Products 9 5.6% 10 15.3%
Other 7 3.7% 4 5.3%
Manufacturing Facilities. K-Byte Manufacturing operates three
plants.
The Gaylord, Michigan 72,000 square foot manufacturing facility is
owned by
Reptron and was constructed in 1988. The Tampa, Florida 150,000
square
foot manufacturing and warehouse facility is owned by Reptron and was
completed in the first quarter of 1997. Hibbing leases a five
building
manufacturing campus in Hibbing, Minnesota, which totals 110,000
square
feet. These buildings are owned in part by four individuals on the
Hibbing's senior management team. These manufacturing facilities are
equipped with advanced SMT assembly equipment and PTH insertion
equipment.
K-Byte Manufacturing has a variety of automated and manual test
equipment
capable of performing in-circuit and functional testing, as well as a
skilled staff of technicians who perform customer-specific or
product-specific testing requirements.
The Tampa, Florida manufacturing plant accounted for approximately
26%
of K-Byte Manufacturing's 1999 net sales, with the Gaylord, Michigan
plant
totaling approximately 29% of 1999 net sales and the Hibbing
manufacturing
plant accounting for the remaining 43% of 1999 net sales.
11
Applied Instruments
On October 27, 1999, Reptron completed its acquisition of Applied
Instruments, of Fremont, California. Founded in 1987, Applied
Instruments
provides display design engineering, systems integration and turnkey
manufacturing services to its OEM customers. Applied Instruments has
approximately 65 employees and generated approximately $2.2 million in
net
sales in 1999 since the acquisition.
Manufacturing Operations. Applied Instruments provides superior
display design engineering and system integration of custom turnkey
industrial computer based products, system integration, video display
solutions (both CRT and flat panel technology) and outsource
manufacturing
resources to OEM clients.
Applied Instruments has extensive resources and capabilities for
the
design of custom turnkey products and solutions as well as in-depth
expertise of flat panel display video interfacing with both analog and
digital LCDs. Applied Instruments has introduced its new "Raptor II"
microprocessor-based LCD interface board. This board is used in
Applied's
own integration projects and is also marketed through several of the
larger distributors of flat panel displays in the United States.
Manufacturing Facilities. Applied Instruments operates from a
40,000
square foot facility in Fremont, California. This facility houses the
production staff, engineering group and senior staff of Applied
Instruments. Additionally, within this facility are both custom clean
rooms and burn-in chambers necessary to accommodate various customer
needs.
Marketing and Customers. Applied Instruments is committed to
providing
the highest quality design, manufacturing and system integration of
custom
turnkey products through their professional engineering personnel and
highly trained production staff. This group of dedicated people is
trained
to design quality into the manufacture of their customers' products.
Applied Instruments' customers include major corporations in the
medical
diagnostics, semiconductor robotic equipment, industrial automation,
and
in-flight entertainment markets.
During 1999, Applied Instruments had approximately 13 principal
customers with the largest three customers representing 33.3%, 24.2%
and 15.7% of Applied Instruments' 1999 net sales (and less than 2% in
total of Reptron's total net sales).
Competition
Reptron faces substantial competition. Many of Reptron's
competitors
in each division have international operations and significantly
greater
manufacturing, financial, marketing and research and development
resources
and broader name recognition than Reptron. Reptron Distribution faces
competition from hundreds of electronic component distributors of
various
sizes, locations and market focuses (e.g. military, commercial,
consumer)
and competes principally on the basis of product selection and value-
added
customer service. Vendor representation and product diversity create
segmentation among distributors. Reptron Distribution has several
primary
competitors that carry similar significant Asian semiconductor
vendors,
as well as competitors who manufacture electronic components
domestically.
Reptron Distribution attempts to differentiate itself from these
competitors through its wide offering of value-added services,
including
electronics manufacturing services through K-Byte Manufacturing and
Applied Instruments.
K-Byte Manufacturing competes in a highly fragmented market
composed
of a diverse group of EMS providers. K-Byte Manufacturing
believes that the key competitive factors in its markets are
manufacturing flexibility, price, manufacturing quality, advanced
manufacturing technology and reliable delivery. Many EMS providers
operate high-volume facilities and focus on target markets, such as
the computer industry, that K-Byte Manufacturing does not seek to
serve.
K-Byte Manufacturing considers its key competitive advantages to
include
its expertise in low-to-medium volume, flexible batch processing, its
provision of value-added services and its material management
techniques.
Reptron believes that K-Byte Manufacturing's expertise in flexible,
batch processing differentiates it from its high-volume competitors
because of the relative complexity of economically fulfilling a large
number of batch contracts. Reptron believes that by focusing on
12
low-to-medium volume production runs, by manufacturing products using
Reptron Distribution's product line and by leveraging Reptron
Distribution's sales force and customer base, K-Byte Manufacturing
competes effectively.
See "- Certain Considerations-Competition; Effects on Gross Margin."
Applied Instruments competes in a highly fragmented market
composed
of a diverse group of display integration and electronic component
distributors that have strategic alliances with display integration
companies. Most of these competitors do not possess the engineering
capability and manufacturing expertise of Applied Instruments.
Reptron
believes that market reputation combined with a high degree of
technical
competency, has allowed Applied Instruments to compete very
effectively
in the marketplace.
Management Information Systems
Reptron has made significant investments in computer hardware,
software and MIS personnel. The Reptron Distribution, K-Byte
Manufacturing and Applied Instruments's MIS departments employ
approximately 32 individuals who are responsible for hardware
upgrades, maintenance of current software and related databases and
augmenting software packages with custom programming. Reptron
currently maintains an internet web page that provides a wide variety
of information, as well as, links to vendors and customers. Reptron's
expanded use of web based technologies include enhanced e-mail and
interactive use of the Reptron intranet for data warehouse
applications
such as quality documentation, human resources documentation,
MIS systems documentation and interactive corporate forms. Reptron
operates MIS departments within Reptron Distribution and K-Byte
Manufacturing with UNIX-based software packages written in a fourth
generation language.
The UNIX-based software packages used by Reptron Distribution and
K-Byte Manufacturing may be operated on a variety of hardware
platforms.
Therefore, neither division is restricted to the use of computer
hardware from any one supplier and do not have the constraints
associated with proprietary hardware or software.
Reptron Distribution operates an integrated distribution software
package that has been greatly enhanced with custom programming. This
system allows management to direct the entire Reptron Distribution
operation by connecting all 22 sales offices to the corporate
headquarters
K-Byte Manufacturing operates an integrated MRP II package which
has
also been greatly enhanced by its MIS staff through custom
programming.
This system is used to operate and integrate K-Byte's manufacturing
plants
with central administrative functions and is currently being
implemented
into the MIS system of Hibbing Electronics.
Applied Instruments operates on a newly acquired integrated
software
package, MAS90. This client-server software has minimal hardware
performance requirements and interfaces with a number of database
formats, allowing the flexibility of utilizing third-party reporting
tools.
Employees
As of March 15, 2000, Reptron employed 2,109 persons, of whom 412
were dedicated to Reptron Distribution, 1,620 were dedicated to K-Byte
Manufacturing, 65 were dedicated to Applied Instruments and 12 were
corporate employees. Hourly employees at the manufacturing plant in
Hibbing, Minnesota are covered under a collective bargaining agreement
with the International Brotherhood of Electrical Workers. The current
term of the collective bargaining agreement expires in September 2000.
Item 2. Properties
Reptron occupies a number of facilities located throughout the
United
States. Currently, it operates four manufacturing facilities, 22
sales
offices, one main warehouse and a corporate headquarters facility.
Owned facilities. Reptron owns a 77,500 square foot facility in
Tampa,
Florida which houses corporate personnel, management staff and
executive
offices for Reptron Distribution. The Tampa sales office and
corporate
13
sales operations for Reptron Distribution are also located in this
facility. Reptron also owns a 150,000 square foot facility located on
property adjacent to the corporate headquarters facility which the
Tampa
K-Byte Manufacturing plant and administrative offices and the main
Warehouse for Reptron Distribution occupy. Reptron also owns a
72,000 square foot K-Byte Manufacturing facility in Gaylord, Michigan,
which is subject to a mortgage of approximately $242,000.
Leased facilities. Reptron leases 22 office suites serving as
sales offices for Reptron Distribution. These offices average
approximately 2,000 square feet in size and contain a small space for
warehousing inventory and sales materials. Lease terms on these
offices range from three to five years and expire at various dates
through August, 2004. One of these locations, in the Detroit area, I
s owned by the Chief Executive Officer of Reptron.
Reptron also leases a total of 110,000 square feet of
manufacturing and administrative offices for the Hibbing manufacturing
operation. Lease terms on the buildings expire December, 2002.
These properties are owned, in part, by four individuals on the senior
management team of the Hibbing manufacturing operation.
Reptron also leases a total of 40,000 square feet of
manufacturing and administrative offices for the Applied Instruments
operation in Fremont, California. Lease terms on the buildings
expire July 31, 2004.
Item 3. Legal Proceedings
Reptron has received a demand alleging patent infringement from
the Lemelson Medical, Education & Research Foundation Limited
Partnership ("Lemelson"). Lemelson alleges that Reptron is infringing
upon patents held by Lemelson relating to its manufacturing processes.
Lemelson has asserted similar claims against other companies in
Reptron's industry, as well as against companies in other
industries. Lemelson has offered to license the patents alleged
to be infringed. Based on Reptron's understanding of the terms
that Lemelson has made available to other licensees, Reptron believes
that obtaining a license from Lemelson under the same or similar
terms would not have a material adverse effect on its results of
operations or financial condition. Reptron has not yet determined
whether to accept or seek such a license. However, if a license is
effectuated, Reptron cannot assure that its terms, or the ultimate
resolution of this matter, will not have a material adverse effect on
Reptron's operating results or financial condition.
Reptron is, from time to time, involved in litigation relating to
claims arising out of its operations in the ordinary course of
business.
Reptron believes that none of these claims, which were outstanding as
of
December 31, 1999, should have a material adverse impact on its
financial
condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Reptron's security holders
during the fourth quarter of the fiscal year ending December 31, 1999.
14
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Reptron's common stock is traded on The NASDAQ National Market
System
under the symbol "REPT". The following table sets forth, for the
periods
indicated, the high and low bid prices of the common stock as
reported by
the NASDAQ National Market System.
Fiscal 1998 High Low
---------- ---- ---
First Quarter $12 7/8 $10 3/8
Second Quarter $14 1/4 $ 9 1/2
Third Quarter $11 11/16 $ 4 1/2
Fourth Quarter $ 6 7/16 $ 3 7/8
Fiscal 1999 High Low
----------- ---- ---
First Quarter $ 5 1/2 $ 3 1/4
Second Quarter $ 4 3/4 $ 2 1/2
Third Quarter $ 7 1/2 $ 3 1/2
Fourth Quarter $ 8 7/8 $ 4 3/8
Fiscal 2000 High Low
----------- ---- ---
First Quarter (through March 22, 2000) $10 5/8 $ 7 5/8
On March 22, 2000 the last sale price of the common stock, as
reported
by The NASDAQ National Market System was $10 per share.
As of March 22, 2000, there were approximately 100 holders of
record
of Reptron's common stock and approximately 1,500 beneficial
shareholders.
Reptron has never declared or paid dividends on its common stock.
Reptron does not intend, for the foreseeable future, to declare or pay
any cash dividends and intends to retain earnings, if any, for the
future
operation and expansion of Reptron's business. Reptron's current line
of
credit prohibits the payment of dividends.
15
Item 6. Selected Financial Data
The following table summarizes selected financial data of the
Company
and should be read in
conjunction with Financial Statements and Notes thereto and
"Management's
Discussion and Analysis of Financial Condition and Results of
Operations"
included elsewhere herein.
<TABLE>
Year Ended December 31,
-------------------------------------
- - ---------
1995 1996 1997
1998 1999
--------- --------- --------- ---
- - ------ ---------
(In thousands, except share and
per share data)
Operating Statement Data:
<S> <C> <C> <C>
<C> <C>
Net sales, Electronic Component
Distribution $ 140,146 $ 168,279 $ 187,267 $
156,507 $ 198,132
Net sales, Electronic Manufacturing
Services 83,198 100,658 116,644
146,282 161,085
--------- --------- --------- ----
- - ----- ---------
Total net sales $ 223,344 $ 268,937 $ 303,911 $
302,789 $ 359,217
========= ========= =========
========= =========
Gross profit, Electronic Component
Distribution $ 26,057 $ 34,214 $ 35,375 $
25,081 $ 34,525
Gross profit, Electronic Manufacturing
Services 13,531 17,382 18,780
12,847 17,249
--------- --------- --------- ---
- - ------ ---------
Total gross profit 39,588 51,596 54,155
37,928 51,774
Selling, general and administrative
expenses 26,011 34,770 38,154
51,206 55,902
--------- --------- --------- ---
- - ------ ---------
Operating income (loss) 13,577 16,826 16,001
(13,278) (4,128)
Interest expense, net 2,767 4,025 6,184
8,339 8,582
-------- --------- --------- ----
- - ----- ---------
Earnings (loss) before income
taxes 10,810 12,801 9,817
(21,617) (12,710)
Income tax provision (benefit) 4,324 5,148 3,677
(8,470) (4,703)
--------- --------- ---------
- - --------- ---------
Net earnings (loss) before
extraordinary item 6,486 7,653 6,140
(13,147) (8,007)
Extraordinary gain on extinguishment
Of debt, net - - -
- 12,776
--------- --------- ---------
- - --------- ---------
Net earnings (loss) $ 6,486 $ 7,653 $ 6,140
$
(13,147) $ 4,769
========= ========= =========
========= =========
Net earnings (loss) per share
- basic $ 1.07 $ 1.26 $ 1.01
$ (2.15) $ .78
========= ========= =========
========= =========
Weighted average number of shares
used in computing above amounts 6,046,159 6,058,889 6,077,084
6,118,023 6,151,563
========= ========= =========
========= =========
Net earnings (loss) per share
- diluted $ 1.05 $ 1.24 $ .98
$ (2.15) $ .78
========= ========= =========
========= =========
Weighted average number of shares
used in computing above amounts 6,163,094 6,179,458 6,247,040
6,118,023 6,151,563
========= ========= =========
========= =========
December
31,
---------------------------------
- - ------------------------
1995 1996 1997
1998 1999
--------- --------- ---------
- - --------- ---------
(In
thousands)
Balance Sheet Data:
Working capital $ 75,629 $ 77,231 $ 137,572
$ 101,829 $ 95,677
Total assets 133,738 138,632 222,514
210,084 215,853
Long-term obligations, including
current portion 65,110 67,345 133,693
133,163 119,797
Shareholders' equity 40,948 48,690 54,975
42,126 46,960
</TABLE>
16
Item 7. Management's Discussion and Analysis of Financial Condition
and
Results of Operations
This document contains certain forward-looking statements that
involve a
number of risks and uncertainties. Such forward-looking statements
are
within the meaning of that term in Section 27A of the Securities Act
of
1933, as amended and Section 21E of the Securities Exchange Act of
1934, as
amended. Factors that could cause actual results to differ materially
include the following: business conditions and growth in Reptron's
industry
and in the general economy; competitive factors; risks due to shifts
in
market demand; the ability of Reptron to complete acquisitions; and
the risk
factors listed from time to time in Reptron's reports filed with the
Securities and Exchange Commission as well as assumptions regarding
the
foregoing. The words "believe", "plans", "estimate", "expect",
"intend",
"anticipate", and similar expressions and variations thereof identify
certain of such forward-looking statements, which speak only as of the
dates on which they were made. Reptron undertakes no obligation to
publicly update or revise any forward-looking statements, whether as
a result of new information, future events, or otherwise. Readers are
cautioned that any such forward-looking statements are not guarantees
of future performance and involve risks and uncertainties, and
that actual results may differ materially from those indicated in
the forward-looking statements as a result of various factors.
Readers are cautioned not to place undue reliance on these forward-
looking statements.
This Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included
elsewhere in this report.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of the Company's net sales represented by each line item
presented, except for Reptron Distribution and Electronic
Manufacturing Services gross profit, which is presented as a
percentage of net sales of the respective segments:
<TABLE>
Year Ended December
31,
-------------------------
- - -----
1997 1998
1999
-------- -------- ---
- - -----
<S> <C> <C>
<C>
Net sales, Electronic Component Distribution. 61.6% 51.7%
55.2%
Net sales, Electronic Manufacturing Services. 38.4 48.3
44.8
-------- -------- ---
- - -----
Total net sales .......................... 100.0% 100.0%
100.0%
======== ========
========
Gross profit, Electronic Component Distribution 18.9% 16.0%
17.4%
======== ========
========
Gross profit, Electronic Manufacturing Services 16.1% 8.8%
10.7%
======== ========
========
Total gross profit ............................ 17.8% 12.5%
14.4%
Selling, general and administrative expenses .. 12.6 16.9
15.5
-------- -------- ---
- - -----
Operating income (loss) .................... 5.2 (4.4)
(1.1)
Interest expense, net .......................... 2.0 2.8
2.4
-------- -------- ---
- - -----
Earnings (loss) before income taxes ......... 3.2% (7.2)%
(3.5)%
======== ========
========
Net earnings (loss) before extraordinary item 2.0% (4.3)%
(2.2)%
Extraordinary gain on extinguishment of debt,net - -
3.5%
-------- -------- ---
- - -----
Net earnings (loss) .......................... 2.0% (4.3)%
1.3%
======== ========
========
</TABLE>
1999 Compared to 1998
Net sales. Total net sales increased $56.4 million, or 18.6%,
from $302.8 million in 1998 to $359.2 million in 1999.
17
Reptron Distribution net sales increased $41.6 million, or 26.6%,
from $156.5 million in 1998 to $198.1 million in 1999. This
significant
increase in sales resulted primarily from an improving market for
sale of electronic components in the United States. Additionally,
Reptron distribution has increased its work force by approximately
21% in 1999 to help promote sales. The largest Reptron Distribution
customer accounted for approximately 5.2% and 5.3% of Reptron
Distribution net sales and 2.7% each of total Company net sales in
1999 and 1998, respectively. The highest volume sales
office accounted for 13.4% and 12.7% of Reptron Distribution net
sales in 1999 and 1998, respectively.
Sales of semiconductors, passive components and electromechanical
components accounted for 71.3%, 20.9% and 7.8%, respectively, of
Reptron Distribution 1999 net sales. Reptron Distribution's 1998
net sales were comprised of 67.3% semiconductors, 22.5% passive
components and 10.2% electromechanical components. Representation
by Reptron Distribution of its major vendor lines remained relatively
stable with sales from the top four
vendors accounting for approximately $67.9 million, or 34.2% of
Reptron Distribution 1999 net sales, as compared with approximately
$50.1 million, or 32.0% of Reptron Distribution 1998 net sales.
Electronic Manufacturing Services net sales increased $14.8
million, or 10.1%, from $146.2 million in 1998 to $161.0 million in
1999. Net sales generated by Applied Instruments, acquired on
2000. October 27, 1999, were approximately $2.2 million in 1999.
2001. New customers accounted for an increase of $8.1 million in
2002. net sales. K-Byte Manufacturing transacted
business with approximately 83 customers in 1999. The three
largest customers represented approximately 11.1%, 7.7% and 6.9%,
respectively, of the division's 1999 net sales (5.0%, 3.4% and 3.1%,
respectively, of Reptron's total 1999 net sales). Sales by industry
segment for 1999 and 1998 are as follows:
<TABLE>
1999 1998
Industry Percent of K-Byte Sales
<S> <C> <C>
Industrial/Instrumentation 31.0% 24.5%
Healthcare 22.1% 27.0%
Telecommunications 16.9% 27.1%
Banking 9.4% 12.1%
Other 20.6% 9.3%
</TABLE>
The Tampa, Florida, Gaylord, Michigan and Hibbing, Minnesota
manufacturing plants, and Applied Instruments plant accounted for
approximately 26.2%, 29.5%, 43.0% and 1.3%, respectively, of
Electronic Manufacturing Services 1999 total net sales.
Gross Profit. Total gross profit increased $13.8 million,
or 36.4% from $37.9 million in 1998 to $51.8 million in 1999.
Gross margin increased from 12.5% in 1998 to 14.4% in 1999.
Reptron Distribution's gross profit increased $9.4 million,
or 37.5% from $25.1 million in 1998 to $34.5 million in 1999 and
the gross margin increased from 16.0% in 1998 to 17.4% in 1999.
This increase in gross margin is primarily attributed to stronger
semiconductor market conditions, improving selling and pricing
practices and lower inventory write downs versus 1998.
EMS gross profit increased $4.4 million, or 34.4% from $12.8
million in 1998 to $17.2 million in 1999. Gross margin increased
rom 8.8% in 1998 to 10.7% in 1999. This increase in gross margin
is primarily attributed to the better utilization of fixed overhead
at higher sales levels, improved material pricing and lower
inventory write downs versus 1998.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased $4.7 million, or 9.2% from $51.2
million in 1998 to $55.9 million in 1999. Applied Instruments
accounted for approximately $549,000 of the increase in 1999. The
remaining increase was primarily due to investments in sales
operations, management information systems, and engineers
18
Interest Expense. Net interest expense increased $243,000, or
2.9%
from $8.3 million in 1998 to $8.6 million in 1999. This increase is
primarily attributed to a $20.6 million increase in average
outstanding
net debt, from $100.8 million during 1998 to $121.4 million during
1999.
1998 Compared to 1997
Net sales. Total net sales decreased $1.1 million, or 0.4%, from
$303.9
million in 1997 to $302.8 million in 1998.
Reptron Distribution net sales decreased $30.8 million, or 16.4%,
from $187.3 million in 1997 to $156.5 million in 1998. This decrease
was, in part, attributed to an $18.0 million decrease in sales to a
single customer from $26.3 million in 1997 to $8.3 million in 1998.
Additionally, severe price erosion, primarily due to abundant supply
of many types of electronic components sold by Reptron Distribution,
had a negative effect on net sales. The largest Reptron Distribution
customer accounted for approximately 5.3% and 14.0% of Reptron
Distribution net sales and 2.7% and 9.2% of total
Company net sales in 1998 and 1997, respectively. The highest
volume sales office accounted for 12.7% and 20.9% of Reptron
Distribution net sales in 1998 and 1997, respectively.
Sales of semiconductors, passive components and electromechanical
components accounted for 67.3%, 22.5% and 10.2%, respectively, of
Reptron Distribution 1998 net sales. Reptron Distribution's 1997
net sales were comprised of 66.8% semiconductors, 24.9% passive
components and 8.3% electromechanical components. Representation
by Reptron Distribution of its major vendor lines remained
relatively stable with sales from the top four vendors accounting for
approximately $50.1 million, or 32.0% of Reptron
Distribution 1998 net sales, as compared with approximately
$60.9 million, or 32.5% of Reptron Distribution 1997 net sales.
K-Byte Manufacturing net sales increased $29.7 million, or 25.4%,
from $116.6 million in 1997 to $146.3 million in 1998. Net sales
generated by Hibbing, acquired on May 29, 1998, were approximately
$33.1 million in 1998. New customers accounted for an increase of
$1.6 million in net sales, which was off-set by a net decrease in
net sales of $5.0 million, primarily attributable to reductions in
customer orders from the previously existing K-Byte Manufacturing
customer base. K-Byte Manufacturing transacted business with
approximately 89 customers (inclusive of 48 Hibbing customers)
in 1998. The three largest customers represented approximately
10.0%, 9.8% and 7.1%, respectively, of the division's 1998 net
sales (4.8%, 4.7% and 3.4%, respectively, of Reptron's total
1998 net sales). Sales to customers in the telecommunications
industry accounted for approximately 27.1% of K-Byte Manufacturing
1998 net sales, while sales to customers in the healthcare ,
industrial/instrumentation and banking industries accounted for
approximately 27.0%, 24.5% and 12.1%, respectively, of K-Byte
Manufacturing 1998 net sales. K-Byte Manufacturing's 1997 net
sales included 29.2%, 22.0%, 20.5%, and 19.0% from the
industrial/instrumentation, healthcare,
telecommunications and banking industries, respectively.
The Tampa, Florida, Gaylord, Michigan and Hibbing, Minnesota
manufacturing plants accounted for approximately 41.7%, 35.8% and
22.5%, respectively, of K-Byte Manufacturing 1998 total net sales.
Gross Profit. Total gross profit decreased $16.3 million, or
30.0% from $54.2 million in 1997 to $37.9 million in 1998. Gross
margin decreased from 17.8% in 1997 to 12.5% in 1998.
Reptron Distribution gross profit decreased $10.3 million, or
29.1% from $35.4 million in 1997 to $25.1 million in 1998 and
the gross margin decreased from 18.9% in 1997 to 16.0% in 1998. T
his decrease in gross margin is primarily attributed to an industry-
wide
decrease in average selling prices, sales mix shift to lower margin
products and the write down of certain inventory due to the loss
of certain vendor lines and the acceleration of industry-wide
price declines.
K-Byte Manufacturing gross profit decreased $6.0 million, or
31.6% from $18.8 million in 1997 to $12.8 million in 1998.
Gross margin decreased from 16.1% in 1997 to 8.8% in 1998. This
decrease in gross margin is primarily attributed to the under
utilization of fixed costs and overhead at current
sales levels, a change in customer demand to a sales mix of lower
margin business, the amortization of capitalized costs and the
write off of certain capitalized costs and inventory.
19
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased $13.0 million, or 34.2% from
$38.2 million in 1997 to $51.2 million in 1998. Hibbing accounted for
approximately $3.3 million of the increase in 1998. The remaining
increase was primarily due to investments in sales operations,
management information systems, engineers and senior management;
the costs associated with the aborted All American Semiconductor
transaction, the write-off of certain bad debts; the
costs of consultants used in re-engineering the manufacturing
process and employee severance costs.
Interest Expense. Net interest expense increased $2.1 million,
or 34.8% from $6.2 million in 1997 to $8.3 million in 1998.
This increase is primarily attributed to the increase in average
outstanding net debt (total debt less invested cash reserves) of
$28.1 million, or 38.7% from $72.7 million during 1997 to $100.8
million during 1998. This $28.1 million increase in average
outstanding net debt during 1998 is primarily attributed to the
decrease in cash as a result of the May, 1998 purchase of Hibbing.
Currency Fluctuation
Reptron pays for its purchases from foreign sources, including
Asian manufacturers, in U.S. dollars, which reduces the adverse
effects of currency fluctuations. Reptron has not experienced
substantial adverse effects from currency fluctuations to date.
Liquidity and Capital Resources
Reptron primarily finances its operations through subordinated
notes, operating cash flows, bank credit lines, capital equipment
leases and short-term financing through supplier credit lines.
On January 8, 1999, Reptron entered into a $50.0 million Revolving
Credit Agreement ("Credit Agreement") with PNC Bank (the "Lender") to
replace its existing $15.0 million revolving credit facility with
NationsBank (the "NationsBank Credit Facility"). In October, 1999
the Credit Agreement was increased to $60.0 million. Borrowings
under the Credit Agreement are collateralized by all of Reptron's
inventory, accounts receivable, equipment and general intangibles.
The Credit Agreement limits the amount of capital expenditures
and prohibits the payment of dividends thereby restricting the
distribution of the retained earnings of Reptron.
Reptron may, at its option, and upon notice to the lender,
request advance funds pursuant to either a Domestic Rate Loan
or a Eurodollar Rate loan. Upon notice to the Lender, Reptron may
convert advances from one type of loan to the other. Amounts
outstanding under the Credit Agreement as of December 31, 1999 were
approximately $37.4 million. As of December 31, 1999, Reptron was
in compliance with, or received waivers, on all covenants under
the Credit Agreement.
Reptron has entered into various capital lease transactions
with several financial institutions to finance capital expenditures,
primarily for the K-Byte Manufacturing operation. These leases had
an aggregate balance of $3.8 million as of December 31, 1999. The
leases bear interest at rates ranging from approximately 7.5% to
11.1% and expire at various dates through July, 2002.
Reptron's operating activities used cash of approximately $5.7
million in 1999. This decrease was primarily a result of an increase
in accounts receivable of $11.1 million, an increase in inventories
of $10.8 million, a decrease in accrued expenses of $3.7 million,
and a decrease in deferred revenue of $70,000. These items were
offset by an increase in accounts payable of $15.7 million, an
increase in income taxes payable of $966,000 and a decrease in prepaid
expenses and other current assets of $7.2 million. The increase in
inventory and accounts receivable is primarily a result of the
expansion in sales during the second half of 1999. Inventory turns
improved slightly from 3.4 to 3.5 turns in 1999 and accounts
receivable
collections improved to an average of 53 days as of December 31, 1999
from an average of 57 days as of December 31, 1998.
Reptron used cash of approximately $11.9 million in investing
activities in 1999, comprised of approximately $8.0 million in
connection with the acquisition of Applied Instruments and $3.9
million in purchase of property, plant and equipment. Reptron
redeemed
approximately $38.7 million of subordinated notes in 1999 for about
$16.2 million in cash. Additionally, the
20
Company increased its outstanding debt due under the Credit Agreement
by approximately $37.4 million. This increase was necessary to
finance rapidly growing operations.
Reptron believes that cash generated from operations, available
cash reserves and available credit facilities will be sufficient
or Reptron to meet its capital expenditures and working capital needs
for its operations as presently conducted. Reptron's future liquidity
and cash requirements will depend on a wide range of factors,
including the level of business in existing operations, expansion
of facilities and possible acquisitions. In particular, if cash
flows from operations and available credit facilities
are not sufficient, it will be necessary for Reptron to seek
additional
financing. While there can be assurance that such financing would be
available in amounts and on terms acceptable to Reptron, Reptron
believes that such financing would likely be available on acceptable
terms.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Reptron entered into an interest rate swap agreement during 1997.
The swap agreement effectively converts a portion of Reptron's
floating interest rate debt to fixed interest rate debt. Notional
amounts of interest rate swap agreements are used to measure interest
to be paid or received relating to such agreements and do not
represent
an amount of exposure to credit loss. Under the terms of the
agreement,
Reptron is obligated to pay interest on a notional amount to the
extent that the fixed rate of 6.99%, under the interest rate
swap agreement, exceeds the LIBOR rate, as measured pursuant to
the agreement. Furthermore, Reptron will receive interest to
the extent that the LIBOR rate exceeds the fixed rate. As of
December 31, 1999, the notional amount of the swap agreement totaled
approximately $7.7 million which will mature in March, 2004. Interest
received, if any, as a result of this agreement is netted against
interest
expense in the accompanying consolidated statements of operations.
Based
on average floating rate borrowings outstanding throughout 1999, a 100
basis
point change in LIBOR would have caused Reptron's interest expense
to change by approximately $81,000. Reptron believes that this
amount is not significant to the 1999 results of operations.
On March 27, 2000, the Company terminated the swap agreement at
no additional costs.
Item 8. Financial Statements and Supplementary Data
The financial statements required by this Item are contained
in pages F-1 through F-23 of this Report.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this Item is incorporated by reference to
the definitive proxy statement to be filed by Reptron for the Annual
Meeting of Shareholders to be held May 22, 2000.
Item 11. Executive Compensation
Information required by this Item is incorporated by reference to
the definitive proxy statement to be filed by Reptron for the Annual
Meeting of Shareholders to be held May 22, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information required by this Item is incorporated by reference to
the definitive proxy statement to be filed by Reptron for the Annual
Meeting of Shareholders to be held May 22, 2000.
Item 13. Certain Relationships and Related Transactions
Information required by this Item is incorporated by reference to
the definitive proxy statement to be filed by Reptron for the Annual
Meeting of Shareholders to be held May 22, 2000.
22
REPTRON ELECTRONICS, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1998 and 1999 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 F-4
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1997, 1998 and 1999 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE F-22
Schedule II -- Valuation and Qualifying Accounts for
the years ended December 31, 1997, 1998 and 1999 F-23
Report Of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
Reptron Electronics, Inc.
We have audited the accompanying consolidated balance sheets of
Reptron
Electronics, Inc. and its wholly owned subsidiaries as of December 31,
1998 and 1999, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in
the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
Standards in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Reptron Electronics, Inc. as of December 31, 1998 and
1999, and the consolidated results of operations and cash flows
for each of the three years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles in the
United States.
GRANT THORNTON LLP
Tampa, Florida
February 8, 2000
F-2
REPTRON ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
ASSETS
December 31,
1998
1999
--------
- - --------
<S> <C>
<C>
CURRENT ASSETS
Cash and cash equivalents $ 10,065
$ 108
Accounts receivable - trade, less allowances
for doubtful accounts of $483 and $609, respectively 49,503
62,754
Inventories, net 69,331
82,553
Prepaid expenses and other 9,296
2,118
Deferred tax benefit 2,295
- - -
-------
- - -------
Total current assets 140,490
147,533
PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 38,273
34,997
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET 25,527
30,507
OTHER ASSETS 5,794
2,816
-------
- - -------
$210,084
$215,853
=======
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 25,542
$ 42,062
Current portion of long-term obligations 3,866
3,280
Accrued expenses 9,183
6,068
Deferred Revenue 70
- - -
Income taxes payable -
446
-------
- - -------
Total current liabilities 38,661
51,856
NOTE PAYABLE TO BANK -
37,413
LONG-TERM OBLIGATIONS, less current portion 129,297
79,104
DEFERRED INCOME TAXES -
520
SHAREHOLDERS' EQUITY
Preferred Stock - authorized 15,000,000
shares of $.10 par value; no shares issued -
- - -
Common Stock - authorized, 50,000,000 shares of
$.01 par value; issued and outstanding,
6,147,119 and 6,167,119 shares, respectively 61
62
Additional paid-in capital 21,676
21,740
Retained earnings 20,389
25,158
-------
- - -------
42,126
46,960
-------
- - -------
$210,084
$215,853
=======
=======
</TABLE>
The accompanying notes are an integral part of these
statements.
F-3
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share data)
<TABLE>
Year Ended
December 31,
---------------------
- - -------------
1997 1998
1999
---------- ---------
- - - ----------
<S> <C> <C>
<C>
Net sales $ 303,911 $
302,789 $ 359,217
Cost of goods sold 249,756
264,861 307,443
--------- --------
- - - ---------
Gross profit 54,155
37,928 51,774
Selling, general and administrative expenses 38,154
51,206 55,902
--------- --------
- - - ---------
Operating income (loss) 16,001
(13,278) (4,128)
Interest expense, net 6,184
8,339 8,582
--------- --------
- - - ---------
Earnings (loss) before income taxes 9,817
(21,617) (12,710)
Income tax provision (benefit) 3,677
(8,470) (4,703)
--------- --------
- - - ---------
Net earnings (loss) before extraordinary item 6,140
(13,147) (8,007)
Extraordinary gain on extinquishment of debt,
net of tax of $8,518 -
- - -
12,776
--------- --------
- - -
- - ---------
Net earnings (loss) $ 6,140
$(13,147) $
4,769
=========
========= =========
Net earnings (loss) per common share - basic
And diluted:
Loss before extraordinary item $ 1.01 $
(2.15) $ (1.30)
Extraordinary gain -
- - -
2.08
--------- --------
- - -
- - ---------
Net earnings (loss)per common share -
Basic and diluted $ 1.01 $
(2.15) $
.78
=========
========= =========
Weighted average Common Stock
shares outstanding - basic 6,077,084
6,118,023 6,151,563
=========
========= =========
Net earnings (loss) per common share - diluted $ .98 $
(2.15) $
.78
=========
========= =========
Weighted average Common Stock equivalent
share outstanding - diluted 6,247,040
6,118,023 6,151,563
=========
========= =========
</TABLE>
The accompanying notes are an integral part of these
statements.
F-4
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
Total Additional
Shares Par Paid-In
Retained Shareholders'
Outstanding Value Capital
Earnings Equity
----------- ----- -------- ------
- - -- --------
<S> <C> <C> <C> <C>
<C>
Balance at January 1, 1997 6,065,519 61 21,233 27,396
48,690
Exercise of stock options 22,850 - 145
- - - 145
Net earnings - - -
6,140 6,140
--------- --- ------ -----
- - -- -------
Balance at December 31, 1997 6,088,369 61 21,378
33,536 54,975
Exercise of stock options 58,750 - 298
- - - 298
Net loss - - -
(13,147) (13,147)
--------- --- ------ -----
- - -- -------
Balance at December 31, 1998 6,147,119 61 21,676
20,389 42,126
Exercise of stock options 20,000 1 64
- - -
65
Net earnings - - -
4,769
4,769
--------- ---- ------ -----
- - -- ----------
Balance at December 31, 1999 6,167,119 $ 62 $21,740
$25,158 $46,960
========= === =======
======= =======
</TABLE>
The accompanying notes are an integral part of this
statement.
F-5
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Year
Ended December 31,
--------
- - ------------------
1997
1998 1999
-------
- - ------- -------
<S> <C>
<C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net earnings (loss) $ 6,140
$(13,147) $ 4,769
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 5,657
11,067 10,694
Extraordinary gain -
- - - (12,776)
Gain on sale of assets (44)
(218) -
Deferred income taxes 732
(2,585) (6,219)
Change in assets and liabilities
(net of effect of acquisition):
Accounts receivable-trade (5,226)
6,108 (11,115)
Inventories (10,038)
11,437 (10,831)
Prepaid expenses and other current assets (1,143)
(4,298) 7,212
Other assets (9,683)
50 (329)
Accounts payable-trade 6,443
(8,973) 15,662
Accrued expenses 3,068
2,122 (3,657)
Deferred Revenue 1,280
(1,210) (70)
Income taxes payable (246)
- - - 966
-------
- - ------- -------
Net cash provided by (used in) operating activities (3,060)
353 (5,694)
Cash flows from investing activities:
Net cash paid for acquisitions -
(30,337) (8,075)
Purchases of property, plant and equipment (6,248)
(3,698) (3,921)
Proceeds from sale of property, plant and equipment 44
446 101
-------
- - ------- -------
Net cash used in investing activities (6,204)
(33,589) (11,895)
Cash flows from financing activities:
Payments on notes payable to banks (48,550)
- - - -
Proceeds from long-term obligations 124,041
- - - 37,461
Payments on long-term obligations (11,716)
(12,132) (29,894)
Proceeds from exercise of stock options 145
298 65
-------
- - ------- -------
Net cash provided by (used in) financing activities 63,920
(11,834) 7,632
-------
- - ------- -------
Net increase (decrease) in cash and cash equivalents 54,656
(45,070) (9,957)
Cash and cash equivalents at beginning of period 479
55,135 10,065
-------
- - ------- -------
Cash and cash equivalents at end of period $ 55,135
$ 10,065 $ 108
=======
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reptron Electronics, Inc. ("Reptron") is a leading electronics
manufacturing supply chain services company operating as a national
distributor of electronic components ("Reptron Distribution") and a
contract manufacturer of electronic products ("K-Byte Manufacturing")
and a display solution provider ("Applied Instruments"). Reptron
Distribution is authorized to sell over 60 vendor
lines of semiconductors, passive products and electromechanical
components to customers representing diverse industries throughout
the country. K-Byte Manufacturing produces electronic products for
a select number of customers throughout the country representing a
diverse range of industries. Applied Instruments provides display
design engineering systems integration and turnkey manufacturing
services.
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial
statements
follows.
1. Principles of Consolidation
---------------------------
The financial statements include the accounts of Reptron Electronics,
Inc.
and its wholly-owned subsidiaries. All significant inter-company
balances and transactions have been eliminated.
2. Cash Equivalents
----------------
For purposes of the statement of cash flows, Reptron considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
3. Inventories
-----------
Inventories are stated at the lower of cost or market. For K-Byte
Manufacturing, cost is determined using the first-in, first-out method
(FIFO). Reptron Distribution uses the average cost method to measure
cost,which approximates first-in, first-out method (FIFO).
4. Property, Plant and Equipment
-----------------------------
Depreciation is provided for, using the straight-line method, in
amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives (buildings 39 1/2 years, all other asset
categories 5 years). Leasehold improvements are amortized using the
straight-line method over the lives of the respective leases or the
service lives of the improvements, whichever is shorter. Leased
equipment under capital leases is amortized using the straight-line
method over the lives of the respective leases or over the service
lives of the assets for those
leases which substantially transfer ownership. Accelerated methods
are
used for tax depreciation.
5. Excess of Cost Over Net Assets Acquired
---------------------------------------
The excess of cost over net assets acquired is amortized over a
twenty or thirty year period, as applicable, using the straight-line
method. Accumulated amortization totaled approximately $1,257,000 and
$2,276,000 at December 31, 1998 and 1999, respectively.
F-7
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. Impairment of Assets
--------------------
Reptron's policy is to periodically review and evaluate whether there
has been a permanent impairment in the value of long-lived assets,
certain identifiable intangibles and goodwill. Factors considered
in the valuation include current operating results, trends and
anticipated undiscounted future cash flows. There have been no
impairment losses in 1997, 1998 or 1999.
7. Income Taxes
------------
Reptron accounts for income taxes on the liability method, as
provided by Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting For Income Taxes." Under the liability method
specified by SFAS 109, deferred tax assets and liabilities are
determined based on the difference between the financial statement
and tax bases of assets and liabilities as measured by the enacted
tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in deferred tax
assets and liabilities.
8. Earnings Per Common Share
-------------------------
Earnings per share are computed using the basic and diluted
calculations, as provided by SFAS No. 128 "Earnings per Share".
SFAS No. 128 eliminates primary and fully diluted earnings per
share and requires presentation of basic and diluted earnings
per share together with disclosure of how the per share amounts
were computed.
9. Use of Estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles in the United States, management
makes estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
10. Stock Based Compensation
------------------------
Reptron presents only the disclosure provisions of SFAS No. 123
"Accounting for Stock Based Compensation" as it relates to stock
options granted to employees. As permitted by SFAS No. 123,
Reptron applies Accounting Principals Board Opinion No. 25 "Accounting
for Stock Issued to Employees" and related interpretations in
measuring
compensation for stock options
issued. See Note J.
12. New Accounting Pronouncements
-----------------------------
The Emerging Issues Task Force issued EITF 99-5 "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements" in
September 1999. The EITF requires that design and development
costs for products to be sold under long-term supply arrangements
should be expensed as incurred. This differs from the existing
policy of capitalizing set-up costs and recognizing the costs over the
contract period or two years, whichever is less. This policy is
required for all costs incurred after December 31, 1999 with earlier
application encouraged. Management does not believe that the impact
of
adopting this pronouncement will have a material effect on Reptron's
results of operations.
F-8
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE B - STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information (in thousands):
<TABLE>
Year
Ended December 31,
------------
- - ----------------
1997
1998 1999
-------- --
- - ------ --------
<S> <C>
<C> <C>
Cash paid during the year for:
Interest $4,260
$8,091 $9,207
Income taxes $4,593
$ 507 $1,090
</TABLE>
Reptron incurred approximately $2,573,000, $0, and $264,000 of
obligations under capital leases for the acquisition of equipment
during 1997, 1998 and 1999, respectively.
On October 27, 1999 Reptron completed the acquisition of Applied
Instruments ("Applied"). At closing, the assets were recorded at
approximately $9.4 million, consisting of the sum of cash payment
of $7.5 million, acquisition costs, and among the assumption of stated
liabilities, $1.4 million of bank debt. Reptron allocated
approximately $6.4 million of the purchase price to goodwill.
See Note K.
NOTE C - INVENTORIES
Inventories consist of the following (in thousands):
December 31,
------------------
1998 1999
-------- --------
Reptron Distribution:
Inventories $37,026 $45,495
K-Byte Manufacturing:
Work in process 9,043 12,277
Raw materials 23,262 24,781
------ ------
$69,331 $82,553
====== ======
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
December 31,
----------------
1998 1999
------ ------
Land and buildings $ 16,328 $16,404
Furniture, fixtures and equipment 39,650 43,534
Leasehold improvements 2,498 2,758
------ ------
58,476 62,696
Less accumulated depreciation and amortization 20,203 27,699
------ ------
$38,273 $34,997
====== ======
F-10
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE E - NOTES PAYABLE TO BANKS
The Company is party to an amended and restated revolving credit
agreement ("Credit Agreement") dated January 8, 1999. Two lenders
have made available to the Company a $60 million revolving credit
facility throughJanuary 8, 2004. Borrowings under the Credit
Agreement are collateralized by all of Reptron's inventory, accounts
receivable, equipment and general intangibles. The Credit Agreement
limits the amount of capital expenditures and prohibits the payment
of dividends thereby restricting the distribution of the retained
earnings of Reptron. Reptron may, at its option, and upon notice
to the lender, request advance funds pursuant to either a Domestic
Rate Loan (variable at the prime rate of 8.5% at December 31, 1999)
or a Eurodollar Rate loan (LIBOR, 7.70% at December 31, 1999 plus
2.25 basis points). Upon notice to the lenders, Reptron may
convert advances from one type of loan to the other. As of
December 31, 1999, Reptron was in compliance with, or received
waivers, on all covenants under the Lender. Amount outstanding under
the Credit Agreement as of December 31, 1999 was approximately
$37.4 million.
NOTE F - LONG-TERM OBLIGATIONS
<TABLE>
Long-term obligations consist of the following at December 31 (in
thousands):
1998
1999
-------
- - - --------
<S> <C>
<C>
Convertible subordinated notes, due August, 2004, with
semi-annual interest installments at a rate of 6.75%.
The notes are unsecured obligations subordinated to
all existing indebtedness, as defined, and are
convertible at anytime prior to maturity at a conversion
price of $28.50 per share.
$115,000 $76,315
Notes payable collateralized by real property, due in
monthly principal installments of $37.5 and interest
at a rate of 8.115% through February, 2005, requiring
a ballon payment due March, 2005.
8,083
-
Capitalized lease obligations (net of interest of
approximately $823) for equipment, due in monthly
principal and interest payments of approximately
$220, through 2002.
6,442 3,797
Notes payable collateralized by certain equipment, due in
monthly principal and interest installments of $113, through
January 2003, interest rates range from 7.1% to 9.35%.
3,379 2,030
Notes payable collateralized by real property, currently due in
monthly principal and interest installments of $4, through
September 2007, at an interest rate of 10%.
259 242
------
- - - -------
$133,163 82,384
Less current maturities
3,866 3,280
-----
- - - -------
$129,297 $ 79,104
======= =======
</TABLE>
F-11
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE F - LONG-TERM OBLIGATIONS - Continued
At December 31, 1999, aggregate maturities of long-term obligations
are as
follows (in thousands):
Year ending December 31,
------------------------
2000 $ 3,280
2001 2,195
2002 475
2003 25
2004 76,342
Thereafter 67
-------
$ 82,384
=======
Reptron has entered into various capital leases for equipment,
totaling
approximately $2,573,000 in 1997 and $264,000 in 1999. No capital
leases
were entered into during 1998. At December 31, 1999, the net book
value of equipment under capital leases is approximately $6,089,000.
The
related capital lease obligations are included with long-term
obligations.
Total interest expense was $9,390,000 and $8,582,000, in 1998 and
1999,
respectively. Interest payable was $3,310,000 and $2,198,000
at December 31, 1998 and 1999, respectively.
Reptron extinguished approximately $38.7 million of its convertible
subordinated bonds during the period ended December 31, 1999. The
cash paid to extinguish these bonds was approximately $16.2 million.
This transaction generated an extraodinary gain of approximately
$12.8 million, net of income taxes. The net capitalized financing
costs of approximately $1.2 million associated with the extinguished
debt was written off during year ended December 31, 1999.
NOTE G - INCOME TAXES
The income taxe provision (benefit) for the years ended
December 31, 1997, 1998 and 1999, respectively, is as follows
(in thousands):
December 31,
------------------------------
1997 1998 1999
------ ------ ------
Current $2,945 $(5,885) $1,303
Deferred 732 (2,585) 2,512
----- ----- -----
$3,677 $(8,470) $3,815
===== ===== ======
F-12
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE G - INCOME TAXES - Continued
The Company's effective tax rate differs from the statutory U. S.
federal income tax rate as a result of the following:
Year Ended December 31,
-----------------------
1997 1998 1999
------ ------ ------
Statutory federal tax rate 34.0% 34.0% 34.0%
State income taxes of approximately 7.4%, 7.5%
and 7.6% in 1997, 1998, and 1999, net of
federal tax benefit 4.9 4.9 5.0
Tax exempt interest (2.8) (0.8) -
Meals and entertainment 1.8 0.8 2.6
Non-deductible goodwill - 0.7 3.3
Other (0.4) (0.4) (0.5)
---- ---- ----
Effective tax rate 37.5% 39.2% 44.4%
==== ==== ====
Deferred income tax assets and liabilities resulting from differences
between accounting for financial statement purposes and tax purposes
pursuant to SFAS No. 109, are summarized as follows (in thousands):
December 31
-----------------
1998 1999
------ ------
Deferred tax assets
Net operating loss carryforward, and ATM Credits$ 2,600 $ 842
Inventory reserves 1,441 702
Deferred compensation 320 -
Contingency reserve 160 -
Accrued vacation 136 148
Allowance for bad debts 343 238
Other 311 91
------ ------
5,311 2,021
------ ------
Deferred tax liabilities
Depreciation 2,838 2,402
Excess of cost over net assets acquired 141 127
Other 37 12
------ ------
3,016 2,541
------ ------
Net deferred tax asset (liability) $2,295 $ (520)
====== ======
In connection with the acquisition of Hibbing in 1998, Reptron
recorded
a deferred asset of approximately $1,810,000. In 1999, as a result of
the
resolution of certain uncertainties, the deferred tax asset was
reduced by
approximately $303,000 and was reclassified to goodwill.
F-13
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE G - INCOME TAXES - Continued
Reptron has net operating loss carryforwards of approximately $13.0
Million for state income tax purposes, which generally expire in
the year 2018. Reptron also has an Alternative Minimum Tax ("AMT")
credit carryforward of approximately $200,000. A valuation allowance
has not been recorded against the deferred tax assets for 1998
and 1999 as management anticipates that net income in future
periods will be sufficient to utilize the net operating loss
carryforward and AMT credits.
NOTE H - COMMITMENTS AND CONTINGENCIES
Operating Leases
- - ----------------
Reptron has operating leases for facilities and certain machinery and
equipment which expire at various dates through 2003. Certain leases
provide for payment by Reptron of any increases in property taxes and
insurance over a base amount and others provide for payment of all
property taxes and insurance by Reptron. See Note L
Future minimum payments, by year and in the aggregate, under
noncancellable operating leases consist of the following at
December 31, 1999 (in thousands):
Year ending December 31,
------------------------
2000 $1,170
2001 976
2002 738
2003 382
2004 73
Total rent expense for the years ended December 31, 1997, 1998 and
1999
was approximately, $1,258,000, $1,837,000, and $1,737,000,
respectively.
Litigation
- - ----------
Reptron has received a demand alleging a patent infringement from
Lemelson Medical, Education & Research Foundation Limited Partnership
("Lemelson"). Lemelson alleges that Reptron is infringing upon
patents held by Lemelson relating to their manufacturing processes
and products. Lemelson has offered to license the patents alleged
to be infringed. Based on Reptron's understanding of the terms
that Lemelson has made available to certain licensees, they believe
that obtaining a license from Lemelson under the same or similar
terms would not have a material adverse effect on Reptron's results
of operations or financial condition.
Reptron is, from time to time, involved in litigation relating to
claims arising out of its operations in the ordinary course of
business. Reptron believes that none of these claims which were
outstanding as of December 31, 1999 should have a material adverse
impact on its financial condition or results of operations.
F-14
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE I - SHAREHOLDERS' EQUITY
The Board of Directors is authorized, without further shareholder
action, to divide any or all shares of the authorized Preferred
Stock into series and to fix and determine the designations,
preferences, relative rights, qualifications, limitations or
restrictions thereon, of any series so established, including
voting powers, dividend rights, liquidation preferences,
redemption rights and conversion privileges. The Board of
Directors has not authorized any issuance of Preferred Stock and
there are no plans, agreements, or understandings for the
authorization or issuance of any shares of Preferred Stock.
NOTE J - EMPLOYEE BENEFITS
Stock Option Plan
- - -----------------
Reptron's Incentive Stock Option Plan (the "ISO Plan") was adopted in
November, 1993 to provide for the grant to employees of incentive
stock
options within the meaning of Section 422 of the Internal Revenue
Code.
A total of 2,000,000 shares of Common Stock has been reserved for
issuance under the ISO Plan. Reptron also offers a Director's Stock
Option Plan (the "DSO Plan") that has a total of 350,000 shares of
Common Stock reserved for issuance under this plan. Both the ISO
Plan and DSO Plan is intended to provide incentives to directors,
officers, and other key employees and to enhance Reptron's ability
to attract and retain qualified employees. Stock options are granted
for the purchase of Common Stock at a price not less than the fair
market on the date of grant.
The following table summarizes the activity in Common Stock subject to
options for the three years ended December 31, 1999:
<TABLE>
Weighted
Range
Weighted Average
of
Average Remaining
Exercise
Exercise Contractual
Shares Price
Price Life
------- -------------- ------
- - -- -----------
(In Years)
<S> <C> <C>
<C> <C>
Outstanding at December 31, 1996 194,050 $ 5.00 - 15.07 $
6.72 7.3
Granted 579,500 $12.00 - 18.00
$12.69
Exercised (22,850) $ 5.00 - 14.75 $
6.35
Forfeited (20,250) $ 5.00 - 14.75
$12.34
---------
Outstanding at December 31, 1997 730,450 $ 5.00 - 18.00
$11.31 8.6
Granted 629,264 $ 4.38 - 12.07 $
9.43
Exercised (58,750) $ 5.00 - 9.13 $
5.09
Forfeited (158,625) $ 5.00 - 14.75
$11.13
---------
Outstanding at December 31, 1998 1,142,339 $ 4.38 - 9.13 $
5.95 8.6
Granted 174,750 $ 2.94 - 6.00 $
3 56
Exercised (20,000) $ 3 19 $
3.19
Forfeited (101,876) $ 3.55 - 6.00 $
5.83
---------
Outstanding at December 31, 1999 1,195,213 $ 2.94 - 9.13 $
5.65 7.8
=========
</TABLE>
F-15
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE J - EMPLOYEE BENEFITS - Continued
The following table summarizes information about Common Stock options
outstanding at December 31, 1999:
<TABLE>
Options Outstanding
Options Exercisable
- - ----------------------------------------------------------- ------
- - -----------------
Weighted Weighted
Weighted
Number Average Average
Number Average
Range of Outstanding Remaining Exercise
Exercisable Exercise
Exercise Prices at 12/31/99 Contractual Life Price at
12/31/99 Price
- - --------------- ----------- ---------------- --------- -----
- - ------ --------
(In Years)
<S> <C> <C> <C> <C>
<C>
$ 2.94 - 3.59 121,000 9.4 $ 3.27
25,000 $ 3.19
$ 3.66 - 4.38 3,250 9.3 $ 3.94
250 $ 4.38
$ 4.75 6,500 9.7 $ 4.75
- - - $ -
$ 5.00 - 5.56 89,950 9.8 $ 5.56
74,200 $ 5.00
$ 6.00 969,513 7.9 $ 6.00
354,855 $ 6.00
$ 9.13 5,000 4.8 $ 9.13
5,000 $ 9.13
--------- ----
- - ---
$ 2.94 - 9.13 1,195,213 7.8 % 5.65
459,305 $ 5.72
=========
=======
</TABLE>
At December 31, 1997 and 1998, exercisable shares totaled 148,450 and
210,638 at weighted average exercise prices of $5.73 and $5.72,
respectively.
The duration of options granted under the ISO Plan is ten years from
the
date of grant, or such other date as determined by the Board of
Directors.
In general, the options must be exercised while employed by Reptron or
90
days thereafter. The options may be exercised in four equal annual
increments, cumulatively, beginning one year after the date of grant,
and
all such options may be exercised in full four years after the date of
grant. The options are non-transferable other than by will or by the
laws
of descent and distribution.
Reptron has adopted only the disclosure provisions of SFAS No. 123, as
it
relates to employee awards. APB No. 25 is applied in accounting for
Reptron's plans. Accordingly, no compensation expense is recognized
related to the stock based compensation plans. The pro forma net
earnings and net earnings per common share, if Reptron had elected to
account for its plans consistent with the methodology prescribed by
SFAS No. 123, are as follows:
1997 1998 1999
-------- -------- --------
(in thousands except per share data)
------------------------------------
Net earnings (loss):
As reported $6,140 $(13,147) $4,769
Pro forma $5,230 $(14,314) $3,879
Net earnings (loss) per common
share - basic:
As reported $ 1.01 $ (2.15) $ 0.78
Pro forma $ 0.87 $ (2.34) $ 0.63
Net earnings (loss) per common
share - diluted:
As reported $ 0.98 $ (2.15) $ 0.78
Pro forma $ 0.84 $ (2.34) $ 0.63
F-16
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE J - EMPLOYEE BENEFITS - Continued
The fair value of each option grant is estimated on the date of grant
using the Binomial options pricing model with the following weighted
average assumptions used for grants in 1997, 1998 and 1999,
respectively,
no dividend yields for all years; expected volatility of 40.5%, 46.4%
and 53.7%; risk free interest rates of 6.69%, 4.94% and 5.72%; and
expected lives of 3.7, 4.3 and 3.8 years. The weighted average fair
value of options granted in 1997, 1998 and 1999 are $6.92, $2.59 and
$1.63,
respectively.
401(k) Plans
- - ------------
In 1993, Reptron established a deferred compensation plan (the "Plan")
under section 401(a) of the Code. Substantially all of the officers
and
employees of Reptron are eligible to participate in the Plan.
Employees are eligible to participate in the Plan after six months
of service and after attaining age 21. At its discretion, Reptron
may make matching contributions to the Plan. Employees are always
vested in their contributions and are fully vested in the employer
contributions after five years of service. Reptron contributed
approximately $101,000, $105,000 and $109,000 to the Plan in
1997, 1998 and 1999, respectively.
Hibbing Electronics Corporation's ("Hibbing") employees are eligible
to participate in Hibbing's voluntary retirement savings plan upon
completion of six months of qualified service. Employee contributions
up to 4% of wages, as defined, are partially matched by Hibbing.
Hibbing contributed approximately $59,000 during 1999, and
approximately $28,000 during the period immediately following the
May, 1998 acquisition through December 31, 1998.
Applied Instrument's employees are eligible to participate in
Applied's voluntary retirement savings plan upon completion of
six months of qualified service. There were no employer match to t
he fund for 1999.
On January 1, 2000, the Company merged the 401(k) Plans of Hibbing
Electronics and Applied Instruments LLC ito the amended Reptron
Electronics, Inc. 401(k) Retirement Savings Plan. The amended plan
allows for participation of employees after 90 days of service and
after attaining the age of 18. At its discretion, Reptron may make
matching contributions to the Plan. Employees are always vested in
their contributions and are fully vested in the employer contributions
after five years of service. Participants enrolled in the Hibbing
Electronics Corporation Plan prior to January 1, 2000 are fully vested
after four years of service.
NOTE K - ACQUISITIONS
On May 29, 1998, Reptron acquired all of the assets and liabilities of
Hibbing Electronics Corporation and its subsidiary, ("Hibbing") by way
of the purchase of all of the issued and outstanding common stock of
OECO Corporation, the parent of Hibbing, under the purchase method of
accounting. Of the approximately $53.0 million in total costs involved
in the acquisition, approximately $30.0 million was in cash with
the remainder in the form of the assumption of liabilities. Reptron
allocated approximately $31.0 million of the purchase price to
tangible assets. Of the $30.0 million in cash, approximately $7.4
million was deposited in an escrow account as security for collection
of designated accounts receivable, liquidation of identified
inventory and breach of representations and warranties. As of
December 31, 1999, approximately $7.4 million has been disbursed
from this escrow account ($6.9 million to the sellers and $465,000
to Reptron). In addition, Reptron assumed certain building and
equipment lease obligations. Management has determined that the
goodwill associated with this transaction will be amortized over a
30 year life. The results of operations of Hibbing have been
reflected in Reptron's results of operations
beginning immediately subsequent to the acquisition date of May 29,
1998.
On October 27, 1999, Reptron completed the acquisition of Applied
Instruments ("Applied"). At closing, the assets were recorded at
approximately $9.4 million, consisting of the sum of cash payment
of $7.5 million, acquisition costs, and among the assumption of
stated liabilities, $1.4 million of bank debt. Reptron allocated
approximately $6.4 million of this purchase price
F-17
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE K - ACQUISITIONS - Continued
to goodwill. Reptron allocated approximately $4.0 million of the
purchase to tangible assets. In addition, Reptron assumed certain
building and equipment lease obligations. Management has determined
that the goodwill associated with this transaction will be amortized
over a 20 year life. The results of operations of Applied Instruments
have been reflected in Reptron's results of operations beginning
immediately subsequent to the acquisition date of October 27, 1999.
Additional purchase consideration may be paid in annual installments
over the next three years based upon Applied Instruments performance.
Each of the annual installments cannot exceed $3.5 million. Pro-forma
financial information is not provided for Applied due to its
immateriality.
The following unaudited pro forma summary combines the historical
results of operations of Reptron with the historical results of
operations of Hibbing as if the acquisition had occurred at the
beginning of the respective periods. Pro-forma adjustments include
additional net interest expense, goodwill amortization and an
adjustment to Reptron's effective tax rate. This pro forma summary
does not necessarily reflect the results of operations, as they
would have been if Reptron and Hibbing operated as a single entity
during such periods.
Year ended December 31,
1997 1998
(in thousands)
Net sales $380,857 $335,484
======= =======
Gross Profit $ 63,943 $ 41,368
======= =======
Operating income (loss) $ 19,041 $(12,659)
======= =======
Net earnings (loss) $ 6,113 $(12,811)
======= =======
Net earnings (loss) per share - basic $ 1.01 $ (2.09)
======= =======
Net earnings (loss) per share - diluted $ 0.98 $ (2.09)
======= =======
NOTE L - RELATED PARTY TRANSACTIONS
Reptron has a non-interest bearing loan receivable from the profit
sharing plan totaling approximately $194,000 and $29,000 as of
December 31, 1997 and 1998, respectively.
A director of Reptron serves as its general counsel and received
approximately $205,000, $374,000 and $200,000 for services rendered
during, 1997 1998 and 1999, respectively.
Reptron leased an aircraft from a company controlled by the CEO of
Reptron. Rent paid for the use of the aircraft totaled
approximately $200,000 and $160,000 in 1997 and 1998, respectively.
Reptron believes that the rent paid for the aircraft was comparable
to the rent that would be paid to an unrelated party. Reptron was
responsible for all costs associated with the operation of the
aircraft, including: fuel, maintenance, storage and crew salaries
and expenses. To the extent that the CEO used the aircraft for
personal purposes, he was required to reimburse Reptron for the cost
associated with such personal use. The CEO reimbursed Reptron
$1,000,000, reflected in Reptron's 1997 third quarter, for personal
use of the aircraft and for travel and entertainment expenses for
the 1997 and prior years. The CEO reimbursed Reptron approximately
$40,000 in 1998 for personal use of the aircraft. Reptron terminated
the lease as of August 1998 in conjunction with the sale of the
aircraft.
F-18
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE L - RELATED PARTY TRANSACTIONS - Continued
Reptron leases one of its Reptron Distribution sales offices (located
in Detroit, Michigan) from the CEO of Reptron. This facility served
as Reptron's headquarters before the relocation to Tampa in 1986.
The building includes office and warehouse space and totals
approximately 10,000 square feet. Rent expenses on this facility
totaled $68,000 in 1997 and 1998 and $72,000 in 1999, which
management believes to be comparable to the rent that would be
paid to an unrelated party. The lease expires in November 2003.
Reptron also leases a total of 110,000 square feet of manufacturing
and administrative offices for the Hibbing manufacturing operation.
These properties are owned, in part, by four individuals on the senior
management team of Hibbing. Rent expenses on this facility totaled
approximately $336,000 for the period subsequent to the acquisition
through December 31, 1998, and approximately $478,000 in 1999.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1999, the carrying amount of cash, accounts
receivable, accounts payable and accrued expenses approximate fair
value because of the short-term maturities of these items.
The fair market value of the Company's convertible subordinated 6.75%
notes is $43,881,000, based on the average of the bid and ask prices
of the notes on December 31, 1999. The carrying amounts of all other
current and long-term portions of notes payable, and long-term
obligations approximate fair market value since the interest rates on
most of these instruments change with market interest rates.
NOTE N - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
net
earnings per common share:
1997 1998
1999
------ -------- ----
- - ------
Numerator:
Net earnings (loss) (in thousands) $ 6,140 $ (13,147) $
4,769
========= ========
=========
Denominator:
For basic earnings (loss) per share -
Weighted average shares 6,077,084 6,118,023
6,151,563
Effect of dilutive securities:
Employee stock options 169,956 -
- - -
--------- --------- ---
- - ------
For diluted earnings (loss) per share 6,247,040 6,118,023
6,151,563
========= =========
=========
Net earnings (loss) per common share -
basic $ 1.01 $ (2.15) $
0.78
========= =========
=========
Net earnings (loss) per common share -
diluted $ .98 $ (2.15) $
0.78
========= =========
=========
Options to purchase 591,750 shares of common stock were not included
for a portion of the fourth quarter of 1997 computation of diluted
earnings per share due to the options' exercise price exceeded the
average market price of the common stock and, therefore, the effect
would be anti-dilutive. For 1998 and 1999, all options have been
excluded due to their anti-dilutive effect.
The convertible notes (See Note F) were not included in the
computation
of diluted earnings per share for all years pressented due to the
conversion price of $28.50 exceeding the average market price of the
common stock and, therefore, the effect would be anti-dilutive.
F-19
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE O - FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Reptron has two material industry segments: Electronic Component
Distribution and Electronic Manufacturing Services. Electronic
Component Distribution purchases a wide variety of electronic
components,
including semiconductors, passive products and electromechanical
components, for distribution to manufacturers and wholesalers
throughout the United States. Electronic Manufacturing Services
manufactures electronic products according to customer design for
a select number of customers through out the country representing
a diverse range of industries. Intersegment sales include a margin,
based on market pricing, which is eliminated in consolidation.
The following table shows net sales, operating income, identifiable
assets, and capital expenditures as of and for the years ended
1997, 1998 and 1999.
<TABLE>
Year Ended December 31,
----------------------------------
1997 1998 1999
-------- -------- ------
- - --
(in thousands)
<S> <C> <C> <C>
Net Sales
Unaffiliated customers
Electronic Component Distribution $187,267 $156,507
$198,132
Electronic Manufacturing Services 116,644 146,282
161,085
------- ------- ----
- - ---
303,911 302,789
359,217
Intersegment sales 9,187 8,046
6,779
------- ------- ----
- - ---
$313,098 $310,835
$365,996
======= =======
=======
Operating income (loss)
Electronic Component Distribution $ 6,053 $ (11,833) $
(3,884)
Electronic Manufacturing Services 9,948 (1,445)
(244)
------- ------- ----
- - ---
$ 16,001 $ (13,278) $
(4,128)
======= =======
=======
Identifiable Assets
Electronic Component Distribution $ 94,864 $ 87,386 $
55,587
Electronic Manufacturing Services 51,180 95,389
154,874
------- ------- ----
- - ---
146,044 182,775
210,461
Corporate 76,470 27,309
5,392
------- ------- ----
- - ---
$222,514 $210,084
$215,853
======= =======
=======
Capital Expenditures (includes equipment
under capitalized leases)
Electronic Component Distribution $ 1,392 $ 613 $
1,222
Electronic Manufacturing Services 6,314 3,085
2,898
------- ------- ----
- - ---
7,706 3,698
4,120
Corporate 1,115 -
65
------- ------- ----
- - ---
$ 8,821 $ 3,698 $
4,185
======= =======
=======
</TABLE>
Net interest expense is not reflected in the industry segment
information,
presented above, as it is not taken into consideration in management's
analysis of segment performance.
F-20
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE P - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for
the quarterly periods of 1998 and 1999, (See Note L) (in thousands
except per share data):
<TABLE>
Three Months
Ended
-------------------------------------------
- - ----------------
1998 March 31 June 30 September
30 December 31
---- ------------ ------------ -----------
- - - -----------
<S> <C> <C> <C>
<C>
Net sales $70,835 $73,636 $77,527
$80,791
Gross profit 11,471 10,781 11,273
4,403
Operating income (loss) 738 (509)
(827) (12,680)
Net earnings (loss) (502) (1,466)
(1,957) (9,222)
Net earnings (loss) per common share
- basic $ (.08) $ (.24) $
(.32) $ (1.50)
Net earnings (loss) per common share
- diluted $ (.08) $ (.24) $
(.32) $ (1.50)
1999
----
Net sales $77,384 $81,026 $93,559
$107,247
Gross profit 10,085 10,919 13,440
17,329
Operating income (loss) (2,529) (2,690)
(690) 1,780
Loss before extraordinary item - (2,904)
(1,664) (563)
Net earnings (loss) (2,877) 5,346 2,863
(563)
Net earnings (loss) per common
share - basic $ (.47) $ .87 $ .47
$ (.09)
Net earnings (loss) per common
share - diluted $ (.47) $ .87 $ .47
$ (.09)
</TABLE>
F-21
Report Of Independent Certified Public Accountants On Schedule
Board of Directors
Reptron Electronics, Inc.
In connection with our audit of the consolidated financial statements
of Reptron Electronics, Inc., referred to in our report dated
February 8, 2000, which is included in this Annual Report on SEC Form
10-K for the year ended December 31, 1999, we have also audited
Schedule II for each of the three years in the period then ended.
In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
GRANT THORNTON LLP
Tampa, Florida
February 8, 2000
F-22
SCHEDULE II
REPTRON ELECTRONICS, INC.
Valuation and Qualifying Accounts
For the Years Ended December 31, 1997, December 31, 1998 and
December 31, 1999
(in thousands)
<TABLE>
<S> <C> <C> <C>
<C>
Column A Column B Column C
Column D Column E
- - -------- -------- -------- -----
- - --- --------
Balance at Charged to
Accounts Balance
Beginning Costs and
Written Off, at End
Description of Year Expenses
Net of Year
- - ----------- ---------- ---------- ------
- - ------ -------
Allowance for Doubtful Accounts
Year Ended December 31, 1997 $350 $ 273 $
(273) $350
Year Ended December 31, 1998 $350 $1,335
$(1,202) $483
Year Ended December 31, 1999 $483 $ 514 $
(388) $609
</TABLE>
F-23
PART IV
Item 14. Exhibits, Financial Statements, Schedule, and Reports on
Form 8-K
(a) The following documents are filed as part of the report:
1. and 2. The financial statements and schedule filed as
part of this report are listed separately in the Index to
Financial Statements and Schedule beginning on page F-1 of
this report.
3. For Exhibits see Item 14(c), below.
(b) No reports on Form 8-K have been filed during the period
ended December 31, 1999, by the Company.
(c) List of Exhibits:
Exhibit No. Description
- - ----------- -----------
3.1 Articles of Incorporation*
3.2 Bylaws*
10.1 Revolving Credit and Security Agreement between PNC Bank,
National
Association and Reptron, dated January 8, 1999.**
10.2 Distributor Agreement between Midcom, Inc. and Reptron,
dated June 1, 1999.***
10.3 Distributor Agreement between Samsung Displays and Reptron,
dated July 2, 1999.***
10.4 Distributor Agreement between Advantech Technologies and
Reptron,
dated September 7, 1999.***
10.5 Revolving Credit and Security Agreement First Amendment
between
PNC
Bank, National Association and Reptron, dated November 10,
1999.
10.6 Revolving Credit and Security Agreement Second Amendment
between
PNC
Bank, National Association and Reptron, dated February 28,
2000.
10.7 Asset Purchase agreement for the purchase of Applied
Instruments
between Steve and Linda Guma and Reptron, dated October 27,
1999.
23.1 Consent of Grant Thornton, LLP
27.1 Financial Data Schedule
- - -----------
* Filed with the Company's Registration Statement on Form S-
1, dated February 8, 1994, Registration No. 33-75040 and incorporated
herein by reference.
** Filed with the Company's 10-k for the year ended December
31, 1998.
*** Filed with the Company's Form 10-Q for the period ended
September 30, 1999.
(d) Financial Schedule: the financial statement schedule
filed as part of this report is listed separately in the Index to
Financial Statements and Schedule beginning on page F-1 of this
report.
23
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, thereto duly authorized, in
the
City of Tampa, State of Florida, on March 30, 2000.
REPTRON ELECTRONICS, INC.
By:/s/ Michael L. Musto
----------------------------
Michael L. Musto,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934,
this report has been signed below by the following persons on behalf
of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE
DATE
---------- ----- --
- - --
/s/ Michael L. Musto
- - ---------------------------
Michael L. Musto Chief Executive
Officer, and Director
(Principal Executive Officer) March 30,
2000
/s/ Paul J. Plante
- - ----------------------------
Paul J. Plante President, Chief Operating Officer and
Director March 30,
2000
/s/ Michael Branca
- - ---------------------------
Michael Branca Chief Financial Officer (Principal
Financial and Accounting Officer) March 30,
2000
/s/ Leigh A. Lane
- - ----------------------------
Leigh A. Lane Secretary and Director March 30,
2000
/s/ William L. Elson
- - -----------------------------
William L. Elson Director March 30,
2000
/s/ John J. Mitcham
- - -----------------------------
John J. Mitcham Director March 30,
2000
24
EXHIBIT 10.5
FIRST AMENDMENT TO REVOLVING
CREDIT AND SECURITY AGREEMENT
This FIRST AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT
(this
"Amendment") is made and entered into this 10th day of November, 1999,
by
and among REPTRON ELECTRONICS, INC., a corporation organized under the
laws
of the State of Florida ("Reptron"), REPTRON ELECTRONICS OF PA, INC.,
a
corporation organized under the laws of the State of Pennsylvania
("Reptron
Pennsylvania"), LAKE SUPERIOR MERGER CORPORATION, a corporation
organized
under the laws of the State of Florida ("Superior"), HIBBING
ELECTRONICS
CORPORATION, a corporation organized under the laws of the State of
Minnesota, REPTRON ACQUISITION, INC., a corporation organized under
the
laws of the State of Florida ("Acquisition") ("Hibbing"; Reptron,
Reptron
Pennsylvania, Superior, Hibbing and Acquisition, each a "Borrower" and
collectively "Borrowers"); the various financial institutions listed
on the
signature pages hereof and their respective successors and permitted
assigns which become "Lenders"; and PNC BANK, NATIONAL ASSOCIATION, a
national association ("PNC"), as collateral and administrative agent
for
Lenders (PNC, together with its successors in such capacity, the
"Agent").
Recitals:
Agent, Lenders and Borrowers are parties to a certain Revolving
Credit
and Security Agreement dated January 8, 1999 (the "Loan Agreement")
pursuant to which Lender has made certain revolving credit loans to
Borrower.
The parties desire to amend the Loan Agreement as hereinafter set
forth.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other
good
and valuable consideration, the receipt and sufficiency of which are
hereby
severally acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. Definitions. All capitalized terms used in this Amendment,
unless
otherwise defined herein, shall have the meaning ascribed to such
terms in
the Loan Agreement.
2. Amendment to Loan Agreement. The Loan Agreement is hereby
amended
as follows:
a. By adding the following definitions to Section 1.2 in
appropriate
alphabetical order:
"Mortgage Refinancing" shall mean the refinancing of the
Indebtedness of
Reptron to Reptron Pennsylvania under the Loan Agreement dated April
28,
1997 between Reptron and Reptron Pennsylvania.
"Required Undrawn Availability" shall mean, initially, $10,000,000
which
shall increase to $12,000,000 on the earlier to occur of (x) January
1, 2000
or (y) the date Borrowers -receive an aggregate of at least $8,000,000
in
proceeds from the Mortgage Refinancing.
b. By deleting the definitions of "Maximum Revolving Advance
Amount,"
"Permitted
Acquisition," and "Permitted Sale/Leaseback Transaction," from Section
1.2
and inserting the following in lieu thereof:
"Maximum Revolving Advance Amount" shall mean $60,000,000.
"Permitted Acquisition" shall mean any Acquisition by any Borrower
in
which each of the following conditions is satisfied: (i) the business
of the
Acquisition Target to be acquired is related or substantially similar
to the
business of Borrowers; (ii) immediately before and after giving effect
to
such Acquisition, no Default or Event of Default shall have occurred
and be
continuing or would result therefrom; (iii) Borrowing Agent has given
Agent
not less than 30 days prior written notice of the proposed
consummation of
the Acquisition and has provided to Agent complete and accurate copies
of
all term sheets, letters of intent, commitment letters, proposals and
drafts
of Acquisition Documents, promptly after Borrower's receipt thereof,
(iv)
immediately after giving effect to the consummation of such
Acquisition,
Borrowers shall have an Undrawn Availability of at least the Required
Undrawn Availability; (v) Borrowers' consummation of the Acquisition
'II be
in compliance with Applicable Law (and Agent and Lenders shall have
received
with
legal opinions to that effect from Borrowers' legal counsel, if and to
the
extent so requested by Agent and Lenders) and Borrowers shall have
obtained
all required approvals from Governmental Bodies; (vi) Agent shall have
completed its field examination of the business to be acquired with
respect
to all assets of the Acquisition Target which may constitute Eligible
Receivables or Eligible Inventory and the information obtained may be
used
by Agent and Lenders in determining applicable advance rates for the
assets
of the Acquisition Target for purposes hereof, (vii) if the
Acquisition
takes the form of a purchase of Equity Interests of the Acquisition
Target
or if the Acquisition involves the formation of a new Subsidiary of a
Borrower to purchase the assets of the Acquisition Target, the
Acquisition
Target or such newly-formed Subsidiary becomes a wholly-owned
Subsidiary of
a Borrower upon the consummations of the Acquisitions; and (viii)
concurrently with the consummation of such Acquisition, any wholly-
owned
Subsidiary formed or acquired in connection with the Acquisition
shall, at
Agent's option, either (x) execute and deliver to Agent a Joinder
Agreement
by which such Subsidiary shall become a Borrower hereunder and bound
by all
of the terms hereof and each of the Other Documents or (y) execute and
deliver to Agent, for its benefit and for the ratable benefit of
Lenders, a
Guaranty and Guaranty Security Documents. Borrowers' acquisition of
All
American Semiconductor Inc. shall not be deemed a Permitted
Acquisition.
"Permitted Sale/Leaseback Transaction" shall mean and include (i)
a
Sale/Leaseback Transaction in which the sale of Equipment is for cash;
all
of the cash from such sale is concurrently remitted to Agent for
application
to the Obligations in accordance with this Agreement; at least ten
(10)
Business Days prior written notice of the Sale/Leaseback Transaction
is
given to Agent; no Default or Event of Default exists at the time, or
would
result from the consummation, of such Sale/Leaseback Transaction;
immediately prior to giving effect the consummation of any
Sale/Leaseback
Transaction(including the remittance of Proceeds therefrom, to Agent)
on or
before October 1, 2000, Undrawn Availability is at least equal to the
Required Undrawn Availability; the Equipment that is the subject of
the
Sale/Leaseback Transaction is sold for its fair market value; and the
aggregate amount of Purchase Money Indebtedness hereafter incurred in
a
Fiscal Year by Borrowers plus the aggregate of all Sale/Leaseback
Transactions in such Fiscal Year by Borrowers may not exceed
$12,500,000,
and (ii) a Sale/Leaseback Transaction in which the sale of Owned Real
Property is for cash; all of the cash from such sale is concurrently
remitted to Agent for application to the Obligations in, accordance
with
this Agreement; at least ten (IO) Business Days prior written notice
of the
Sale/Leaseback Transaction is given to Agent; no Default or Event of
Default
exists at the time, or would result from the consummation of such
Sale/Leaseback transaction: immediately prior to giving effect the
consummation of any Sale/Leaseback Transaction including the
remittance of
proceeds therefrom to Agent on or before October 1, 2000, Undrawn
Availability is at least equal to the Required Undrawn Availability;
the
Owned Real Property that is the subject of the Sale/Leaseback
Transaction is
sold for its fair market value; the purchaser Of such Owned Real
Estate has
entered into a landlord, mortgagee or other similar agreement
satisfactory
to Agent, and the aggregate amount of Purchase Money Indebtedness
hereafter
incurred in a Fiscal Year by Borrowers plus the aggregate of all
Sale/Leaseback Transactions in such Fiscal Year by Borrowers may not
exceed
$12,500,000.
c. By deleting Section 2.1(,a)(ii) in its entirety and
inserting the
following in lieu thereof:
(ii) up to the lesser of (A) fifty percent (50%), subject
to the
provisions of Section 2.1(b) Hereof ("Inventory Advance Rate"), of the
Value
of the Eligible Inventory (the Receivables Advance Rate and the
Inventory
Advance Rate shall be referred to collectively, as the "Advance
Rates") or
(B) $30,000,000, minus
d. By deleting Section 6,5 in its entirety and inserting the
following in lieu thereof:
6.5 Pricing Formula Ratio. Commencing on the earlier of (a)
October
1, 2000, and (b) such time as the Borrowers fail to maintain an
Undrawn
Availability of at least the Required Undrawn Availability, maintain a
Pricing Formula Ratio, its determined at the end of each Fiscal
Quarter for
the immediately preceding four (4) Fiscal Quarters, of at least 1.00
to ).
e. By deleting Section 7.7 in its entirety and inserting the
following in lieu thereof:
7.7 Dividends. Declare, pay or make any dividend or
distribution on
any shares of the Equity Interests of any Borrower (other than
Upstream
Payments or dividends or distributions payable in its stock, or split-
ups or
reclassifications of its stock) or apply any of its funds, property or
assets to the purchase, redemption or other retirement of any Equity
Interests, or of any options to purchase or acquire any such Equity
Interests of any Borrower; provided, however, that Reptron may from
time to
time repurchase or redeem any of its common stock if (i) at least ten
(1O)
Business Days prior to the proposed repurchase or redemption Reptron
gives
Agent written notice of its intention to effect such a repurchase or
redemption, the approximate amount of Advances to be used therefor and
the
date of the proposed repurchase or redemption, and (ii) at the time of
such
repurchase or redemption and after giving effect thereto, no Default
or
Event of Default exists and Borrowers have Undrawn Availability (as
determined by Agent) of at least the Required Undrawn Availability,
and,
(iii) the sum of all redemptions, repurchases and prepayment of
Subordinated
Indebtedness permitted by Section 7.17 hereof do not exceed, in the
aggregate, $20,000,000.
f. By deleting Section 7.17 in its entirety and inserting the
following in lieu thereof:
7.17 Prepayment of Indebtedness At any time, directly or
indirectly,
prepay any Indebtedness (other than to the Obligators), or repurchase,
redeem, retire or otherwise acquire any Indebtedness of any Borrower,
including the Subordinated Indebtedness; provided, however, that
Borrowers
may from time to time prepay Subordinated Indebtedness, a.@ and to the
extent permitted by the Subordinated Loan Documents, if (i) at least
ten
(10) Business Days prior to the proposed prepayment, Borrowers give
Agent
written notice of their intention to effect such a prepayment, the
approximate amount of Advances to be used therefor and the date of the
proposed prepayment; (it) at the time of such pr(.4paymetit and after
giving
effect thereto no Default or Event of Default exists, Borrowers have
Undrawn
Availability (as determined by Agent) of at least the Required Undrawn
Availability; and (iii) the sum of all ,prepayments of Subordinated
Indebtedness and all redemptions and repurchases permitted by Section
7.7
hereof do not exceed, in the aggregate, $20,000,000.
g. By adding the following location to Schedule 4.5 to the Loan
Agreement:
47757 Warm Springs Blvd.
Fremont, California 94359
h. By deleting Schedules 4.15(c), 5.2(a), 5.2(b) and 5.4 from the
Credit Agreement and replacing them with Schedules 4.15(c), 5.2(a),
5.2(b)
and 5.4 attached hereto.
3. Ratification and Reaffirmation, Borrower hereby ratifies and
reaffirms the Obligations, each of the Loan Documents and all of
Borrower's
covenants, duties, indebtedness and liabilities under the Loan
Documents.
4. Acknowledgements and Stipulations. Borrower acknowledges and
stipulates that the Loan Agreement and the other Loan Documents
executed by
Borrower are legal, valid and binding obligations of Borrower that are
enforceable against Borrower in accordance with the terms thereof; all
of
the Obligations are owing and payable without defense, offset or
counterclaim (and to the extent there exists any such defense, offset
or
counterclaim on the date hereof, the same is hereby waived by
Borrower); the
security interests and liens granted by Borrower in favor of Lender
are duly
perfected, first priority security interests and liens, except as
permitted
under the Loan Agreement; and the unpaid principal amount of the
Revolving
Advances on and as of the close of business on November 8, 1999,
totaled
$37,799,584.87.
5. Representations and Warranties. Borrower represents and
warrants to
Lender, to induce Lender to enter into this Amendment, that no Default
or
Event of Default exists on the date hereof; the execution, delivery
and
performance of this Amendment have been duly authorized by all
requisite
Corporate action on the part of Borrower and this Amendment has been
duly
executed and delivered by Borrower; and all of the representations and
warranties made by Borrower in the Loan Agreement are true and correct
on
and as of the date hereof.
6. Breach of Amendment. This Amendment shall be part of the Loan
Agreement and a breach of any of any representation, warranty or
covenant
herein shall constitute an Event of Default.
7.Conditions Precedent. The effectiveness of the amendments
contained in
Section 2 are subject to the satisfaction of each of the following
conditions precedent, in form and substance satisfactory to Lender,
unless
satisfaction thereof is specifically waived in writing by Lenders: (i)
Borrowers shall have paid to Agent, for the benefit of Lenders, a
closing
fee of $15,000; (ii) Acquisition shall have executed and delivery a
Joinder
Agreement to Agent; and (111) Acquisition shall have executed and
delivered
to Agent all Lien Perfection Documents requested by Agent.
8. Expenses of Lender. Borrower agrees to pay, on demand, all
costs
and expenses incurred by Lender in connection with the preparation,
negotiation and execution of this Amendment and any other Loan
Documents
executed pursuant hereto and any and all amendments, modifications,
and
supplements thereto, including, without limitation, the costs and fees
of
Lender's legal counsel and any taxes or expenses associated with or
incurred
in connection with any instrument or agreement referred to herein or
contemplated hereby.
9. Effectiveness; Governing Law. This Amendment shall be
effective
upon acceptance by Agent and Lenders (notice of which acceptance is
hereby
waived), whereupon the same shall be governed by and construed in
accordance
with the internal laws of the State of Georgia.
10. Successors and Assigns. This Amendment shall be binding upon
and
inure to the benefit of the parties hereto and their respective
successors
and assigns.
11. No Novation, etc. Except as otherwise expressly provided in
this
Amendment, nothing herein shall be deemed to amend or modify any
provision
of the Loan Agreement or any of the other Loan Documents, each of
which
shall remain in full force and effect. This Amendment is not intended
to
be, nor shall it be construed to create, a novation or accord and
satisfaction, and the Loan Agreement as herein modified shall continue
in
full force and effect.
12. Counterparts, Telecopied Signatures. This Amendment may be
executed in any number of counterparts and by different parties to
this
Amendment on separate counterparts, each of which, when so executed,
shall
be deemed an original, but all such counterparts shall constitute one
and
the same agreement. Any signature delivered by a party by facsimile
transmission shall be deemed to be an original signature hereto.
13.Further Assurances. Borrower agrees to take such further
actions as
Lender shall reasonably request from time to time in connection
herewith to
evidence or give effect to the amendments set forth herein or any of
the
transactions contemplated hereby.
14. Section Titles. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a par-t of the agreements among the par-ties
hereto.
15. Release of Claims. To induce Lender to enter into this
Amendment,
Borrower hereby releases, acquits and forever discharges Lender, and
all
officers, directors, agents, employees, successors and assigns of
Lender,
from any and all liabilities, claims, demands, actions or causes of
action
of any kind or nature (if there be any), whether absolute or
contingent,
disputed or undisputed, at law or in equity, or known or unknown, that
Borrower now has or ever had against Lender arising under or in
connection
with any of the Loan Documents or otherwise. Borrower represents and
warrants to Lender that Borrower has not transferred or assigned to
any
Person any claim that Borrower ever had or claimed to have against
Lender.
16.Waiver of Jury Trial. To the fullest extent permitted by
applicable
law, the parties hereto each hereby waives the right to trial by jury
in
any action, suit, counterclaim or proceeding arising out of or related
to this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be
duly executed under seal in, and delivered by their respective duly
authorized officers on the date first written above.
REPTRON ELECTROINCS, INC.
By: /s/ Michael Branca
Michael Branca, Chief Financial Officer
<CORPORATE SEAL>
REPTRON ELECTRONICS OF PA, INC.
By: /s/ Michael Branca
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL]
LAKE SUPERIOR MERGER CORPORATION
By: /s/ Michael Branca
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL]
HIBBING ELECTRONICS CORPORATION
By: /s/ Michael Branca
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL]
REPTRON AQUISITION, INC.
By: /s/ Michael Branca
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL]
PNC BANK, NATIONAL ASSOCIATION, as
a Lender and as Agent
By: /s/ Richard F. Muse
Name: Richard F. Muse, Jr.
Title:
BANK OF AMEERICA, N.A. f/k/a NationsBank,
N.A., N.A., as a Lender
By:
Name:
Title:
HIBBING ELECTRONICS CORPORATION
By:
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL]
REPTRON ACQUISITION, INC.
By:
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL]
PNC BANK, NATIONAL ASSOCIATION, as
a Lender and as Agent
By:
Name:
Title:
BANK OF AMERICA, N.A. f/k/a NationsBank,
N.A., as lender
By: /s/ Andrew Doherty
Name: Andrew A. Doherty
Title: Vice President
Schedule 4.15(c)
Reptron Electronics, Inc. 14401 McCormick Drive
Lake Superior Merger Corporation Tampa, Florida 33626
Reptron Acquisition, Inc.
Reptron Electronics of PA, Inc. 179 Witmer Road
Horsham, Pennsylvania
19044
Hibbing Electronics Corporation 3125 East 14th Avenue
Hibbing, Minnesota
55746
Schedule 5.2(a)
States of Qualification and Goad Standing
Reptron Electronics, Inc. is organized under the laws of the State of
Florida and 's in good standing in each of the following
jurisdictions:
Alabama, California, Connecticut, Florida, Georgia, Illinois,
Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New York,
North Carolina, Ohio, Oregon, Pennsylvania, Texas and Washington.
Reptron Electronics of PA, Inc. is organized under the laws of the
State
of Pennsylvania and is in good standing in the State of Pennsylvania.
Lake Superior Merger Corporation is organized under the laws of the
State
of Florida and is in good standing in the State of Florida.
Hibbing Electronics Corporation is organized under the laws of the
State of Minnesota and is in good standing in the State of Minnesota.
Reptron Acquisition, Inc. is organized under the laws of the State of
Florida and is in good standing in the States of Florida and
California.
Subsidiaries
Wholly-owned Subsidiaries of Reptron Electronics, Inc.:
Lake Superior Merger Corporation, a Florida corporation
Reptron Electronics of PA, Inc., a Pennsylvania corporation
Reptron Acquisition, Inc., a Florida corporation
Wholly-owned Subsidiary of Lake Superior Merger Corporation:
Hibbing Electronics Corporation, a Minnesota corporation
Wholly-owned Subsidiary of Hibbing Electronics Corporation:
Hibbing Electronics Corporation MD
Federal Tax Identification Number
Reptron Electronics, Inc. 38-2081116
Reptron Electronics of PA, Inc. 23-2829812
Hibbing Electronics Corporation 41-1239104
Hibbing Electronics Corporation MD 52-2021489
Lake Superior Merger Corporation 59-3548245
Reptron Acquisition, Inc. 59-3604127
Exhibit 10.6
SECOND AMMENDMENT TO REVOLVING
CREDIT AND SECURITY AGREEMENT
This SECOND AMENDMNT To REVOLVING CREDIT AND SECURITY AGREEMENT
(this
"Amendment") is made and entered into this 28th day of February, 2000,
by
and among REPTRON ELECTRONICS, INC., a corporation organized under the
laws
of the State of Florida ("Reptron"); REPTRON ELECTRONICS OF PA, INC.,
a
corporation organized under the laws of the State of Pennsylvania
("Reptron
Pennsylvania"); LAKE SUPERIOR MERGER CORPORATION, a corporation
organized
under the laws of the State of Florida ("Superior"); HIBBING
ELECTRONICS
CORPORATION, a corporation organized under the laws of the State of
Minnesota ("Hibbing"); REPTRON ACQUISITION, INC., a corporation
organized
under the laws of the State of Florida ("Acquisition"; Reptron,
Reptron
Pennsylvania, Superior, Hibbing and Acquisition, each a "Borrower" and
collectively "Borrowers"); the various financial institutions listed
on the
signature pages hereof and their respective successors and permitted
assigns
which become "Lenders"; and PNC BANK, NATIONAL ASSOCIATION, a national
association ("PNC"), as collateral and administrative agent for
Lenders
(PNC, together with its successors in such capacity, the "Agent").
Recitals
Agent, Lenders and Borrowers are parties to a certain Revolving credit
and Security Agreement dated January 8, 1999, as amended by that
certain
First Amendment to Revolving Credit and Security Agreement dated
November
10, 1999 (as amended at any time, the "Loan Agreement") pursuant to
which
Lender has made certain revolving credit loans to Borrower.
The parties desire to amend the Loan Agreement as hereafter set forth.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other
good and
valuable consideration, the receipt and sufficiency of which are
hereby
severally acknowledged, the parties hereto, intending to be legally
bound
hereby, agree as follows:
1. Definitions. All capitalized terms used in this Amendment,
unless
otherwise defined herein shall have the meaning ascribed to such terms
in
the Loan Agreement.
2. Amendment to Loan Agreement. The Loan Agreement is hereby
amended
as follows:
a. By adding the following definitions to Section
1.2 in
appropriate alphabetical order:
"Issuer" shall mean any Person who issues a Letter
of
Credit and/or accept a draft pursuant to the terms hereof.
"Letter of Credit Fees" shall have the meaning set
forth in
Section 3.10.
"Letters of Credit" shall have the meaning set forth
in
Section 2.9.
b. By deleting the definitions of "Advances,"
"Individual
Formula Amount" and
"Revolving Advances" from Section 1.2 and inserting the following in
lieu
thereof-.
"Advances" shall mean and include the Revolving
Advances,
Letters of Credit and each other advance made by Agent or Lenders
pursuant
to the terms of this Agreement or any of the Other Documents to or for
the
benefit of any Borrower.
"Individual Formula Amount" shall mean at the date of
determination thereof, with respect to each Borrower an amount equal
to: (a)
the Receivables Advance Rate of Eligible Receivables of such Borrower,
910
(b) the Inventory Advance Rate of the value of Eligible Inventory of
such
Borrower, minus (c) the aggregate amount of Letters of Credit
outstanding of
such Borrower, minus (d) such reserves as Agent may reasonably deem
proper
and necessary from time to time.
'Revolving Advances" shall mean Advances made other than
Letters of Credit under this Agreement to or for the benefit of
any Borrower.
c. By deleting Section 2.1(a) in its entirety and
inserting the
following in lieu thereof:
(a) Subject to the terms and conditions set forth in this
Agreement each Lender, severally and not jointly, will make Revolving
Advances to Borrowers in aggregate amounts outstanding at any time not
to
exceed such Lender's Commitment Percentage of the lesser of (x) the
Maximum
Revolving Advance Amount minus the aggregate amount of outstanding
Letters
of Credit or (y) an amount equal to the sum of:
(i) up to eighty-five percent (85%), subject to
the
provisions of Section 2,1(b) hereof ("Receivables Advance Rate"), of
the Net
Amount of Eligible Receivables, plus
(ii) up to the lesser of (A) fifty percent (50%),
subject to the provisions of Section 2.1(b) hereof ("Inventory Advance
Rate"), of the Value of the Eligible Inventory (the Receivables
Advance Rate
and the Inventory Advance Rate shall be referred to collectively, as
the
"Advance Rates") or (B) $25,000,000, minus
(iii) the aggregate amount of Letters of Credit
outstanding, minus
(iv) such reserves as Agent may reasonably deem
proper
and necessary from time to time.
The amount derived from the sum of (A) Sections 2.1(a)(y)(i) and
(ii)
minus (B) Section 2.1(a)(y)(iii) and (iv) at any time and from time to
time
shall be referred to as the "Formula Amount." The Revolving Advances
shall
be evidenced by secured promissory notes ("Revolving Credit Notes") in
favor
of each Lender in substantially in the form attached hereto as Exhibit
A.
Borrowers and Lenders agree that if any event occurs or any condition
exists that Agent determines is likely to have a Material Adverse
Effect
or if a Default or Event of Default exists, Agent shall have ft right
(exercisable at such time or times as Agent deems appropriate) to
require that separate calculations of die Individual Formula Amount
be made for each Borrower, as well as the right to limit the use of
proceeds of Advances by each Borrower to an amount that does not
exceed such Borrower's Individual Formula Amount.
d. By deleting Sections 2.9, 2. 1 0 and 2.1 1 in their
entirety and inserting the following in lieu thereof:
2.9 Letters of Credit. Subject to the terms and
conditions hereof, Agent shall issue or cause the issuance of standby
and documentary letters of credit ("Letters of Credit") on behalf of
any Borrower; provided, however, that Agent will not be required to
issue or cause to be issued any Letters of Credit to the extent that
the face amount of such Letters of Credit then cause the sum of (i)
the
outstanding Revolving Advances plus (ii) outstanding Letters of
Credit to exceed the lesser of (x) the Maximum Revolving Advance
Amount or (y) the formula Amount. The maximum amount of
Letters of Credit outstanding shall not exceed $1,000,000 in the
aggregate. All disbursements or payments related to Letters of
Credit shall be deemed to be Revolving Advances and shall bear
interest at the Revolving Interest Rate for Domestic Rate Loans.
Letters of Credit that have not been drawn upon shall not bear
interest.
2.10 Issuance of Letters of Credit.
(a) Borrowing Agent, on behalf of Borrowers, may
request Agent to issue or cause the issuance of a Letter of Credit by
delivering to Agent at the Payment Office, Agent's form of Letter
of Credit Application (the "Letter of Credit Application") completed
to the satisfaction of Agent; and, such other certificates, documents
and other papers and information as Agent may reasonably request.
Borrowing Agent, on behalf of Borrowers, also has the right to give
instructions and make agreements with respect to any application,
any applicable letter of credit and security agreement any applicable
letter of credit reimbursement agreement and/or any other applicable
agreement, any letter of credit and the disposition of documents,
disposition of any unutilized funds, and to agree with Agent upon any
amendment extension or renewal of any Letter of Credit.
(b) Each Letter of Credit shall, among other
things,
(i) provide for the payment of sight drafts or acceptances of usance
drafts when presented for honor thereunder in accordance with the
terms thereof and when accompanied by the documents described therein
and (ii) have an expi7y date not later than twelve (12) months after
such Letter of Credit's date of issuance and in no event later than
the last day of the Term. Each Letter of Credit shall be subject
to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication
No. 500, and any amendments or revision thereof adhered to by
the Issuer and, to the extent not inconsistent therewith, the
laws of the State of New Jersey.
(b) Agent shall use its reasonable efforts to
notify Lenders of the request by Borrowing Agent for a Letter of
Credit
hereunder.
(c) Agent shall have absolute discretion whether
t
o accept any draft. Without in any way limiting Agent's absolute
discretion whether to accept any draft, Borrowing Agent will not
present for acceptance any draft, and Agent will generally not accept
any drafts (i) that arise out of transactions involving the sale of
goods by any Borrower not in the ordinary course of its business,
(ii) that involve a sale to an Affiliate of any Borrower, (iii)
that involve any purchase for which Agent has not received all related
documents, instruments and forms requested by Agent,
(iv) for which Agent is unable to locate a purchaser in the ordinary
course of business on standard terms, or (v) that is not eligible for
discounting with Federal Reserve Banks pursuant to paragraph 7 of
Section 13 of the Federal Reserve Act.
2.11 Requirements For Issuance of Letters of Credit.
(a) In connection with the issuance of any Letter
of
Credit, Borrowers shall indemnify, save and hold Agent, each Lender
and each Issuer harmless from any loss, cost expense or liability,
including payments made by Agent any Lender or any Issuer and expenses
and reasonable attorneys' fees incurred by Agent any Lender or Issuer
arising out of, or in connection with, any Letter of Credit to be
issued
or created for any Borrower. Borrowers shall be bound by Agent's
or any Issuer's regulations and good faith interpretations of any
Letter of Credit issued or created for Borrowers' Account, although
this
interpretation may be different from its
own; and, neither Agent, nor any Lender, nor any Issuer nor any of
their
correspondents shall be liable for any error, negligence, or mistakes,
whether of omission or commission, in following Borrowing Agent's or
any
Borrower's instructions or those contained in any Letter of Credit or
of any
modifications, amendments or supplements thereto or in issuing or
paying any
Letter of Credit, except for Agent's, any Lender's, any Issuer's or
such
correspondents' willful misconduct.
(b) Borrowing Agent shall authorize and direct
any
Issuer to name the applicable Borrower as the "Applicant' or "Account
Party"
of each Letter of Credit. If Agent is not the Issuer of any Letter of
Credit Borrower shall authorize and direct the Issuer to deliver to
Agent
all instruments, documents, and other writings and property received
by the
Issuer pursuant to the Letter of Credit and to accept and rely upon
Agents
instructions and agreements with respect to all matters arising in
connection with the Letter of Credit, the application therefor or any
acceptance therefor.
(c) In connection with all Letters of Credit
issued or
caused to be issued by Agent under this Agreement each Borrower hereby
appoints Agent, or its designee, as its attorney, with full power and
authority (i) to sign and/or endorse such Borrower's name upon any
warehouse
or other receipts, letter of credit applications and acceptances; (ii)
to
sip such Borrower's name on bills of lading; (iii) to clear Inventory
through the United States of America Customs Department ("Customs") in
the
name of such Borrower or Agent or Agent's designee, and to sign and
deliver
to Customs officials powers of attorney in the name of such Borrower
for
such purpose; and (iv) to complete in such Borrower's name or Agents,
or in
the name of Agent's designee, any order, sale or transaction, obtain
the
necessary documents in connection therewith, and collect the proceeds
thereof, Neither Agent nor its attorneys will be liable for any acts
or
omissions nor for any error of judgment or mistakes of fact or law,
except
for Agent's or its attorney's willful misconduct. This power, being
coupled
with an interest, is irrevocable as long as any Letters of Credit
remain
outstanding.
(d) Each Lender shall to the extent of the
percentage
amount equal to the product of such Lender's Commitment Percentage,
times
the aggregate amount of all unreimbursed reimbursement obligations
arising
from disbursements made or obligations incurred with respect to the
Letters
of Credit be deemed to have irrevocably purchased an undivided
participation
in each such unreimbursed reimbursement obligation. In the event that
at
the time a disbursement is made the unpaid balance of Revolving
Advances
exceeds or would exceed, with the making of such disbursement, the
lesser of
(i) the Maximum Revolving Advance Amount or (ii) the Formula Amount,
and
such disbursement is not reimbursed by Borrowers within two (2)
Business
Days, Agent shall promptly notify each Lender and upon Agent's demand
each
Lender shall pay to Agent such Lender's proportionate share of such
unreimbursed disbursement together with such Lender's proportionate
share of
Agent's unreimbursed costs and expenses relating to such unreimbursed
disbursement. Upon receipt by Agent of a repayment from any Borrower
of any
amount disbursed by Agent for which Agent had already been reimbursed
by
Lenders, Agent shall deliver to each Lender that Lender's pro rata
share of
such repayment. Each Lender's participation commitment shall continue
until
the last to occur of any of the following events: (A) Agent ceases to
be
obligated to issue or cause to be issued Letters of Credit hereunder;
(B) no
Letter of Credit issued hereunder remains outstanding and uncanceled;
or (C)
all Persons (other than the applicable Borrower) have been fully
reimbursed
for all payments made under or relating to Letters of Credit.
(e) On demand, Borrowers will cause cash to be
deposited and maintained in an account with Agent, as cash collateral,
in an
amount equal to one hundred and five percent (105%) of the outstanding
Letters of Credit, and each Borrower hereby irrevocably authorizes
Agent, in
its discretion, on such Borrower's behalf and in such Borrower's name,
to
open such an account and to make and maintain deposits therein, or in
an
account opened by such Borrower, in the amounts required to be made by
such
Borrower, out of the proceeds of Receivables or other Collator-at or
out of
any other funds of such Borrower coming into any Lender's possession
at any
time. Agent will invest such cash collateral (less applicable
reserves) in
such short-term money-market items 46 to which Agent and such Borrower
mutually agree and the net return on such investments shall be
credited to
such account and constitute additional cash collateral. No Borrower
may
withdraw amounts credited to any such account except upon payment and
performance in full of all Obligations and termination of this
Agreement.
e. By deleting Section 2.15 in its entirety and inserting
the
following in lieu thereof:
2.15 Use of Proceeds. Borrowers shall apply the
proceeds
of Advances to (i) repay existing Indebtedness owed to NationsBank;
(ii) pay
any of the Obligations, including fees and expenses relating to this
transactions (iii) pay the purchase price of Permitted Acquisitions
and the
fees and expenses relating to such Permitted Acquisitions, provided
that the
aggregate amount of Advances that may be used to fund Permitted
Acquisitions
shall not exceed $20,000,000 in the aggregate; (iv) repurchase or
redeem
common stock of Reptron to the extent authorized by this Agreement and
prepay Subordinated Indebtedness to the extent authorized by Ns
Agreement,
provided that the aggregate amount of all Advances used to redeem OT
repurchase such common stock and to prepay Subordinated Indebtedness,
provided that the aggregate amount of Advances that may be used to
repurchase or redeem common stock of Reptron and to prepay
Subordinated
Indebtedness shall not exceed $20,000,000; (v) to reimburse Issuer for
Letters of Credit outstanding; and (vi) provide far Borrowers' working
capital needs.
f. By inserting the following as a new Section 3.1 0 in
appropriate order:
3.10 Letter of Credit Fees. Borrowers shall pay (x) to
Agent,
for the benefit of Lenders, fees for each Letter of Credit for the
period
from and excluding the date of issuance of same to and including the
date of
expiration or termination, equal to the average daily face amount of
each
outstanding Letter of Credit multiplied by two percent (2.0%) per
annum,
such fees to be calculated on the basis of a 360-day year for the
actual
number of days elapsed and to be payable monthly in area on the first
day of
each month and on the lost day of the Term and (y) to the Issuer, any
and
all fees and expenses as agreed upon by the Issuer and the Borrowing
Agent
in connection with any Letter of Credit including in connection with
the
opening, amendment or renewal of any such Letter of Credit and any
acceptances created thereunder and shall reimburse Agent for any and
all
fees and expenses, if any, paid by Agent to the Issuer (all of the
foregoing
fees, the "Letter of Credit Fees"). All such charges shall be deemed
earned
in full on the date when the same are due and payable hereunder and
shall
not be subject to rebate or proration upon the termination of this
Agreement
for any reason. Any such charge in effect at the time of a particular
transaction shall be the charge for that transaction, notwithstanding
any
subsequent change in the Issuer's prevailing charges for that type of
transaction. All Letter of Credit Fees payable hereunder shall be
deemed
earned in full on the date when the same are due and payable hereunder
and
shall not be subject to rebate or proration upon the termination of
this
Agreement for any reason.
3. Ratification and Reaffirmation. Borrower hereby ratifies
and
reaffirms the Obligations, each of the Loan Documents and all of
Borrower's
covenants, duties, indebtedness and liabilities under the Loan
Documents.
4. Acknowledgments and Stipulations. Borrower acknowledges and
stipulates that the Loan Agreement and the other Loan Documents
executed by
Borrower are legal, valid and binding obligations of Borrower that are
enforceable against Borrower in accordance with the terms thereof; all
of
the Obligations are owing and payable without defense, offset or
counterclaim (and to the extent there exists any such defense, offset
or
counterclaim on the date hereof, the same is hereby waived by
Borrower); and
the security interests and liens granted by Borrower in favor of
Lender are
duly perfected, first priority security interests and liens, except as
permitted under the Loan Agreement,
5. Representations and Warranties. Borrower represents and
warrants
to Lender, to induce Lender to enter into this Amendment, that no
Default or
Event of Default exists on the date hereof; the execution, delivery
and
performance of this Amendment have been duly authorized by all
requisite
corporate action on the part of Borrower and this Amendment has been
duly
executed and delivered by Borrower; and all of the representations and
warranties made by Borrower in the Loan Agreement are true and correct
on
and as of the date hereof.
6. Breach of Amendment. This Amendment shall be part of the
Loan
Agreement and a breach of any of any representation, warranty or
covenant
herein shall constitute an Event of Default.
7. Expenses of Agent and Lenders. Borrower agrees to pay, on
demand,
all costs and expenses incurred by Agent and Lenders in connection
with the
preparation, negotiation and execution of this Amendment and any other
Loan
Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation,
the
costs and fees of Agent's and Lenders' legal counsel and any taxes or
expenses associated with or incurred in connection with any instrument
or
agreement referred to herein or contemplated hereby.
8. This Amendment shall be effective upon acceptance by
Agent and Lenders (notice of which acceptance is hereby waived),
whereupon
the same shall be governed by and construed in accordance with the
internal
laws of the State of Georgia.
9. Successors and Assigns. This Amendment shall be binding
upon and
inure to the benefit of the parties hereto and their respective
successors
and assigns.
10. No Novation, etc. Except as otherwise expressly provided
in
this Amendment, nothing herein shall be deemed to amend or modify any
provision of the Loan Agreement or any of the other Loan Documents,
each of
which shall remain in full force and effect. This Amendment is not
intended
to be, nor shall it be construed to create, a novation or accord and
satisfaction, and the Loan Agreement as herein modified shall continue
in
full force and effect.
11. Counterparts: Telecopied Signatures. This Amendment may be
executed in any number of counterparts and by different parties to
this
Amendment on separate counterparts, each of which, when so executed,
shall
be deemed an original, but all such counterparts shall constitute one
and
the same agreement. Any signature delivered by a party by facsimile
transmission shall be deemed to be an original signature hereto.
12. Further Assurances. Borrower agrees to take such further
actions as Lender shall reasonably request from time to time in
connection
herewith to evidence or give effect to the amendments set forth herein
or
any of the transactions contemplated hereby.
13. Section Titles. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties
hereto.
14. Release of Claims. To induce Agent and Lenders to enter
into this
Amendment, each Borrower hereby releases, acquits and forever
discharges
Agent, Leaders, and all officers, directors, agents, employees,
successors
and assigns of Agent and Lenders, from any and all liabilities,
claims,
demands, actions or causes of action of any kind or nature (if there
be
any), Whether absolute or contingent, disputed or undisputed, at law
or in
equity, or known or unknown, that such Borrower now has or ever had
against
Agent or any Lender arising under or in connection with any of the
Loan
Documents or otherwise. Each Borrower represents and warrants to
Agent and
Lenders that such Borrower has not transferred or assigned to any
Person
any claim that such Borrower ever had or claimed to have against Agent
or
any Lender.
15. Waiver of Jury Trial. To the fullest extent permitted by
applicable law, the parties hereto each hereby waives the right to
trial by
jury in any action, suit, counterclaim or proceeding arising out of or
related to this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be
duly executed under seal in, and delivered by their respective duly
authorized officers on the date first written above,
REPTRON ELECTRONICS, Inc.
By: /s/ Michael Branca
Michael Branca
Chief Financial Officer
[CORPORATE SEAL]
REPTRON ELECTRONICS OF PA, INC.
By: /s/ Michael Branca
Michael Branca, Vice President and
Chief Financial Officer
(CORPORATE SEAL)
LAKE SUPERIOR MERGER CORPORATION
By: /s/ Michael Branca
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL]
HIBBING ELECTRONICS CORPORATION
By: /s/ Michael Branca
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATESEAL]
REPTRON ACQUISTION, INC.
By: /s/ Michael Branca
Michael Branca, Vice President and
Chief Financial officer
(CORPORATE SEAL]
PNC BANK, NATIONAL ASSOCIATION, as
a Lender and as Agent
By:
Name:
Title:
BANK OF AMERICA, N.A. f/k/a NationsBank,
N.A., as a Lender
By:
Name:
Title:
LAKE SUPERIOR MERGER CORPORATION
By:
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL]
HIBBING ELECTRONICS CORPORATION
By:
Michael Branca, Vice President and
Chief,Financial Officer
[CORPORATE SEAL]
REPTRON ACQUISITION, INC.
BY:
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL]
PNC BANK, NATIONAL ASSOCIATION, as
a Lender and as Agent
By:
Name:
Title:
BANK OF AMERICA, N.A. f/k/a NationsBank,
N.A., as a Lender
By: /s/ Brian O'Fallon
Name: Brian O'Fallon
Title: Senior Vice President
Exhibit 10.7
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
STEVEN R. GUMA AND LINDA L. GUMA, AS SELLER
AND
REPTRON ACQUISITION, INC., AS PURCHASER
DATED OCTOBER 26, 1999
TABLE OF CONTENTS
PAGE
ARTICLE I
PURCHASE AND SALE
1.1 Agreement to Sell
1
1.2 Purchase Price and Allocation Thereof
4
1.3 Delivery of the Assets.
5
1.4 Assumption of Liabilities.
5
1.5 Payment of the Purchase Price.
7
1.6 Adjustments to Purchase Price and Payment Thereof.
10
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Seller.
12
2.2 Representations and Warranties of the Purchaser.
28
2.3 Survival of Covenants, Representations and Warranties.
29
ARTICLE III
INDEMNIFICATION
3.1 Indemnification by the Seller.
30
3.2 Indemnification by the Purchaser.
31
3.3 Notice of Claim Against Seller.
31
3.4 Notice of Claim Against Purchaser.
33
3.5 Minimum Threshold for Indemnified Claims.
35
ARTICLE IV
FURTHER COVENANTS
4.1 Seller's Covenants.
36
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions Precedent to the Purchaser's Obligations.
38
5.2 Conditions Precedent to the Seller's Obligations.
40
ARTICLE VI
CLOSING, ITEMS TO BE DELIVERED, THIRD PARTY
CONSENTS AND FURTHER ASSURANCES
6.1 Closing.
41
6.2 Items to be Delivered at Closing.
41
6.3 Other Documents.
43
ARTICLE VII
MISCELLANEOUS
7.1 Termination.
44
7.2 Broker's and Finder's Fees.
45
7.3 Expenses.
45
7.4 Post Closing Administration.
45
7.5 Contents of Agreement; Parties in Interest, etc.
45
7.6 Assignment and Binding Effect.
46
7.7 Waiver.
46
7.8 Notices.
46
7.9 California Law to Govern.
47
7.10 No Benefit to Others.
47
7.11 Headings, Gender and "Person".
47
7.12 Exhibits.
48
7.13 Severability
48
7.14 Counterparts.
48
7.15 Arbitration.
48
EXHIBITS
PAGE
EXHIBIT A
51
MACHINERY, EQUIPMENT, FURNITURE
AND EQUIPMENT
EXHIBIT B
52
REAL AND PERSONAL PROPERTY LEASES
EXHIBIT C
53
OPEN SALES ORDER REPORT
EXHIBIT D
54
BILL OF SALE
EXHIBIT E
55
COUNSEL'S OPINION FOR SELLER
EXHIBIT F
56
COUNSEL'S OPINION FOR PURCHASER
SCHEDULES
EMPLOYEE BENEFITS
57
2.1(j)(i)
EMPLOYEE BENEFITS
58
2.10(j)(xviii)
OTHER BENEFIT PLANS
59
2.1(k)
OTHER BENEFIT PLANS
60
2.1(l)(ii)
OTHER BENEFIT PLANS
61
2.1(l)(iii)
COMPLIANCE WITH LAW
62
2.1(l)(iv)
PENDING, THREATENED OR
63
POTENTIAL LITIGATION
2.1(q)
CONTRACTS AND COMMITMENTS
64
2.1(r)
INTELLECTUAL PROPERTY
65
2.1(t)(ii)
INTELLECTUAL PROPERTY
66
2.1(t)(iii)
APPRECIATION RIGHTS
67
2.1(x)
CONTRACTUALDEVELOPMENT
68
2.1(aa)
INVENTORY COVERAGE
69
2.1(bb)
Execution Copy
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered
into on
this 26th day of October 1999, by and among Steven R. Guma and Linda
L.
Guma, both California residents, (hereinafter jointly and severally
referred
to as "Seller"), and Reptron Acquisition, Inc., a Florida corporation,
(hereinafter referred to as "Purchaser").
WITNESSETH:
WHEREAS, Seller is in the business of manufacturing integrated flat
panel
displays, operating the same under the name of Applied Instruments.
The Seller desires to sell, and Purchaser desires to buy all of the
operating assets, properties and rights of the Seller comprising the
business operated by Seller under the name Applied Instruments
(hereinafter "Applied Instruments Business") for the purchase price
and
upon and subject to the other terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the premises and of the
representations,
warranties, covenants and agreements herein contained, and intending
to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Agreement to Sell. At the Closing, as defined in Article VI
hereof, the
Seller will validly and effectively grant, sell, convey and assign to
the
Purchaser, upon, and subject to the terms and conditions of this
Agreement,
all of the right, title and interest in and to all of the assets,
properties
and rights of every kind and description, tangible and intangible,
wherever
situated which comprise the Applied Instruments Business (the
"Assets"),
free and clear of all liens, pledges, security interests, charges,
claims,
restrictions and other encumbrances or defects of title of any nature
whatsoever, except those specifically assumed by Purchaser or to which
Purchaser shall take subject, all as hereinafter provided. The Assets
shall include, without limitation, the following:
(a) all cash, bank deposits and certificates of deposit;
(b) all accounts receivable;
(c) all inventories including, but not limited to raw materials,
work
in process, finished goods and consigned goods;
(d) all documents and materials, whether stored in electronic memory
or
otherwise, including all customer and supplier lists and all leads to
prospective customers and all documents, records and files relating
thereto or
to the Assets;
(e) all machinery, equipment, furniture and fixtures as listed on
Exhibit
A attached hereto;
(f) all product and technical information possessed by the Seller of
every
nature relating to the design, manufacture and sale of the products
presently or formerly produced or developed or intended or
contemplated
to be produced or developed in the future, including all sales and
promotional literature, product warranties, marketing data, technical
literature and data, engineering drawings, manufacturing drawings,
prototypes, plans, manufacturing process sheets, computer programs and
software, test data, purchasing data, parts lists, instruction
manuals,
and other data and material, whether in written form or in other
reproducible form, which is as of the date hereof and at the Date of
Closing used or useful or contemplated to be used or useful at a
future
date in the Applied Instruments Business;
(g) real estate and personal property leases listed on Exhibit B, as
held by
the Seller in any manner necessary for or related to the Assets or the
operation
of the Applied Instruments Business, to which Purchaser takes a valid
assignment;
(h) Purchase or Sales orders whether made orally or in writing,
under which
Seller is to deliver a product or service to a customer identified on
Exhibit C (the "Sales Orders" or "Backlog");
(i) requests for quotation;
(j) all insurance contracts assignable and covering property or
liability of
the Applied Instruments Business;
(k) rights under contracts and agreements to which the Seller or the
Applied
Instruments Business is a party which relate to the Applied
Instruments
Business and which have not been completely performed or filled prior
to the
Date of Closing;
(l) all non-competition and confidentiality agreements running to
the
benefit of Sellers or the Applied Instruments Business whether or not
executed by persons who were employed and/or associated with the
Applied
Instruments Business;
(m) hold harmless and indemnification covenants running to the
benefit of
Seller incident to and in connection with the Applied Instruments
Business
or otherwise running to the benefit of the Applied Instruments
Business;
(n) deposits placed as collateral for commercial letters of credit
issued in
connection with any transaction associated with the Applied
Instruments
Business;
(o) computer software and all license agreements attendant to the
Applied
Instruments Business;
(p) copies of all personnel records of those current and former
employees of
the Applied Instruments Business;
(q) the interests of Seller or the Applied Instruments Business in
any and
all claims against any other person, whether nor or hereafter accrued,
contingent or otherwise, known or unknown, including, but not limited
to
claims for collection or indemnity, claims in bankruptcy, claims for
contribution and choses in action;
(r) the name "Applied Instruments"; and
(s) all patents, patent applications, trademarks, trade names, trade
secrets
and other intellectual property.
1.2 Purchase Price and Allocation Thereof
(a) The purchase price (the "Purchase Price") for the Assets shall
be the sum
of
(i) $7,500,000 to be paid on the Date of Closing;
(ii) Subject to Section 1.6(d) below, payment of three annual
installments ("Annual Installment Payment"), each of which shall not
be less
than $0 or greater than $3,500,000, calculated pursuant to the
following
formula: [(Annual Pre-Tax Income (defined in Section 1.5(a)(iv))
below) x 5,
in calculating the first Annual Installment Payment, and x 4 in
calculating
the second and third Annual Installment Payments) $7,500,000] divided
by 3; and
(iii) The assumption of stated liabilities, including Applied
Instruments' working capital line, accounts payable and accruals
recorded
under generally accepted accounting principles entered
in the ordinary course.
(b) At Closing, the parties shall execute a schedule allocating the
Purchase
Price among the Assets. The Purchase Price allocation shall be
utilized by
each of the Seller and Purchaser for Federal Income Tax reporting
purposes.
1.3 Delivery of the Assets. At Closing, the Seller shall transfer
and
deliver to Purchaser possession of and title to the Assets along with
such
instruments of transfer and title as are required by Purchaser.
1.4 Assumption of Liabilities. Except as specifically set forth
below,
Purchaser shall not assume and does not agree to pay, perform or
discharge
any debt, expense or liability of the Seller of any nature whatsoever,
whether fixed or contingent, known or unknown on the Date of Closing:
(a) Purchaser agrees to complete and deliver such product or service
as is
required by the Sales Orders identified in Exhibit B, provided the
customer
to whom such product is to be delivered, or for whose benefit such
service
is to be performed, has agreed to permit Purchaser to complete
Seller's
obligations thereunder pursuant to any such applicable Sales Order;
(b) Purchaser assumes and agrees to perform the obligations of
Seller
accruing from and after the Date of Closing under all real estate and
personal property leases described in Exhibit B, and which has been
assigned to Purchaser and consented to by the landlord or lessor
thereof;
(c) Purchaser assumes and agrees to pay, as and when due, Seller's
accounts
payable and stated liabilities of the Applied Instruments Business
incurred
in the purchase of goods or services in the ordinary course accrued
under
generally accepted accounting principles as of the close of business
immediately preceding, and to be specifically listed on, the Date of
Closing;
(d) Purchaser assumes and agrees to pay the Applied Instruments
Business
obligation under open purchase orders for inventory purchases to be
used in
the ordinary course;
(e) Purchaser shall assume and agree to pay the outstanding balance
under the
working capital line extended by Fremont Bank to Seller for use in the
Applied Instruments Business;
(f) Purchaser shall not assume liability for any damage, cost or
expense
resulting from the sale of any product or from acts, or failure to
perform
acts, by the Seller or the Applied Instruments Business, and its
employees
or agents, on or prior to the Date of Closing, including any design or
engineering services performed by or on behalf of Seller or the
Applied
Instruments Business, and further including but not limited to such
claims
arising from Seller's performance or lack thereof, under the Sales
Orders
described in Exhibit B.
(g) Upon the hiring of such employees of Seller who are employed by
Purchaser, Purchaser will credit each such employee with the vacation
accrued by such employee while serving as an employee of Seller to the
extent such employee has not elected to be paid by Seller for such
accrued
vacation upon termination of his or her employment with Seller. A
list of
the accrued vacation of all employees of Seller outstanding on the
Date of
Closing shall be delivered to Purchaser at the Closing. Each employee
so
hired by Purchaser shall receive past service credits for the term of
said
employee's
employment with Seller. Such past service credits shall be considered
as
service with the Purchaser in determining the extent of such
employonths following the Change of Control Event) Purchaser shall pay
to Seller
at the end of said nine month period an amount equal to the difference
between $10,500,000 and the sum of the Installment Payments
theretofore paid
to Seller, in full satisfaction of Purchaser's obligations described
in
Sections 1.2(a)(ii) and 1.5(a)(iii) hereof. If Seller does not so
notify
Purchaser, the installment portion of the Purchase Price shall be paid
as
provided in Section 1.5(a)(iii).
(c) If a Change of Control Event occurs after December 31, 2000, but
on or
before December 31, 2001, and provided Steven Guma or Linda Guma have
not
voluntarily terminated their employment with Purchaser prior to the
Change
of Control Event, and do not voluntarily terminate their employment
with
Purchaser for a period of six (6) months following the Change of
CMarch 31, 2002 and 2003 Annual Installment Payments, less
(B) $7,500,000, and
(C) which difference is divided by 3.
(iv) (A) For purposes hereof, Annual Pre-Tax Income shall equal
the
pretax income of the Applied Instruments Business for an Annual Period
as
operated by Purchaser inclusive of charges for interest on working
capital
indebtedness, but excluding all amortization of goodwill recorded by
Purchaser or its subsidiary, or interest incurred by Purchaser or its
subsidiary all in the acquisition of the Assets, and further excluding
Purchaser's parent's, Reptron Electronics, Inc., ("Reptron") corporate
overhead tion by Purchaser of the Applied Instruments Business. With
respect to facts occurring prior to Closing which result in an expense
or
charge to Purchaser's operations post Closing, all such expenses or
charges
shall be included in determining Annual Pre-Tax Income to the extent
the
same are normal, necessary and, for purposes of the Applied
Instruments
Business, have historically been reoccurring operating expenses. By
way of
example, expenses incurred post Closing resulting in whole or in part
from
from facts
hin eight
months following the Change of Control Event) Purchaser shall pay to
Seller
at the end of said nine month period an amount equal to the difference
between $10,500,000 and the sum of the Installment Payments
theretofore paid
to Seller, in full satisfaction of Purchaser's obligations described
in
Sections 1.2(a)(ii) and 1.5(a)(iii) hereof. If Seller does not so
notify
Purchaser, the installment portion of the Purchase Price shall be paid
as
provided in Section 1.5(a)(iii).
(c) If a Change of Control Event occurs after December 31, 2000, but
on or
before December 31, 2001, and provided Steven Guma or Linda Guma have
not
voluntarily terminated their employment with Purchaser prior to the
Change
of Control Event, and do not voluntarily terminate their employment
with
Purchaser for a period of six (6) months following the Change of
Control
Event, and further provided Seller notifies Purchaser in writing of
their
election to receive payment under this Section 1.6(c)(which notice
must be
received by Purchaser within five months following the Change of
Control
Event) the monthly average pre-tax income (determined as described in
Section 1.5(a)(iii)) of the Applied Instruments Business operated by
Purchaser will be calculated from January 1, 2000 to the month end
immediately preceding the end of said six month period. At the end of
said
six month period, Purchaser shall pay to Seller an amount equal to
seventy-five percent (75%) of the amount determined under Section
1.5(a)(iii), using said average monthly pre-tax income in determining
the
Annual Pre-Tax Income f
ommencing January 1, 2001 and January 1, 2002. The amount paid to
Seller
under this subsection (c) shall fully satisfy Purchaser's obligations
described in Sections 1.2(f nine
(9) months following the Change of Control Event, and further provided
Seller
notifies Purchaser in writing of their election to receive payment
under
this Section 1.6(b) (which notice must be received by Purchaser within
eight
months following the Change of Control Event) Purchaser shall pay to
Seller
at the end of said nine month period an amount equal to the difference
between $10,500,000 and the sum of the Installment Payments
theretofore paid
to Seller, in full satisfaction of Purchaser's obligations described
in
Sections 1.2(a)(ii) and 1.5(a)(iii) hereof. If Seller does not so
notify
Purchaser, the installment portion of the Purchase Price shall be paid
as
provided in Section 1.5(a)(iii).
(c) If a Change of Control Event occurs after December 31, 2000, but
on or
before December 31, 2001, and provided Steven Guma or Linda Guma have
not
voluntarily terminated their employment with Purchaser prior to the
Change
of Control Event, and do not voluntarily terminate their employment
with
Purchaser for a period of six (6) months following the Change of
Control
Event, and further provided Seller notifies Purchaser in writing of
their
election to receive payment under this Section 1.6(c)(which notice
must be
received by Purchaser within five months following the Change of
Control
Event) the monthly average pre-tax income (determined as described in
Section 1.5(a)(iii)) of the Applied Instruments Business operated by
Purchaser will be calculated from January 1, 2000 to the month end
immediately preceding the end of said six month period. At the end of
said
six month period, Purchaser shall pay to Seller an amount equal to
seventy-five percent (75%) of the amount determined under Section
1.5(a)(iii), using said average monthly pre-tax income in determining
the
Annual Pre-Tax Income f
ommencing January 1, 2001 and January 1, 2002. The amount paid to
Seller
under this subsection (c) shall fully satisfy Purchaser's obligations
described in Sections 1.2(a)(ii) and 1.5(a)(iii) hereof. If Seller
does
not so notify Purchaser, the installment portion of the Purchase Price
shall
be paid as provided in Section 1.5(a)(iii).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Seller. The Seller hereby
represents and warrants to Purchaser as follows:
(a) Existence. The Seller has operated the Applied Instruments
Business as a
sole proprietorship since its inception on October 27, 1987;
(b) Power and Authority. Seller has all requisite power and
authority to
carry on the Applied Instruments Business as it has been and is now
being
conducted and to own, lease and operate the properties used in
connection
therewith. The Applied Instruments Business is duly qualified to do
business in each jurisdiction where it is required to be so qualified.
(c) Authorization; Enforceable Obligations.
(i) The Seller has the requisite power and authority to execute
this
Agreement and the instruments required hereunder. The execution,
delivery
and performance of this Agreement by Seller does not and will not
contravene, violate or breach (with or without the giving of notice or
lapse
of time, or both): (A) any law, rule, regulation, license or permit to
which
the Seller or the Applied Instruments Business is subject, (B) any
judgment,
order, writ, injunction, decree or award or any court, arbitrator or
governmental or regulatory official, body or authority which is
applicable
to the Seller or the Applied Instruments Business, (C) any term,
condition
or provision of, or any indenture, agreement, contract, commitment,
lease or
understanding, oral or written, to which the Seller or the Applied
Instruments Business is a party, or by which any of the Assets may be
bo
any party with rights thereunder the right to terminate, modify,
accelerate
or otherwise change the existing rights or obligations of the Seller
or the
Applied Instruments Business thereunder, or (D) except for Seller's
landlord
to its premises, lessors to its equipment leases, and governmental
agency
approval having jurisdiction thereof, no consents of any other party
to the
transaction contemplated by this Agreement is required.
(d) Financial Statements. Prior to the execution of this Agreement,
the
Seller delivered to Purchaser the following financial statements:
Balance
Sheets and Statements of Income, as of December 31, 1996, 1997, 1998
and as
of September 30, 1999(collectively the "Company Financial Statements")
for
the Applied Instruments Business. The Company Financial Statements
(including the notes thereto) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods covered thereby, present fairly the financial
condition of the Applied Instruments Business for such periods, are
correct
and compl
e books and records of the same (which books and records are correct
and
complete). All liabilities of the Applied Instruments Business are
reflected on the books and records of the same and on the Financial
Statements.
(e) Accounts Receivable. The accounts receivable are the result of
bonafide
sales and are not subject to defenses, rights of set off or
counterclaims,
and the accounts receivable summary to be delivered by Seller to
Purchaser
on the Date of Closing will constitute the total amount due Seller on
account of goods sold or services delivered in the Applied Instruments
Business.
(f) Inventory. Since (Date of last financial statement provided),
the Seller
has not changed its method of accounting for or valuing of its
inventory,
and the inventory summary to be delivered by Seller to Purchaser on
the Date
of Closing shall represent all raw material, work in process and
finishing
goods inventory of the Applied Instruments Business.
(g) Title to Properties. The Seller has good and valid title to the
Assets, which on the Date of Closing will be free and clear of all
liens,
pledges, security interests, charges, claims, restrictions and other
encumbrance or defects of title of any nature, except those liens and
encumbrances attendant to liabilities assumed by Purchaser under
Section 1.4 hereof. On the Date of Closing, the Seller will have the
unrestricted right to sell the Assets as herein provided. The Seller
does
not know of any lia
r accrued, absolute, contingent or otherwise, existing or arising out
of
any transaction entered into or state of facts existing on or prior to
the
date of this Agreement, which might give rise to a lien or claim
against
the Assets, other than with respect to those liens and encumbrances
attendant to liabilities assumed by Purchaser under Section 1.4
hereof.
(h) Condition and Location of Tangible Assets. The machinery,
equipment,
furniture and fixtures, and other material items of tangible personal
property to be delivered to Purchaser on the Date of Closing conform
and
will conform to all applicable laws, ordinances, codes, rules and
regulations relating to their construction, use, operation and
maintenance.
All of the tangible personal property included in the Assets are
located at
the Seller's leased premises located at: 48511-216 Warm Springs Road,
Fremont, California 94539 and are in good and serviceable condition
and will
ope manner as operated prior to Closing.
(i) No Undisclosed Liabilities. Except as disclosed in the Company
Financial
Statements or in the Schedules to this Agreement, the Applied
Instruments
Business has no outstanding indebtedness, guaranties, indemnities,
hold
harmless agreements, or matters of suretyship, is not a party to any
mortgage, deed of trust, indenture, loan or credit agreement, or
similar
instrument or agreement, and to the best of Seller's knowledge, is not
subject to any claims or liabilities, accrued, absolute, contingent or
otherwise, other than trade or business obligations incurred in the
ordinary course of business in amounts usual and normal both
individually
and in the agg
(j)Employee Benefits.
(i) Schedule 2.10)(i) contains a true and complete list of each
pension,
retirement, profit sharing, deferred compensation, bonus, medical,
welfare,
disability, severance or termination pay, insurance or incentive plan,
and
each other employee benefit plan, program, agreement or arrangement
("Plan")
, whether funded or unfunded, sponsored, maintained or contributed to
or
required to be contributed to by the Applied Instruments Business, or
by any
trade or business, whether or not incorporated that would be deemed a
"single employer" within the meaning of Section 4001 of ERISA (a
"Company
ERISA Affiliate"), for the benefit of any employee or Terminated
employee
of the Applied Instruments Business. Schedule 2.10)(i) identifies e
enefit plan", within the meaning of Section 3(3) of ERISA (the "ERISA
Plans").
(ii) The Applied Instruments Business does not participate in
currently and has never participated in and is not required currently
and
has never been
required to contribute to or otherwise participate in any multi-
employer
plan", as defined in Sections 3(37)(A) and 4001(a)(3) of ERISA and
Section
414(f) of the Code.
(iii) True and complete copies of each of the Plans and related
trusts
have been furnished to Purchaser, including the most recent financial
statement and the most recent actuarial report prepared with respect
to any
of such Plans that is funded, the most recent Internal Revenue Service
determination letter, the most recent Summary Plan Description and the
most
recent Annual Report together with a statement setting forth any such
documents which cannot be furnished.
(iv) All contributions required by each Plan or by law with
respect to
all periods through the Closing Date shall have been made and no
excise or
other taxes shall have been incurred or are due and owing with respect
to
any Plan
because of any failure to comply with the minimum funding standards of
ERISA
and the Code.
(v) No "accumulated funding deficiency", as defined in Section
302 of
ERISA, has been incurred with respect to any Plan, whether or not
waived.
(vi) To the extent of Seller's knowledge, no "reportable event"
of the
type set forth in Section 4043 of ERISA has occurred and is continuing
with
respect to any Plan.
(vii) To the extent of Seller's knowledge, there are no
violations of
ERISA or the Code with respect to the filing of applicable reports,
documents, and notices regarding any Plan with the Secretary of Labor,
Secretary of the Treasury, or the PBGC or furnishing such documents to
participants or beneficiaries, as the case may be.
(viii) No claim, lawsuit, arbitration, or other action has been
threatened, asserted, or instituted against any Plan, any trustee or
fiduciaries thereof, the Applied Instruments Business, or any of the
assets
of any trust
maintained under any Plan.
(ix) To the extent of Seller's knowledge, all amendments
required to
bring any Plan into conformity with any of the applicable provisions
of
ERISA and the Code have been duly adopted.
(x) To the extent of Seller's knowledge, any bonding required
with
respect to any ERISA Plan in accordance with applicable provisions of
ERISA
has been obtained and is in full force and effect.
(xi) To the extent of Seller's knowledge, each Plan has been
operated
and administered in accordance with its terms and the terms and the
provisions
of ERISA and the Code (including rules and regulations thereunder)
applicable thereto and in practice is tax qualified under Sections 401
(a)
and 501 of the Code.
(xii) To the extent of Seller's knowledge, no liability has been
incurred or is reasonably expected to be incurred with the PBGC.
(xiii) To the extent of Seller's knowledge, no "prohibited
transaction", as such term is defined in Section 4975 of the Code and
Section 406 of ERISA,
has occurred with respect to any Plan (and the transactions
contemplated by
this Agreement will not constitute or directly or indirectly result in
such
a "prohibited transaction") which could subject the Applied
Instruments
Business, or any Purchaser, employee of any of the foregoing, or any
trustee, administrator or other fiduciary, to a tax or penalty on
prohibited
transactions imposed by either Section 502 of ERISA or Section 4975 of
the
Code.
(xiv) No Plan is under audit by the Service or the Department of
Labor.
(xv) The present value, determined on a termination basis, of
all accrued
benefits, vested and unvested, under each Plan, determined using the
actuarial valuation assumptions and methods (including interest rates)
contained in the most recent actuarial report for such Plan, does not
exceed
the assets thereof allocable to such benefits.
(xvi) No welfare benefit plan (within the meaning of Section
3(l) of
ERISA) provides for continuing benefits or coverage for any
participant or
beneficiary of a participant after such participant's termination of
employment, except as may be required by COBRA at the expense of the
participant or the beneficiary of the participant.
(xvii) The Applied Instruments Business does not currently
maintain or
contribute to any severance pay Plan.
(xviii) Except as noted on Schedule 2.10)(xviii) no individual
shall
accrue or receive any additional benefits, servi such laws
permits or authorizations necessary to the ownership and operation of
the Assets and the conduct of the Applied Instruments Business.
(ii) Except as set forth on Schedule 2.1(1)(ii) of this
Agreement, the
Applied Instruments Business has no liability (and none of its
predecessors
or affiliates has handled or disposed of any substance, arranged for
the disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or operated any
property or facility in any manner that could form the basis for any
present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against the Applied Instruments
Business giving rise to any liability) for damage to any site,
location or body of water (surface or subsurface), for any illness of
or, personproviding any term of employment or compensation guarantee
extending beyond
that at will; or (iv) agreement or Plan, providing for compensation or
payments relating to equity appreciation rights, any of the benefits
of
which will be increased, or the vesting of the benefits of which will
be
accelerated, by the occurrence of any of the transactions contemplated
by t
or the value of any of the benefits of which will be calculated on
the
basis of any of the transactions contemplated by this Agreement.
(l) Compliance with Law.
(i) The Seller has caused the Applied Instruments Business to
operate
in conformity with or, following notice, has timely complied under
such
notice, with each law, rule or regulation to which the Assets or the
Applied
Instruments Business is subject, including such as relate to
environmental
and employee safety matters, and has not failed to obtain or to adhere
to,
or following notice, then timely adhered to, the requirements of any
license, permit or authorization necessary to the ownership of the
Assets
or to the conduct of the Applied Instruments Business. On the Date of
Closing, the Applied Instruments Business shall be in compliance with
suc
such laws
on account of product warranty or personal injury arising out of the
sales
of the Applied Instruments Business. Seller has no knowledge of any
fact or
facts the occurrence of which, or the failure to occur, will have a
material
adverse effect on the Applied Instruments Business.
(o) Completeness of Disclosure. Neither this Agreement, nor any
certificate,
schedule, statement, document or instrument furnished or to be
furnished to
the Purchaser pursuant hereto contains or will contain any untrue
statement
of a material fact or omits or will omit to state a material fact
required
to be stated herein or therein necessary to make any statement herein
or
therein contained not misleading.
(p) Labor Conditions. Seller has not received notice or had
knowledge of any
actual or threatened labor trouble, strike or other occurrence, event
or
condition of any kind similar character which has had or might have an
adverse effect on the Applied Instruments Business or its Assets;
(q) Pending, Threatened or Potential Litigation.
Except as disclosed on Schedule2.1(q) attached hereto, there is no
litigation,
arbitration, investigation or other proceeding before any court,
arbitrator
or governmental or regulatory official, pending or threatened against
the
Seller or the Applied Instruments Business which relate to any of the
Assets, or the Applied Instruments Business, or the use thereof or the
transactions contemplated by this Agreement, nor does Seller know or
have
reasonable grounds to know of any basis for any such litigation,
arbitration, investigation or other proceeding. The Seller or the
Applied
Instruments Business is not a party to or subject to the provisions of
any
judgemen
ree or award of the court, arbitrator or governmental or regulatory
official
body or authority which affects the Assets or the Applied Instruments
Business or the transactions contemplated by this Agreement. There are
no
facts which have occurred which would support a claim by an employee,
or
prospective employee of Seller or the Applied Instruments Business,
for
discrimination, sexual harassment or other failure by Seller or the
Applied
Instruments Business to comply with federal or state equal opportunity
(r) Contracts and Commitments.
(i) Except as disclosed on Schedule 2.1(r), neither Seller, with
respect to the Applied Instruments Business, nor the Applied -
Instruments
Business is a party to any written or oral:
(A) agreement, contract or commitment to sell or supply
products
or to perform services, excepting the Sales Orders listed on Exhibit
B; and
(B) Except as may be disclosed on Exhibit B, all Sales
Orders are
valid and enforceable in accordance with their terms, the parties
thereto
are in compliance with the provisions thereof, no right of set-off has
been
asserted by any party and to the knowledge of Seller no right of set
off
exists. No party has made or received any prepayments or credits with
respect thereto, Seller has no knowledge of a default in the
performance of
any material obligation, covenant or condition contained therein, and
no
event has occurred which, with or without the giving of notice or
lapse of
time, or both, would constitute a default thereunder;
(C) Any agreement under which the Seller or the Applied
Instruments Business is subject to covenants of confidentiality,
non-solicitation or non-
competition; or
(D) Any agreement under which the consequences of a default
or
termination could have a material adverse effect on the Applied
Instruments
Business.
(ii) All contracts to which the Seller, as it relates to the
Applied
Instruments Business, or to which the Applied Instruments Business is
a
party, are legal, binding and enforceable in accordance with their
respective terms.
(s) Warranty Claims. There are no known facts which would cause
post-Closing warranty claim experience to be greater than historical
levels
experienced by the Applied Instruments Business pre-Closing.
(t) Intellectual Property.
(i) The Seller, or the Applied Instruments business, owns or has
the
right to use pursuant to license, sublicense, agreement, or permission
all
intellectual property necessary for or used in the operation of the
Applied
Instruments Businesses as presently conducted and as presently
proposed to
be conducted. Each item of intellectual property owned or used by the
Applied Instruments Business shall be fully and effectively
transferred to
the Purchaser at Closing. The Seller has taken all necessary and
(ii) Neither the Seller nor the Applied Instruments Business has
interfered with, infringed upon, misappropriated, or otherwise come
into
conflict with any intellectual property rights of third parties, and
neither
the Seller nor the Applied Instruments Business has ever received any
charge, complaint, claim, demand, or notice alleging any such
interference,
infringement, misappropriation or violation (including any claim that
either
the Seller or the Applied Instruments Business must license or refra
property rights of any third party). To the knowledge of the Seller,
no
third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any intellectual property rights of
the
Seller or the Applied Instruments Business.
(iii) Schedule 2.1 (t)(iii) identifies each trade name,
trademark,
copyright and patent registration that has been issued to or used by
the
Seller or the Applied Instruments Business with respect to any of
their
intellectual property, identifies each pending trademark, copyright or
patent application or application for registration that the Seller or
the
Applied Instruments Business has made with respect to any of its
intellectual property. Schedule 2.1(t)(iii) identifies each license,
agreement, or
r or the Applied Instruments Business has granted to any third party
with
respect to any of its intellectual property (together with any
exceptions).
(u) Certain Business Practices. Neither the Seller nor the Applied
Instruments Business or employees of the same has made directly or
indirectly, with respect to the Applied Instruments Business, any
bribes,
kickbacks or other illegal payments or illegal political
contributions,
corporate funds to governmental officials in their individual
capacities,
to obtain or retain business either within the United States or
abroad.
Additionally, the Seller does not know of any act or omission that
would
constitute employment discrimination under applicable law with respect
to the A
(v) Y2K Compliance. To the best of Seller's knowledge, the
financial,
accounting and record keeping systems and the manufacturing operations
used
by Seller in the Applied Instruments Business are Y2K compliant and
will
fully operate without interruption or adjustment as to time
sensitivity
after December3l,1999. Seller has not been notified, and is not
otherwise
aware that any of the business systems of any of its customers or
suppliers,
inclusive of their financial, accounting or manufacturing operations,
or as
to functionality of their products, are not Y2K compliant. The
compliant and will operate as designed or intended without
interruption or
\ adjustment as to time sensitivity after December 31, 1999.
(w) Applied Instruments Name. Sellers have not been notified and
have no
reason to believe that the name "Applied Instruments" will not, after
the
assignment thereof to Purchaser, be available to Purchaser in its
operating
the Applied Instruments Business in Alameda County, California
including but
not limited to the design, manufacture and sale of integrated
displays.
(x) Appreciation Rights: Schedule 2.1(x) lists all of the employees
of
Seller with whom Seller has agreed to pay certain appreciation rights
on
changes of control with respect to the Applied Instruments Business,
the
obligations under which Purchaser shall not assume. Seller has
delivered to
Purchaser copies of all agreements providing for the same. Seller
agrees to
fully perform its obligation under said appreciation rights
agreements.
(y) Health and Safety. The Applied Instruments Business has not been
the
subject of an inspection by any of OSHA, CalOSHA over employee health
and
safety, or the EPA.
(z) At Will Employment and Employee Organizations. All of Seller's
employees
are at will employees; and the Applied Instruments Business has not
been the
subject of any labor organizational effort.
(aa) Contractual Development. Except as noted on Schedule 2.1(aa)
Seller has
not, nor has the Applied Instruments Business, entered into a contract
for
the development of improvements to products sold by Seller or the
development of other intellectual property.
(bb) Inventory Coverage. Schedule 2.1(bb) lists all agreements or
commitments of customers of the Applied Instruments Business regarding
responsibility for the costs of inventory purchased by the Applied
Instruments Business for use in the manufacture of product for said
customers.
(cc) Patent Assignment. All consideration been paid to Terry Farlow
in
connection with his assignment to Applied Instruments Technology, LLC,
of
all right, title and interest to the patent being applied for under
Application Serial No. 08/955,397, has been paid in full. Since March
17,
1998 Terry Farlow has not asserted any right title or interest in and
to
any intellectual property of the Seller or the Applied Instruments
business.
(dd) Legal Opinion Regarding Claims. Since January 1, 1997, neither
Seller
nor the Applied Instruments Business has received any legal opinions
regarding potential or asserted claims of third parties against the
Seller
or the Applied Instruments Business.
2.2 Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Seller as follows:
(a) Corporate Existence. The Purchaser is a corporation duly
organized,
validly existing and in good standing under the laws of the State of
Florida.
(b) Corporate Power and Authorization. The Purchaser has the
corporate
power, authority and legal right to execute, deliver and perform this
Agreement. The execution, delivery and performance of this Agreement
by the
Purchaser have been duly authorized by all necessary corporate action.
This
Agreement has
been duly executed and delivered and constitutes the legal, valid and
binding obligation of the Purchaser enforceable against it in
accordance
with its terms, except as may be limited by bankruptcy, insolvency and
other
similar laws affecting creditor's rights generally and by general
equity
principals.
(c) Validity of Contemplated Transactions, etc. The execution,
delivery and
performance of this Agreement by Purchaser does not and will not
contravene,
violate or breach (with or without the giving of notice or lapse of
time, or
both): (i) any law, rule, regulation, license or permit to which the
Seller
or the shareholder is subject, (ii) any judgment, order, writ,
injunction,
decree or award or any court, arbitrator or governmental or regulatory
official, body or authority which is applicable to the Seller, (iii)
the
charter documents or By-Laws of the Seller; (iv) of any term,
condition or
provision of any indenture, agreement, contract, commitment, or
understanding, oral or written, to which the Purchaser is a party.
2.3 Survival of Covenants, Representations and Warranties. All
covenants,
representations and warranties made herein or in any certificate,
schedule,
statement, document or instrument furnished pursuant to this Agreement
shall
be true at the Date of Closing and shall survive until December 31,
2003,
except that Seller's representations and warranties made under
Section2.1(b)
,(c) and(g)and Purchaser's representations and warranties made under
Sections 2.2(b) and (c) shall survive the Date of Closing until
expiration of the applicable statute of limitations. Notwithstanding
any investigation or audit conducted before or after the Date of
Closing
or the decision of any party to complete the Closing, each party
shall
be entitled to rely upon the representations, warranties, covenants
and
agreements set for
ARTICLE III
INDEMNIFICATION
3.1 Indemnification by the Seller. Subject to the minimum threshold
for
indemnified claims, as provided in Section 3.5(a) hereof, the Seller
shall
indemnify, defend and hold Purchaser harmless from, against and with
respect to any claim, liability, obligation, loss, damage, assessment,
judgment, cost and expense (including, without limitation, reasonable
attorney's and accountant's fees and costs and expenses reasonably
incurred in investigating, preparing, defending against or
prosecuting
any litigation or claim, action, suit, proceeding or demand), of any
kind
or character, arising out of or in any manner incident, relating or
attributable to (and w
benefit to the indemnified party):
(a) any breach or inaccuracy of any representation or warranty of
Seller
contained in this Agreement or in any certificate, instrument of
transfer or
other document or agreement executed by the Seller in connection with
this Agreement;
(b) any failure by Seller to perform or observe, or to have
performed or
observed, in full any covenant, agreement or condition to be performed
or
observed by it under this Agreement or under any certificate or other
document or agreement executed by the Seller in connection with this
Agreement;
(c) any claim by any employee or former employee of the Seller
relating
in any way to any employment relationship with the Seller, including
any
claim for salary, wages, bonuses, commissions, accrued vacation time,
or
other compensation or benefits, or for workers compensation benefits,
excluding only any of the same assumed by Purchaser as described in
subparagraph
1.4(b) hereof;
(d) any claim regarding an injury sustained by any person as a
result of the
purchase or use of any product, either directly or indirectly, sold by
Seller prior to the Date of Closing;
(e) Payment by Purchaser of any liability or expense of the Applied
Instruments Business which is not assumed by Purchaser under Section
1.4
hereof, and expenses incurred by Purchaser in defense of any claim
with
respect thereto.
3.2 Indemnification by the Purchaser.
Subject to the minimum threshold for indemnified claims as provided in
Section
3.5(b) hereof, the Purchaser shall indemnify, defend and hold harmless
the
Seller from, against and with respect to any claim liability,
obligation,
loss, damage, assessment, judgment, cost and expense (including,
without
limitation, reasonable attorney's and accountant's fees and costs and
expenses reasonably incurred in investigating, preparing, defending
against
or prosecuting any litigation or claim, action, suit, proceeding or
demand),
of any kind or character, arising out of or in any manner incident,
relating
or attributable to:
(a) any material breach or inaccuracy of any representation or
warranty of
the Purchaser contained in this Agreement; and
(b) any failure by Purchaser to perform or observe, or to have
performed or
observed, in full any covenant, agreement or condition to be performed
or
observed by it under this Agreement or under any certificate or other
document or agreement executed by the Purchaser in connection with
this
Agreement.
3.3 Notice of Claim Against Seller.
(a) Purchaser shall promptly notify the Seller of any matter for
which the
Purchaser asserts a claim of indemnity under Section 3. 1.
(b) Seller shall be entitled at any time to participate in (but not
direct)
the defense of any third party claim, action or proceeding against
Purchaser
with counsel of Seller's own choice, and the parties agree to
cooperate
fully with each other in connection with the defense and/or settlement
thereof. Seller shall have the right, upon receipt of notice from
Purchaser
of the existence of such claim or the commencement of any such third
party action or proceedings, to undertake and direct the defense of
such claim, action or proceeding at any time by delivering to the
Purchaser:
(i) written notice of such undertaking;
(ii) written admission of complete liability for indemnification
with
respect to any such claim, action or proceeding;
(iii) written consent to be joined as a party to any such action
or
proceeding or in any action or proceeding resulting from such claim;
and
(iv) reasonable evidence of Seller's financial ability to
satisfy
such claim, action or proceeding and its indemnity obligation under
Section
3. 1.
In the event Seller so undertakes the defense of any such claim,
action or
proceeding, Purchaser shall nevertheless be entitled to participate in
(but
not direct) the defense thereof with counsel of its own choice, and
the
parties agree to cooperate fully with each other in connection with
the
defense and/or settlement thereof, provided, however, that any
decision
to settle any such claim, action or proceeding shall be at Seller's
sole
discretion. From and after satisfactory delivery of the items
referred
to in clauses (i), (ii), (iii), and (iv) above, Seller shall be
relieved
of the obligation to reimburse Purchaser for any other legal,
accounting
or ot
expenses thereafter incurred by the Purchaser with respect to the
defense of
such claim, action or proceeding notwithstanding any participation by
the
Purchaser therein.
(c) In the event Seller declines to undertake the defense of any
such
claim, action or proceeding when first notified thereof, Purchaser
shall
keep Seller advised as to the current status and progress thereof, and
Seller shall retain said right to undertake the defense thereof until
such matter is fully resolved. Unless and until Seller so undertakes
the defense thereof, Purchaser agrees not to make any offer of
settlement
without first having provided 3 days advance written notice thereof
to Seller, part of previous subparagraph unless such matter is settled
at any schedule
ng, in which event, no notice of settlement is required provided 5 day
prior
written notice of such proceeding is provided to Seller. Any decision
to
settle any such claim, action or proceeding shall be at the
Purchaser's sole
discretion.
(d) In the event a claim for indemnity is asserted by Purchaser, and
without limitation as to other remedies available to Purchaser,
Purchaser may set off the amount of such claim against its
obligations under Section 1.5(a) hereof until such time as Purchaser's
claims are resolved.
3.4 Notice of Claim Against Purchaser.
(a) Seller shall promptly notify the Purchaser of any matter for
which
Seller asserts a claim of indemnity under Section 3.2.
(b) Purchaser shall be entitled at any time to participate in (but
not
direct) the defense of any third party claim, action or proceeding
against Seller with counsel of its own choice, and the parties agree
to cooperate fully with each other in connection with the defense
and/or
settlement thereof. Purchaser shall have the right, upon receipt of
notice
from Seller of the existence of such claim or the commencement of any
such
third party action or proceedings, to undertake and direct the defense
of
such claim, action or proceeding at any time by delivering to Seller:
(i) written notice of such undertaking;
(ii) written admission of complete liability for
indemnification with
respect to any such claim, action or proceeding;
(iii) written consent to be joined as a party to any such action
or proceeding or in any action or proceeding resulting from such
claim; and
(iv) reasonable evidence of Purchaser's financial ability to
satisfy such claim, action or proceeding and its indemnity obligation
under Section 3.2. In the event Purchaser so undertakes the defense of
any such claim,
action or proceeding, Seller shall nevertheless be entitled to
participate in (but not direct) the defense thereof with counsel of
their own choice, and the parties agree to cooperate fully with each
other in connection with the defense and/or settlement thereof-,
provided, however, that any decision to settle any such claim, action
or proceeding shall be at Purchaser's sole discretion. From and after
satisfactory delivery of the items referred to in clauses (i), (ii),
(iii), and (iv) above, Purchaser shal
to reimburse Seller for any other legal, accounting or other out-of-
pocket
costs and expenses thereafter incurred by the Seller with respect to
the defense of such claim, action or proceeding notwithstanding any
participation by the Seller therein.
(c) In the event Purchaser declines to undertake the defense of any
such claim, action or proceeding when first notified thereof, Seller
shall keep Purchaser advised as to the current status and progress
thereof, and Purchaser shall retain said right to undertake the
defense thereof until such matter is fully resolved. Unless and until
Purchaser so undertakes the defense thereof,
Seller agrees not to make any offer of settlement without first having
provided 3 days advance written notice thereof to Purchaser unless
such matter is settled at any scheduled court or arbitration
proceeding, in which event, no notice of settlement is required
provided 5 day prior written notice of such proceeding had been
provided to Purchaser. Any decision to settle any such claim,
action or proceeding shall be at the Seller's sole discretion.
3.5 Minimum Threshold for Indemnified Claims.
(a) The Purchaser shall not be entitled to receive any
indemnification payment with respect to any claim for indemnification
under this Article III until the aggregate of such claims exceed
$50,000 (the "Threshold"); provided, however, that once such aggregate
claims exceed the Threshold, the Purchaser shall be entitled to
indemnification for the aggregate amount of such claims without regard
to the Threshold; and provided further, however, that such aggregate
claims shall be determined without regard to
ll of the same.
(b) The Seller shall not be entitled to receive any indemnification
payment with respect to any claim for indemnification under this
Article III until the aggregate of such claims exceed $50,000 (the
"Threshold"); provided, however, that once such aggregate claims
exceed the Threshold, the Seller shall be entitled to indemnification
for the aggregate amount of such claims without regard to the
Threshold; and provided further, however, that such aggregate claims
shall be determined without regard to the ma
the same.
ARTICLE IV
FURTHER COVENANTS
4.1 Seller's Covenants. The Seller covenants and agrees that after the
date hereof until the Date of Closing and in connection with the
Applied Instruments Business that they shall:
(a) carry on that business in a manner consistent with prior
practice in the usual and ordinary course, and will use its best
efforts to preserve its business organization and conserve the good
will and relationships of its customers, suppliers, employees and
others having business relations
with it;
(b) not waive any material right or cancel any material contract,
debt or claim, nor assume or enter into any contract, lease, license,
obligation, indebtedness, commitment, purchase or sale except in the
usual and ordinary course of business;
(c) duly and timely file all reports and returns required to be
filed with
governmental agencies and promptly pay when due all taxes, assessments
and governmental charges including interest and penalties levied or
assessed, unless: (i) diligently contested in good faith by
appropriate proceedings, or (ii) the same constitutes a liability
assumed
by Purchaser as provided in subparagraph 1.4 above;
(d) maintain and keep in good order, consistent with past practice,
all
buildings, offices, and other structures, and keep all machinery,
tools, equipment, furniture, fixtures and other property in good
condition, repair and working order;
(e) maintain in full force and effect all policies of insurance now
in effect;
(f) not merge or consolidate with any other corporation, business or
other
entity or acquire any assets of any other corporation, business or
other person, except in the ordinary course of business;
(g) not intentionally do any act or omit to do any act or permit any
omission to act which will cause a breach or default in any of its
contracts, commitments or obligations;
(h) from the date hereof, afford the Purchaser, its counsel,
accountants,
and other agents and representatives full access during normal
business to all of its offices, properties and records attendant to
the Applied Instruments Business, including such access as may be
necessary to allow the Purchaser to make an audit or otherwise satisfy
itself of the accuracy of the representations and warranties contained
in this Agreement and that the conditions contained in this Agreement
have been complied with, and Seller will furnish documents and all
such other information, and access t
inquiry made by the Purchaser shall not in any way affect the
representations and warranties contained in this Agreement or their
survival of the Closing;
(i) not take any action or omit to take any action within their
control to
the extent such action or omission might result in any of the
representations or warranties of the Seller set forth in this
Agreement being inaccurate or incorrect on and as of the Closing Date;
not directly or indirectly, through any director, officer, agent,
financial advisor or otherwise, solicit, initiate, consider, entertain
or encourage submissions of proposals, offers, or letters of intent
from any person or entity related to;
(k) remain in full compliance with all laws, rules, regulations
licenses, permits or authorizations;
(l) not enter into any transaction other than in the ordinary course
of its business consistent with past practice;
(m) not increase wages or benefits to those persons employed in the
Applied Instruments Business;
(n) not distribute to themselves any funds other than wages and
benefits
all at levels not greater than that paid or provided as of September
1, 1999;
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions Precedent to the Purchaser's Obligations. All
obligations of the Purchaser to perform under this Agreement are
subject to the fulfillment or satisfaction, or written waiver by
Purchaser on or before the Date of Closing of each of the following
conditions precedent, and Purchaser covenants to use reasonable effort
in satisfying those conditions precedent the fulfillment of which are
within the control of Purchaser.
(a) As of the business day immediately preceding the Closing, Seller
shall have terminated all of its employment relationships with those
persons employed in the Applied Instruments Business;
(b) The security interest of Fremont Bank shall be discharged with
respect to any property comprising the Assets;
(c) Seller's representations and warranties shall remain valid and
Seller shall have fully performed its covenants as herein contained;
(d) Receipt of the consents by all governmental agencies having
jurisdiction over the transaction contemplated by the Agreement, and
approval or consents by third parties which are necessary or required
in order for Purchaser to acquire the Assets and conduct the Applied
Instruments Business as currently conducted by Seller;
(e) Purchaser shall have received fully executed assignments, with
landlord or lessor consents thereof, of the real and personal property
leases described in Exhibit B;
(f) Execution and delivery by Seller of an acceptable Employment
Agreement, Non-Competition and Non-Solicitation Agreement;
(g) All instruments and documents required to implement this
Agreement and transfer to Purchaser free and unencumbered title in the
Assets to Purchase shall be in a form reasonably acceptable to
Purchaser's counsel;
(h) Completion by Seller of all those matters required pursuant to
Article 6 of the Uniform Commercial Code as promulgated in California;
(i) Purchaser shall have received written employment agreements from
Jerry Anderson and John Hurst in form and substance satisfactory to
Purchaser; The Purchaser shall be satisfied with its due diligence
review of the books, records, documents, contracts and other matters
attendant to the Applied Instruments Business.
(k) No litigation shall have been commenced or threatened, the
effect of which could restrain or prevent the carrying out of the
transaction contemplated in the Agreement, or in which an unfavorable
result could have a material adverse affect on the Applied Instruments
Business;
(l) No substantial damage by fire or other hazard to the Assets
shall have occurred; and
(m) No material adverse change to the Applied Instruments Business
or to the
prospects thereof shall have occurred.
5.2 Conditions Precedent to the Seller's Obligations. All obligations
of the Seller to perform under this Agreement are subject to the
fulfillment or satisfaction, or written waiver by Seller on or before
the Date of Closing of each of the following conditions precedent and
Seller covenants to use reasonable effort in satisfying those
conditions precedent the fulfillment of which are within the control
of Seller.
(a) No litigation shall have been commenced or threatened, the
effect of which could restrain or prevent the carrying out of the
transaction contemplated in the Agreement;
(b) Compliance by Purchaser with all applicable and federal and
local law so required to permit its purchase of the Assets;
(c) Consents by all governmental agencies and/or approval and/or
consents by third parties which are necessary or required in order for
Purchaser to acquire the Assets and conduct of Applied Instruments
Business; and
(d) Purchaser's representations and warranties shall remain valid
and Purchaser shall have fully performed its covenants as herein
contained.
ARTICLE VI
CLOSING, ITEMS TO BE DELIVERED,
THIRD PARTY CONSENTS AND FURTHER ASSURANCES
6.1 Closing. The closing ("Closing") of the sale and purchase of the
Assets shall take place on October 26, 1999, but in any event not
later than November 5, 1999, or as soon thereafter as may be mutually
designated (the "Date of Closing"), and shall take place at the
offices of Reynolds, Price, Casas & Riley.
6.2 Items to be Delivered at Closing. At Closing and subject to the
terms and conditions herein contained:
(a) The Seller will deliver, or cause to be delivered, to the
Purchaser in form acceptable to
Purchaser the following:
(i) a general instrument of sale, conveyance, assignment,
transfer and delivery with respect to all of the Assets, such
instrument to be in the form
of Exhibit D hereto, and which instrument shall as well be joined in
and executed by Applied Instruments, LLC and Applied Instruments
Technology, LLC;
(ii) such specific instruments of sale, conveyance, assignment,
transfer
and delivery with respect to any of the Assets or contracts as the
Purchaser shall reasonably request and such third party consents
thereto as are required;
(iii) an opinion of counsel for the Seller dated the Closing
Date in form as in Exhibit E provided;
(iv) Delivery of all material, computer software, and other
personal property comprising the Assets;
(v) As of the close of the last business day immediately
preceding the
Date of Closing, a summary of Seller's account receivable, inventory
equipment, Backlog, and Seller's open purchase orders for goods or
services;
(vi) As of the close of the last business day immediately
preceding the
Date of Closing, a listing by name, address and amount, of each
account payable and accrued liability to be assumed by Purchaser as
described in Section 1.4 above;
(vii) Fully executed assignment of all real and personal
property leases
described in Exhibit B;
(viii) A list and copies of Seller's open purchase orders
described in
section 1.4;
(ix) A fully executed Employment Agreement between Purchaser and
each of
Steven Guma, Linda Guma, Jerry Anderson and John Hurst;
(x) A list of the accrued vacation for each employee of Seller
as of the
Closing Date.
(y) Written acknowledgment by Markwood Capital of full payment
and satisfaction of all amounts due it for the services rendered by it
on behalf of Seller in connection with the transaction.
(b) The Purchaser shall deliver the following:
(i) wire transferred funds to the Seller in the amount
identified in subparagraph 1.5(a)(1); and
(ii) An opinion of counsel for the Purchaser dated the Date of
Closing Date in the form as in Exhibit F provided.
(c) Purchaser and Seller shall execute and exchange:
(i) a Closing Statement;
(ii) a written statement allocating the Purchase Price among the
Assets which shall include the information necessary for the Purchaser
and Seller to complete IRS Form 8594, "Asset Acquisition Statement
Under Section 1060," with respect to the sale and purchase of the
Assets hereunder; and
(iii) copies of all federal or state agency approvals required
for the consummation of the transaction contemplated herein.
6.3 Other Documents. The Seller, from time to time after the Date of
Closing, at the Purchaser's request, will execute, acknowledge and
deliver to the Purchaser such other instruments of conveyance and
transfer, and will execute and deliver such other documents and
certifications as the Purchaser may reasonably request in order to
vest more effectively in the Purchaser, or to put the Purchaser more
fully in possession of any of the Assets, or to better enable the
Purchaser to complete, perform or discharge any of the obligations
with respect to Purchase and Sales Orders at t
ARTICLE VII
MISCELLANEOUS
7.1 Termination.
(a) Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated by written notice of termination at
any time on or before the Date of Closing only as follows:
(i) by the Purchaser for the failure of the fulfillment or
satisfaction of any condition precedent described in Paragraph 5.1
unless waived by Purchaser in
writing of each condition precedent so unfulfilled or unsatisfied;
(ii) by the Seller for the failure of the fulfillment or
satisfaction of any condition precedent described in Paragraph 5.2
unless waived by Seller in writing of each condition precedent so
unfulfilled or unsatisfied;
(iii) by the Purchaser or Seller, at any time, if the other
party's representations and warranties contained herein were
materially incorrect or inaccurate when made or as of the date of
termination;
(iv) by written mutual consent of the Purchaser and the Seller;
by the Purchaser or the Seller if the transactions contemplated hereby
have not been consummated by November 5, 1999, provided, that neither
the Purchaser nor the Seller shall be entitled to terminate this
Agreement pursuant to Section 7. 1 (a)(v) in such party's willful
breach of this Agreement has prevented the consummation of the
transactions contemplated hereby at or prior to such time.
7.2 Broker's and Finder's Fees. The Purchaser represents and warrants
to the Seller that all negotiations relative to this Agreement have
been carried on by it directly without the intervention of any person
who may be entitled to any brokerage or finder's fees or other
commission in respect to this Agreement or the consummation of the
transaction contemplated hereby. Seller represents and warrants that
it has retained only Markwood Capital as its agent in the negotiation
relative to the Agreement and tha
titled to any brokerage or finder's fee or other commission in respect
of the Agreement or the consummation of the transaction contemplated
hereby.
7.3 Expenses. The parties hereto shall pay their own expenses,
including without limitation, their legal fees, incidental to the
preparation of this Agreement, the carrying out of the provisions of
this Agreement and the consummation of the transactions contemplated
hereby.
7.4 Post Closing Administration. The Seller agrees that after the
Date
of Closing, it will hold in trust (without commingling with its own
funds)
and will promptly transfer and deliver to the Purchaser, from time to
time
as and when received by it, any cash, checks (without converting such
checks
into cash) or other property that it may receive on or after the Date
of
Closing in respect of the Assets purchased hereunder. On or about the
Date of Closing, the Seller and Purchaser will prepare and mail or
deliver to customers, suppliers, creditors and such other third
parties as is reasonably appropriate, a joint notification of the sale
of the Assets to the Purchaser and such further direction as is
required.
7.5 Contents of Agreement; Parties in Interest, etc. This Agreement
sets forth the entire understanding of the parties hereto with respect
to the transactions
contemplated hereby. It shall not be amended or modified except by
written instrument duly executed by each of the parties hereto. Any
and all previous agreements and understandings between or among the
parties regarding the subject matter hereof, whether written or oral,
are superseded by this Agreement.
7.6 Assignment and Binding Effect. All of the terms and provisions of
this Agreement to the extent applicable to the parties hereto shall be
binding upon and inure to the benefit of and are enforceable by the
Seller and Purchaser, and their respective personal representatives,
successors and assigns. The Seller and Purchaser agree that the
Purchaser may assign its rights under this Agreement to a wholly owned
subsidiary of the Purchaser and that, in the event of such an
assignment, the Assets shall be tran
7.7 Waiver. Any term or provision of this Agreement may be waived at
any time by the party or parties entitled to the benefit thereof by a
written instrument duly executed by such party or parties. A waiver
on any one occasion shall not be construed as a bar to or waiver of
any right or remedy on any further occasion. All rights and remedies
of the parties hereto shall be cumulative and may be exercised
separately or concurrently.
7.8 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally
or sent by telegram or by registered or certified mail, postage
prepaid, as follows:
If to the Purchaser to:
Reptron Electronics, Inc.
ATTN: Paul J. Plante,
Chief Operating Officer
14401 McCormick Drive
Tampa, Florida 33626
With a required copy to:
William L. Elson, Esq.
3000 Town Center, Suite 2690
Southfield, Michigan 48075
If to the Seller, to:
Steve and Linda Guma
31 Carver
Sunol, CA 94586
With a required copy to:
Sheila M. Riley, Esq.
Reynolds, Price, Casas & Riley
5150 El Camino Real, Suite #C-21
Los Altos, CA 94022-1527
and to:
Peter Schoenlaub
Markwood Capital
6 Hutton Centre Drive, Suite 1110
Santa Ana, CA 92707
or to such other address as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice,
request, demand, waiver, consent, approval or other communication will
be deemed to have been given as of the date so delivered, telegraphed
or mailed.
7.9 California Law to Govern. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of
California.
7.10 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of
parties hereto and their successors and assigns, and they shall not be
construed as conferring any rights on any other person whether or not
any such third person is specifically identified herein.
7.11 Headings, Gender and "Person". All section headings contained in
this Agreement are for convenience of reference only, do not form a
part of
this Agreement and shall not affect in any way the meaning or
interpretation
of this Agreement. Words used herein, regardless of the number or
gender
specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context requires. Any reference to a "person"
herein shall include an individual, firm, corporation, partnership,
trust, governmental authority or body, association, unincorporated
organization or any other entity.
7.12 Exhibits. All exhibits referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
7.13 Severability. Any provision of this Agreement which is invalid
or
unenforceable in any jurisdiction shall be ineffective to the extent
of such
invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7.14 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered shall be deemed to be an
original and all of which counterparts taken together shall constitute
but one and the same instrument.
7.15 Arbitration. Any controversies or claims arising out of or
relating to this Agreement after the Effective Time shall be fully and
finally settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA
Rules"), conducted by one arbitrator either (a) mutually agreed upon
by the Parent Corporation and the Shareholder Representative or (b)
chosen in accordance with the AAA Rules, except that the parties
thereto shall have any right to discovery as would be permitted by the
Federal Rules of Civil Procedure for a period of 90 days following the
commencement of such arbitration, and the arbitrator thereof shall
resolve any dispute which arises in connection with such discovery.
The prevailing party shall be entitled to costs, expenses and
reasonable attorneys' fees, and judgment upon the award rendered by
the arbitrator may be entered in any court of competent jurisdiction.
For purposes of this Agreement, the prevailing party shall mean the
party who more substantially prevailed in the prosecution of the
claims asserted or the defense thereof (including prosecution and
defense of any counterclaims) as determined by the arbitrator. Any
expenses in connection with a claim of loss hereunder, including
without limitation, investigation or audit expenses and attorneys'
fees and expenses shall be borne by the party incurring such expense
other than expenses with respect to the arbitration of any such claim
which shall be paid as provided in the preceding sentences.
Arbitration proceedings shall be conducted in San Jose, California.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement
on the date first written above.
WITNESSES:
/s/ SHEILA RILEY /s/ STEVEN R. GUMA
/s/ SHELIA RILEY /s/ LINDA L. GUMA
REPTRON ACQUISITION, INC.
BY: /s/ PAUL J. PLANTE
Its Chief Operating Officer
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated February 8, 2000, accompanying the
consolidated financial statements and schedule of Reptron Electronics,
Inc., that are included in the Company's form 10-K for the year ended
December 31, 1999. We hereby consent to the incorporation by
reference
of said reports in the Registration Statement of Reptron Electronics,
Inc., on Forms S-8 (File No. 333-28727, effective June 6, 1997 and
File
No. 33-87854, effective December 22, 1994).
GRANT THORNTON LLP
Tampa, Floirida
March 27, 2000
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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