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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, 1998
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. ( )
The aggregate market value of shares of the registrant's common stock held by
non-affiliates of the registrant as of March 16 1999, was
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approximately $14,415,346.
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The number of shares of the registrant's common stock issued and outstanding
as of March 16, 1999 was 6,147,119.
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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 1, 1998 are incorporated by
reference into Part III of this Form.
REPTRON ELECTRONICS, INC.
FORM 10-K
Fiscal Year ended December 31, 1998
Item
Number in
Form 10-K PART I Page
- - --------- ----
1. Business............................................. 1
2. Properties........................................... 11
3. Legal Proceedings.................................... 11
4. Submission of Matters to a Vote of Security Holders. 11
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters......................... 12
6. Selected Financial Data............................. 13
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 14
7a. Quantitative and Qualitative Disclosures about
Market Risk......................................... 19
8. Financial Statements and Supplementary Data......... 19
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............. 20
PART III
10. Directors and Executive Officers of the Registrant.. 20
11. Executive Compensation.............................. 20
12. Security Ownership of Certain Beneficial Owners
and Management...................................... 20
13. Certain Relationships and Related Transactions...... 20
PART IV
14. Exhibits, Financial Statements, Schedule,
and Reports on Form 8-K............................. 21
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
companies providing both value-added distribution of electronic components
and targeted contract manufacturing services through its two divisions,
Reptron Distribution and K-Byte Manufacturing. The two divisions, although
operated independently, are complementary, 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, assembly and test
requirements. Reptron believes that its approach to manufacturing and
distribution 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
the successful implementation of Reptron's business strategy, it has
increased net sales from approximately $164.0 million in 1994 to $302.8
million in 1998.
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 electronics 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.
Two important trends have developed recently in the U.S. electronic
components 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
electronic component manufacturers to reduce their operating costs.
Engaging a smaller number of distributors allows the manufacturer to reduce
support staff.
A second trend in the industry is the increasing percentage of
distribution sales associated with value-added services. This trend is the
result of the need for original equipment manufacturers ("OEMs") to reduce
their operating costs. By interacting with distributors through the use of
in-plant stores, automated inventory replenishment systems
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utilizing electronic data interchange ("EDI") 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.
Contract Manufacturing. The contract manufacturing industry has
experienced rapid growth over the past several years as an increasing
number of OEMs have chosen to outsource to contract manufacturing
specialists such as K-Byte Manufacturing for the assembly of printed
circuit board assemblies. As a result of outsourcing manufacturing
services, Industry sources estimate that the contract manufacturing
industry has grown at an average annual rate of 25% from 1988 to 1997.
Factors driving OEMs to favor outsourcing to contract 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 contract 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 contract
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, contract 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 contract 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 procure-ment. Contract manufacturing specialists are able to
manage both procurement and inventory, and have demonstrated proficiency in
purchasing components at improved pricing.
The increasing cost of automated equipment used in the industry, the
working capital requirements relating to inventory and the additional
services that contract manufacturers are providing make it more difficult
for smaller contract manufacturers and start-up companies to compete with
the services provided by larger, well-capitalized companies. Additionally,
the purchasing power generated by the volumes of material purchased by
larger contract manufacturers makes it difficult for smaller manufacturers
to be price competitive. Reptron believes that these factors are driving
consolidation in the industry and may provide opportunities for growth
through acquisitions.
Strategy
Reptron's principal business objective is to expand its presence as a
leading electronics distributor and contract manufacturer. In order to
implement its objective, Reptron has formulated a strategy based upon the
following key elements:
- Continue to Leverage Complementary Businesses. Reptron operates as an
electronics company that provides value-added distribution of electronic
components and targeted contract 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. The two divisions, although operated
independently,
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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, assembly and test requirements.
- Increase Sales from Value-Added Services. Reptron seeks to enhance
sales by providing 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
technology, component programming, custom display integration and contract
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 1998, approximately 31% 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 contract manufacturing
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 the equipment and
infrastructure capable of generating 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 1998 combined
sales, including Hibbing sales during the period January 1, 1998 through
May 29, 1998, totaled approximately $179 million. Consequently, there is
substantial capacity to support future sales growth. Management believes
that significant opportunities exist for additional business from present
and new customers which will utilize the fixed investment already made in
these facilities. (See "Certain Considerations - Integration of Hibbing
Electronics Acquisition.")
- Expand Through Business Combinations and Internal Growth. Reptron
seeks to expand its operations into geographic areas that it currently does
not serve and to increase its presence in existing markets. Reptron
Distribution has a presence in over 85% of the total available U.S. market
(based upon 1998 industry sales) through its 22 sales offices. However,
Reptron believes that significant opportunities exist to expand its
business in existing regions and into new regions, either by combining with
distributors in these markets or by opening new sales offices.
Recent Developments
On January 8, 1999, Reptron entered into a $50 million Revolving Credit
Agreement ("Credit Agreement") to replace the $15 million revolving credit
facility in place through December 31, 1998. 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 Reptron's retained earnings.
Reptron may, at its option, and upon notice to the lender, draw funds under
the Credit Agreement pursuant to either a Domestic Rate Loan (7.75% as of
March 16, 1999) or a Eurodollar Rate loan (LIBOR plus applicable index,
7.19% as of March 16, 1999). Upon notice to the lender, Reptron may
convert advances from one type of loan to the other.
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 32.0% and 32.5% of Reptron Distribution's net sales in 1998
and 1997, respectively (16.6% and 20.0% of Reptron's total 1998 and 1997
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. On July 1,
3
1998, Reptron received notice from one of its significant vendors that
after September 30, 1998, with the exception of certain identifiable
accounts, Reptron Distribution was no longer authorized to generally sell
that vendor's products as a franchised distributor. Sales generated from
this vendor's product lines accounted for 5.3% and 6.9% of Reptron
Distribution's sales in 1998 and 1997, respectively (2.7% and 4.2% of
Reptron's total 1998 and 1997 net sales, respectively). 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 divisions have certain customers that account for a significant
part of their net sales. K-Byte Manufacturing currently transacts business
with approximately 89 customers with the largest three customers accounting
for approximately 10.0%, 9.8% and 7.1% of its net sales in 1998,
respectively, and 16.0%, 13.1% and 7.8% of its net sales in 1997,
respectively, (4.8%, 4.7% and 3.4% of Reptron's total net sales in 1998,
respectively, and 6.9%, 5.7% and 3.4% of Reptron's total net sales in 1997,
respectively). Reptron Distribution's largest two customers collectively
represented 10.5% of its net sales in 1998 and 8.3% of its net sales in
1997 (5.4% and 4.8% of Reptron's total net sales in 1998 and 1997,
respectively). 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 orders from major customers, the timing of capital expenditures in
anticipation of increased sales, 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 Hibbing Electronics Acquisition. On May 29, 1998,
Reptron completed its acquisition of Hibbing. Hibbing is a contract
manufacturer competing in a market niche similar to that of K-Byte
Manufacturing. Hibbing leases 110,000 square feet of manufacturing and
headquarter facilities in Hibbing, Minnesota. Hibbing has approximately
500 employees and generated approximately $33.1 million in net sales from
the date of acquisition through December 31, 1998. The transaction was
valued at approximately $53 million consisting of approximately $30 million
in cash and the remainder in the form of assumption of liabilities. This
represents the largest acquisition ever completed by Reptron. The
successful integration of Hibbing into K-Byte's manufacturing operations
will depend upon several factors including: (i) maintaining significant
customers previously serviced by Hibbing, (ii) maintaining key management
of both Hibbing and K-Byte Manufacturing as these operations are
integrated, (iii) realizing operating efficiencies, and (iv) taking
advantage of available manufacturing capacity. 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 volume of
orders. 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 variety 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.
Substantial Set-Up Costs for Manufacturing Customers. K-Byte
Manufacturing targets customers requiring the production of a wide variety
of technologically complex printed circuit board assemblies. The
integration of new customers or new products of existing customers into K-
Byte Manufacturing's facilities and processes involves a
4
substantial amount of set-up costs which are incurred prior to any sales
being generated from these customers. These set-up costs could have a
material adverse effect on K-Byte Manufacturing'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. K-
Byte Manufacturing competes in a highly fragmented market composed of a
diverse group of contract manufacturers. K-Byte Manufacturing 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
declined in recent years due to competitive pressures, and management
believes that this trend will continue. See " - Competition."
Availability of Components. Reptron Distribution and K-Byte
Manufacturing rely 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. If
shortages of these or other components should occur in the future, Reptron
may be forced to delay shipment or to purchase components at higher prices
(which it may not be able to pass on to its customers), which may have a
material adverse effect on customer demand for Reptron's services, on gross
margins or both. 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 $302.8 million in 1998. 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
the historic rates of net sales growth experienced by Reptron, 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 unless and until
Reptron's vendors reduce the cost of such components (through price
protection rights, if any, outlined in the vendor agreements). 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."
The Year 2000. The Year 2000 issue results from the potential
inability for computer hardware and software systems and computer
controlled devices, including equipment used in Reptron's manufacturing and
distribution operations, to differentiate between centuries, resulting in
partial or complete systems failure unless necessary modifications are
implemented. Reptron utilizes computer hardware and software systems
across its entire operation, which may be subject to system failure as a
result of Year 2000 non-compliance. In the normal course of business,
Reptron relies on products and services from critical vendors, large
customers and other third parties whose computer systems are also subject
to this issue. In the event that critical Year 2000 issues are encountered
by Reptron it cannot be determined, with certainty, whether it will have
material adverse impact on Reptron's financial position See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Year 2000 Statement."
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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:
- In 1993, Reptron acquired a distributor with offices in Philadelphia,
Pennsylvania and Baltimore, Maryland.
- In 1995, Reptron acquired a distributor with offices in Boston,
Massachusetts and Hartford, Connecticut and acquired a distribution
business with offices in Boston, Massachusetts; Irvine, Los Angeles, San
Diego and San Jose, California; Portland, Oregon; and Seattle, Washington.
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 67% of Reptron
Distribution's net sales in 1998. 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, Samsung, Epson and Rise Semiconductor. Passive
products and electromechanical components accounted for the remaining 33%
of net sales of Reptron Distribution in 1998. 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 32.0% of Reptron Distribution's net sales in 1998 (16.6% of
Reptron's total net sales in 1998). See "Risk Factors-Dependence Upon Key
Vendors."
In December 1995, Reptron Distribution created a Memory Module
division, which 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 was previously serviced by
Reptron Distribution. This division sells primarily to computer
integrators, retail stores 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 12.7% and 9.5% of Reptron
Distribution's net sales in 1998 and 1997, respectively (6.6% and 5.9% of
Reptron's total net sales in 1998 and 1997, respectively).
Services. Reptron Distribution sells to approximately 6,000 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. During 1998 and 1997,
approximately 31% and 37%, 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
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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 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 6,000 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,
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 twenty-two 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 July 2003. 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. The Los Angeles, California sales
office has operated as a satellite office of the Irvine, California
location since it was acquired in 1995. During 1998, management elected to
fully staff the Los Angeles sales office in conjunction with an emphasis on
building market share in California.
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
7
K-Byte Manufacturing
Reptron entered into the contract manufacturing 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 $146 million in
1998, inclusive of $33.1 million in net sales of Hibbing, subsequent to its
acquisition on May 29, 1998.
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 onto printed circuit boards
and performance of post production testing. In addition, total box build
assembly generated approximately 35% of K-Byte Manufacturing's 1998 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 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.
As part of its manufacturing services, K-Byte Manufacturing offers both
SMT and pin through hole ("PTH") interconnection technologies. 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 a more recent advancement over the mature 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 and as a consequence of the acquisition of Hibbing, K-Byte
Manufacturing is 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
8
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. 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 1998, K-Byte Manufacturing had
approximately 89 principal customers (inclusive of 48 customers of
Hibbing), 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). During 1997, K-Byte Manufacturing had 39 principal
customers, with the largest three customers representing 15.2%, 9.9% and
7.7% of K-Byte Manufacturing's 1997 net sales (5.8%, 3.8% and 2.9% 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 1997 and 1998.
1997 1998
Industry Customers % of Sales Customers % of Sales
- - ------------------------- --------- ---------- --------- ----------
Telecommunications 6 20.5% 15 27.1%
Healthcare 7 22.0% 17 27.0%
Industrial/Instrumentation 17 29.2% 39 24.5%
Banking 2 19.0% 2 12.1%
Office Products 2 6.1% 9 5.6%
Other 5 3.2% 7 3.7%
Training. K-Byte Manufacturing believes that its highly trained and
productive work force is an essential element in its ability to compete
effectively, and is committed to investing in training its employees. K-
Byte Manufacturing has developed a formal training program taught by
Company employees at an in-house "K-Byte Academy," which includes classes
in technical training and employee personal skills in areas such as
communication, team building and leadership. Additionally, K-Byte
Manufacturing cross-trains its employees to perform multiple job functions.
Likewise, all Hibbing manufacturing employees receive regular training by
way of a curriculum developed and administered through in-house human
resources personnel.
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
9
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 42%
of K-Byte Manufacturing's 1998 net sales, with the Gaylord, Michigan plant
totaling approximately 36% of 1998 net sales and the Hibbing manufacturing
plant accounting for the remaining 22% of 1998 net sales.
Competition
Both Reptron Distribution and K-Byte Manufacturing face 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. Reptron
Distribution attempts to differentiate itself from these competitors
through its wide offering of value-added services, including contract
manufacturing (through K-Byte Manufacturing).
K-Byte Manufacturing competes in a highly fragmented market composed of
a diverse group of contract manufacturers. 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 contract manufacturers 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 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."
Management Information Systems
Reptron has made significant investments in computer hardware, software
and MIS personnel. The Reptron Distribution and K-Byte Manufacturing MIS
departments employ approximately 30 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. 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, both divisions are not 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 twenty-two sales offices to the corporate
headquarters. In 1996, Reptron Distribution significantly upgraded the
software which operates its main warehouse in Tampa, Florida. This upgrade
combines bar code technology with sophisticated conveyor systems and random
storage of electronic components. The entire warehouse system is
controlled and organized by software written and implemented by Reptron
Distribution's MIS staff.
10
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.
Employees
As of March 15, 1999, Reptron employed 1,869 persons, of whom 351 were
dedicated to Reptron Distribution, 1,506 were dedicated to K-Byte
Manufacturing 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 three 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
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. The Tampa K-Byte
Manufacturing plant and administrative offices and the main warehouse for
Reptron Distribution occupy this facility. This building was completed in
the first quarter of 1997 at a cost of approximately $8.0 million,
exclusive of land costs. As of December 31, 1998, the two Tampa, Florida
buildings were subject to a mortgage totaling approximately $8.0 million.
Reptron also owns a 72,000 square foot K-Byte Manufacturing facility in
Gaylord, Michigan, which is subject to a mortgage of approximately
$259,000.
Leased facilities. Reptron leases twenty-two 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
November, 2003. One of these locations, in the Detroit area, is 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.
Item 3. Legal Proceedings
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, 1998, 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, 1998.
11
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 1997 High Low
---------- ---- ---
First Quarter $23 3/4 $18
Second Quarter $24 1/2 $17 5/8
Third Quarter $26 1/4 $17
Fourth Quarter $16 3/4 $10
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 (through March 26, 1999) $ 4 1/8 $ 3 1/4
On March 26, 1999 the last sale price of the common stock, as reported
by The NASDAQ National Market System was $3 1/2 per share.
As of March 26, 1999, there were approximately 107 holders of record of
Reptron's common stock and approximately 2,000 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.
12
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.
Year Ended December 31,
----------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(In thousands, except share and per share data)
Operating Statement Data:
Net sales, Reptron Distribution $ 96,003 $ 140,146 $ 168,279 $ 187,267 $ 156,507
Net sales, K-Byte Manufacturing 68,002 83,198 100,658 116,644 146,282
--------- --------- --------- --------- ---------
Total net sales $ 164,005 $ 223,344 $ 268,937 $ 303,911 $ 302,789
========= ========= ========= ========= =========
Gross profit, Reptron Distribution $ 18,780 $ 26,057 $ 34,214 $ 35,375 $ 25,081
Gross profit, K-Byte Manufacturing 11,431 13,531 17,382 18,780 12,847
--------- --------- --------- --------- ---------
Total gross profit 30,211 39,588 51,596 54,155 37,928
Selling, general and administrative
expenses 19,051 26,011 34,770 38,154 51,206
--------- --------- --------- --------- ---------
Operating income (loss) 11,160 13,577 16,826 16,001 (13,278)
Interest expense, net 1,474 2,767 4,025 6,184 8,339
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes 9,686 10,810 12,801 9,817 (21,617)
Income tax provision (benefit) 3,823 4,324 5,148 3,677 (8,470)
--------- --------- --------- --------- ---------
Net earnings (loss) $ 5,863 $ 6,486 $ 7,653 $ 6,140 $ (13,147)
========= ========= ========= ========= =========
Net earnings (loss) per share
- basic $ 1.05 $ 1.07 $ 1.26 $ 1.01 $ (2.15)
========= ========= ========= ========= =========
Weighted average number of shares
used in computing above amounts 5,581,105 6,046,159 6,058,889 6,077,084 6,118,023
========= ========= ========= ========= =========
Net earnings (loss) per share
- diluted $ 1.03 $ 1.05 $ 1.24 $ .98 $ (2.15)
========= ========= ========= ========= =========
Weighted average number of shares
used in computing above amounts 5,694,092 6,163,094 6,179,458 6,247,040 6,118,023
========= ========= ========= ========= =========
December 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(In thousands)
Balance Sheet Data:
Working capital $ 40,490 $ 75,629 $ 77,231 $ 137,572 $ 101,829
Total assets 70,073 133,738 138,632 222,514 210,083
Long-term obligations, including
note payable and current portion 20,798 65,110 67,345 133,693 133,163
Shareholders' equity 34,415 40,948 48,690 54,975 42,126
13
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.
General
Reptron has grown rapidly through the implementation of its strategy of
integrating value-added distribution services with contract manufacturing.
Since the acquisition of K-Byte Manufacturing in 1986, and other subsequent
acquisitions, Reptron's net sales have increased from approximately $25
million to approximately $303 million in 1998. Reptron has also focused on
improving its operating margin through such measures as: (i) shifting
Reptron Distribution's business mix from standard component sales to higher
margin value-added services, which now represent 31% of its net sales; (ii)
continuing to increase the number of customers using both of Reptron's
distribution and contract manufacturing services, thereby lowering overall
selling expenses; (iii) investing in facilities technology in order to
improve efficiencies; and (iv) creating a corporate sales operation to more
efficiently access smaller volume customers.
K-Byte Manufacturing offers contract manufacturing services to its
customers on a turnkey basis pursuant to customer designs. Under turnkey
arrangements, and pursuant to the customers' design, schematics and bill of
materials K-Byte Manufacturing purchases the electronic components and other
materials used in assembly and delivers a completed product. For strategic
reasons, K-Byte Manufacturing does not pursue consignment business in which
the customer supplies the product material and pays only for labor and
manufacturing costs. Reptron believes that by retaining total
responsibility for material procurement it can achieve greater control of
the manufacturing process and leverage the strengths of Reptron
Distribution. The marketing cycle for K-Byte Manufacturing engagements
tends to span six to twelve months and the start-up phase typically spans
another six months. During start-up, significant investments are made by K-
Byte Manufacturing and its customers to prepare for the successful launch of
the contract manufacturing engagement. K-Byte Manufacturing's contracts
with customers address the customers' obligations relative to cancellation,
inventory risks, component price increases, engineering change notices,
inventory (stores, work-in-process and vendor stock) and payment terms.
In 1995, Reptron acquired the electronic components distribution
businesses of two distributors (collectively, the "1995 Acquisitions"). The
1995 Acquisitions, which were accounted for using the purchase method,
involved a total consideration of $19.5 million, consisting of $12.6 million
in cash and the balance in assumed liabilities.
In December 1995, Reptron also created a division devoted solely to
selling memory modules. This division sells memory modules primarily to
computer integrators, retail stores and value-added resellers, a customer
base not historically served by Reptron Distribution. Sales in this market
segment are generally characterized by lower gross margins and lower
selling, general and administrative expenses than other sales generated by
Reptron Distribution. Sales from this division have consistently increased
and accounted for $19.9 million or 12.7% and $17.4 million or 9.5% of
Reptron Distribution's net sales in 1998 and 1997, respectively (6.6% and
5.9% of Reptron's total net sales in 1998 and 1997, respectively).
In 1998 pursuant to a stock transaction, Reptron acquired all of the
assets and liabilities of Hibbing. The transaction was valued at
approximately $53.0 million consisting of the sum of a cash payment of
approximately
14
$30.0 million and the remainder in the form of assumption of liabilities.
The purchase was recorded using the purchase method of accounting.
Also in 1998, Reptron incurred expenses of approximately $2.5 million in
connection with a proposed business combination with All American
Semiconductor, which ultimately did not come to fruition.
Sales for Reptron Distribution and K-Byte Manufacturing are recognized
upon shipment, except for sales from in-plant stores. Sales from in-plant
stores are recognized when a customer removes a product from Reptron's in-
plant inventory. Sales from in-plant stores represented 8.4% and 17.6% of
Reptron Distribution's 1998 and 1997 net sales, respectively (4.4% and 11.2%
of Reptron's total net sales in 1998 and 1997, respectively). In-plant
inventories are tracked using bar-code labeling technology or frequent
inventory counts. Cost of sales for Reptron Distribution includes only the
cost of materials (electronic components). Cost of sales for K-Byte
Manufacturing includes the cost of materials, labor and manufacturing
overhead.
Reptron Distribution and K-Byte Manufacturing operate as independent
businesses. The needs of Reptron Distribution and K-Byte Manufacturing
differ and management believes that a focused organizational structure is
beneficial. This decentralized organizational structure allows each
division to focus on all aspects of their business operations and the
critical factors required to be successful within a very competitive
marketplace. Reptron's senior management, treasury and finance and legal
functions are centralized to ensure a consistent level of corporate strategy
and appropriate oversight.
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 K-Byte Manufacturing
gross profit, which is presented as a percentage of net sales of the
respective segments:
Year Ended December 31,
------------------------------
1996 1997 1998
-------- -------- --------
Net sales, Reptron Distribution ............. 62.6% 61.6% 51.7%
Net sales, K-Byte Manufacturing ............. 37.4 38.4 48.3
-------- -------- --------
Total net sales .......................... 100.0% 100.0% 100.0%
======== ======== ========
Gross profit, Reptron Distribution .......... 20.3% 18.9% 16.0%
======== ======== ========
Gross profit, K-Byte Manufacturing .......... 17.3% 16.1% 8.8%
======== ======== ========
Total gross profit ............................ 19.2% 17.8% 12.5%
Selling, general and administrative expenses .. 12.9 12.6 16.9
-------- -------- --------
Operating income (loss) .................... 6.3 5.2 (4.4)
Interest expense, net .......................... 1.5 2.0 2.8
-------- -------- --------
Earnings (loss) before income taxes ......... 4.8% 3.2% (7.2)%
======== ======== ========
Net earnings (loss) .......................... 2.8% 2.0% (4.3)%
======== ======== ========
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.
15
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. This 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 underutilization 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.
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.
1997 Compared to 1996
Net Sales. Total net sales increased $35.0 million, or 13.0%, from
$268.9 million in 1996 to $303.9 million in 1997.
16
Reptron Distribution net sales increased $19.0 million, or 11.3%, from
$168.3 million in 1996 to $187.3 million in 1997. The largest customer of
Reptron is a customer of both Reptron Distribution and K-Byte Manufacturing.
This customer accounted for approximately 14.0% of Reptron Distribution
1997 net sales, 1.5% of K-Byte Manufacturing 1997 net sales and 9.2% of
total Company 1997 net sales. The highest volume sales office accounted for
20.9% of total Reptron Distribution net sales.
Sales of semiconductors, passive components and electromechanical
components accounted for 66.8%, 24.9% and 8.3%, respectively, of Reptron
Distribution's 1997 net sales. The percentage of net sales revenue derived
from semiconductor sales decreased from 74.8% in 1996, primarily as a result
of the decline in average selling prices for SRAMS and DRAMS.
Representation by Reptron Distribution of its major vendor lines remained
relatively stable in 1997, with sales generated from the top four vendors
accounting for approximately $60.9 million, or 32.5% of Reptron
Distribution's 1997 net sales, as compared with approximately $63.0 million
or 37.5% of Reptron Distribution's 1996 net sales.
K-Byte Manufacturing net sales increased $15.9 million, or 15.9%, from
$100.7 million in 1996 to $116.6 million in 1997. Sales to new customers
accounted for approximately $11.7 million of the increase in net sales in
1997. The remainder of the increase in net sales, approximately $4.2
million, was generated by the previously existing K-Byte Manufacturing
customer base. K-Byte Manufacturing transacted business with approximately
39 customers in 1997 with the largest three customers representing
approximately 15.2%, 9.9% and 7.7%, respectively, of K-Byte Manufacturing
1997 net sales (5.8%, 3.8% and 2.9% of Reptron's total 1997 net sales).
Sales to customers in the industrial/instrumentation industry accounted for
29.2% of K-Byte Manufacturing 1997 net sales, while sales to customers in
the healthcare industry, telecommunications industry and banking industry
accounted for 22.0%, 20.5% and 19.0%, respectively, of net sales in 1997.
The Tampa, Florida manufacturing plant accounted for 55.7% of K-Byte
Manufacturing 1997 net sales, with the Gaylord, Michigan plant totaling
40.6% of 1997 net sales and the Saline, Michigan, short production run
plant, accounting for the remaining 3.7%.
Gross Profit. Total gross profit increased $2.6 million, or 5.0%, from
$51.6 million in 1996 to $54.2 million in 1997. Gross margin decreased from
19.2% in 1996 to 17.8% in 1997.
Reptron Distribution's gross profit increased $1.2 million, or 3.4%,
from $34.2 million in 1996 to $35.4 million in 1997 and the gross margin
decreased from 20.3% in 1996 to 18.9% in 1997. This decrease in gross
margin is primarily attributed to industry-wide semiconductor pricing
declines and increased competition. For example, although 1997 memory
module division units shipped increased approximately 69.0%, 1997 memory
module division net sales increased by only 3.0%.
K-Byte Manufacturing's gross profit increased $1.4 million, or 8.0%,
from $17.4 million in 1996 to $18.8 million in 1997. The gross margin
decreased from 17.3% in 1996 to 16.1% in 1997. During 1997, nine new
customers were integrated into the K-Byte contract manufacturing operation.
In order to meet the demands of this integration process, Reptron added
significant production staff which resulted in production inefficiencies and
declining margins. These actions were necessary to meet the demand of
existing customers as well as the commitments made to the new customers.
Selling, General, and Administrative Expenses. Selling, general and
administrative expenses increased $3.4 million, or 9.7%, from $34.8 million
in 1996 to $38.2 million in 1997. The increase in expense is primarily
reflective of investments in senior management and field application
engineers, as well as, higher variable costs associated with the increase in
net sales. These expenses, as a percentage of net sales, decreased from
12.9% in 1996 to 12.6% in 1997.
Interest Expense. Net interest expense increased $2.2 million, or
53.6%, from $4.0 million in 1996 to $6.2 million in 1997. In August, 1997,
Reptron issued $115.0 million of subordinated convertible notes at a coupon
rate of 6.75%. A portion of the proceeds was used to pay down existing
indebtedness under a revolving credit facility. The remainder of the
proceeds has been invested in short-term municipal bonds. The increase in
net interest expense is primarily attributed to the net increase in
outstanding net debt (total debt less cash) of $11.7 million from $66.9
million as of December 31, 1996 to $78.6 million as of December 31, 1997.
17
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"). 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
March 24, 1999 were approximately $8.0 million. This amount was drawn in
conjunction with a Reptron subsidiary's purchase from NationsBank of the
mortgage note on the buildings located in Tampa, Florida. It is
contemplated that this mortgage note will be sold to another financial
institution during 1999.
As of December 31, 1998, Reptron was in compliance with, or received
waivers, on all financial covenants under the NationsBank Credit Facility.
There were no amounts outstanding under the NationsBank Credit Facility as
of December 31, 1998.
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 $6.4
million as of December 31, 1998. 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 generated cash of approximately $0.4
million in 1998. This increase was primarily a result of a decrease in
inventories of $11.4 million, a decrease in accounts receivable of $6.1
million, and an increase in accrued expenses of $2.1 million. These items
were off-set by a decrease in accounts payable of $9.0 million, an increase
in prepaid expenses and other current assets of $4.3 million, a decrease in
deferred taxes payable of $2.6 million and a decrease in deferred revenue of
$1.2 million. The decrease in inventories was experienced primarily as a
result of an increase in K-Byte Manufacturing's average inventory turns from
3.3 times in 1997 to 4.0 times in 1998. Reptron Distribution's average
inventory turns decreased from 3.8 times in 1997 to 3.2 times in 1998.
Reptron's accounts receivable collections averaged 57 days as of December
31, 1998 and 51 days as of December 31, 1997.
Reptron used cash of approximately $33.6 million in investing activities
in 1998, comprised of approximately $30.3 million in connection with the
acquisition of Hibbing and $3.7 million in purchase of property, plant and
equipment. These uses of cash were off-set by proceeds from the sale of
property, plant and equipment of approximately $400,000. Payments on
long-term obligations used approximately $12.1 million of cash. Stock sales
in connection with the exercise of outstanding Reptron options provided cash
of approximately $300,000 in 1998.
Reptron believes that cash generated from operations, available cash
reserves and available credit facilities will be sufficient for 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.
18
Year 2000 Statement
The Year 2000 issue encompasses the required recognition of computer
hardware and software systems and computer controlled devices, including
equipment, used in Reptron's manufacturing and distribution operations to
properly acknowledge the change from Year 1999 to Year 2000. The failure of
any hardware and software systems or equipment to timely and accurately
recognize such change could result in partial or complete systems failure.
In the normal course of business, Reptron relies on products and services
from critical vendors, customers and other third parties whose computer
systems must also be Year 2000 compliant in order for Reptron to realize the
uninterrupted flow of its business operations. Reptron is actively taking
steps to ensure that its systems and equipment will be Year 2000 compliant,
including assessing the scope of work, prioritizing, certifying compliance,
and testing compliance.
Reptron has identified those systems and equipment in its Reptron
Distribution and K-Byte Manufacturing (including Hibbing) divisions and in
its central corporate operations that are considered to be critical to
Reptron's day to day operations. Approximately 80% to 85% of the systems
and equipment utilized in Reptron Distribution and Reptron's central
corporate operations were tested for Year 2000 compliance during November
1998, with such systems and equipment being certified as Year 2000 compliant
as of March 15, 1999. Reptron expects to complete the balance of its Year
2000 compliance testing of these systems and equipment during the middle of
1999. K-Byte Manufacturing has received written assurances from its third-
party software providers that the software used in its manufacturing
operations is Year 2000 compliant. Although K-Byte Manufacturing has not
begun validating such third parties' Year 2000 representations, it has
conducted preliminary internal tests of certain of its hardware and software
systems, and expects to complete such validation and testing during the
middle of 1999.
While Reptron is actively seeking assurances of Year 2000 compliance
from each of its key suppliers, customers and other third-parties with whom
Reptron conducts business, this assessment primarily relies upon such third-
parties' representations of Year 2000 compliance. A lack of response or
inadequate or inaccurate information from such third parties could
materially affect Reptron's assessment of Year 2000 readiness. Until these
assessments are completed, which is expected to occur during the middle of
1999, Reptron cannot predict whether the failure of any such third-party to
be Year 2000 compliant will have a material adverse effect on Reptron's
business.
To date, the costs incurred by Reptron to address Year 2000 issues have
been immaterial, and Reptron expects that the costs to complete Year 2000
compliance certification, testing and verification will also be immaterial.
Where appropriate, Reptron will develop contingency plans in areas it
determines that Year 2000 readiness is insufficient. However, no assurances
can be given that Reptron's Year 2000 efforts are appropriate, adequate or
complete. In addition, Reptron is unable to fully determine the effect of a
failure of its own systems or those of any third-party with whom it conducts
business, but any significant failures could have a material adverse effect
on Reptron's financial condition, results of operations and cash flows. See
"Certain Considerations - Year 2000 Statement."
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,
1998, the notional amount of the swap agreement totaled approximately $8.0
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 1998, a 100 basis point
change in LIBOR would have caused Reptron's interest expense to change by
approximately $84,000. Reptron believes that this amount is not significant
to the 1998 results of operations.
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.
19
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 28, 1999.
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 28, 1999.
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 28, 1999.
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 28, 1999.
20
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, 1997 and 1998 F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 F-4
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1996, 1997 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 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, 1996, 1997 and 1998 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 subsidiary as of December 31, 1997
and 1998, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe 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, 1997 and 1998, and the consolidated
results of operations and cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Tampa, Florida
February 5, 1999
F-2
REPTRON ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
December 31,
1997 1998
-------- -------
- - -
CURRENT ASSETS
Cash and cash equivalents $ 55,135 $ 10,065
Accounts receivable - trade, less allowances
for doubtful accounts of $350 and $483, respectively 45,033 49,503
Inventories, net 68,732 69,331
Prepaid expenses and other 3,906 9,296
Deferred tax benefit 110 2,295
------- -------
Total current assets 172,916 140,490
PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 35,405 38,273
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET 4,272 25,527
OTHER ASSETS 9,921 5,794
------- -------
$222,514 $210,084
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 24,782 $ 25,542
Current portion of long-term obligations 3,708 3,866
Accrued expenses 5,574 9,183
Deferred Revenue 1,280 70
------- -------
Total current liabilities 35,344 38,661
LONG-TERM OBLIGATIONS, less current portion 129,985 129,297
DEFERRED INCOME TAXES 2,210 -
COMMITMENTS AND CONTINGENCIES - -
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,
6,088,369 and 6,147,119 shares, respectively 61 61
Additional paid-in capital 21,378 21,676
Retained earnings 33,536 20,389
------- -------
54,975 42,126
------- -------
$222,514 $210,084
======= =======
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)
Year Ended December 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
Net sales $ 268,937 $ 303,911 $ 302,789
Cost of goods sold 217,341 249,756 264,861
--------- --------- ---------
Gross profit 51,596 54,155 37,928
Selling, general and administrative expenses 34,770 38,154 51,206
--------- --------- ---------
Operating income (loss) 16,826 16,001 (13,278)
Interest expense, net 4,025 6,184 8,339
--------- --------- ---------
Earnings (loss) before income taxes 12,801 9,817 (21,617)
Income tax provision (benefit) 5,148 3,677 8,470
--------- --------- ---------
Net earnings (loss) $ 7,653 $ 6,140 $ (13,147)
========= ========= =========
Net earnings (loss) per common share - basic $ 1.26 $ 1.01 $ (2.15)
========= ========= =========
Weighted average Common Stock
shares outstanding - basic 6,058,889 6,077,084 6,118,023
========= ========= =========
Net earnings (loss) per common share - diluted $ 1.24 $ .98 $ (2.15)
========= ========= =========
Weighted average Common Stock equivalent
share outstanding - diluted 6,179,458 6,247,040 6,118,023
========= ========= =========
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)
Total Additional
Shares Par Paid-In Retained
Shareholders'
Outstanding Value Capital Earnings
Equity
----------- ----- -------- -------- ----
- - ----
Balance at January 1, 1996 6,048,519 $ 60 $ 21,145 $ 19,743 $ 40,948
Exercise of stock options 17,000 1 88 - 89
Net earnings - - - 7,653 7,653
--------- --- ------ ------- -------
Balance at December 31, 1996 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
========= === ======= ======= =======
The accompanying notes are an integral part of this statement.
F-5
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
--------------------------
1996 1997 1998
------- ------- -------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net earnings (loss) $ 7,653 $ 6,140 $(13,147)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 3,638 5,657 11,067
Gain on sale of assets (47) (44) (218)
Deferred income taxes 588 732 (2,585)
Change in assets and liabilities
(net of effect of acquisition):
Accounts receivable-trade 1,427 (5,226) 6,108
Inventories 4,344 (10,038) 11,437
Prepaid expenses and other (920) (1,143) (4,298)
Other assets (396) (9,683) 50
Accounts payable-trade (6,607) 6,443 (8,973)
Accrued expenses 678 3,068 2,122
Deferred Revenue - 1,280 (1,210)
Income taxes payable 246 (246) -
------- ------- -------
Net cash provided by (used in) operating activities 10,604 (3,060) 353
Cash flows from investing activities:
Net cash paid for acquisitions - - (30,337)
Purchases of property, plant and equipment (7,586) (6,248) (3,698)
Proceeds from sale of property, plant and equipment 72 44 446
------- ------- -------
Net cash used in investing activities (7,514) (6,204) (33,589)
Cash flows from financing activities:
Payments on notes payable to banks (3,582) (48,550) -
Proceeds from long-term obligations 3,409 124,041 -
Payments on long-term obligations (2,751) (11,716) (12,132)
Proceeds from exercise of stock options 89 145 298
------- ------- -------
Net cash provided by (used in) financing activities (2,835) 63,920 (11,834)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 255 54,656 (45,070)
Cash and cash equivalents at beginning of period 224 479 55,135
------- ------- -------
Cash and cash equivalents at end of period $ 479 $ 55,135 $ 10,065
======= ======= =======
The accompanying notes are an integral part of these statements.
F-6
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reptron Electronics, Inc. ("Reptron") is an integrated electronics company
operating as a national distributor of electronic components ("Reptron
Distribution") and a contract manufacturer of electronic products ("K-Byte
Manufacturing"). 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.
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). In 1996, Reptron changed its inventory method from FIFO to the
average cost method in order to better reflect the movement of Reptron
Distribution inventory. Since the average cost method and FIFO generally
yield similar results, the change had and will have an immaterial impact to
the financial statements of Reptron.
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. Production Set-up Costs
-----------------------
Under certain contractual arrangements with customers, Reptron incurs set-
up costs. These costs are capitalized, included in prepaid expenses and
other assets, and are recognized in cost of sales as units are delivered
over the contract period, or two years, whichever is less. Recognition of
the costs begins after the development stage of each assembly within a
contract is complete and the production stage begins.
F-7
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. 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 $617,000 and $1,257,000 at
December 31, 1997 and 1998, respectively.
7. 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 1996, 1997 or
1998.
8. 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.
9. 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.
10. Use of Estimates
----------------
In preparing financial statements in conformity with generally accepted
accounting principles, 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.
11. 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.
F-8
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
12. New Accounting Pronouncements
-----------------------------
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information" is effective for
fiscal years beginning after December 15, 1997. This Statement supersedes
SFAS No.14 "Financial Reporting for Segments of a business Enterprise" and
amends SFAS no. 94 "Consolidation of All Majority-Owned Subsidiaries."
This statement requires annual financial statements to disclose information
about products and services, geographic areas and major customers based on
a management approach, along with interim reports. The management approach
requires disclosing financial and descriptive information about an
enterprises' reportable operating segments based on reporting information
the way management organizes the segments for making business decisions and
assessing performance. It also eliminates the requirement to disclose
additional information about subsidiaries that were not consolidated.
Reptron has adopted SFAS No. 131 in 1998 with no impact to Reptron's
disclosure information or its results of operations.
Reptron has adopted Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This
SOP segments an internal software project into stages and the accounting is
based on the stage in which a cost is incurred. Specified costs related to
the application development stage are capitalized if the preliminary
project stage is complete, management has authorized the project and
completion of the project is probable. Capitalizable costs of internal-use
software projects consist of (1) external direct costs of materials and
services used to develop or purchase internal-use software, (2) payroll and
payroll related costs for time spent directly on the project be employees
directly associated with the internal-use software project and (3) internal
costs incurred during the development of internal-use software. There was
no material financial statement impact upon adoption of this pronouncement.
SOP No. 98-5 "Reporting on the Costs of Start-Up Activities" is effective
for fiscal years beginning after December 15, 1998. This SOP requires the
costs of start-up activities and organizational costs to be expensed as
incurred. As permitted by SOP 98-5, Reptron has elected to early adopt the
provisions of this SOP. The impact of adopting SOP 98-5 did not have and
is not expected to have a significant impact on Reptron's results of
operations.
F-9
NOTE B - STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information (in thousands):
Year Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
Cash paid during the year for:
Interest $4,879 $4,260 $8,091
Income taxes $4,269 $4,593 $ 507
Reptron incurred approximately $5,209,000 and $2,573,000 of obligations
under capital leases for the acquisition of equipment during 1996 and 1997,
respectively. No capital leases were entered into during the year ended
December 31, 1998.
On May 29, 1998 Reptron completed the acquisition of Hibbing Electronics
Corporation ("Hibbing"). The transaction was valued at approximately $53.0
million, consisting of the sum of a cash payment of $30.0 million and the
remainder in the form of the assumption of liabilities. Reptron allocated
approximately $31.0 million of the purchase price to tangible assets. See
Note K.
NOTE C - INVENTORIES
Inventories consist of the following (in thousands):
December 31,
------------------
1997 1998
-------- --------
Reptron Distribution:
Inventories $42,126 $37,026
K-Byte Manufacturing:
Work in process 10,945 9,043
Raw materials 15,661 23,262
------ ------
$68,732 $69,331
====== ======
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
December 31,
----------------
1997 1998
------ ------
Land and buildings $ 15,512 $16,328
Furniture, fixtures and equipment 32,380 39,650
Leasehold improvements 1,305 2,498
Construction in progress 984 -
------ ------
50,181 58,476
Less accumulated depreciation and amortization 14,776 20,203
------ ------
$35,405 $38,273
====== ======
F-10
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
NOTE E - NOTES PAYABLE TO BANKS
As of December 31, 1998, there were no amounts outstanding under Reptron's
$15 million Amended and Restated Revolving Credit Facility and Reptron was
in compliance with or received waivers on all financial covenants. On
January 8, 1999, Reptron entered into a $50 million Revolving Credit
Agreement ("Credit Agreement") to replace the aforementioned $15 million
revolving credit facility. 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) or a Eurodollar
Rate loan (LIBOR plus 2.25 basis points). Upon notice to the lender,
Reptron may convert advances from one type of loan to the other.
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31 (in thousands):
1997 1998
-------- --------
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 $115,000
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. 8,537 8,083
Capitalized lease obligations (net of interest of
approximately $1.3) for equipment, due in monthly
principal and interest payments of approximately
$296, through 2002. 7,194 6,442
Notes payable collateralized by certain equipment, due in
monthly principal and interest installments of $118, through
January 2003, interest rates range from 7.1% to 10.75%. 2,007 3,379
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%. 955 259
------- -------
$133,693 133,163
Less current maturities 3,708 3,866
------ -------
$129,985 $129,297
======= =======
F-11
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
NOTE F - LONG-TERM OBLIGATIONS - Continued
At December 31, 1998, aggregate maturities of long-term obligations are as
follows (in thousands):
Year ending December 31,
------------------------
1999 $ 3,866
2000 3,129
2001 2,234
2002 738
2003 32
Thereafter 123,164
-------
$133,163
=======
Reptron has entered into various capital leases for equipment, totaling
approximately $5,209,000 in 1996 and $2,573,000 in 1997. No capital leases
were entered into during 1998. At December 31, 1997 and 1998, the net book
value of equipment under capital leases (inclusive of Hibbing acquired
equipment) is approximately $8,638,000 and $8,906,000, respectively. The
related capital lease obligations are included with long-term obligations.
Total interest expense was $4,025,000, $6,880,000 and $9,390,000, in 1996,
1997 and 1998, respectively. Interest payable was $2,986,000 and $3,310,000
at December 31, 1997 and 1998, respectively.
NOTE G - INCOME TAXES
The provision for income taxes for the years ended December 31, 1996,
1997 and 1998, respectively, is as follows (in thousands):
December 31,
------------------------------
1996 1997 1998
------ ------ ------
Current $4,560 $2,946 $(5,885)
Deferred 588 732 (2,585)
----- ----- -----
$5,148 $3,677 $(8,470)
===== ===== ======
F-12
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
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,
-----------------------
1996 1997 1998
------ ------ ------
Statutory federal tax rate 34.0% 34.0% 34.0%
State income taxes of approximately 6.9%, 7.4%
and 7.5% in 1996, 1997, and 1998, net of
federal tax benefit 4.6 4.9 4.9
Tax exempt interest - (2.8) (0.8)
Meals and entertainment 1.2 1.8 0.8
Other 0.4 (0.4) 0.3
---- ---- ----
Effective tax rate 40.2% 37.5% 39.2%
==== ==== ====
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
-----------------
1997 1998
------ ------
Deferred tax assets
Net operating loss carryforward $ - $2,600
Inventory reserves - 1,441
Deferred compensation - 320
Contingency reserve - 160
Accrued vacation 86 136
Allowance for bad debts 99 343
Other 14 311
------ ------
199 5,311
------ ------
Deferred tax liabilities
Depreciation 2,064 2,838
Excess of cost over net assets acquired 107 141
Other 128 37
------ ------
2,299 3,016
------ ------
Net deferred tax asset (liability) $(2,100) $2,295
====== ======
In connection with the acquisition of Hibbing, Reptron recorded deferred
assets of approximately $1,810,000.
F-13
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
NOTE G - INCOME TAXES - Continued
Reptron has net operating loss carryforwards of approximately $3.5 million
and $20.0 million for federal and state income tax purposes, respectively,
which generally expire in the year 2018. Reptron also has an Alternative
Minimum Tax credit carryforward of approximately $400,000. A valuation
allowance has not been recorded against the deferred tax assets for 1997 and
1998 as management anticipates that net income in future periods will be
sufficient to utilize the net operating loss carryforward.
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, 1998 (in
thousands):
Year ending December 31,
------------------------
1999 $1,292
2000 833
2001 664
2002 589
2003 536
Total rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately, $1,555,000, $1,258,000, and $1,837,000 respectively.
Litigation
- - ----------
The Company is, from time to time, involved in litigation relating to claims
arising out of its operations in the ordinary course of business. The
Company believes that none of these claims which were outstanding as of
December 31, 1998 should have a material adverse impact on its financial
condition or results of operations.
Year 2000 Issue
- - ---------------
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on Reptron and its business partners
will not be fully determinable until the Year 2000 and thereafter. If
Reptron or entities with which Reptron conducts business do not properly
complete either the Year 2000 modifications, Reptron's revenues and
financial condition could be adversely impacted.
F-14
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
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
Incentive Stock Option Plan
- - ---------------------------
The Company'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. The
ISO Plan is intended to provide incentives to directors, officers, and other
key employees and to enhance the Company's ability to attract and retain
qualified employees. A total of 1,500,000 shares of Common Stock has been
reserved for issuance under the ISO Plan. 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, 1998:
Weighted
Range Weighted Average
of Average Remaining
Exercise Exercise Contractual
Shares Price Price Life
------- -------------- -------- -----------
(In Years)
Outstanding at January 1, 1996 191,800 $ 5.00 - 15.07 $ 5.74 8.0
Granted 22,000 $12.75 - 14.75 $14.30
Exercised (17,000) $ 5.00 - 9.13 $ 5.18
Forfeited (2,750) $ 5.00 - 9.13 $ 8.38
---------
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 (110,625) $ 5.00 - 14.75 $11.13
---------
Outstanding at December 31, 1997 1,190,339 $ 4.38 - 9.13 $ 5.95 8.6
=========
F-15
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
NOTE J - EMPLOYEE BENEFITS - Continued
On November 2, 1998 Reptron re-priced 898,139 stock options to $6.00, which
was above the market price of Reptron's Common stock on that date. Only
options outstanding at December 31, 1998 reflect the re-pricing.
The following table summarizes information about Common Stock options
outstanding at December 31, 1998:
Options Outstanding Options Exercisable
- - ----------------------------------------------------------- -----------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Contractual Life Price at 12/31/98 Price
- - --------------- ----------- ---------------- --------- ----------- --------
(In Years)
$ 4.38 - 5.00 75,200 5.0 $ 4.99 74,200 $ 4.99
$ 6.00 1,110,139 8.9 $ 6.00 131,438 $ 6.00
$ 9.13 5,000 5.8 $ 9.13 5,000 $ 9.13
--------- -------
$ 4.38 - 9.13 1,190,339 8.6 $ 5.95 210,638 $ 5.72
========= =======
At December 31, 1996 and 1997, exercisable shares totaled 122,038 and
148,450 at weighted average exercise prices of $5.33 and $5.73,
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:
1996 1997 1998
-------- -------- --------
(in thousands except per share data)
------------------------------------
Net earnings (loss):
As reported $7,653 $6,140 $(13,147)
Pro forma $7,604 $5,230 $(14,201)
Net earnings (loss) per common
share - basic:
As reported $ 1.26 $ 1.01 $ (2.15)
Pro forma $ 1.26 $ 0.87 $ (2.34)
Net earnings (loss) per common
share - diluted:
As reported $ 1.24 $ 0.98 $ (2.15)
Pro forma $ 1.23 $ 0.84 $ (2.34)
F-16
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
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 1996, 1997 and 1998, respectively, no
dividend yields for all years; expected volatility of 43.6%, 40.5% and
46.4%; risk free interest rates of 5.87%, 6.69% and 4.94%; and expected
lives of 3.0, 3.7 and 4.3 years. The weighted average fair value of options
granted in 1996, 1997 and 1998 are $5.07, $6.92 and $2.59, respectively.
Profit Sharing Plan
- - -------------------
Reptron previously maintained a discretionary Profit Sharing Plan (the
"Profit Sharing Plan"), for the benefit of its employees. The amount, if
any, of Reptron's previous contribution to the Profit Sharing Plan for any
year was determined by the Board of Directors at its sole discretion,
subject to certain limitations imposed by the Internal Revenue Code. In
1992, the Administrator of the Profit Sharing Plan approved termination of
the Profit Sharing Plan and the Internal Revenue Service has issued a
favorable determination. The Profit Sharing Plan completed its final
distributions to its participants during 1998.
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 $82,000, $101,000 and $105,000 to the Plan in
1996, 1997 and 1998, 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 $28,000 during the period immediately following the May, 1998
acquisition through December 31, 1998.
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, 1998, approximately $5.3 million has been
disbursed from this escrow account ($4.8 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.
F-17
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
NOTE K - ACQUISITIONS - Continued
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,
1996 1997 1998
(in thousands)
Net sales $335,513 $380,857 $335,484
======= ======= =======
Gross Profit $ 60,616 $ 63,943 $ 41,368
======= ======= =======
Operating income (loss) $ 20,063 $ 19,041 $(12,659)
======= ======= =======
Net earnings (loss) $ 7,435 $ 6,113 $(12,811)
======= ======= =======
Net earnings (loss) per share - basic $ 1.23 $ 1.01 $ (2.09)
======= ======= =======
Net earnings (loss) per share - diluted $ 1.21 $ 0.98 $ (2.09)
======= ======= =======
NOTE L - RELATED PARTY TRANSACTIONS
Reptron has a non-interest bearing loan receivable from the profit sharing
plan totaling approximately $279,000, $194,000 and $29,000 as of December
31, 1996, 1997 and 1998, respectively.
A director of Reptron serves as its general counsel and received
approximately $185,000, $205,000 and $374,000 for services rendered during,
1996 1997 and 1998, respectively.
Reptron leased an aircraft from a company controlled by the CEO of Reptron.
Rent paid for the use of the aircraft totaled approximately $240,000,
$200,000 and $160,000 in 1996, 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.
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 1996, 1997 and
1998, 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. Subsequent to the acquisition of Hibbing, 1998 rent
expense on these properties totaled $336,000.
F-18
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1998, 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 $58,650,000, based on the average of the bid and ask prices
of the notes on December 31, 1998. 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:
1996 1997 1998
------ -------- ----------
Numerator:
Net earnings (loss) (in thousands) $ 7,653 $ 6,140 $ (13,147)
========= ======== =========
Denominator:
For basic earnings (loss) per share -
Weighted average shares 6,058,889 6,077,084 6,118,023
Effect of dilutive securities:
Employee stock options 120,569 169,956 -
--------- --------- ---------
For diluted earnings (loss) per share 6,179,458 6,247,040 6,118,023
========= ========= =========
Net earnings (loss) per common share -
basic $ 1.26 $ 1.01 $ (2.15)
========= ========= =========
Net earnings per common share -
diluted $ 1.24 $ .98 $ (2.15)
========= ========= =========
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, 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 1997 or 1998 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, 1996, 1997 and 1998
NOTE O - FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company has two industry segments: Distribution and Contract
Manufacturing. 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. Contract Manufacturing manufactures electronic products
according to customer design for customers in various industries, including
telecommunications, banking and medical services.
The following table shows net sales, operating income, identifiable assets,
depreciation and amortization expense and capital expenditures as of and for
the years 1996, 1997 and 1998.
Year Ended December 31,
----------------------------------
1996 1997 1998
-------- -------- --------
(in thousands)
Net Sales
Unaffiliated customers
Distribution $168,279 $187,267 $156,507
Contract Manufacturing 100,658 116,644 146,282
------- ------- -------
268,937 303,911 302,789
Intersegment sales 13,328 9,187 8,046
------- ------- -------
$282,265 $313,098 $310,835
======= ======= =======
Operating income (loss)
Distribution $ 7,035 $ 6,053 $ (11,833)
Contract Manufacturing 9,791 9,948 (1,445)
------- ------- -------
$ 16,826 $ 16,001 $ (13,278)
======= ======= =======
Identifiable Assets
Distribution $ 76,324 $ 94,864 $ 87,386
Contract Manufacturing 44,010 51,180 95,389
------- ------- -------
120,334 146,044 182,775
Corporate 18,298 76,470 27,309
------- ------- -------
$138,632 $222,514 $210,084
======= ======= =======
Capital Expenditures (includes equipment
under capitalized leases)
Distribution $ 1,516 $ 1,392 $ 613
Contract Manufacturing 5,033 6,314 3,085
------- ------- -------
6,549 7,706 3,698
Corporate 6,149 1,115 -
------- ------- -------
$ 12,698 $ 8,821 $ 3,698
======= ======= =======
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, 1996, 1997 and 1998
NOTE P - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for
the quarterly periods of 1997 and 1998, (See Note L) (in thousands
except per share data):
Three Months Ended
-----------------------------------------------------------
1997 March 31 June 30 September 30 December 31
---- ------------ ------------ ------------ -----------
Net sales $76,251 $79,102 $74,278 $74,280
Gross profit 14,072 14,602 13,002 12,481
Operating income 4,822 5,216 3,844 2,119
Net earnings 2,156 2,382 1,439 163
Net earnings per common share
- basic $ .36 $ .39 $ .24 $ .03
Net earnings per common share
- diluted $ .35 $ .38 $ .23 $ .03
1998
----
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)
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 5, 1999,
which is included in this Annual Report on SEC Form 10-K for the year ended
December 31, 1998, 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 5, 1999
F-22
SCHEDULE II
REPTRON ELECTRONICS, INC.
Valuation and Qualifying Accounts
For the Years Ended December 31, 1996, December 31, 1997 and December 31,
1998
(in thousands)
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, 1996 $180 $ 193 $ (23) $350
Year Ended December 31, 1997 $350 $ 273 $ (273) $350
Year Ended December 31, 1998 $350 $1,335 $(1,202) $483
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. Each management
contract or compensatory plan or arrangement required to be
filed as an exhibit hereto is listed in Exhibits Nos. 10.1
of Item 14(c), below.
(b) No reports on Form 8-K have been filed during the period
ended December 31, 1998, by the Company.
(c) List of Exhibits:
Exhibit No. Description
- - ----------- -----------
3.1 Articles of Incorporation*
3.2 Bylaws*
4.1 Specimen Certificate for the Common Stock of Registrant *
4.2 Form of Indenture **
4.3 Form of Convertible Subordinated Note (included in Exhibit 4.2)
10.1 Employment Agreement between Reptron and Michael L. Musto ***
10.2 Distributor Agreement between Rise Technology Company and Reptron,
dated August 1, 1998.
10.3 Distributor Agreement between Samsung Semiconductor, Inc. and Reptron,
dated June 1, 1998.
10.4 Revolving Credit and Security Agreement between PNC Bank, National
Association and Reptron, dated January 8, 1999.
21.0 Subsidiaries of the Registrant
23.1 Consent of Grant Thornton, LLP
24.1 Power of Attorney relating to subsequent amendments (included on the
signature page of this report).
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 Registration Statement on Form
S-3, dated July 18, 1997, Registration No. 333-31605 and incorporated
Herein by reference.
*** Filed with the Company's Form 10-Q for the period ended
September 30, 1998.
(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.
21
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, 1999.
REPTRON ELECTRONICS, INC.
By:/s/ Michael L. Musto
----------------------------
Michael L. Musto, President
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. Each person whose
signature appears below constitutes and appoints Paul J. Plante and Michael
Branca and each of them individually, his true and lawful attorney-in-fact
and agent, with full power of substitution and revocation, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this report and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or either of them, may lawfully do
or cause to be done by virtue hereof.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Michael L. Musto
- - ---------------------------
Michael L. Musto President, Chief Executive
Officer, and Director
(Principal Executive Officer) March 30, 1999
/s/ Paul J. Plante
- - ----------------------------
Paul J. Plante Chief Operating Officer and
Director March 30, 1999
/s/ M. Branca
- - ---------------------------
Michael Branca Chief Financial Officer (Principal
Financial and Accounting Officer) March 30, 1999
/s/ Leigh A. Adams
- - ----------------------------
Leigh A. Adams Secretary and Director March 30, 1999
/s/ William L. Elson
- - -----------------------------
William L. Elson Director March 30, 1999
/s/ J. Mitcham
- - -----------------------------
John J. Mitcham Director March 30, 1999
22
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
Annual Reports to the Shareholders and proxy materials will be furnished to
the shareholders subsequent to the filing of this annual report on Form 10-
K. The registrant will furnish copies of such materials to the Commission
when they are sent to the shareholders.
23
EXHIBIT 10.2
DISTRIBUTOR AGREEMENT
by and between
RISE TECHNOLOGY COMPANY
and
REPTRON ELECTRONICS, INC.
dated
August 1, 1998
DISTRIBUTOR AGREEMENT
Contents
ARTICLES
Article 1. . CONSTRUCTION AND DEFINITIONS Article 2 . APPOINTMENT
Article 3 . SALES, SERVICE, SUPPORT AND TRAINING
Article 4 . TRADEMARKS/TRADE NAMES
Article 5 . REPORTS, RECORDS, INSPECTIONS AND FORECASTS
Article 6 . PURCHASE PROCEDURES AND ORDERS
Article 7 . PRICING
Article 8 . PAYMENT
Article 9 . REJECTION/RETURN
Article 10 .PRODUCT WARRANTIES
Article 11 .WARRANTIES, INDEMNITIES AND DISCLAIMERS
Article 12 LIMITATION OF LIABILITY
Article 13 CONFIDENTIALITY AND PROPRIETARY RIGHTS
Article 14 TERM AND TERMINATION
Article I5 MISCELLANEOUS PROVISIONS
EXHTBITS
Exhibit A . . Products
Exhibit B . . Territory
Exhibit C . . Current Rise Price List
Exhibit D . . Example of Point of Sale Report
Exhibit E .....Example of Inventory Report
Exhibit F . . Rise Product Limited Warranty
Exhibit G . . . Trademarks
DISTRIBUTOR AGREEMENT
This Agreement ("Agreement"), is entered into effective as of the 1st day
of August, 1998, (the "Effective Date") by and between Rise Technology
Company, a California corporation having offices 2451 Mission College
Blvd., Santa Clara, CA 95054, USA ("Rise"), and Reptron Electronics, Inc.,
a Florida corporation, having offices at 14401 McCormick Drive, Tampa, F1
33626-3021 ("Distributor") (each, a "Party"; together, the "Parties").
WITNESSETH:
WHEREAS, Rise is a fabless semiconductor company in the business of
designing and selling
microprocessors;
and
WHEREAS, Distributor wishes to distribute certain Rise products on the
terms and conditions set forth herein;
and
WHEREAS, Rise desires to appoint Distributor to distribute certain Rise
products on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the Parties hereto hereby agree as follows:
ARTICLE 1. CONSTRUCTION AND DEFINITIONS
Section 1.1 Construction
(a) All references in this Agreement to "Articles," "Sections" and
"Exhibits" refer to the articles, sections and exhibits of this
Agreement.
(b) The words "hereof," "herein" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
subdivision contained in this Agreement.
(c) Tile words "include" and "include - " when used herein are not
exclusive and mean "include, without limitation" and (1)
''including, without limitation," respectively.
Section 1.2 Definitions
As used herein:
(a) "Acknowledgment'` shall mean the written acceptance by Rise, wider
section 6.2 (a), of a Purchase Order, Change Order, or Cancellation
Order.
(b) "Cancellation Order" shall mean the written instructions from
Distributor that request a cancellation of an Order.
(c) "Change Order" shall mean the written instructions from Distributor
that request a change to an Order.
(d) "Confidential Information" has the meaning set forth in Section 13.1
(e) "CP Pricing" shall mean the one of the methods for pricing
Products to Distributor specified under Section 7.2.
(f) "Credit" shall mean a credit against payment for future
purchases issued by Rise to Distributor in accordance with
Section 7.1 1.
(g) "Current Shipment Date" shall mean the date specified in the
most recent Acknowledgment.
(h) "Customers" shall mean those companies or individuals within
the Territory that purchase Products from Distributor.
(i) "Documentation" shall mean manuals, data sheets, specifications,
drawings, catalogs, bulletins, price lists, brochures, marketing and
technical documents, promotional
materials, publications, photographs and any other documents provided by
Rise to Distributor hereunder.
(j) "DPPM" shall mean the Distribution Policy and Procedures Manual
supplied by Rise, which Rise may change at any time in its sole
discretion.
(k) "Inventory Report" shall mean a report, an example of which is set
forth in Exhibit E, showing Distributor's inventory of Products at the
end of each month by part number, quantity, location, purchase price,
purchase date, Distributor Purchase Order number, and Rise invoice
number.
(l)"Meet Competition" or "Meeting Competition" shall mean the
circumstances in accordance with Section 7.8 under which Distributor will
reduce the price at which it otherwise sells Products to its Customers in
order to meet a competitive bid.
(m) "Obligated Shipment" has the meaning set forth in Section 6.3(b).
(n) "Order" has the meaning set forth in Section 6.2 (a).
(o) "Original Shipment Date" shall mean the date specified h1 the first
Acknowledgment.
(p) "Point-of-Sale Report" or "POS Report" shall mean a report, an example
of which is set forth set forth in Exhibit D, containing the
information identified therein and any other information pertaining to
Distributor's resale of Products to Customers under this Agreement as
Rise may reasonably request.
(q)"Price" or "Pr " shall mean the prices to be paid by Distributor to
Rise for Products as set forth in Section 7.2.
(r) "Price Protection" shall mean the reduction h1 the Price to which
Distributor may be entitled, in accordance with Section 7.7.
(s) "Product" or "Products" shall mean the Rise products listed in Exhibit
A, as may be amended from time to time by Rise in Rise's sole
discretion
(t) "Purchase Order" shall have the meaning set forth h1 Section 6.1(a).
(u) "Quote" shall mean a Price quote issued by Rise to Distributor in
accordance with Section 7.2(f).
Distributor Agreement page 1 of 11 07/30/98
(v) "Report Date" has the meaning set forth in Section 5.1.
(w) Shipment" shall mean that portion of an Order containing all scheduled
shipments that fall inside or outside of a specified time frame.
(x) "Shipment Date" shall mean the date the Shipment is scheduled to be
shipped from Rise to Distributor.
(y) "SP Pricing" shall mean the one of the methods for pricing Products to
Distributor specified under Section 7.2.
(z) "Territory" shall mean the territory or territories identified in
Exhibit B.
ARTICLE 2. APPOINTMENT
Section 2.1 Grant
Subject to the terms and conditions of this Agreement, Rise hereby
appoints Distributor, and Distributor hereby accepts such appointment, as
a non-exclusive distributor to distribute Products directly to Customers
b1 the Territory.
Section 2.2 Reservations
Rise reserves the right and power to, directly and indirectly, distribute,
market, advertise, promote, solicit, offer to sell, support, sub-license,
and perform any other acts related to the Products in the Territory and
anywhere else.
Section 2.3 Sub-distributors
Distributor shall not appoint sub-distributors or any independent sales
representatives without the prior written consent of Rise, which consent
shall be in Rise's sole discretion.
Section 2.4 Distributor Duties
Distributor shall use all reasonable means and diligence to distribute
Products and to otherwise perform its duties under this Agreement,
including:
(a) Distributing, marketing, advertising, promoting, soliciting, selling,
offering to sell, and supporting Products to realize the maximum sales
volume of Products in the Territory;
(b) Sales, service and support in accordance with Article 3;
(c) Participating and ensuring that its personnel participates in
appropriate training in accordance with Section 3.4;
(d) Purchasing and maintaining an inventory of Products sufficient to meet
efficiently and prompt!' the needs of Customers in the Territory; and
(e) Providing reports, records and forecasts to, and authorizing
inspections by, Rise in accordance with Article 5.
(f) Working harmoniously with Rise's sales personnel and authorized sales
representatives.
Section 2.5 Rise Duties
Rise will reasonably assist Distributor in performing its duties hereunder
as follows:
(a) Provide training and assistance as set forth in Section 3.4;
(b) Provide Documentation, other material, and technical and sales support
and assistance as set forth in Article 3.
Section 2.6 Distributor Remuneration
'The difference between the Price for Products paid to Rise by Distributor
and the price for such Products paid to Distributor by its Customers shall
be Distributor's sole remuneration under this Agreement.
Section 2.7 Costs and Expenses
Except as otherwise expressly provided herein, Distributor shall solely
bear all costs and expenses of performing its obligations hereunder,
including all taxes, duties, and other costs and expenses.
Rise shall bear the costs of making available Documentation under
Section 3.1 (b) and training under Section 3.4. Without limiting the
foregoing, Rise shall not be liable for any costs or expenses incurred
without its prior written authorization.
ARTICLE 3. SALES, SERVICE, SUPPORT AND TRAINING
Section 3.1 Sales and Sales Support
(a) Distributor shall maintain resources, facilities, and a competent
sales force as necessary to meet its distribution and related
obligations under this Agreement. Upon Rise's request, Distributor
shall provide information related to such resources, facilities, and
sales force to Rise.
(b) Rise will make available to Distributor reasonable quantities of
Documentation and such technical and sales support and assistance as
Rise, h1 its sole discretion, deems necessary and makes generally
available to similarly situated distributors.
Section 3.2 Product Support
Distributor shall provide prompt technical support to its Customers,
including:
(a) Maintaining trained and competent technical and engineering personnel
to answer Customers' questions regarding Products; and
(b) Fully cooperating with Rise should Rise furnish any such support.
Section 3.3 Service
Distributor shall provide prompt and effective service for Products h the
Territory. Such service shall include:
(a) Assisting Customers in returning to Distributor defective Products
covered by Rise's warranty;
(b) Reporting all problems to Rise in writing;
(c) Providing sufficient information to enable Rise to duplicate reported
Product problems; and
(d) Fully cooperating with any Rise service and any Customer returns as
requested by Rise.
Section 3.4 Training
As requested by Rise, Distributor shall participate and shall ensure that
its personnel and any other individuals involved h1 meeting Distributor's
obligations hereunder participate h1 any training programs offered by
Rise. Rise shall provide such training as Rise deems necessary to assist
Distributor h1 carrying out its duties under this Agreement.
ARTICLE 4. TRADEMARKS/TRADE NAMES
Section 4.1 Use of Rise Trademarks
(a) Rise hereby grants to Distributor a non-exclusive right to use the
Rise trade names and trademarks set forth in Exhibit G ("Rise's
Trademarks") during the tend of this Agreement for the purposes of
identifying itself to the public as an authorized distributor of the
Products and for distributing, marketing, advertising, promoting,
soliciting, selling, offering to sell, supporting and servicing of any
Products purchased hereunder. Distributor shall submit samples of each
use of Rise's trade names or trademarks to Rise for pre-approval; and
Distributor shall not use any trade name of trademark of Rise without
such pre-approval in writing. Unless they are exact copies of those
used by Rise, all representations of Rise's Trademarks that Distributor
intends to use shall first be submitted to Rise for approval of design,
color, placement and other details. Without limiting the foregoing, if
any of Rise's Trademarks are to be
Distributor Agreement page 2 of 11 07/30/98
used in conjunction with another trademark, then Rise's mark shall be
presented equally legibly, equally prominently, but nevertheless separated
from the other so that each appears to be a mark in its own right,
distinct from the other mark.
(c) Distributor shall obtain no rights with respect to any of Rise's
Trademarks, other than the rights set forth herein. Distributor hereby
assigns to Rise any such right, title and interest exceeding the rights
granted herein that Distributor may obtain in Rise's Trademarks and the
associated goodwill. All goodwill arising out of any uses of Rise's
Trademarks will inure solely to the benefit of Rise.
(d) If, during the term of this Agreement, Distributor challenges or
assists others to challenge Rise's Trademarks, or the registration
thereof, this Agreement shall terminate automatically in the minimum
time allowed by law.
(e) Distributor shall not attempt to register any trademarks, marks or
trade names confusingly similar to those of Rise in any country.
(f) Distributor shall fully comply with all guidelines, if any,
communicated by Rise to Distributor concerning the use of Rise's
Trademarks.
Section 4.2 Restrictions
(a) Distributor shall not alter or remove any Rise's Trademarks applied to
the Products or the Documentation provided by Rise to Distributor.
(b) Except as expressly set forth in this Article 4, Distributor shall
have no right in, or to use, any trademark, trade name, logo, service
mark or other mark, identification, or name of Rise.
Section 4.3 Use of Distributor Trademarks
Rise may state publicly that Distributor is a distributor of Rise's
products, and Distributor hereby grants to Rise the right to reproduce
Distributor's logos, trademarks, and trade names in connection with its
rights under this Section 4.3.
ARTICLE 5. REPORTS, RECORDS, INSPECTIONS AND FORECASTS
Section 5.1 Point of Sale Reports
Within fifteen (15) business days after the last day of each calendar
month (each such date a "Report Date"), Distributor shall deliver to
Rise a completed Point-of-Sale Report containing the Customer's
name and address, ship-to address, bill-to address, ship date,
quantity, Rise part number, and Customer price, an example of
which is in Exhibit D.
Section 5.2 Inventory Reports
On each Report Date, Distributor shall deliver to Rise a completed
Inventory Report, an example of which is set forth in Exhibit E, showing
Distributor's inventory of Products at the end of the prior month by Rise
part number, quantity, location, purchase price, purchase date,
Distributor PO number, and Rise invoice number.
Section 5.3 Inventory Inspection
Distributor shall make its inventory available for Rise's inspection as
Rise may from time to time request upon reasonable notice to Distributor.
Section 5.4 Records and Reports
Distributor shall maintain records of purchases, resales, returns,
backlogs, inventory and any other information required to be
reported to Rise hereunder. Distributor shall permit Rise's inspection
of such records (including computer database records) as Rise may from
time to time request. Distributor shall supply to Rise any relevant
information including information pertaining to
Distributor's purchases, resale, returns, backlogs, or inventories of
Products, as Rise may request. Distributor shall maintain such records for
five (5) years from the date of the transaction to which the records
relate.
Section 5.5 Forecasts
During the third week of each month, Distributor shall provide Rise with a
written forecast of Distributor's anticipated sales, by potential
Customer, Product part number, volume, and intended Shipment Date for the
twelve (12) month period beginning on the first day of the next month.
Such forecasts shall constitute good faith, non-binding estimates by
Distributor. Distributor shall provide weekly updates to such forecasts if
requested by Rise.
ARTICLE 6. PURCHASE PROCEDURES AND ORDERS
Section 6.1 Purchase Orders
(a) Distributor shall initiate ail orders for Products by written
instructions sent to Rise via fax, mail, electronic mail or any written
form ("Purchase Order"). Rise will not be obligated to accept verbal
orders.
(b) All Purchase Orders shall specify the Products ordered by part number,
requested quantities, requested delivery date, Prices, and any shipping
instructions.
(c) All Purchase Orders are subject to Rise's then current lead times that
shall be communicated by Rise to Distributor upon Distributor's
request. Rise may change its lead times in its sole discretion.
(d) The total for all items on each Purchase Order must be no less than
ten thousand dollars ($10,000), and the total for each Product line
item on each Purchase Order must be no less than five thousand dollars
($5,000).
(e) All Purchase Orders shall be governed by and incorporate the terms of
this Agreement. Any terms set forth in a Purchase Order that purport to
limit, add to, vary, alter, supplement, or modify the terms of this
Agreement are hereby rejected by Rise and shall be of no force or effect.
Section 6.2 Acknowledgment
(a) Purchase Orders, Change Orders, and Cancellation Orders are subject to
acceptance by Rise. Only acceptance in the form of a written
acknowledgment (''Acknowledgment'') from Rise shall be binding on Rise.
Rise shall have no obligation to Distributor or any third party with
respect to Purchase Orders, Change Orders, or Cancellation Orders for
which Rise does not issue an Acknowledgment. Partial acceptance of a
Purchase Order, Change Order, or Cancellation Order shall not
constitute acceptance of the entire Purchase Order, Change Order, or
Cancellation Order. Purchase Orders, Change Orders, or Cancellation
Orders for which Rise does issue an Acknowledgment ("Orders") shall be
binding upon Rise only to the extent specified in the Acknowledgment.
(b) An Acknowledgment shall either: (i) confirm Distributor's requested
shipment and delivery dates; or (ii) specify alternative dates.
Shipping dates set forth h1 an Acknowledgment are estimates only;
Distributor acknowledges that such dates may change due to
unpredictable market trends, and Rise, in its discretion, may make
shipments and deliveries within a reasonable time of such dates. An
Acknowledgment may set, add to or vary payment and credit terms with
respect to each Purchase Order.
(c) Provided Distributor does not send to Rise a written objection to
Rise's Acknowledgment within ten (10) days of the date of such
Acknowledgment, Distributor's Purchase Order, to the extent of, and as may
be amended or supplemented by, such
Distributor Agreement page ~ of 11 07/30/98
Acknowledgment, shall constitute a binding obligation on Distributor to
purchase Products in accordance with the terms
thereof and this Agreement.
Section 6.3 Changes and Cancellations
(a) General. Distributor must issue written instructions ("Change Order"
or "Cancellation Order") to initiate all requests to change or cancel
an Order. Orders will not be changed or canceled without an
Acknowledgment of the Change Order or Cancellation Order. Changes or
cancellations not in accordance with this Section 6.3 may be subject to
charges for costs or losses incurred by Rise.
(b) Obligated Shipment. Whenever the present calendar date falls within
the time period delimited by thirty (30) days prior to the Current
Shipment Date and the Current Shipment Date, that Shipment becomes an
"Obligated Shipment."
(c) Cancellations. Shipments (but not Obligated Shipments) may be canceled
at any time provided that the Cancellation Order is received by Rise at
least thirty (30) days prior to the Current Shipment Date. Obligated
Shipments are non-cancelable regardless of any cancellation or
reschedule requests.
(d) Reschedules. Shipments (but not Obligated Shipments) may be delayed at
any time at Distributor's discretion. Obligated Shipments may be
delayed up to 30 days after the Original Shipment Date, or after the
Current Shipment Date at the time the Shipment becomes an Obligated
Shipment (whichever is later), provided that the Change Order is
received by Rise at least seven (7) days prior to the Current Shipment
Date. Shipments may be accelerated from the Current Shipment Date only
at Rise's discretion.
(e) Quantity changes. A Change Order that requests a quantity change will
be treated as a reschedule, a Cancellation Order, a new Purchase Order or
any combination of these, as the case dictates.
(f) Product Changes. A Change Order that requests a change in Product will
be treated as a Cancellation Order and new Purchase Order. For the
purpose of this Section 6.3, a change in the Rise part number used for
order entry will be considered a change in Product.
(g) Administrative Changes. Changes in the bill-to, ship-to, shipping
method, etc. may be made provided that the Change Order is received by
Rise at least seven (7) days prior to the Current Shipment Date, or
such longer time as is reasonably required by Rise to affect the
change.
(h) Non-standard goods and services. Sections 6.3 (b) - (g) applies to
Orders for standard goods shipped to Distributor and to other Customers
according to Rise's standard methods and procedures. Orders for
non-standard goods, or any additional services, may be changed or
canceled provided Distributor gives written notice longer than the
lead-time quoted for those goods or services.
Section 6.4 Shipment and Risk of Loss
(a) Products delivered pursuant to this Agreement shall be packed for
shipment in Rise's standard shipping cartons, marked for shipment to
the destination specified in Distributor's Purchase Order, and
delivered to the carrier agent FOB Rise's shipping location, at whicl1
time risk of loss shall pass to Distributor and Rise's delivery
obligations are deemed fulfilled.
(b) The thee of delivery shall be the time at which the Products are ready
for pickup by the carrier.
(c) Rise shall select the carrier and shipping method unless Distributor's
Purchase Order specifies a carrier and shipping method from Rise's
approved carrier list specified in the DPPM, as may be amended by Rise
from time to time.
(d) Distributor shall pay all freight, insurance, and other shipping
expenses, as well as expenses for any special packing requested by
Distributor and provided by Rise.
(e) All shipments and charges set forth on any invoice will be deemed
correct unless Rise receives from Distributor, no later than fifteen
(15) days after the date of shipment, a written notice specifying the
shipment, the Purchase Order number, and the exact nature of the
discrepancy between the order and the shipment in number or type of
Products shipped, or freight
Section 6.5 Product Changes (30 Days notice)
Rise may, from time to time in its sole discretion, without incurring any
liability to Distributor with respect to any previously placed or accepted
Purchase Order: (i) discontinue or limit its production of any Product;
(ii) allocate, terminate or limit deliveries (which are contingent upon
market trends) of any Product h1 thee of shortage; (iii) modify the design
of, specifications for, or construction of any Product, provided the
modification has equivalent fond, fit and function; and (iv) Upon
reasonable notice to Distributor, change its distribution policies not
inconsistent with the terms of this Agreement. Rise shall amend Rise's
Product List following such changes and send Distributor a copy of such
amended Product List.
ARTICLE 7. PRICING
Section 7.1 Price to Customer
Notwithstanding anything to the contrary set forth in this Article 7,
Distributor solely shall determine the actual prices for Products sold to
its Customers.
Section 7.2 Distributor Pricing
(a) Unless otherwise provided, all Prices are in U. S. dollars, FOB Rise's
shipping point, include packaging for domestic shipment, and are
exclusive of any other amounts including without limitation fees for
export, special packaging, transportation and insurance. If not
otherwise arranged by Distributor, charges for transportation, special
packaging, etc. will be added to Distributor's invoice.
(b) All Prices are for standard goods and services and are subject to
adjustment for any specification, teens, procedures or other requests
of Distributor that are non-standard to Rise.
(c) Distributor shall designate on each Purchase Order whether it wishes
to purchase the Products covered by such Purchase Order under SP
Pricing or under CP Pricing.
(d) The purchase Price payable to Rise for Products under SP Pricing shall
be as set forth under the heading 'Distributor Price' in Rise's
then-current published price list ("Price List"), or as otherwise
indicated on a Rise Quote that specifies SP Pricing. Exhibit C is
Rise's current Price List as of the Effective Date. The Price List may
be changed at any time by Rise with 30 day notice.
(e) The purchase Price payable to Rise for Products under CP Pricing shall
be as indicated on a Rise Quote that specifies CP Pricing.
(f) Offers to sell Product under certain terms ("Quotes") shall only be
valid if made by Rise in writing. Each Quote shall specify the Price
and whether it is calculated using SP Pricing or CP Pricing, the part
number, and the quantity of the Products to which such Quote applies.
Quotes may also specify availability of the Products to which such
Quote applies. If availability is not specified, or if availability is
(explicitly or implicitly) specified as a lead-time, then the Quote
shall expire automatically thirty (30) days from the date of the Quote.
If availability is specified as a fixed calendar date, then the Quote
Distributor Agreement page 4 Of 11 07/30/98
shall expire automatically three (3) days from the date of the Quote.
Section 7.3 Price Changes
Rise may amend its Price List and, except as provided herein, otherwise
change or adjust the Price for Products at any time without notice. A
change to the Price List may result in either an increase in the Price
("Price Increase") or a reduction in the Price ("Price Decrease") for the
relevant Product. The Price List or Quote shall state the effective date
of any Price change. Prices shall apply to all purchases under Purchase
Orders received at any time after the effective date of any Price change.
Section 7.4 Prices Increases
Except for Obligated Shipments, Price Increases shall apply to all
Shipments made after the effective date of such Price Increase.
(with 30 day notice)
Section 7.5 Rights Under CP Pricing
If Distributor selects CP Pricing, then between the time of the Order and
the thee Products are shipped by Rise to Distributor, Distributor shall be
entitled to Price Protection under section 7.7 (a).
Section 7.6 Rights Under SP Pricing
If Distributor selects SP Pricing, then between the time of the Order and
the time Products are shipped by Rise to Distributor, Distributor shall be
entitled to Price Protection under section 7.7 (a) and, during the time
Products are held in Distributor's inventory, shall be entitled to:
1. Price Protection under Section 7.7 (b).
2. Special Pricing Authorization, in accordance with the Ship and Debit
Program described in Section 7.8, if necessary to Meet Competition.
3. Stock Rotation privileges in accordance with Section 7.9. 4.
Obsolete Product Protection in accordance with Section 7.10.
Section 7.7 Price Protection
(a) For all Products, if the effective date of a Price Decrease is between
the time of the Order and the time Products are shipped by Rise to
Distributor, Rise shall adjust the Price paid by Distributor by reducing
Distributor's backlog in accordance with the Price Decrease.
(b) For Products that have been purchased by Distributor under SP Pricing,
if there is a Price Decrease during the time Products are held in
Distributor's inventory, Rise shall allow a Credit for those Products in
accordance with Section 7.11.
Section 7.8 Ship and Debit Program
Meeting Competition. For Products that have been purchased by Distributor
under SP Pricing and are currently held in Distributor's inventory, if
Distributor in good faith believes with respect to a particular sale of
Products to a Customer that:
1. Distributor must reduce the price to such Customer compared to the
price at which Distributor otherwise sells Products in order to meet an
equally low price of a competitor; and
2. Distributor could not reduce such price to its Customer and maintain a
reasonable profit on such sale, then Distributor shall be entitled to
request a Special Pricing Authorization ("SPA") in which Rise reduces
the effective Price of such Products to Distributor h accordance with
the following procedure.
In order to obtain a SPA to Meet Competition, Distributor shall complete
and submit to Rise a SPA Request, the form of which is specified in the
DPPM. Upon receipt of the SPA Request, and any other relevant information
that Rise may reasonably request, Rise shall evaluate the request. If Rise
is prepared to reduce the effective Price to allow Distributor to Meet
Competition for the specific Customer situation, then Rise will issue a
SPA that may be used in connection with Distributor's request for Credit.
The amount of the Credit, if any, shall be in Rise's sole discretion.
Within ten (10) days after receiving the SPA (or within such other time as
specified in the SPA), Distributor shall sell such Products to such
Customer at the price specified in the SPA and request a Credit from Rise
in accordance with Section 7.11.
Section 7.9 Stock Rotation Program
For Products that have been purchased by Distributor under SP Pricing and
are currently held in Distributor's inventory, Distributor will be allowed
to replace a portion of such Product ("Stock Rotation") if Distributor
wishes to replace slow moving Products. For the purpose of this section
7.9, "slow moving Products" are defined as Products that have date codes
at least six (6) months old but not more than eighteen (18) months old and
are not Obsolete Products. Distributor may be required to demonstrate to
Rise that Distributor's warehouse reasonably complies with FIFO procedures
to be eligible for this program. In order to participate in the Stock
Rotation program, Distributor shall comply with the following:
(a) With Rise's approval, which approval shall not be unreasonably
withheld, every six (6) months, or longer, Distributor may make a
return of slow moving Products in exchange for other Products ordered
simultaneously with the return.
(b) Except for Products purchased under Distributor's first Purchase Order
for each Product, the maximum value of all slow moving Products
returned during each Stock Rotation shall be limited to five percent
(5%) of Distributor's net purchases from Rise under SP Pricing during
the preceding six (6) month, or longer, period since the last stock
rotation. There shall be no limit for Products resumed during any Stock
Rotation for Products purchased under Distributor's first Purchase
Order for each Product.
(c) To make a return, Distributor must request a RMA by submitting a
completed Stock Rotation request, the form of which is to be specified
in the DPPM. At the same thee, Distributor must place a Purchase Order
with Rise for equivalent value with a notation that the Purchase Order
is associated with the Stock Rotation RMA.
(d) Upon receipt of the Stock Rotation RMA request and the associated
Purchase Order, and any other relevant information that Rise may
reasonably request, Rise shall evaluate the request. If all the
conditions of this section 7.9 have been met, Rise shall issue the RMA
number and Acknowledge the associated Purchase Order.
(e) Upon receiving the RMA number, Distributor shall return the Products
to Rise according to Section 9.3.
Section 7.10 Obsolete Product Protection
For Products that have been purchased by Distributor under SP Pricing and
are currently held in Distributor's inventory, Distributor will be allowed
to return all such Products that are discontinued by Rise. To participate
in this program, Distributor must comply with the following:
(a) Rise shall give at least thirty (30) days notification to Distributor
that Products are to be discontinued.
(b) Within thirty (30) days of the date Products are discontinued,
Distributor shall submit an RMA request to Rise for all discontinued
Products purchased under SP Pricing that are still held in
Distributor's inventory.
(c) Upon receipt of the RMA Request, Rise shall evaluate the request,
Distributor's records and Rise's records to ascertain
Distributor Agreement page 5 Of 11 07/30/98
the validity of the request. If all the conditions of this section 7.10
are met, Rise will issue the RMA number.
(d) Upon receiving the RMA number, Distributor shall return the Products
to Rise according to Section 9.3.
Section 7.11 Credits
Rise may from time to time grant Credits to Distributor to be used against
Distributor's account receivables.
(a) Credit for Price Decreases. If a Price Decrease occurs during the time
that Products purchased under SP Pricing are in Distributor's
inventory, Distributor shall be entitled to a Credit for those Products
provided that Distributor complies with the following:
1. Within thirty (30) days of the effective date of the Price Decrease,
Rise may request an inspection of Distributor's inventory.
2. Distributor shall facilitate the inspection by freezing its inventory
of Products and making all pertinent records and facilities available for
inspection by Rise.
3. Distributor shall supply Rise with an inventory report that includes
all Products, including those purchased under SP Pricing and those
purchased under CP Pricing, held in inventory at the time of
inspection.
4. Distributor shall permit Rise to inspect Distributor's inventory and
records to verify the amount of the Credit. Rise shall have no
obligation to issue any such Credit until Rise so verifies the amount.
5. Distributor shall submit its form of a Credit request to Rise and shall
coordinate the application of any Credit given to the invoice specified
by Rise.
6. The amount of any Credit given shall be as determined by Rise in
Subsection 7.11 (a) 4.
(b) Credit for SPA. If it is necessary to Meet Competition as defined in
Section 7.8, Distributor shall be entitled to a Credit provided
Distributor complies with all of section 7.8 and completes the
following. Within thirty (30) days of shipping Products under the SPA,
Distributor must submit to Rise a copy of the SPA Request, a copy of
the SPA issued by Rise, and a copy of Distributor's invoice to
Customer. If approved, the amount of the Credit in this instance shall
be that specified in the SPA.
(c) Credit for RMA. If Distributor properly returns Products to Rise under
the RMA procedures authorized under Sections 7.9, 7.10, 9.1 or 9.4,
Distributor shed be eligible for a Credit to the extent provided under
those Sections. If approved, the amount of the Credit in these
instances shall be as specified hi the RMA.
(d) Credit Adjustments. Any Credit granted by Rise shall be adjusted to
reflect any prior Credit(s) given for the same Products.
(e) Credit Authorization. The granting of a Credit by Rise, for any
reason, shall not be effective until Rise issues a written Credit
authorization to Distributor. The Credit authorization shall entitle
Distributor to a reduction in amounts otherwise payable to Rise and no
Credit shall entitle Distributor to any payment from Rise. Distributor
must make the payment reductions only on the particular invoice(s)
specified in the Credit authorization.
(f) Separate Records. Distributor shall maintain separate and adequate
accounts payable records for Products purchased under SP Pricing and
under CP Pricing to facilitate the coordination of any Credit(s) that
may occur under this Section 7.1 1.
ARTICLE 8. PAYMENT
Section 8.1 Currency, Miscellaneous Charges. Remittance
Payment shall be in U.S. Dollars. Payment shall be in an amount equal to
the Price for the Products (as set forth in the Acknowledgment) plus all
applicable taxes, shipping charges, and other charges to be borne by
Distributor as provided in this Agreement. Distributor shall pay all
exchange, interest, banking, and collection charges. Payment shall be made
directly to Rise at the address set forth in Section 15.7, or at such
other address as may be designated by Rise in writing.
Section 8.2 Payment Terms with Credit
To be eligible for credit, Distributor must apply for credit from Rise and
provide Rise with an audited financial report. Rise shall review
Distributor's financial conditions and, if, in Rise's sole judgment,
Distributor is creditworthy, approve Distributor's credit application.
Rise may revoke such approval at any time if there is a change in
Distributor's financial condition. The payment terms in this Section 8.2
will apply only during the time that Distributor has an approved credit
application.
(a) Rise shall invoice Distributor upon shipment of each Order. If all
Products in an Order are not shipped at the same time, Rise shall
invoice Distributor at the time of shipment for the Products that are
shipped.
(b) Unless otherwise specified h1 an Acknowledgment, Payment for all
Products purchased hereunder by Distributor shall be due net thirty
(30) days from date of Rise's invoice.
(c) A service charge of one and one half percent (1.5%) per month, or, if
less, the maximum rate allowed by law, shall apply to Distributor's
outstanding balance on any invoice that has not been paid h1 full
within thirty (30) days from date of invoice.
Section 8.3 Payment Terms without Credit
Except during the time that Distributor has an approved credit
application, Distributor shall pay COD (or other means of guaranteed
payment acceptable to Rise) for all shipments.
Section 8.4 Taxes, Duties, Tariffs and License Fees
Prices do not include any taxes (including any excise, sales, use, value
added, withholding, and similar taxes), customs duties, tariffs or license
fees and payments to Rise are payable in full without reduction for any
such taxes, duties, tariffs or fees. Distributor shall be responsible for
and shall indemnify Rise for any and all taxes, customs duties, tariffs
and license fees paid or payable, however designated, levied, or based on
payments to Rise hereunder or On Distributor's or a Customer's use or
possession of Rise Products, but exclusive of United States federal, state
and local taxes based on Rise's net income. When Rise has the legal
obligation to pay or collect any such taxes or charges, excluding taxes on
the net income of Rise, the appropriate amount shall be invoiced to
Distributor and paid by Distributor within thirty (30) days of the date of
invoice unless Distributor provides Rise with a valid tax or other
exemption certificate issued or authorized by the appropriate authority.
Distributor shall provide Rise with official receipts issued by the
appropriate taxing or other authority or such other evidence as is
reasonably requested by Rise to establish that sucl1 taxes or charges have
been paid. In the event that any taxes, duties, tariffs, or license fees
are exempted, Distributor shall provide Rise, at least one (1) week prior
to any scheduled shipping date, an exemption certificate issued by the
appropriate authority or such other evidence as is reasonably requested by
Rise to establish such exemption.
Section 8.5 Exports
Payment for Products to be exported shall be made by a confirmed,
irrevocable letter of credit ("LOC") from a bank or other financial
Distributor Agreement page 6 Of 11 07/30/98
institution that Rise designates in writing. Payment by such LOC shall be
made against Rise's invoice upon delivery of Rise's then-standard shipping
documents and shall be sufficient to cover the full amount of the invoice
and any other payments related to such Products that are owed.
Section 8.6 Title
Rise shall retain title to all Products for which Rise has not received
full payment.
ARTICLE 9. Rejection/Return
Section 9.1 Inspection and Rejection
Distributor may inspect all Products it receives from Rise. Distributor
may reject any defective Product, provided that Distributor notifies Rise
of its rejection and returns such Product within thirty (30) days after
receipt thereof in accordance with the procedure set forth in Section 9.3.
Products shall be deemed accepted if Distributor fails to act within the
foregoing time period.
Section 9.2 Rise Evaluation
(a) In the event that Rise determines that the returned Product is
defective and properly rejected by Distributor, Rise shall, at its
option, either (i) repair or replace such Product, or (ii) issue a
Credit for the value of such defective Product. Rise shall return to
Distributor, freight prepaid, all repaired or replaced Products
properly rejected by Distributor.
(b) In the event that any rejected Product is determined by Rise to not be
defective, or to have been modified or subjected to unusual electrical
or physical stress, misuse, abuse or unauthorized repair, Distributor
shall reimburse Rise for all costs and expenses related to the
inspection, repair, if any, and return of such Product to Distributor.
Section 9.3 Return Procedures
(a) If Distributor wishes to return Product to Rise, Distributor shall
request a Return Material Authorization ("RMA") number from Rise. The
RMA request must be accompanied by complete technical and other
information detailing the reason for the return, and Rise will not be
obligated to authorize a return without such information. No Product
may be returned to Rise without a RMA number issued by Rise.
(b) Within ten (10) days after receiving the RMA request, Rise shall
either reject the request or issue an RMA number for all of the Product
or for a sample of the Product to be returned to Rise. If Rise issues a
RMA for a sample, then upon receipt of such sample Rise shall evaluate
the sample and determine if the balance is to be returned. If Rise
determines, in Rise's sole judgment, that the balance should be
returned, then Rise will issue an RMA for the balance of the Product.
(c) Within ten ( 10) days after receiving the RMA number, Distributor
shall return the Product, or sample of the Product, accompanied by the
RMA number. Rise shall pay the freight and insurance for such return.
(d) Any Product returned to Rise by Distributor as authorized under this
Agreement must be packed in its original packing material, or the
equivalent, with the RMA number prominently displayed and must include
all documentation and other information requested by Rise in the DPPM.
(c) Rise may refuse to accept returns of any Product not packed and
shipped as provided in this Section 9.3.
Section 9.4 Customer Returns
Distributor shall be responsible for all Customer returns of Product, and
shall not refer any Customer to Rise regarding returns. If a Customer
returns Products to Distributor, Distributor shall accept such returns
according to its policies therefor and may request an RMA pursuant to
Section 9.3.
ARTICLE 10. PRODUCT WARRANTIES
Section 10.1 Customer Warranty
Rise may offer a warranty, in the form of Exhibit F ("Rise Product Limited
Warranty") with respect to Products sold to Customers. Any such Rise
Product Limited Warranty shall apply to Distributor only to the extent
that Distributor purchases Products as an end user.
Section 10.2 Distributor Covenants
(a) Distributor shall assure that all Products sold by Distributor to
Customers are accompanied by the Rise Product Limited Warranty.
(b) Distributor shall not: (i) grant, or purport to grant, to Customers
by, or on behalf of, Rise, a warranty of greater scope or duration than
that set forth in the Rise Product Limited Warranty; (ii) accept, or
purport to accept, by or on behalf of Rise, liability of greater scope
than that provided in the Rise Product Limited Warranty; or (iii) fail
to disclaim implied warranties and limit remedies and liabilities, by
and on behalf of Rise, to at least the same extent set forth in the
Rise Product Limited Warranty.
(c) In accordance with Article 12, Distributor shall indemnify and hold
harmless Rise against any damages, costs, expenses, liabilities, or
other losses that Rise may suffer or incur as a result of a breach by
Distributor of the foregoing.
Section 10.3 Warranty Assistance
In the event that a Customer returns a Product to Distributor for failure
to conform to the Rise Product Limited Warranty, Distributor shall obtain
Tom such Customer a detailed explanation of any alleged nonconformity and
suspected defect, including complete information and explanation of the
application in which the Product was used, of any failure symptoms
exhibited by the Product and such application, and any other information
related to the alleged failure or defect. Distributor shall return any
such Products to Rise in accordance with the return procedures set forth
h1 Section 9.3.
Section 10.4 Dangerous Applications
THE PRODUCTS ARE NOT INTENDED OR SUITABLE FOR USE, AND SHALL NOT BE USED,
AS COMPONENTS IN LIFE SUPPORT DEVICES OR SYSTEMS OR ANY AVIATION, NUCLEAR,
OR OTHER APPLICATION THAT PROTECTS, SUPPORTS, OR SUSTAINS LIFE, WHERE THE
FAILURE OF SUCH COMPONENT TO PERFORM CAN REASONABLY BE EXPECTED TO RESULT
IN SIGNIFICANT BODILY INJURY, CAUSE THE FAILURE OF, OR AFFECT THE SAFETY
OR EFFECTIVENESS OF SUCH DEVICE, SYSTEM OR APPLICATION.
ARTICLE 11. WARRANTIES, INDEMNI1 1ES AND DISCLAIMERS
Section 11.1 Mutual Representations and Warranties
Each Party represents and warrants to the other that: (i) it has the right
and power to enter into this Agreement and to fulfill its obligations
hereunder; and (ii) entering into, and performance of its obligations
under, this Agreement does not and will not violate any agreements between
such Party and any third parties.
Distributor Agreement page 7 of 11 07/30/98
Section.11.2 Intellectual Property Warranty
Rise represents and warrants to Distributor that, to Rise's knowledge on
the Effective Date, the Products do not infringe any third party's patent,
copyright, mask work or trade secret rights arising under any state or
federal laws of the United States. The foregoing warranty shall not apply
to the extent that the infringement arises from the use of a Product in a
manner for which it was not intended or in any equipment or assembly,
circuit, combination, method, or process where the Product used alone
would not have infringed a third party's rights.
Section 11.3 Mutual Indemnity
(a) Except for matters covered by Section 11.4, each Party (an
"Indemnifying Party") shall indemnify, defend and hold harmless the
other and its officers, directors and employees (an "Indemnified
Party"), from and against any and all losses, damages, third party
claims and liability (including reasonable defense costs and reasonable
legal fees) to the extent directly and proximately caused by a breach
by the Indemnifying Party of this Agreement, including any
representations and warranties hereunder.
(b) As a condition to the foregoing indemnity obligation of the
Indemnifying Party, the Indemnified Party shall provide the
Indemnifying Party with prompt notice of any claim for which
indemnification is sought hereunder and shall cooperate in all
reasonable respects with the Indemnifying Party in connection with any
such claim. The Indemnifying Party shall be entitled to control the
handling of any such claim and to defend or settle any such claim, in
the Indemnifying Party's sole discretion, with counsel of its own
choosing.
Section 11.4 Intellectual Property Indemnification
Rise shall indemnify and hold Distributor harmless against and from any
and all damages and costs paid by Distributor to any third party as a
result of a final adjudication of a court of competent jurisdiction that
Rise has breached any warranty set forth in Section 11.2; provided that
Rise is promptly informed in writing and furnished a copy of each
communication, notice or other action relating to any claim, suit or
proceeding out of which such breach and costs and damages arise and Rise
is given all authority, information and assistance necessary to defend,
settle or otherwise remove or avoid any such claims, suits or proceedings.
Rise shall have the sole discretion under this Section 11.4 to defend,
settle or otherwise remove or avoid any claim, suit or proceedings
relating to such costs and damages.
Section 11.5 Intellectual Property Remedy
(a) In the event of a breach by Rise of the warranty set forth in Section
11.2, Rise shall, at its discretion, either: (i) purchase at no cost to
Distributor a license to permit Distributor to continue to distribute
Products in accordance with the terms of this Agreement; or (ii)
repurchase any Products previously shipped to Distributor that
Distributor has not sold.
(b) ARTICLE 11 STATES THE ENTIRE LIABILITY AND OBLIGATIONS OF RISE AND THE
EXCLUSIVE REMEDY OF DISTRIBUTOR WITH RESPECT TO INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHTS BY THE PRODUCTS AND WITH RESPECT TO A
BREACH OF RISE'S WARRANTIES SET FORTH IN ARTICLE 11.
Section 11.6 Disclaimer of Warranties
EXCEPT AS EXPRESSLY SET FORTH HEREIN, RISE MAKES NO WARRANTIES, EXPRESS,
STATUTORY, IMPLIED, OR OTHERWISE TO DISTRIBUTOR OR CUSTOMERS, AND RISE
SPECIFICALLY HEREBY DISCLAIMS ALL OTHER EXPRESS AND IMPLIED WARRANTIES,
INCLUDING WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE.
ARTICLE 12. LIMITATION OF LIABILITY
RISE'S TOTAL AGGREGATE LIABILITY TO DISTRIBUTOR ARISING OUT OF OR RELATING
TO THIS AGREEMENT, INCLUDING UNDER ARTICLE 11, SHALL NOT EXCEED THE
AGGREGATE AMOUNTS PAID BY DISTRIBUTOR TO RISE HEREUNDER.
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR LOST USE, PROFITS, REVENUE,
COST OF PROCUREMENT OF SUBSTITUTE GOODS, OR ANY OTHER SPECIAL, INDIRECT,
RELIANCE, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED AND UNDER
ANY THEORY OF LIABILITY, WHETHER BASED IN CONTRACT, TORT (INCLUDING
NEGLIGENCE), OR OTHERWISE.
THE FOREGOING LIMITATIONS SHALL APPLY REGARDLESS OF WHETHER THE PARTY
AGAINST WHOM LIABILITY IS ASSERTED HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY.
ARTICLE 13. CONFIDENTIALITY AND PROPRIETARY RIGHTS
Section 13.1 Confidentiality
(a) "Confidential Information" shall mean any information Rise discloses
to Distributor, which, (i) if in written, graphic, machine-readable or
other tangible form, is marked as "Confidential" or "Proprietary," (ii)
if disclosed orally or by demonstration, is identified at the time of
initial disclosure as confidential and confirmed in writing to be
''Confidential'' within thirty (30) days of such disclosure; or (iii)
is otherwise deemed to be confidential by the terms of this Agreement.
(b) Confidentiality Obligation. Distributor shall treat as confidential
all of Rise's Confidential Information and shall not use such
Confidential Information in any way, for Distributor's own account or
the account of any third party, nor disclose to any third party any
Confidential Information except as expressly permitted under this
Agreement. Without limiting the foregoing, Distributor shall use at
least the same degree of care which it uses to prevent the disclosure
of its own confidential information of like importance, but in no event
less than reasonable care, to prevent the disclosure of Rise's
Confidential Information. Distributor shall not publish any technical
description of the Products beyond the description thereof published by
Rise.
(c) Confidential Information Exclusions. Notwithstanding the provisions of
Subsection 13.1(a), Confidential Information shall exclude information
that Distributor demonstrates: (i) was independently developed by
Distributor without any use of Rise's Confidential Information or by
Distributor's employees or other agents (or independent contractors hired
by Distributor) who have not been exposed to Rise's Confidential
Information; (ii) becomes known to Distributor, without restriction, from
a source other than Rise, without breach of this Agreement, that had a
right to disclose it; (iii) was in the public domain at the time it was
disclosed or becomes in the public domain through no act or omission of
Distributor; or (iv) was rightfully known to Distributor, without
restriction, at the time of disclosure. In the event that Confidential
Information
Distributor Agreement page 8 of 11 07/30/98
is disclosed pursuant to an order or requirement of a court,
administrative agency, or other governmental body, Distributor shall
provide prompt notice thereof to Rise and shall use its best efforts to
obtain a protective order or otherwise prevent public disclosure of such
information.
(d)Remedies. Unauthorized use by Distributor of Rise's Confidential
Information will diminish the value of such information. Therefore, if
Distributor breaches any of its obligations in this Agreement with respect
to confidentiality or use of Confidential Information, Rise shall be
entitled to seek legal and equitable relief to protect Rise's interests,
including but not limited to injunctive relief and money damages.
(e) No Confidential Information of Other Parties. Distributor represents
and warrants that it has not and shall not disclose to Rise, or use in
the course of performance under this Agreement, any confidential
information of any third party, unless such Distributor is expressly
authorized in writing by such third party to do so.
Section 13.2 Proprietary Rights Notices
Distributor shall not (and shall require that its Customers do not)
remove, alter, cover or obfuscate any proprietary rights notices, such as
patent, copyright, mask work or trademark, or confidentiality notices,
placed or embedded by Rise on or in any Product or Documentation.
ARTICLE 14. TERM AND TERMINATION
Section 14.1 Term
This Agreement shall commence upon the Effective Date and continue in full
force and effect for a fixed term of three (3) years, unless earlier
terminated in accordance with the provisions of this Agreement. This
Agreement may be renewed for subsequent one (1) year terms only by written
agreement of the Parties.
Section 14.2 Termination for Convenience
This Agreement may be terminated at any time, without cause for any reason
or no reason, upon at least thirty (30) days prior written notice by the
terminating Party to the other Party.
Section 14.3 Termination for Cause By Either Party
This Agreement may be terminated immediately for cause by a Party in the
event that the other Party:
(a) Ceases to function as a going concern or to conduct its operations in
the normal course of business;
(b) Has a petition filed by or against it under any state or federal
bankruptcy or insolvency law which petition is not dismissed within
sixty (60) days of its filing; or
(c) Is in default of its obligations under this Agreement and fails to
cure such default within thirty (30) days after written notice thereof
Section 14.4 Purchase Orders; No Waiver
Distributor shall be obligated to accept deliveries of Products for which
Purchase Orders were accepted by Rise prior to the effective date of
termination of this Agreement. After any notice of termination has been
delivered by either Party hereunder, deliveries of Product from Rise to
Distributor, unless otherwise agreed by Rise in its sole discretion, shall
require prepayment by wire transfer by Distributor to Rise. The
Acknowledgment of any Purchase Order from. or the sale of any Product to,
Distributor after the termination or expiration of this Agreement shall
not be construed as a renewal or extension of this Agreement or any
provision hereof nor as a waiver of termination of this Agreement.
Upon termination Reptron shall be liable for all deliveries within commit
window only and shall inform Rise of revised or cancelled P/Os outside the
commitment window,
Distributor Agreement page 9 of 11
Section 14.5 Product Repurchase
Unless this Agreement is terminated for cause by Rise, upon termination of
this Agreement, Rise shall repurchase all Products purchased by
Distributor under SP Pricing that Rise previously shipped to Distributor
and that Distributor has not sold as of the effective date of termination
of the Agreement. The repurchase price for such Products shall be the
actual net invoice price paid by Distributor for such Products as adjusted
for any prior Credits, and, in the case of termination for convenience by
Distributor, J^3P~ additional twenty five percent JO). I 5 % ~J JO
Section 14.6 Return of Materials
Any and all Products owned by Rise or for which Rise has not received full
payment and any and all specifications, drawings, photographs, samples,
literature, Product information or data, financial information, business
plans and unused Documentation of every kind shall remain the property of
Rise. If Rise requests, Distributor will return any such materials to Rise
or destroy such materials at Rise's expense.
Section 14.7 Survival
The provisions of Articles and Sections 1, 4.1 (c), 4.2 (a), 8.6, 10.2,
10.3, 10.4, 11, 12, 13, 14.4, 14.5, 14.6, and 15 shall survive the
termination of this Agreement for any reason. All other rights and
obligations of the Parties shall cease upon termination of this Agreement
ARTICLE 15. MISCELLANEOUS PROVISIONS
Section 15.1 Insurance
Distributor shall obtain, keep in force, and provide Rise with proof of
comprehensive, general liability insurance, naming Rise as loss payee,
with limits sufficient to cover the total retail value of any and all
materials in Distributor's possession or in transit to Distributor,
including demonstration systems, that are owned by Rise or for which Rise
has not received full payment.
Section 15.2 Independent Contractors
Rise and Distributor are independent contractors, and nothing in this
Agreement shall be construed to (a) give either Party the power to direct
and control the day-to-day activities of the other, (b) constitute the
Parties as partners, joint venturers, co-owners, employers or employees of
the other or otherwise participants in a joint undertaking, or (c)
authorize Distributor to create or assume any obligation on behalf of Rise
for any purpose whatsoever.
Section 15.3 Entire Agreement
This Agreement, including the Exhibits attached hereto, sets forth the
entire agreement and understanding of the Parties with respect to the
subject matter hereof and supersedes all prior agreements relating
thereto, written or oral, between the Parties. No modification of or
amendment to this Agreement, nor any waiver of any rights under this
Agreement, shall be effective unless in writing signed by the Party to be
charged
Section 15.4 Conflicting Terms
The terms and conditions of this Agreement, including the Exhibits
attached hereto, shall prevail, notwithstanding any limitations on
acknowledgments or any contrary, additional, different, altering or
conflicting terms in any policy, quotation, Purchase Order, sales,
acceptance or acknowledgment, confirmation or any other document issued by
either Party affecting the purchase and/or sale of Products. The body of
this Agreement shall prevail in the event of a conflict with any of the
Exhibits attached hereto.
07/30/98
Section 15.5 Export Control
None of the products or underlying information or technology subject to
this Agreement may be exported or reexported, directly or indirectly, (i)
into (or to a national or resident of) Cuba, Iraq, Libya, Sudan, North
Korea, Iran, Syria or any other country to which the United States has
chosen to embargo goods ("Embargoed Countries"); or (ii) to anyone on the
U.S. Treasury Department's list of Specially Designated Nationals, the
U.S. Commerce Department's Table of Denial Orders. Any and all obligations
of Rise and Distributor regarding Products subject to this Agreement, as
well as any other technical information or assistance, shall be subject in
all respects to such United States laws and regulations as shall from time
to time govern the license and delivery of technology and products abroad,
including, as necessary, the International Traffic in Arms Regulations
("ITAR"), the Export Administration Act of 1979, as amended, any successor
legislation, and the Export Administration Regulations ("EAR") issued by
the Department of Commerce, Bureau of Export Administration ("BXA").
Distributor warrants that it will comply with all United States laws and
regulations, including the ITAR and EAR, as then currently in effect.
Distributor agrees that unless prior written authorization is obtained
from the BXA, or the EAR explicitly permit the reexport without such
written authorization, Distributor will not export, reexport, or
transship, directly or indirectly, the Products or any technical data
disclosed or provided to Distributor, or the direct product of such
technical data, to countries, or nationals or residents of such countries,
as applicable U.S. law, statute or regulation exclude from receipt of the
such Products or technical data.
Section 15.G Foreign Corrupt Practices Act
In conformity with the United States Foreign Corrupt Practices Act,
Distributor and its employees and agents shall not directly or indirectly
make any offer, payment, or promise to pay; authorize payment; nor offer a
gift, promise to give, or authorize the giving of anything of value for
the purpose of influencing any act or decision of an official of any
government within the Territory or the United States Government (including
a decision not to act) or inducing such a person to use his or her
influence to affect any such governmental act or decision in order to
assist Rise in obtaining, retaining or directing any such business.
Section 15.7 Notices
Any notice, Purchase Order, Acknowledgment, report or other information
required or permitted to be given under this Agreement shall be delivered
(i) by hand, (ii) first class mail, postage prepaid, to the address of the
other Party as first set forth below, or to such other address as a Party
may designate by written notice in accordance with this Section 15.7,
(iii) by overnight courier, or (iv) by fax with confirming letter mailed
under the conditions described in (ii) above. Notice so given shall be
deemed effective when received, or if not received by reason of fault of
addressee, when delivered.
Rise:
Rise Technology Company
2451 Mission College Blvd
Santa Clara, CA 95054
Attn: Corporate Legal Department
Copy: Vice President of Sales
Distributor:
Reptron Electronics, Inc.
14401 McCormick Drive
Tampa, FL 333626-3021
Attn: Vice President Marketing, Semiconductors
Section 15.8 Force Majeure
Other than the payment of monies, nonperformance of either Party shall be
excused to the extent that performance is rendered impossible by acts of
God, fire, flood, riots, material shortages, strikes, governmental acts,
man-made or natural disasters, earthquakes, inability to obtain labor or
materials through its regular sources, or any other reason where failure
to perform is beyond the reasonable control and not caused by the
negligence of the non-performing Party. The time for performance shall be
extended for the time period lost due to the delay.
Section 15.9 Non-Assignability and Binding Effect
Distributor's rights and obligations under this Agreement are personal and
may not be transferred or assigned directly or indirectly except upon
written consent of Rise. This Agreement shall terminate automatically if
Distributor attempts to assign or transfer, voluntarily or by operation of
law, directly or indirectly, any or all of its rights or obligations under
this Agreement without having obtained the prior written consent of Rise.
Subject to the foregoing, this Agreement shall be binding upon and inure
to the benefit of the Parties hereto, their successors and assigns.
Section 15.10 Severability
If, for any reason, a court of competent jurisdiction finds any provision
of this Agreement, or portion thereof, to be invalid or unenforceable,
such provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the Parties, and the remainder
of this Agreement will continue in full force and effect. The Parties
shall negotiate in good faith an enforceable substitute provision for any
invalid or unenforceable provision that most nearly achieves the intent
and economic effect of such provision.
Section 15.11 No Waivers
The failure of either Party to require performance of any provision of
this Agreement shall not affect the right of such Party to require
performance at any time thereafter, nor shall the waiver of either Party
of a breach or default be taken or held to be a waiver of a provision
itself or a waiver of any other right hereunder.
Section 15.12 Disputes
Each Party shall pay the other Party's reasonable attorneys' fees and
legal costs incurred to enforce any of the provisions of this Agreement.
Section 15.13 Arbitration and Dispute Resolution
In the event of a dispute between the Parties arising out of this
agreement, the Parties shall attempt in good faith to resolve such dispute
within ninety (90) days after one party gives notice of such dispute. In
the event the parties cannot resolve the dispute within such time, the
parties shall submit the dispute to binding arbitration to be held in
Santa Clara County, California by a panel of three arbitrators
knowledgeable regarding the semiconductor market.
Notwithstanding the above, either party may apply to a court of competent
jurisdiction for injunctive or other equitable relief
Section 15.14 Governing Law
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF TFIE
STATE OF CALIFORNIA WITHOUT REFERENCE TO CONFLICT OF LAW PRINCIPLES. The
U.N. Convention on Contracts for the International Sale of Goods shall not
govern this Agreement or any counterparts hereto.
Distributor Agreement page l0 Of 11 07/30/98
Section 15.15 Jurisdiction and Venue
The federal and state courts within the State of California shall have
exclusive jurisdiction to adjudicate any dispute arising out of this
Agreement. Distributor hereby expressly consents to (i) the personal
jurisdiction and venue of the federal and state courts within California
and (ii) service of process being effected upon it by registered mail sent
to the address set forth at the beginning of this Agreement.
Date.
Section 15.16 Headings Article, Section, Exhibit and paragraph headings
herein are inserted for convenience of reference only and shall not affect
the construction or interpretation of this Agreement.
Section 15.17 Counterparts This Agreement may be executed in counterparts
which taken together shall be regarded as one and the same Agreement.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement
effective as of the Effective
1
Rise Technology Company
By:/s/ David T. Lin
Name: David T. Lin
Title: Chairman & CEO
Reptron Electronics, Inc.
By /s/ KW Steenland
Name: Keith W. Steenland
Title: Vice President Marketing
Semiconductors
Distributor Agreement page 11 of 11
07/30/98
Exhibit 10.3
DISTRIBUTOR AGREEMENT
Made this 1st day of June, 1998 by and between SAMSUNG SEMICONDUCTOR, INC.,
a California corporation having its principal place of business at 3655
North First Street, San Jose, California 95134 ("SAMSUNG") and (Reptron
Electronics, Inc.) ~ a Distributor with offices at 4401 McCormick Drive,
Tampa FL 33626.
RECITALS
WHEREAS, SAMSUNG is engaged in the business of manufacturing and selling
semiconductor components; and
WHEREAS, (Reptron Electronics, Inc.) wishes to act as a distributor of
certain products sold by SAMSUNG
NOW THEREFORE, in consideration of the mutual promises and covenants set
form below, the Parties hereto agree as follows:
AGREEMENT
1. Definitions.
1.1 "Distributor Commodity BUY Price List" (or "Price List") means the list
of SAMSUNG Standard Products and the prices therefore as distributed by
SAMSUNG from time to time. The current version of the Price List is
attached hereto as Exhibit A.
1.2 "Memory Products" means those Products defined in the Price List as
memory devices, and TFT-LCD Display products. Memory Products does not
include any custom memory products.
1.3 "System-LSI Products" means those Products defined in the Price List as
Linear, Transistor, Mosfet, MCUs, CPU's, Audio, LCD-IC, Multi-Media,
Telecomm, DSP, Micom, ASIC, IGBT, Industrial, Mosfets, Power Transistor, or
other non-memory devices, but does not include Small Signal Transistor
products.
1.4 "Products" means those Memory Products and System-LSI Products
collectively.
1.5 "Territory" means the regions of the United States, Mexico and or
Canada listed in Exhibit B.
2. "Appointment". SAMSUNG hereby appoints (Reptron Electronics, Inc.) a
nonexclusive distributor of the Products in accordance with the provisions
of this Agreement, and (Reptron Electronics, Inc.) hereby accepts the
appointment.
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3. Independent Contractor. The relationship between SAMSUNG and
(Reptron Electronics, Inc.) under this Agreement is solely that of buyer
and seller. (Reptron Electronics, Inc.) is and shall be
an independent contractor in the performance of the services set forth by
this Agreement. Neither (Reptron Electronics, Inc.) nor anyone employed by
(Reptron Electronics, Inc.) shall act or purport to act or be deemed to be
the agent' representative, employee or servant of SAMSUNG in performing the
services covered by this Agreement or with respect to the application of
any social security, unemployment insurance' workers, compensation or
industrial accident laws. (Reptron Electronics, Inc.) shall have no right
to enter into contracts or commitments in the name or on behalf of SAMSUNG
or to bind SAMSUNG in any respect whatsoever. (Reptron Electronics,
Inc.) shall defend, indemnify, and hold SAMSUNG harmless from any and all
claims, suits, loss, damages, and costs (including reasonable attorneys
fees) arising out of or attributable to any acts of (Reptron Electronics,
Inc.) except as expressly authorized hereunder.
4. Duties of Distributor, In connection with its appointment, (Reptron
Electronics, Inc.) shall perform the following duties:
4.1 Use its best efforts to actively promote the sale of the Products to
customers in the territory. Such efforts shall include, but not be limited
to, promptly servicing all customer accounts and cooperation with
participation in SAMSUNG'S advertising and sales promotional programs. All
promotional and advertising material for the Products, unless supplied by
SAMSUNG, must be approved in writing by SAMSUNG before its use.
4.2 Maintain adequate office and warehouse facilities.
4.3 Maintain a trained and aggressive sales organization to sell the
Products, and participate in sales training provided by SAMSUNG at the
(Reptron Electronics, Inc.) locations and on the schedule as determined by
SAMSUNG from time to time.
4.4 Maintain an inventory of the Products, as recommended by SAMSUNG, and
mutually agreed to by (Reptron Electronics, Inc.), sufficient to support
the sale plan for each location of (Reptron Electronics, Inc.), which is
agreed to periodically between SAMSUNG and (Reptron Electronics, Inc.).
4.5 Prepare and forward to SAMSUNG reports as may be reasonably requested
by SAMSUNG and described in the current Procedures Manual, including,
without limitation, monthly reports of inventory on hand by each location,
and sales data by each location. Sales data should include part number,
customer, customer address and zip code, quantity, net cost and extension,
net resale and extension, type of transaction (i.e. drop ship, or work-off
cost and billing adjustments and returns), Distributor invoice number, line
item number, and date. Inventory data should include part number, quantity,
quantity buy price, special purchase item, and any bonded or specially
segregated stock (with reason identified). (Reptron Electronics, Inc.) will
also submit monthly reports by location showing all customer returns for
the previous month indicating Product part number, quantity, cost price
(net of special cost debits), resale cost, total dollar value extension,
customer name, zip code and credit memo number, if applicable, and original
invoice number for the purpose of determining the cost. It is preferred
that (Reptron Electronics, Inc.) use a First In, First Out ("FIFO")
accounting system for the purposes of its reports to SAMSUNG. For purposes
of calculating return refunds or credit memos, SAMSUNG will recognize only
a FIFO calculation. (Reptron Electronics, Inc.) will send this data to
SAMSUNG on a timely basis each month and in no case later than the 10th
working day of the following month. (Reptron Electronics, Inc.) failure to
comply with the requirements of Section 4.5 shall constitute a material
breach of the Agreement.
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5. Territory. (Reptron Electronics, Inc.) area of primary responsibility
for distribution of the Products shall be the Territory, but nothing in
this Agreement shall prevent (Reptron Electronics, Inc.) from distributing
the Products outside the Territory. SAMSUNG shall have no obligation to
support, via cooperative advertising or otherwise, any (Reptron
Electronics, Inc.) sales activity outside of the Territory. SAMSUNG, in its
sole discretion, may make sales of all SAMSUNG products' directly or
through any other channel, in the territory or elsewhere.
6. Changes in Products and Price List. SAMSUNG reserves the right to amend
the list of products on the Price List from time to time by issuing a
revised Price List to (Reptron Electronics, Inc.). In addition, SAMSUNG
may, from time to time, in its absolute discretion and without thereby
incurring any liability to the (Reptron Electronics, Inc.) with respect to
any sales contract or purchase order already placed, alter the design or
construction of any Products, and substitute
such altered Product in filling orders.
7. Order Placement.
7.1 Minimum Order
Memory and System-LSI products have a $1000.00 minimum per line item.
Non- standard product orders must be at least $50,000.00 per year with
$2,500.00 per shipment.
7.2 No order or any portion of an order may be canceled or rescheduled less
than thirty (30) days before the scheduled shipment date.
7.3 The terms and conditions of this Agreement shall apply to all orders
and supersede any different or additional terms on purchase orders or other
documents from (Reptron Electronics, Inc.). Orders issued by (Reptron
Electronics, Inc.) are solely for the purpose of requesting delivery dates,
price, quantities and destinations. All orders placed with SAMSUNG for
products shall be subject to acceptance by SAMSUNG at its principal place
of business.
8. Prices
8.1 The prices to (Reptron Electronics, Inc.) shall be those prices
established from time to time by SAMSUNG as shown in the Price List and in
effect at the time of shipment by Samsung. All prices shall be subject to
change or withdrawal at the discretion of SAMSUNG, with or without advance
notice. Notice of any price changes shall be given in written format to
(Reptron Electronics, Inc.). All such changes shall be effective on the
date specified by SAMSUNG.
8.1.1 If SAMSUNG increases any prices for the Products, orders for Products
received by SAMSUNG prior to notification to (Reptron Electronics, Inc.) of
the price increase but filled after the effective date of the increase will
be billed at the price in effect at the time of order placement for the
calendar month in which the order was placed and for the next two (2)
calendar months. Thereafter, the applicable price for such orders shall be
the price in effect at the time of shipment by SAMSUNG.
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8.1.2 If SAMSUNG decreases any prices for the Products, (Reptron
Electronics, Inc.) may request application of the decreased price for
these Products received by SAMSUNG before the effective date of the
decrease and with a requested or scheduled shipping date after the
effective date of the decrease may be requested by (Reptron
Electronics, Inc.). If (Reptron Electronics, Inc.) does not timely
contact SAMSUNG to request a reduction in the order prices the order
shall automatically be filled at the price in effect when the order
was received.
8.2 The only exception to the prices set forth on the Price List will be
special prices for contract sales, which shall be granted only in
accordance with the procedures set forth in the current Procedures Manual.
8.3 Unless otherwise agreed to in writing by SAMSUNG, all prices quoted are
exclusive of transportation and insurance costs, and all taxes (as defined
below). In addition to any other payments due under this Agreement,
(Reptron Electronics, Inc.) agrees to pay, indemnify and hold SAMSUNG
harmless from any sales, use, excise, import or export, value-added or
similar tax or duty, and any other tax not based on SAMSUNG'S net income,
including any penalties and interest, due to any payment to be made by
(Reptron Electronics, Inc.) pursuant to this Agreement, and any costs
associated with the collection of or withholding of any of the foregoing
items ("the Taxes"). When applicable, such transportation costs and Taxes
shall appear as separate items on SAMSUNG'S invoice. (Reptron Electronics,
Inc.) shall be responsible for obtaining and paying for all insurance. If
(Reptron Electronics, Inc.) fails to pay any Taxes as of the original due
date for such Taxes and SAMSUNG receives any assessment or other notice
(collectively the," Assessment") from any governmental taxing authority
providing that such Taxes are due from SAMSUNG, SAMSUNG shall give (Reptron
Electronics, Inc.) written notice of the Assessment and (Reptron
Electronics, Inc.) shall pay to SAMSUNG, or the taxing authority, the
amount set forth as due in the Assessment within thirty (30) business days
of receipt of such written notice from SAMSUNG.
8.4 Shipments. All shipments will be made F.O.B. SAMSUNG'S shipping point.
Delivery will be deemed complete and risk of loss or damage to the Products
will pass to (Reptron Electronics, Inc.) upon delivery to the carrier.
Consignee billing is acceptable, provided (Reptron Electronics, Inc.) shows
proof to Samsung of written authorization for consignee billing to shipper.
8.5 SAMSUNG reserves the right, among other remedies, to suspend further
deliveries under this Agreement in the event (Reptron Electronics, Inc.)
fails to pay for any shipment when it becomes due. Should (Reptron
Electronics, Inc.) credit worthiness become unsatisfactory to SAMSUNG, cash
payments or satisfactory security may be required by SAMSUNG for future
deliveries and for Products already delivered.
Confidential 98DistiAgreement.form
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9 Trademarks and Trade Names.
9.1 Subject to the terms and conditions of this Agreement, SAMSUNG grants
to (Reptron Electronics, Inc.) a nonexclusive, nontransferable,
royalty-free right to use the SAMSUNG logo and other trademarks found on
the Products to promote and sell the Products ("Trademarks"). (Reptron
Electronics, Inc.) shall use such Trademarks in accordance with the
SAMSUNG'S policies for such use as communicated to (Reptron Electronics,
Inc.) from time to time. (Reptron Electronics, Inc.) acknowledges that
SAMSUNG is the owner of the Trademarks and (Reptron Electronics, Inc.)
agrees that it will do nothing inconsistent with such ownership and all use
of the Trademarks by (Reptron Electronics, Inc.) shall inure to the benefit
of and be on behalf of SAMSUNG. (Reptron Electronics, Inc.) acknowledges
that the Trademarks are valid under applicable law. (Reptron Electronics,
Inc.) shall not register or attempt to register the Trademarks without the
prior written permission of an of dicer of SAMSUNG.
9.2 (Reptron Electronics, Inc.) may use SAMSUNG'S trade name as used by
SAMSUNG in or on (a) the Products delivered by SAMSUNG to (Reptron
Electronics, Inc.) under this Agreement and (b) written promotional
material provided by SAMSUNG for distribution. (Reptron Electronics, Inc.)
may use SAMSUNG'S trade name only in connection with the distribution of
the Products and each such use shall inure only to the benefit of SAMSUNG.
9.3 (Reptron Electronics, Inc.) agrees that it shall not adopt a trademark
or trade name confusingly Similar to Samsung Semiconductor, Inc., or the
Trademarks. (Reptron Electronics, Inc.) further agrees to that it will not
oppose, contest or challenge in any manner SAMSUNG'S ownership and use of
its trade name and Trademarks.
10. Acceptance. The Products shall be deemed accepted by (Reptron
Electronics, Inc.) unless written notice of defect is received by SAMSUNG
within thirty (30) days after receipt of each shipment and the Products are
returned to SAMSUNG within sixty (60) days after such notice receipt. If
(Reptron Electronics, Inc.) discovers any defective Products, (Reptron
Electronics, Inc.) shall notify SAMSUNG, obtain a return authorization, and
return the defective Products, freight prepaid, to SAMSUNG'S designated
facility, along with a written statement describing the defect. (Reptron
Electronics, Inc.) exclusive remedy, shall be the replacement of such
Products or (at SAMSUNG'S sole option) the issuing of a credit memo
therefore in the amount of the net price invoiced to (Reptron Electronics,
Inc.).
11. Limited Warranty.
11.1 SAMSUNG warrants that the Products to be delivered hereunder will be
free from defects in material and workmanship and substantially conform to
SAMSUNG'S published specifications therefore under normal use and service
for a period of one (1) year from shipment from Samsung Semiconductor Inc.,
San Jose, CA. Deviations from specifications, which do not materially
affect performance of the Products covered hereby, shall not be deemed to
constitute defects of material or workmanship or failure to comply with the
specifications referred to herein. (Reptron Electronics, Inc.) shall notify
SAMSUNG during the warranty period, of any nonconformance, obtain a return
authorization for the nonconforming Products, and return the non-conforming
Products, freight prepaid, to SAMSUNG'S designated facility, along with a
written statement describing the nonconformity. The obligations of SAMSUNG
under this warranty are limited to, at SAMSUNG'S option, replacing or
refunding to (Reptron Electronics, Inc.) the purchase price paid, including
freight expense therefore, any Products which are, within the warranty
period, returned as provided herein to SAMSUNG and which are after
examination disclosed to the satisfaction of SAMSUNG to be thus defective.
(Reptron Electronics, Inc.) ACKNOWLEDGES AND AGREES THAT THE FOREGOING
PROVISIONS OF THIS SECTION CONSTITUTE THE SOLE AND EXCLUSIVE REMEDIES
AVAILABLE TO (Reptron Electronics, Inc.) FOR BREACH OF WARRANTY BY SAMSUNG
WITH RESPECT TO THE PRODUCTS.
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11.2 The Warranty provided for herein is subject to the following
conditions:
11.2.1 Samsung will accept products for Warranty claim verification only
when returned by (Reptron Electronics, Inc.) in a condition which
allows for suitable testing by SAMSUNG.
11.2.2 When more than one type of Product is returned, the Products must be
segregated by product type.
11.2.3 SAMSUNG shall reimburse (Reptron Electronics, Inc.) for shipping
charges to the extent of the percent of the total returns that are
found by SAMSUNG to be defective as specified herein.
11.2.4 In no event shall SAMSUNG be liable for any defective Products if
examination disclosed that the defective condition of such Products
was caused by misuse, abuse, improper installation or application,
accident or negligence in use, storage, transportation or handling.
11.2.5 Unless otherwise specified in writing, any returned Products
determined by SAMSUNG to have been electrically or mechanically
destroyed by (Reptron Electronics, Inc.) will not be covered by this
Warranty, and will not be returned to (Reptron Electronics, Inc.),
but will be scrapped by SAMSUNG.
11.2.6 The original Warranty period of any Product shall be extended for an
additional one (1) year period from the date, if it is replaced by
SAMSUNG.
11.2.7 These Warranties are made solely to (Reptron Electronics, Inc.) and
SAMSUNG makes no warranties to customers of (Reptron Electronics,
Inc.). Only (Reptron Electronics, Inc.) personnel may request
Warranty service. (Reptron Electronics, Inc.) shall defend, indemnify
and save harmless SAMSUNG from and against all claims, actions,
suits, losses, damages and costs (including reasonable attorney's
fees) in respect of any warranties or representations (Reptron
Electronics, Inc.) makes to its customers or any other party to the
contrary.
11.3 EXCEPT FOR THE EXPRESS WARRANTIES PROVIDED IN THIS SECTION, ALL
WARRANTIES, WHETHER EXPRESS OR IMPLIED, ALL GUARANTEES AND ALL
REPRESENTATIONS AS TO PERFORMANCE, INCLUDING ALL WARRANTIES WHICH, BUT FOR
THIS PROVISION, MIGHT ARISE FROM COURSE OF DEALING, CUSTOM OR TRADE AND
INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED BY
SAMSUNG.
12. SAMSUNG Indemnification Obligation for Proprietary Rights.
12.1 SAMSUNG agrees to indemnify and hold harmless (Reptron Electronics,
Inc.) against any claims, actions or demands alleging that the manufacture
or distribution of the Products Infringes any patents or mask works of any
third parties arising under United States law. To terminate such
obligation, SAMSUNG may, at its option, (a) replace or modify the Products
with non- infringing ones which are functionally equivalent, (b) obtain a
license for the (Reptron Electronics, Inc.) to continue the distribution of
the Products, or (c) accept the return of the Products held by (Reptron
Electronics, Inc.) and return the price paid by the (Reptron Electronics,
Inc.) for such Products. THESE REMEDIES SHALL BE THE SOLE AND EXCLUSIVE
REMEDIES OF (Reptron Electronics, Inc.) FOR ANY INFRINGEMENT OF THIRD PARTY
RIGHTS BY THE PRODUCTS.
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12.2 The obligations under this Section 12 are contingent upon (a) (Reptron
Electronics, Inc.) giving prompt written notice to SAMSUNG of any such
claim, action or demand, (b) (Reptron Electronics, Inc.) allowing SAMSUNG
to control the defense and related settlement negotiations, and (c)
(Reptron Electronics, Inc.) full cooperation in the defense.
12.3 SAMSUNG shall have no obligation hereunder for any such claims,
actions, or demands which result from:
12.3.1 (Reptron Electronics, Inc.) use of the products in a combination
which violates the rights of third parties or in combination with
materials or products not supplied by SAMSUNG.
12.3.2 The modification or attempted modification of the Products by
parties other than SAMSUNG or the use or distribution of such
modified Products.
12.3.3 The use of other than the latest version of the Product if such
claim would have been avoided by the use of such later version and
the (Reptron Electronics, Inc.) had such knowledge that the latest
version should have avoided the claim.
13. Limitation of liability. IN NO EVENT SHALL SAMSUNG BE LIABLE FOR ANY
SPECIAL INCIDENTAL OR CONSEQUENTIAL DAMAGES EVEN IF SAMSUNG HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT WILL SAMSUNG'S
LIABILITY IN CONNECTION WITH THIS AGREEMENT EXCEED AN AMOUNT EQUAL TO THE
PURCHASE PRICE OF THE PRODUCTS IN QUESTION, WHETHER (Reptron Electronics,
Inc.) CLAIM IS FOR BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR
OTHERWISE.
14. Advertising and Sales Promotion.
14.1 SAMSUNG may, from time to time, in its sole discretion, disclose its
promotional plans, render sales assistance and merchandising advise, or
furnish advertising materials and promotional campaign material to (Reptron
Electronics, Inc.).
14.2 SAMSUNG will contribute an amount equal to one half (1/2) of the cost
of jointly approved promotional and advertising activities designed to
stimulate the sale of SAMSUNG'S Products. Such total contribution shall not
exceed one percent ( I %) of the actual net price paid to SAMSUNG for
Products sold hereunder during the calendar one (1) year period. However,
prior approval must be obtained in writing from SAMSUNG before any
expenditure by (Reptron Electronics, Inc.) is eligible for reimbursement.
Previous calendar accruals of SAMSUNG'S contribution can be expended
through March 31st, of the succeeding year.
14.3 (Reptron Electronics, Inc.) agrees to conduct promotional and
advertising activities only as authorized by SAMSUNG and shall defend,
indemnify and hold SAMSUNG harmless from any and all claims, suits, losses,
damages, and costs (including reasonable attorney's fees) arising out of or
attributable to any unauthorized promotional or advertising activities of
(Reptron Electronics, Inc.).
14.4 (Reptron Electronics, Inc.) represents and warrants that it will
engage in no unfair or restrictive trade practices.
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14.5 (Reptron Electronics, Inc.) understands and agrees that in the event
that (Reptron Electronics, Inc.) engages in any unauthorized activities in
violation of the terms of this section, SAMSUNG shall be entitled to
injunctive relief in addition to any other remedies available to it under
law or the terms hereof.
15. Returns. The following conditions will apply in the event (Reptron
Electronics, Inc.) desires to return any Products to SAMSUNG for credit:
15.1 Products shall be returned only after authorization by SAMSUNG. Any
returns made without SAMSUNG'S prior written approval shall be returned to
(Reptron Electronics, Inc.) at (Reptron Electronics, Inc.) expense. On a
quarterly basis, (Reptron Electronics, Inc.) may request return of
slow-moving Products. Products authorized to return that are contained in
samsung's current Price List, must be free of damage, in merchantable
condition (i.e., no bent leads, no electrical failure, not opened dry
pack), and were obtained by (Reptron Electronics, Inc.) directly from
SAMSUNG. In addition, a Restocking order for equal value must accompany the
request for return. Such restocking order will not be shipped or billed
before the return credit is processed. Slow-moving product returns shall
not exceed five percent (5o/O) of the dollar value of (Reptron Electronics,
Inc.) previous three (3) months' net purchases from SAMSUNG. There shall be
allowed four (4) returns per year for Memory Products and four (4) returns
per year for System-LSI Products. Amounts accrued for Memory Products
returns and System-LSI Products returns are mutually exclusive.
15.2 Discontinued Products may be returned if they are in merchantable
condition as described in Section 15.1. No offsetting order is required for
returning Discontinued Products.
15.3 During the period beginning six (6) months after the Effective Date
and ending twelve (12) months following the Effective Date, (Reptron
Electronics Inc.) may elect to return to Samsung for credit any remaining
inventory of Products received in the initial stocking package. Such
returns shall be subject to the terms, conditions and procedures specified
of this paragraph 15. Requests for returns of the Products under this
subparagraph shall not be counted as "stock rotation" for the purposes of
computing the amount of products returnable by (Reptron Electronics, Inc.)
under subparagraph 15.1.
15.4 Any credit for returned Products is subject to the inspection end
testing of such Products by SAMSUNG. If, in samsung's judgment, any of such
Products have been improperly handled or used, no credit or replacement for
those Products will be allowed.
15.5 The credit for any returned Products shall be equal to the net
purchase price paid by (Reptron Electronics, Inc.) and calculated on a FIFO
basis and may be applied to future invoices for SAMSUNG Products only.
15.6 All custom or semi-custom products shall not be included in definition
of "Products" for purpose of this Section 15.
16. Audits. SAMSUNG reserves the right to have an authorized SAMSUNG
representative, at samsung's cost, audit (Reptron Electronics, Inc.)
records relating to sales and inventory of Products including, without
limitation, records pertaining to any claim submitted by (Reptron
Electronics, Inc.) for stock rotation, returned Products, or any other
reason. (Reptron Electronics, Inc.) agrees that with Reasonable notice by
SAMSUNG, (Reptron Electronics, Inc.) will allow SAMSUNG or a representative
of SAMSUNG access to all SAMSUNG inventories for the purpose of inspecting
or auditing such inventory, at samsung's request.
Confidential
8
17. Assignment. (Reptron Electronics7 Inc.) shall not assign its rights or
delegate its performance hereunder without the prior written consent of
SAMSUNG and any attempted assignment or delegation without such consent
shall be void.
18. Confidential Information.
18.1 (Reptron Electronics, Inc.) acknowledges that, in the course of
promoting and selling SAMSUNG Products and performing its duties under this
Agreement, it may obtain information relating to SAMSUNG, its customers and
its Products which (Reptron Electronics, Inc.) knows or has reason to know
is of a confidential and/or proprietary nature ("Confidential
Information'). Such Confidential Information may include' but is not
limited to, minimum price guidelines, future product releases, trade
secrets, know-how, inventions, methods of manufacture, techniques,
processes, programs, schematics, data, pricing and discount lists and
schedules, customer lists, financial information and sales and marketing
plans. (Reptron Electronics, Inc.) shall at all times, both during the tend
of this Agreement and thereafter, keep and hold such Confidential
Information in the strictest of confidence, and shall not use or disclose
such Confidential Information for any purpose, other than as may be
reasonably necessary for the performance of its duties as samsung's
(Reptron Electronics, Inc.) pursuant to and during the term of this
Agreement. The obligations of this paragraph shall survive the termination
of this Agreement.
18.2 (Reptron Electronics, Inc.) acknowledges and agrees that all
information concerning (Reptron Electronics, Inc.) sales activities and
customers for the Products provided to SAMSUNG pursuant to Section 4, shall
become the property of SAMSUNG. (Reptron Electronics, Inc.) acknowledges
that SAMSUNG may use such information in its planning and marketing
strategies.
19. Term and Termination.
19.1 This Agreement shall become effective as of the 1st day of June, 1998
and shall continue until expiration of the last day of June, 1999, or until
terminated by either party as set forth below.
19.2 EITHER PARTY MAY TERMINATE THIS AGREEMENT AT ANY TIME AND FOR ANY
REASON, WITH OR WITHOUT CAUSE, WITHOUT WARNING OR PENALTY AND WITHOUT
COMPENSATION OF ANY KIND EXCEPT AS EXPRESSLY SET FORTH HEREIN.
19.2.1 The effective termination date shall be deemed to be the thirtieth
(30th) day following the giving of written notice by the terminating
party, and any inaccuracies in the designation of the effective
termination date (in the termination notice or elsewhere) shall not
constitute a breach of this Agreement or a waiver of any right
hereunder and shall not in any way impact the rights or obligations
of the parties hereto.
19.3 Notwithstanding the foregoing, upon the occurrence of any of the
events described below, SAMSUNG may terminate this Agreement immediately by
giving to (Reptron Electronics, Inc.) written notice of such termination.
In the event of a termination pursuant to this Section 19.3, the effective
termination date shall be the date on which written notice of termination
is given.
19.3.1 SAMSUNG may terminate this Agreement immediately upon the occurrence
of the Following events:
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19.3.1.1 (Reptron Electronics, Inc.) materially breaches or defaults in any
of the terms or condition of this Agreement.
19.3. 1.2 (Reptron Electronics, Inc.) ceases to exist as a business entity,
or otherwise terminates or significantly limits its business
operations.
19.3.1.3 (Reptron Electronics, Inc.) is liquidated, dissolved, reorganized,
merged, sells substantially all of its assets, enters into
receivership or changes its management, voting control or Corporate
form.
19.3.1.4 (Reptron Electronics, Inc.) fails to secure or renew any license
or permit necessary for the conduct of its business, or if any license is
revoked or suspended for any reason.
19.3.1.5 (Reptron Electronics, Inc.) makes an assignment for the benefit of
creditors.
19.3.1.6 (Reptron Electronics, Inc.) is insolvent or unable to pay its
debts as they mature in ordinary course of business, or if there are
any proceedings instituted by or against (Reptron Electronics, Inc.)
in bankruptcy or under any insolvency laws or for reorganization,
receivership or dissolution.
19.4 In the event of a termination pursuant to this Section 19, SAMSUNG
will repurchase all Products which appear in samsung's current Price List
and are in (Reptron Electronics, Inc.) inventory at the time of such
termination, and which are undamaged and in salable condition, on the
following terms and conditions:
19.4.1 (Reptron Electronics, Inc.) shall within thirty (30) days following
such termination, furnish SAMSUNG with an inventory of all Products
which it desires to have SAMSUNG repurchase pursuant to this
subparagraph 19.4. SAMSUNG shall not be obligated to repurchase any
Products from (Reptron Electronics, Inc.) if (Reptron Electronics,
Inc.) has not submitted the inventory report within such thirty- (30)
day period.
19.4.2 (Reptron Electronics, Inc.) shall ship Products, freight prepaid, to
Samsung's plant at San Jose, California, or such other location or
locations as SAMSUNG may designate.
19.4.3 SAMSUNG shall not be obligated to repurchase any Products which are
defective or not in salable condition at the time of their receipt by
SAMSUNG. In no event shall SAMSUNG be obligated to repurchase any
obsolete, custom or semi-custom SAMSUNG Products that (Reptron
Electronics, Inc.) may have in its inventory.
19.4.4 The price paid by SAMSUNG for any Products repurchased shall be the
net price determined on a FIFO basis, actually paid by (Reptron
Electronics, Inc.).
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19.4.5 In the event (Reptron Electronics, Inc.) terminates this Agreement,
or SAMSUNG terminates this agreement for breach, the price determined
pursuant to sub- paragraph 19.4.4 above shall be reduced by a ten-
percent (10%) re-stocking charge. If Samsung terminates without
cause, there will be no re-stocking charge
19.5 SAMSUNG shall not, by reason of the termination or non-renewal of this
Agreement, be liable to (Reptron Electronics, Inc.) for compensation,
reimbursement of damages, either on account present or prospective profits
on sales or anticipated sales, or on account of expenditures, investments
or commitments made in connection with this Agreement, or in connection
with the establishment, development or maintenance of the business or
goodwill of (Reptron Electronics, Inc.), or on account of any other cause
or matter whatsoever. Such termination or non-renewal shall not affect,
however, the rights or liabilities of the parties with respect to any
breach of his Agreement prior to such termination, any Products previously
ordered or sold hereunder, or any indebtedness then owing by either party
to the other. The acceptance of any order for the sales of any of this
Agreement shall not be construed as a renewal or extension of this
Agreement, nor as a waiver of any such termination or expiration.
20. FORCE MAJEURE. The obligations of the parties may be suspended by
either party in the event of an act of God, war, riot, explosion, accident,
flood, sabotage; lack of or inability to obtain adequate fuel, power, raw
materials, labor, containers or transportation facilities; excessive demand
for any Products over the supply available to SAMSUNG; customs duties or
surcharges; any interruption for any reason in the manufacture of Products
to SAMSUNG; any interruption for any reason in the manufacture of Goods by
Samsung's supplier, compliance with governmental requests, laws,
regulations, orders or action; breakage or failure of machinery or
apparatus; national defense requirements, or any other event beyond the
reasons able control of such party; or in the event of labor trouble,
strike, lockout, or injunction (provided that neither party shall be
required to settle a labor dispute against its own best judgment). In the
event that Samsung's capacity to perform is excused under the above
conditions, either in whole or part, SAMSUNG shall be under no duty to
allocate deliveries among its various customers. Orders subject to excuse
under this Section 20 shall be canceled without liability, but this
Agreement shall otherwise need to remain unaffected
21. General Provisions.
21.1 The failure of either party to enforce at any time or for any period
of the provisions of this Agreement shall not be construed to be a waiver
of those provisions or of the right of that party thereafter to enforce
each and every provision hereof.
21.2 Promptly upon the termination of this Agreement, (Reptron Electronics,
Inc.) shall on its own initiative turn over to SAMSUNG all Confidential
Information and all other SAMSUNG information and material, including
without limitation, all samples, pamphlets, catalogs, booklets and other
technical advertising data and literature, and all copies thereof, in the
possession, custody or control of (Reptron Electronics, Inc.).
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21.3 All notices which any party to this Agreement may be required or may
wish to give may be given by addressing them to the other party at the
addresses set forth below (or at such other addresses as may be designated
by written notices given in the manner designated herein) by: (a) personal
delivery; or (b) sending such notices by commercial overnight courier with
written verification of actual receipt; or (c) sending them by registered
or certified mail. If so mailed or otherwise delivered, such notices shall
be deemed and presumed to have been given on the earlier of the date of
actual receipt or three (3) days after mailing or authorized form of
delivery. The parties' addresses are:
SAMSUNG
Samsung Semiconductor, Inc.
3655 North First Street
San Jose, Ca 95134
Attn: Sr. Vice President
Sales and Marketing
(Reptron Electronics, Inc.) 14401 McCormick Drive Tampa, FL 33626
21.4 This Agreement (and any other documents referred to herein) shall in
all respects be interpreted, enforced and governed by and under the laws of
the State of California, applicable to instruments, persons and
transactions which have legal contacts and relationships solely within the
State of California. The language of this Agreement shall be construed as a
whole according to its fair meaning, and not strictly for or against any of
the parties. Any litigation under this Agreement may be instituted in a
court of competent jurisdiction of the State of California seated in San
Jose, California, or the U.S. District Court located in San Jose,
California, and the parties hereby submit to the jurisdiction of such
courts.
21.5 (Reptron Electronics, Inc.) represents and acknowledges that it is
relying solely on its own judgment, including its own estimate of the
market for Products, in entering into this Agreement (Reptron Electronics,
Inc.) further represents and acknowledges that SAMSUNG has made no written
or verbal representations or warranties, either expressed or implied,
regarding the subject matter hereof, including, without limitation, the
duration of the distribution right created hereby, the circumstances under
which this Agreement shall or may be terminated, or the size of the market
for Products, or the amount of revenue (Reptron Electronics, Inc.) will,
could or might expect to receive from the sales of Products.
21.6 The title of the various paragraphs of this Agreement are used for
convenience of reference only and are not intended to and shall not in any
way enlarge or diminish the rights or obligations of the parties or affect
the meaning or construction of this document.
21.7 Each party has had adequate opportunity to make whatever investigation
or inquiry it deems necessary or desirable in connection with the subject
matter of this Agreement to the execution hereof. Each party has read and
understands each provision of this Agreement.
21.8 This Agreement may be executed in two counterparts, each of which
shall be deemed an original but both of which constitute one and the same
Agreement.
21.9 If any of the provisions of this Agreement are found invalid or
unenforceable, those parts will be amended to achieve as nearly as possible
the same effect as the original provisions, and the remainder of this
Agreement will remain in full force.
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21.10 Integration/Modification/Entire Agreement. This Agreement constitutes
the entire Agreement and final understanding of the parties with
respect to the subject matter hereof and supersedes and terminates
any and all prior and/or contemporaneous communications,
negotiations, representations, understandings, statements,
discussions, offers and/or agreements between the parties, whether
written or verbal, express or implied, direct or indirect, relating
in any way to the subject matter hereof. This Agreement is intended
by the parties to be complete and wholly integrated expression of
their understanding and agreement, and it may not be altered,
amended, revised modified or otherwise changed in any way except by
a written instrument, which specifically identifies the intended
alteration, amendment, revision modification or other change and
clearly expresses the intention to so change this agreement, signed
by an office of (Reptron Electronics, Inc.) and by samsung's Senior
Vice-President of Sales and Marketing.
(Reptron Electronics, Inc.):
By /s/ Michael L. Musto
TITLE: CEO
SAMSUNG SEMICONDUCTOR, INC.
By /s/Keith D. McDonald
TITLE: Sr. Vice President Sales and Marketing
Confidential
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EXHIBIT 10.4
REVOLVING CREDIT AND SECURITY AGREEMENT
THIS REVOLVING CREDIT AND SECURITY AGREEMENT (this "Agreement")
dated January 8, 1999, 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,
Reptron Pennsylvania, Superior and Hibbing, each a "Borrower" and
collectively "Borrowers"); the financial institutions which are now or
which hereafter become a party hereto (collectively, the "Lenders" and
individually a "Lender"); and PNC BANK, NATIONAL ASSOCIATION, a national
association ("PNC"), as collateral and administrative agent for Lenders
(PNC, together with its successors and assigns in such capacity, the
"Agent").
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrowers, Lenders and Agent hereby agree as follows:
SECTION 1. DEFINITIONS.
1.1 Accounting Terms. As used in this Agreement, each
Revolving Credit Note, or any certificate, report or other document made
or delivered pursuant to this Agreement, accounting terms not defined in
Section 1.2 or elsewhere in this Agreement and accounting terms partly
defined in Section 1.2 to the extent not defined, shall have the
respective meanings given to them under GAAP; provided, however, whenever
such accounting terms are used for the purposes of determining compliance
with financial covenants in this Agreement, such accounting terms shall be
defined in accordance with GAAP as applied in preparation of the audited
financial statements of Borrowers for the Fiscal Year ended December 31,
1997.
1.2 General Terms. For purposes of this Agreement the
following terms shall have the following meanings (terms defined in the
singular to have the same meaning when used in the plural, and vice
versa):
"Accountants" shall have the meaning set forth in Section 9.7 hereof.
"Acquisition" shall mean any transaction, or any series of
related transactions, by which a Borrower directly or indirectly (i)
acquires any ongoing business of all or substantially all of the assets of
any Person, whether through the purchase of assets, merger or otherwise,
(ii) acquires (in one transaction or as the most recent transaction in a
series of transactions) control of at least a majority in ordinary voting
power of the Equity Interests having ordinary voting power for the
election of directors, or (iii) acquires control of 50% or more of the
Equity Interests in any other Person.
~.
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"Acquisition Documents" shall mean all stock purchase
agreements, merger agreements, asset purchase agreements or similar
agreements, documents or instruments entered into by a Borrower in
connection with an Acquisition and all schedules, exhibits and attachments
forming a part thereof.
"Acquisition Target" shall mean a Person whose assets or
Equity Interests are to be acquired by a Borrower or a wholly-owned
Subsidiary of a Borrower.
"Advance" shall mean a Revolving Advance 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.
"Advance Rates" shall have the meaning set forth in Section 2.1(a) hereof.
"Affiliate" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any
Person who is a director or officer (i) of such Person, (ii) of any
Subsidiary of such Person or (iii) of any Person described in clause (a)
above. For purposes of this definition, control of a Person shall mean the
power, direct or indirect, (x) to vote 15% or more of the Equity Interests
having ordinary voting power for the election of directors of such Person
or the individuals performing similar functions for any such Person, or
(y) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Agent" shall have the meaning set forth in the preamble to
this Agreement and shall include its successors and assigns.
"Alternate Base Rate" shall mean, for any day, a rate per
annum equal to the higher of (i) the Base Rate in effect on such day and
(ii) the Federal Funds Rate in effect on such day plus /: of 1%.
"Applicable Facility Fee Percentage" shall mean a percentage
equal to three-tenths of one percent (0.30%) per annum; provided that,
commencing on April 1, 2000, if there exists no Default or Event of
Default, then the Applicable Facility Fee Percentage shall be increased or
decreased based upon the Pricing Formula Ratio as set forth on Exhibit E.
The Applicable Facility Fee Percentage shall be subject to reduction or
increase, as applicable and as set forth in the table above, on a
quarterly basis according to the performance of Borrowers as measured by
the Pricing Formula Ratio for the immediately preceding four (4) Fiscal
Quarters of Borrowers on a consolidated basis. If the financial statements
of Borrowers and the attached calculations setting forth Pricing Formula
Ratio are not received by Agent by the date required pursuant to Sections
9.7 and 9.8 of this Agreement, the Applicable Facility Fee Percentage
shall be determined as if the Pricing Formula Ratio is less than 1.10 to
1.00 until such time as such financial statements attached calculations
are received and any Event of Default resulting from a failure timely to
deliver such financial statements or calculations is waived in writing;
provided, however, that nothing herein shall be deemed to prevent Lenders
from charging interest at the Default Rate for so long as an Event of
Default exists. For the final Fiscal Quarter of any Fiscal Year of
Borrowers, Borrowers may provide the unaudited financial statements of
Borrowers, subject only to year-end adjustments, for the purpose of
determining the Applicable Facility Fee Percentage; provided, however,
that if, upon delivery of the annual audited financial statements required
to be submitted by Borrowers pursuant to Section 9.7 of this Agreement,
Borrowers have not met the criteria for reduction of the Applicable
Facility Fee Percentage pursuant to the terms herein above for the final
Fiscal Quarter of the Fiscal Year of Borrowers then ended, then (a) such
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Applicable Facility Fee Percentage reduction shall be terminated and the
Applicable Facility Fee Percentage shall be the Applicable Facility that
would have been in effect if such reduction had not been implemented based
upon the unaudited financial statements of Borrowers for the final Fiscal
Quarter of the Fiscal Year of Borrowers then ended, and (b) Borrowers
shall pay to Agent, for the ratable benefit of the Lenders, on the first
day of the month following receipt by Agent of such audited financial
statements, an amount equal to the difference between the amount of
interest that would have been paid using the Applicable Facility Fee
Percentage determined based upon such audited financial statements and the
amount of the fee actually paid during the period in which the reduction
of the Applicable Facility Fee Percentage was in effect based upon the
unaudited financial statements for the final Fiscal Quarter of the Fiscal
Year of Borrowers then ended.
"Applicable Law" shall mean all laws, rules and regulations
applicable to the Person, conduct, transaction, covenant, Loan Document or
Material Contract in question, including all applicable common law and
equitable principles; all provisions of all applicable state, federal and
foreign constitutions, statutes, rules, regulations and orders of
governmental bodies; and all orders, judgments and decrees of all courts
and arbitrators.
"Applicable Margin" shall mean percentage equal to two and
one-quarter percent (2.25%) for Eurodollar Rate Loans and zero (0) for
Domestic Rate Loans; provided that, commencing on April 1, 2000, if there
exists no Default or Event of Default, then the Margin Fee shall be
increased or decreased based upon the Pricing Formula Ratio as set forth
on Exhibit E. The Applicable Margin shall be subject to reduction or
increase, as applicable and as set forth in the table above, on a
quarterly basis according to the performance of Borrowers as measured by
the Pricing Formula Ratio for the immediately preceding four (4) Fiscal
Quarters of Borrowers. Except as set forth in the last sentence hereof,
any such increase or reduction in the Applicable Margin provided for
herein shall be effective three (3) Business Days after receipt by Lender
of the applicable financial statements and corresponding calculations;
provided, however, that any reduction in the Applicable Margin shall not
apply to any LIBOR Loans outstanding on the effective date of such
reduction that have an Interest Period commencing prior to the effective
date of such reduction. If the financial statements and the corresponding
calculations of Borrowers setting forth the Pricing Formula Ratio are not
received by Agent by the date required pursuant to Sections 9.7 and 9.8 of
the Agreement, the Applicable Margin shall be determined as if the Pricing
Formula Ratio is less than 1.10 to 1.00 until such time as such financial
statements and corresponding calculations are received and any Event of
Default resulting from a failure timely to deliver such financial
statements or Compliance Certificate is waived in writing; provided,
however, that nothing herein shall be deemed to prevent Lenders from
charging interest at the Default Rate for so long as an Event of Default
exists. For the final Fiscal Quarter of any Fiscal Year of Borrowers,
Borrowers may provide the unaudited financial statements of Borrowers,
subject only to year-end adjustments, for the purpose of determining the
Applicable Margin; provided, however, that if, upon delivery of the annual
audited financial statements required to be submitted by Borrowers
pursuant to Section 9.7 of the Agreement, Borrowers have not met the
criteria for reduction of the Applicable Margin pursuant to the terms
herein above for the final Fiscal Quarter of the Fiscal Year of Borrowers
then ended, then (a) such Applicable Margin reduction shall be terminated
and, effective on the first day of the month following receipt by Agent of
such audited financial statements, the Applicable Margin shall be the
Applicable Margin that would have been in effect if such reduction had not
been implemented based upon the unaudited financial statements of
Borrowers for the final Fiscal Quarter of the Fiscal Year of Borrowers
then ended, and (b) Borrowers shall pay to Agent, for the ratable benefit
of the Lenders, on the first day of the month following receipt by Agent
of such audited financial statements, an amount equal to the difference
between the amount of interest that would have been paid on the principal
amount of the Obligations using the Applicable Margin determined based
upon such audited financial statements and the amount of interest actually
paid during the
{72406 7} 001246-00024
period in which the reduction of the Applicable Margin was, in effect,
based upon the unaudited financial statements for the final Fiscal Quarter
of the Fiscal Year of Borrowers then ended.
"Authority" shall have the meaning set forth in Section 4.19(d).
"Base Rate" shall mean the base commercial lending rate of PNC
as publicly announced to be in effect from time to time, such rate to be
adjusted automatically, without notice, on the effective date of any
change in such rate. This rate of interest is determined from time to time
by PNC as a means of pricing some loans to its customers and is neither
tied to any external rate of interest or index nor does it necessarily
reflect the lowest rate of interest actually charged by PNC to any
particular class or category of customers of PNC.
"Blocked Account" shall have the meaning ascribed to it in Section 4.1
5(h) hereof.
"Board of Directors" shall mean either the board of directors
of Reptron or any duly authorized committee of such board.
"Borrower" or "Borrowers" shall have the meaning set forth in
the preamble to this Agreement, all Persons who become a Borrower by
executing and delivering a Joiner Agreement at Agent's request, and shall
extend to all permitted successors and assigns of such Persons.
"Borrowers on a consolidated basis" shall mean the Borrowers'
accounts or other items as to which such term applies consolidated in
accordance with GAAP.
"Borrowers' Account" shall have the meaning set forth in Section 2.8.
"Borrowing Agent" shall mean Reptron.
"Borrowing Base Certificate" shall mean a certificate from the
President or Chief Financial Officer of the Borrowing Agent to Agent by
which such officer shall certify to Agent the Formula Amount and
calculation thereof as of the date of the certificate, such certificate to
be in form and substance satisfactory to Agent.
"Building Fixtures" shall mean any Property of a Borrower that
is permanently affixed to and made a part of Owned Real Estate of such
Borrower and that consists of electrical wiring incorporated into any
building on such Owned Real Estate, light fixtures, boilers, heating and
air conditioning units, elevators, carpeting, plumbing, screens, awnings,
radiators, mirrors, mantels, sprinkler systems and built-in cabinets.
"Business Day" shall mean with respect to Eurodollar Rate
Loans, any day on which commercial banks are open for domestic and
international business, including dealings in Dollar deposits in London,
England and New York, New York, and with respect to all other matters, any
day other than a day on which commercial banks in New York are authorized
or required by law to close.
"Business Interruption Insurance Assignment" shall mean the
Collateral Assignment of Business Interruption Insurance to be executed by
each Borrower on the Closing Date in favor of Agent, for its benefit and
for the ratable benefit of Lenders, as security for the payment of the
Obligations.
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/
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"Capital Expenditures" shall mean expenditures made or
liabilities incurred for the acquisition of any fixed assets or
improvements, replacements, substitutions or additions thereto which have a
useful life of more than one year, including the total principal portion of
Capitalized Lease Obligations; provided, however, that Capital Expenditures
shall not include the purchase price paid by any Borrower in connection
with a Permitted Acquisition.
"Capitalized Lease Obligation" shall mean any Indebtedness of
a Borrower represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Cash Taxes" shall mean, for any period, the actual federal,
state and location taxes of a Person based on income or business activity
paid in cash during such period.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et
seq.
by the parties hereto.
~72406 7) 001246-00024
"Change of Control" shall mean (a) the acquisition by any
Person (including any syndicate or group deemed to be a "person" under
Section 13(d)(3) of the Exchange Act of (i) beneficial ownership, directly
or indirectly, through a purchase, merger or other acquisition transaction
or series of transactions, of shares of capital stock of Reptron entitling
such Person to exercise fifty percent (50%) or more of the total voting
power of all share of capital stock of Reptron entitled to vote generally
in the elections of the Board of Directors, other than any such acquisition
by any Borrower, any employee benefit plan of Reptron or by Michael L.
Musto, the President and Chief Executive Officer of Reptron, or (ii) the
right or ability by voting power, contract or otherwise to elect or
designate a majority of the entire Board of Directors; (b) any
consolidation of any Borrower with, or merger of any Borrower into, any
other Person, any merger of another Person into any Borrower, or any
conveyance, sale, transfer or lease, in one transaction or a series of
related transactions, of all or substantially all of the assets (other than
to another Borrower) of any Borrower to any other Person, other than a
Permitted Acquisition or a Permitted Spinoff; (c) at any time Continuing
Directors cease to constitute a majority of the Board of Directors then in
of rice; (d) Reptron shall cease to own 100% of the issued and outstanding
capital stock of Superior and Reptron Pennsylvania; (e) Superior shall
cease to own 100% of the issued and outstanding capital stock of Hibbing;
(f) Hibbing shall cease to own 100% of the issued and outstanding capital
stock of Hibbing Maryland; or (g) any merger, consolidation or sale of
substantially all of the property or assets of any Borrower, except any
such merger, consolidation or sale by one Borrower with or to another
Borrower.
"Charges" shall mean all taxes, charges, fees, imposts, levies
or other assessments, including all net income, gross income, gross
receipts, sales, use, ad valorem, value added, transfer, franchise,
profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp,
occupation and property taxes, custom duties, fees, assessments, Liens,
claims and charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts, imposed by any
taxing or other authority, domestic or foreign (including the Pension
Benefit Guaranty Corporation or any environmental agency or superfund),
upon the Collateral, any Borrower or any of its Affiliates.
"Closing Date" shall mean January 8, 1999 or such other date as may be
agreed to in writing
- - - 5 -
"Code" shall mean the Internal Revenue Code of 1986.
"Collateral" shall mean and include all of the following types
or items of property or interests in property of each Borrower:
(a) all Receivables (including the NationsBank Term Loan as
well as the NationsBank Term Note evidencing the obligation of Reptron to
pay same);
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all of each Borrower's right, title and interest in and to
(i) its respective goods and other property including all merchandise
returned or rejected by Customers, relating to or securing any of the
Receivables; (ii) all of each Borrower's rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lien or,
including stoppage in transit, setoff, detinue, replevin, reclamation and
repurchase; (iii) all additional amounts due to any Borrower from any
Customer relating to the Receivables; (iv) other property, including
warranty claims, relating to any goods securing this Agreement; (v) all of
each Borrower's contract rights, rights of payment which have been earned
under a contract right, instruments, documents, chattel paper, warehouse
receipts, deposit accounts, money, securities and investment property;
(vi) if and when obtained by any Borrower, all real and personal property
of third parties in which such Borrower has been granted a Lien or
security interest as security for the payment or enforcement of
Receivables; and (vii) any other goods, personal property or real property
now owned or hereafter acquired in which any Borrower has expressly
granted a security interest or may in the future grant a security interest
to Agent hereunder, or in any amendment or supplement hereto or thereto,
or under any other agreement between Agent and any Borrower;
(f) all of each Borrower's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers,
computer software (owned by any Borrower or in which it has an interest),
computer programs, tapes, disks and documents relating to (a), (b), (c),
(d) or (e) of this Paragraph; and
(g) all proceeds and products of (a), (b), (c), (d), (e) and
(f) in whatever form, including: cash, deposit accounts (whether or not
comprised solely of proceeds), certificates of deposit, insurance proceeds
(including hazard, flood and credit insurance), negotiable instruments and
other instruments for the payment of money, chattel paper, security
agreements, documents, eminent domain proceeds, condemnation proceeds and
tort claim proceeds.
"Commitment Percentage" of any Lender shall mean the
percentage set forth below such Lender's name on the signature page hereof
as same may be adjusted upon any assignment by a Lender pursuant to
Section 16.3(b) hereof.
"Commitment Transfer Supplement" shall mean a document in the
form of Exhibit D hereto, properly completed and otherwise in form and
substance satisfactory to Agent by which the Eligible Assignee purchases
and assumes a portion of the obligation of Lenders to make Advances under
this Agreement.
~ 72406 7 ~ 00 1 246-00024
- - - 6 -
"Compliance Certificate" shall mean a compliance certificate
to be signed by the chief financial officer of Borrowing Agent, which
shall state that, based on an examination sufficient to permit him to make
an informed statement, no Default or Event of Default exists, or if such
is not the case, specifying such Default or Event of Default, its nature,
when it occurred, whether it is continuing and the steps being taken by
Borrowers with respect to such default and, such certificate shall have
appended thereto calculations which set forth Borrowers' compliance with
the requirements or restrictions imposed by Section 6.5, 7.6 and 7.1 I
hereof.
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of
Governmental Bodies and other third parties, domestic or foreign,
necessary to carry on any Borrower's business, including all consents
required by Applicable Law.
"Consigned Inventory" shall mean Inventory of a Borrower that
is in the possession of another Person on a consignment, sale or return,
or other basis that does not constitute a final sale and acceptance of
such Inventory.
"Continuing Director" shall mean, at any date, a member of
Reptron's Board of Directors who (i) was a member of such Board of
Directors on the Closing Date or (ii) was nominated or elected by at least
two-thirds of the directors who were Continuing Directors at the time of
such nomination or election or whose election to such Board of Directors
was recommended or endorsed by at least two-thirds of the directors who
where Continuing Directors at the time of such election.
"Controlled Group" shall mean all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with any Borrower, are
treated as a single employer under Section 414 of the Code.
"Customer" shall mean and include the account debtor with
respect to any Receivable and/or the prospective purchaser of goods,
services or both with respect to any contract or contract right, and/or
any party who enters into or proposes to enter into any contract or other
arrangement with any Borrower, pursuant to which such Borrower is to
deliver any personal property or perform any services.
"Default" shall mean an event which, with the giving of notice
or passage of time or both, would constitute an Event of Default.
"Default Rate" shall have the meaning set forth in Section 3.1 hereof.
"Defaulting Lender" shall have the meaning set forth in Section 2.16(a)
hereof.
"Depository Accounts" shall have the meaning set forth in Section 4.1 S(h)
hereof.
"Documents" shall have the meaning set forth in Section 8.1(c) hereof.
"Dollar" and the sign "$" shall mean lawful money of the United States of
America.
Base Rate.
,
|72406.7) 00 1 246-00024
"Domestic Rate Loan" shall mean any Advance that bears interest based upon
the Alternate
- - - 7 -
~ -
"Early Termination Date" shall have the meaning set forth in Section 13.1
hereof.
"Earnings Before Interest and Taxes" shall mean, for any
period, the sum of (i) net income (or loss) of Borrowers on a consolidated
basis for such period (excluding extraordinary gains), ~ (ii) all interest
expense of Borrowers on a consolidated basis for such period, p1~ (iii)
all charges against income of Borrowers on a consolidated basis for such
period for federal, state and local taxes.
"EBITDA" shall mean for any period the sum, for Borrowers on a
consolidated basis, of (i) Earnings Before Interest and Taxes for such
period plus (ii) depreciation expenses for such period,
(iii) amortization expenses for such period.
"Eligible Assignee" shall mean a Lender or a U.S. based
Affiliate of a Lender; a commercial bank organized under the laws of the
United States or any state and having total assets in excess of
$5,000,000,000 or an asset-based lending Affiliate of any such banks; or
any other financial institution that is acceptable to Agent and Lenders
and that in the ordinary course of its business extends credit of the type
evidenced by the Revolving Credit Notes and as total assets in excess of
$1,000,000,000.
"Eligible Inventory" shall mean and include, with respect to
each Borrower, all Inventory of such Borrower (excluding work-in-process
and packaging materials), valued at the lower of cost or market value,
determined on a first-in-first-out basis, which is not, in Agent's
opinion, obsolete, slow moving or unmerchantable and which Agent, in its
sole discretion, shall not deem ineligible Inventory based on such
considerations as Agent may from time to time deem to be appropriate,
including whether the Inventory is subject to a perfected, first priority
security interest in favor of Agent, whether the Inventory is subject to
any other Lien that is not a Permitted Encumbrance, and whether the
Inventory conforms to all standards imposed by any Governmental Body that
has regulatory authority over such goods or the use or sale thereof.
Without limiting the generality of the foregoing, no Inventory shall be
Eligible Inventory if it does not meet all standards imposed by any
Governmental Body, is in transit, is located outside the continental
United States, is situated at a location (other than a location owned by a
Borrower) and not subject to a landlord, mortgagee or warehouse agreement
satisfactory to Agent, is situated at a location that is not otherwise in
compliance with this Agreement, is Inventory owned by Hibbing that is not
covered by a final appraisal received by Agent from MB Valuation Services,
Inc. and in form and substance satisfactory to Agent, or constitutes
Consigned Inventory.
"Eligible Receivables" shall mean and include, with respect to
each Borrower, each Receivable of such Borrower arising in the ordinary
course of such Borrower's business and which Agent, in its sole credit
judgment, shall deem to be an Eligible Receivable, based on such
considerations as Agent may from time to time deem appropriate. A
Receivable shall not be deemed eligible unless such Receivable is subject
to Agent's first priority perfected security interest and no other Lien
(other than Permitted Encumbrances), and is evidenced by an invoice or
other documentary evidence satisfactory to Agent. In addition, no
Receivable shall be an Eligible Receivable if:
(a) it arises out of a sale made by any Borrower to an
Affiliate of any Borrower or to a Person controlled by an Affiliate of any
Borrower;
(b) it is due or unpaid more than ninety (90) days after the
original invoice date;
{70406 7} 001246-00024
(c) fifty percent (50%) or more of the Receivables from such
Customer are not deemed Eligible Receivables hereunder. Such percentage
may, in Agent's sole discretion, be increased or decreased from time to
time;
(d) any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached;
(e) the Customer shall (i) apply for, suffer, or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property or call a meeting of its creditors, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general assignment
for the benefit of creditors, (iv) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect), (v) be
adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vii)
acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii)
take any action for the purpose of effecting any of the foregoing;
(f) the sale is to a Customer outside the continental United
States of America, unless the sale is on letter of credit, guaranty or
acceptance terms, in each case acceptable to Agent in its sole discretion;
(g) the sale to the Customer is on a bill-and-hold, guaranteed
sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
(h) Agent believes, in its sole judgment, that collection of
such Receivable is insecure or that such Receivable may not be paid by
reason of the Customer's financial inability to pay;
(i) the Customer is the United States of America, any state or
any department, agency or instrumentality of any of them, unless the
applicable Borrower assigns its right to payment of such Receivable to
Agent pursuant to the Assignment of Claims Act of 1940, as amended (31
U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.) or
has otherwise complied with other applicable statutes or ordinances;
(j) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the Customer or the services
giving rise to such Receivable have not been performed by the applicable
Borrower and accepted
by the Customer or the Receivable otherwise does not represent a final
sale;
(k) the Receivables of the Customer exceed a credit limit
determined by Agent, in its sole discretion, to the extent such Receivable
exceeds such limit;
(1) the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim, the Customer is also a creditor or
supplier of a Borrower or the Receivable is contingent in any respect or
for
any reason;
(m) the applicable Borrower has made any agreement with any
Customer for any deduction therefrom, except for discounts or allowances
made in the ordinary course of business for prompt payment, all of which
discounts or allowances are reflected in the calculation of the face value
of each respective invoice related thereto;
{72406.7) 00 1 246-00024
_ 9 _
(n) shipment of the merchandise or the rendition of services has
not been completed;
(o)
any return, rejection or repossession of the merchandise has occurred;
(p) such Receivable is not payable to a Borrower; or
(q) such Receivable is not otherwise satisfactory to Agent as
determined in good faith by Agent in the exercise of its discretion in a
reasonable manner.
"Environmental Complaint" shall have the meaning set forth in Section
4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances and codes relating to the protection
of the environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling, production or disposal
of Hazardous Substances and the rules, regulations, policies, guidelines,
interpretations, decisions, orders and directives of federal, state and
local governmental agencies and authorities with respect thereto.
"Equipment" shall mean and include, as to each Borrower, all
of such Borrower's goods (other than Inventory) whether now owned or
hereafter acquired and wherever located, including all equipment,
machinery, apparatus, motor vehicles, fittings, furniture, furnishings,
fixtures (other than Building Fixtures), parts, accessories and all
replacements and substitutions therefor or accessions thereto.
"Equity Interest" shall mean the interest of (i) a shareholder
in a corporation, (ii) a partner (whether general or limited) in a
partnership (whether general, limited or limited liability), (iii) a
member in a limited liability company, or (iv) any other Person having any
other form of equity security or ownership interest.
F;,-~
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and the rules and regulations
promulgated thereunder.
Eurodollar Rate.
hereof.
"Eurodollar Rate Loan" shall mean an Advance at any time that bears
interest based on the
"Eurodollar Rate" shall mean for any Eurodollar Rate Loan for
the then current Interest Period relating thereto the interest rate per
annum determined by PNC by dividing (the resulting quotient rounded
upwards, if necessary, to the nearest 1/lOOth of 1% per annum) (i) the
rate of interest determined by PNC in accordance with its usual procedures
(which determination shall be conclusive absent manifest error) to be the
eurodollar rate two (2) Business Days prior to the first day of such
Interest Period for an amount comparable to such Eurodollar Rate Loan and
having a borrowing date and a maturity comparable to such Interest Period
by (ii) a number equal to 1.00 minus the Reserve Percentage.
"Event of Default" shall mean the occurrence of any of the events set
forth in Article X
"Exchange Act" shall mean the United State Securities Exchange
Act of 1934 (or any successor statute), as amended from time to time.
{72406 7} 001246-00024
- - - 10
"Excluded Equipment" shall mean each of the items of Equipment
described on Schedule 1.2A hereto. but only so long as (i) such item of
Equipment is subject to a valid and enforceable Lien that is in favor of a
Person other than Agent that is in existence on the Closing Date, and (ii)
an agreement is in effect between the Borrower owning such Equipment and
the holder of such Lien that prohibits such Borrower from granting a Lien
on such Equipment to another Person.
"Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or if
such rate is not so published for any day which is a Business Day, the
average of quotations for such day on such transactions received by PNC
from three (3) Federal funds brokers of recognized standing selected by
PNC.
Borrowers and PNC.
"Fee Letter" shall mean that certain letter agreement dated December 29,
199X among
"Fiscal Quarter" shall mean one (1) of the four (4) fiscal
quarters of Borrowers and their Subsidiaries for accounting and tax
purposes, which end on March 31, June 30, September 30 and December 31 of
each Fiscal Year.
"Fiscal Year" shall mean the fiscal year of Borrowers and
their Subsidiaries for accounting and tax purposes, which ends on December
31 of each year and, when preceded by the designation of a calendar year
(e.g., 1999 Fiscal Year), means the Fiscal Year of Borrowers and their
Subsidiaries ended on December 31 of such designated calendar year.
"Fixed Charges" shall mean, with respect to Borrowers on a
consolidated basis for any period, the sum of (i) interest expense of
Borrowers for such period; (ii) the aggregate of all scheduled principal
payments on Funded Debt during such period; (iii) cash dividends,
distributions, repurchases or redemptions permitted under this Agreement,
whether declared or paid; (iv) payments with respect to Capitalized Lease
Obligations during such period; and (v) Indebtedness that is payable
during such period with respect to Capital Expenditures (other than
Capital Expenditures made or incurred to maintain or preserve assets of a
Borrower); provided, however, that Fixed Charges shall not include the
amounts actually expended by the Borrowers in connection with (a)
redemptions or repurchases of the Equity Interests of any Borrower
permitted by Section 7.7 hereof and (b) prepayment of the Subordinated
Indebtedness permitted by Section 7.17 hereof.
"Formula Amount" shall have the meaning set forth in Section 2.1(
"Funded Debt" shall mean all Capitalized Lease Obligations and
all other Indebtedness that would, in accordance with GAAP, constitute
long-term debt, including any Indebtedness with a maturity of more than
one ( I ) year after the creation thereof and any Indebtedness that is
renewable or extendable at the option of a Borrower for a period of more
than one (1) year from the date of creation of such Indebtedness.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
172406 7} 001246-00024
- - - 11 -
"General Intangibles" shall mean and include, as to each
Borrower, all of such Borrower's general intangibles, whether now owned or
hereafter acquired, including all chases in action, causes of action,
corporate or other business records, inventions, designs, patents, patent
applications, equipment formulations, manufacturing procedures, quality
control procedures, trademarks, service marks, trade secrets, goodwill,
copyrights, design rights, registrations, licenses, franchises, customer
lists, tax refunds, tax refund claims, computer programs, all claims under
guaranties, security interests or other security held by or granted to
such Borrower to secure payment of any of the Receivables by a Customer
all rights of indemnification and all other intangible property of every
kind and nature (other than Receivables).
"Governmental Body" shall mean any nation or government, any
state or other political subdivision thereof or any entity exercising the
legislative, judicial, regulatory or administrative functions of or
pertaining to a government.
"Guarantor" shall mean a Person who may hereafter guarantee
payment or performance of the whole or any part of the Obligations and
"Guarantors" means collectively all such Persons.
"Guaranty" shall mean any guaranty of the Obligations executed
by a Guarantor in favor of Agent for Agent's benefit and for the ratable
benefit of Lenders.
"Guaranty Security Documents" shall mean and include (i) a
Security Agreement duly executed by a Guarantor in favor of Agent, in form
and content acceptable to Agent, and by which such Guarantor shall grant a
security interest in favor of Agent, for its benefit and for the ratable
benefit of Lenders, in all of such Guarantor's properties as security for
the Obligations and such Guarantor's Guaranty, and (ii) all Lien
Perfection Documents requested by Agent.
"Hazardous Discharge" shall have the meaning set forth in Section 4.19(d)
hereof.
corporation.
"Hazardous Substance" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls, petroleum and
petroleum products, methane, hazardous materials, Hazardous Wastes,
hazardous or Toxic Substances or related materials as defined in CERCLA,
the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801, et
seq.), RCRA, or any other applicable Environmental Law and in the
regulations adopted pursuant thereto.
"Hazardous Wastes" shall mean all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other
applicable Federal and state laws now in force or hereafter enacted
relating to hazardous waste disposal.
"Hibbing Maryland" shall mean Hibbing Electronics Corporation MD, a
Maryland
"Indebtedness" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be
classified upon a balance sheet as liabilities (except capital stock and
surplus earned or otherwise) and in any event, without limitation by
reason of enumeration, shall include all indebtedness, debt and other
similar monetary obligations of such Person whether direct or guaranteed,
and all premiums, if any, due at the required prepayment dates of such
indebtedness, and all indebtedness secured by a Lien on assets owned by
such Person, whether or not such indebtedness actually shall have been
created,
( 72406 7 ~00 1 246-00024
- - - 12 -
assumed or incurred by such Person. Any indebtedness of such Person
resulting from the acquisition by such Person of any assets subject to any
Lien shall be deemed, for the purposes hereof, to be the equivalent of the
creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"Indenture" shall mean that certain Indenture dated as of
August 5, 1997, between Reptron and Reliance Trust Company, as Trustee.
Section 2.2(b).
"Individual Formula Amount" shall mean at the date of
determination thereof, with respect to each Borrower, an amount equal to:
(i) up to the Receivables Advance Rate of Eligible Receivables of such
Borrower, ~ (ii) up to the Inventory Advance Rate of the value of Eligible
Inventory of such Borrower; minus (iv) such reserves as Agent may
reasonably deem proper and necessary from time to time.
"Interest Period" shall mean the period provided for any Eurodollar Rate
Loan pursuant to
"Interest Rate Agreement" shall mean any forward contracts,
future contracts, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate change agreement
or other similar agreement or arrangement designed to protect any Borrower
against fluctuations in interest rates.
"Inventory" shall mean and include as to each Borrower all of
such Borrower's now owned or hereafter acquired goods, merchandise and
other personal property, wherever located, to be furnished under any
contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in such Borrower's
business or used in selling or furnishing such goods, merchandise and
other personal property, and all documents of title or other documents
representing them.
"Inventory Advance Rate" shall have the meaning set forth in Section
2.1(a)(y)(ii) hereof.
"Joinder Agreement" shall mean an agreement in the form of
Exhibit B annexed hereto by which a Person that is a wholly-owned
Subsidiary of a Borrower shall become a "Borrower" under, and shall be
bound by all the terms of, this Agreement, but only if and to the extent
requested or permitted to do so by Agent in the exercise of its sole and
absolute discretion.
"Leasehold Interest" shall mean the interest of a Borrower as
lessee under a lease with respect to the premises used or occupied by it
or at which any of the Collateral is stored.
"Lender" and "Lenders" shall have the meaning ascribed to such
term in the preamble to this Agreement and shall include each Person which
becomes a transferee, successor or assign of any Lender.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), Charge, claim or preference, priority or other security
agreement or preferential arrangement held or asserted in respect of any
asset of any kind or nature whatsoever, including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement
to give, any financing statement under the UCC or comparable law of any
jurisdiction.
~ 72406.7 ~ 00 1 246-00024
"Lien Perfection Documents" shall mean all instruments,
agreements, filings and recordings necessary or, in Agent's reasonable
determination, necessary or desirable to perfect, maintain or continue the
perfection of, or achieve or maintain the first priority status of any
Lien granted to Agent pursuant to any of the Loan Documents by any
Borrower or Guarantor, including all UCC- 1 financing statements, pledges,
assignments, hypothecations, registrations of pledge, notifications,
bailment agreements, landlord or mortgagee waivers, processor waivers,
intercreditor agreements, subordination agreements, chattel mortgage
filings or similar instruments, agreements or documents.
"Loan Documents" shall mean this Agreement and all of the Other Documents.
$50,000,000.
"Material Adverse Effect" shall mean a material adverse effect
upon (a) the condition, operations, assets, business or prospects of any
Borrower or Guarantor, (b) any Borrower's or Guarantor's ability to pay
the Obligations in accordance with the terms thereof, (c) the value of the
Collateral, or Agent's Liens on the Collateral or the priority of any such
Lien or (d) the practical realization of the benefits of Agent's and each
Lender's rights and remedies under this Agreement and the Other Documents.
"Material Contract" shall mean an agreement to which a
Borrower or Guarantor is a party (other than the Loan Documents) (i) which
is deemed to be a material contract as provided in Regulation S-K
promulgated by the SEC under the Securities Act of 1933 or (ii) for which
breach, termination, cancellation, nonperformance or failure to renew
could reasonably be expected to have a Material Adverse Effect.
"Maximum Revolving Advance Amount" shall mean, from and after the Closing
Date,
"Money Borrowed" shall mean, as applied to any Person, (i)
Indebtedness arising from the lending of money by any other Person to such
Person; (ii) Indebtedness, whether or not in any such case arising from
the lending of money by another Person to such Person, (A) which is
represented by notes payable or drafts accepted that evidence extensions
of credit, (B) which constitutes obligations evidenced by bonds,
debentures, notes or similar instruments, or (C) upon which interest
charges are customarily paid (other than accounts payable) or that was
issued or assumed as full or partial payment for property; (iii)
Indebtedness that constitutes a capitalized lease obligation; (iv)
reimbursement obligations with respect to letters of credit or guaranties
of letters of credit; and (v) Indebtedness of such Person under any
guaranty of obligations that would constitute Indebtedness for Money
Borrowed under clauses (i) through (iii) hereof, if owed directly by such
Person.
"Monthly Advances" shall have the meaning set forth in Section 3.1 hereof.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Sections 3(37) and 4001(a)(3) of ERISA.
"NationsBank" shall mean NationsBank, N.A., and its successors in
interest.
"NationsBank Mortgage" shall mean the mortgage executed by
Reptron with respect to the Real Property owned by Reptron in Tampa,
Florida, to secure payment of the NationsBank Term Loan.
'72406 7) 001246-00024
- - - 14
"NationsBank Term Loan" shall mean the term loan made by
NationsBank to Reptron, in the original principal amount of $8,800,000,
which is secured by the NationsBank Mortgage and as evidenced by the
NationsBank Term Note.
"NationsBank Term Note" shall mean the promissory note
evidencing the obligation of Reptron to pay the NationsBank Term Loan.
"Net Amount" shall mean, with reference to Eligible
Receivables, the face amount of such Eligible Receivables on any date,
less any and all returns, rebates, discounts (which may, at Agent's
option, be calculated on shortest terms), credits, allowances or taxes
(including sales, excise or other taxes) at any time issued, owing,
claimed by Customers, granted, outstanding or payable in connection with,
or any interest accrued on the amount of, such Eligible Receivables at
such date.
"Note Pledge" shall mean the Note Pledge Agreement to be
executed by Reptron Pennsylvania in favor of Agent on or before the
Closing Date and by which Reptron Pennsylvania shall grant a Lien to
Agent, for its benefit and for the ratable benefit of Lenders, as security
for the Obligations, all of Reptron Pennsylvania's' right, title and
interest in and to the NationsBank Term Note and the NationsBank Mortgage.
"Obligations" shall mean and include the following, in each
case, whether now in existence or hereafter arising, (i) the principal of,
and interest and premium, if any, on the Advances; (ii) all Indebtedness
and other obligations of any Borrower to any Lender under any Interest
Rate Agreement, currency or equity swap, future, option, or other similar
agreement or arrangement; (iii) all other Indebtedness, covenants and
duties now or at any time or times hereafter owing by any or all of
Borrowers to Agent or any Lender arising under or pursuant to this
Agreement or any of the other Loan Documents, whether evidenced by any
note or other writing, whether arising from any extension of credit,
opening of a letter of credit, acceptance, loan, guaranty, indemnification
or otherwise, whether direct or indirect, absolute or contingent, due or
to become due, primary or secondary, or joint or several, including all
interest, charges, expenses, fees or other sums chargeable to any or all
Borrowers or Guarantors hereunder or under any of the other Loan
Documents; and (iv) in the case of PNC and its Affiliates, any
indebtedness, liabilities, obligations, covenants and duties arising in
connection with any banking or related transactions, services or functions
provided to any Borrower or Guarantor in connection with any conduct of
such Borrower's or Guarantor's business (excluding extensions of credit
giving rise to any Indebtedness for Money Borrowed not related to this
Agreement or any other Loan Documents).
"Organization Documents" shall mean, with respect to any
Person, its charter, certificate or articles of incorporation, bylaws,
articles of organization, operating agreement, members' agreement,
partnership agreement, voting trust or similar agreement or instrument
governing the formation or operation of such Person.
"Other Documents" shall mean the Revolving Credit Notes, any
Interest Rate Agreement with PNC, the Questionnaires, each Joinder
Agreement, each Guaranty, the Guaranty Security Documents, the Trademark
Security Agreement, the Note Pledge, the Business Interruption Insurance
Assignment, all Lien Perfection Documents and any and all other
agreements, instruments and documents, including guaranties, pledges,
powers of attorney, consents, and all other writings heretofore, now or
hereafter executed by any Borrower or any Guarantor and/or delivered to
Agent or any Lender in respect of the transactions contemplated by this
Agreement.
t72406 7} 001246-00024
- - - 15 -
- - -
"Out-of-Formula Condition" shall have the meaning set forth in Section
2.1(c) of this
Agreement.
"Out-of-Formula Loan" shall mean a Revolving Advance made when
an Out-of-Formula Condition exists or the amount of any Revolving Advance
which, when funded, results in an Out-of-Formula Condition.
"Owned Real Property" shall mean the Real Property that is
owned by a Borrower and that is located in Tampa, Florida and Gaylord,
Michigan.
"Parent" of any Person shall mean a corporation or other
entity owning, directly or indirectly at least 50% of the shares of stock
or other Equity Interests having ordinary voting power to elect a majority
of the directors of the Person or other individuals performing similar
functions for any such Person.
"Participant" shall mean each Person who shall be granted the
right by any Lender to participate in any of the Advances and who shall
have entered into a participation agreement in form and substance
satisfactory to such Lender.
"Payment Office" shall mean initially Two PNC Plaza, 620
Liberty Avenue, 18th Floor, Pittsburgh, Pennsylvania 15222; thereafter,
such other office of Agent, if any, which it may designate by notice to
Borrowing Agent and to each Lender to be the Payment Office.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"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 $1O,00O,000; (v) Borrowers' consummation
of the Acquisition will be in compliance with Applicable Law (and Agent
and Lenders shall have received 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,
~ 72406 7 ~ 00 1 246-00024
- - - 16
- - - ~
a Guaranty and Guaranty Security Documents. Borrowers' acquisition of All
American Semiconductor Inc. shall not be deemed a Permitted Acquisition.
"Permitted Encumbrances" shall mean (a) Liens in favor of
Agent for the benefit of Agent and Lenders; (b) Liens for taxes,
assessments or other governmental charges not delinquent or being contested
in good faith and by appropriate proceedings and with respect to which
proper reserves have been taken by Borrowers, but only if the Lien shall
have no effect on the priority of the Liens in favor of Agent or the value
of the assets in which Agent has such a Lien and a stay of enforcement of
any such Lien shall be in effect; (c) Liens disclosed in the financial
statements referred to in Section 5.5, the existence of which Agent has
consented to in writing; (d) deposits or pledges to secure obligations
under worker's compensation, social security or similar laws, or under
unemployment insurance; (e) deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of any Borrower's business; (f)
judgment Liens that have been stayed or bonded and mechanics', workers',
materialmen's or other like Liens arising in the ordinary course of any
Borrower's business with respect to obligations which are not due or which
are being contested in good faith by the applicable Borrower; (g) Liens
relating to operating leases that are permitted by this Agreement; (h)
Purchase Money Liens that secure Permitted Purchase Money Indebtedness; (i)
Liens securing Indebtedness of a Borrower, or Subsidiary of a Borrower, to
another Borrower or such other Borrower's Subsidiary; (j) Liens in favor of
NationsBank on the Closing Date that are to be satisfied in full and
released on the Closing Date as a result of the application of Borrower's
cash on hand at the Closing Date from the proceeds of the Advance is to be
made on the Closing Date; and (k) Liens disclosed on Schedule 1.2B.
"Permitted Purchase Money Indebtedness" shall mean Purchase
Money Indebtedness of Borrowers (excluding any Purchase Money Indebtedness
arising in connection with a Permitted Sale/Leaseback Transaction) which is
incurred after the date of this Agreement and which is secured by no Lien
or only by a Purchase Money Lien, provided the aggregate amount of Purchase
Money Indebtedness hereafter incurred in a Fiscal Year by Borrowers Am the
aggregate of all Sale/Leaseback Transactions in such Fiscal Year by
Borrowers may not exceed $12,500,000. For the purposes of this definition,
the principal amount of any Purchase Money Indebtedness consisting of
capitalized leases shall be computed as a Capitalized Lease Obligation.
"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 April 1, 2000, Undrawn Availability is not less than
$10,000,000; 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 As 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 ( 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
( 72406.7 } 00 1 246-00024
- - - 17
- - -
- - - -
Transaction (including the remittance of proceeds therefrom to Agent) on
or before April 1, 200O, Undrawn Availability is not less than $1
O,00O,000; 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 Us aggregate of all Sale/Leaseback Transactions in such Fiscal
Year by Borrowers may not exceed $12,50O,000.
"Permitted Spinoff' shall mean a transaction in which a
Borrower creates a Subsidiary that is, and all times remains, a
wholly-owned Subsidiary of such Borrower and to which such Borrower
transfers all or a part of its assets, provided that no Default or Event
of Default exists at the time of, or after giving effect to, such
transaction; such Borrower provides Agent with not less than fifteen (15)
Business Days prior written notice of its intent to effect such a
transaction (in which written notice such Borrower shall summarize all of
the pertinent terms of the proposed transaction); and concurrently with
the consummation of such transaction such Subsidiary 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.
"Person" shall mean any individual, sole proprietorship,
partnership, corporation, business trust, joint stock company, trust,
unincorporated organization, association, limited liability company,
institution, public benefit corporation, joint venture, entity or
government (whether Federal, state, county, city, municipal or otherwise,
including any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean any employee benefit plan within the meaning
of Section 3(3) of ERISA, maintained for employees of Borrowers or any
member of the Controlled Group or any such Plan to which any Borrower or
any member of the Controlled Group is required to contribute on behalf of
any of its employees.
"Pricing Formula Ratio" shall mean and include, with respect
to any fiscal period for Borrowers on a consolidated basis, the ratio of
(a) EBITDA mires Unfunded Capital Expenditures minus Cash Taxes minus
payment of any management fees payable by a Borrower to a Person other
than another Borrower (to the extent not included in the calculation of
EBITDA), to (b) Fixed Charges, all calculated for such period in
accordance with GAAP.
"Pro Forma Balance Sheet" shall have the meaning set forth in Section
5.5(a) hereof.
"Pro Forma Financial Statements" shall have the meaning set forth in
Section 5.5(b) hereof.
"Projections" shall have the meaning set forth in Section 5.5(b) hereof.
"Purchase Money Indebtedness" shall mean and include (i)
Indebtedness (other than the Obligations) of any or all of Borrowers for
the payment of all or any part of the purchase price of any fixed assets,
(ii) any Indebtedness (other than the Obligations) of any or all of
Borrowers incurred at the time of or within ten (10) days prior to or
after the acquisition of any fixed assets for the purpose of financing all
or any part of the purchase price thereof (whether by means of a loan
agreement, capitalized lease or otherwise), and (iii) any renewals,
extensions or refinancings (but not any increases in the principal
amounts) thereof outstanding at the time.
{ 72406.7 ~ 00 1 246-00024
- - - 18 -
An
"Purchase Money Lien" shall mean a Lien upon fixed assets which
secures Purchase Money Indebtedness, but only if such Lien shall at all
times be confined solely to the fixed assets acquired through the
incurrence of the Purchase Money Indebtedness secured by such Lien and
such Lien constitutes a purchase money security interest under the UCC.
"Questionnaire" shall mean the Documentation Information
Questionnaire and the responses thereto provided by each Borrower and
delivered to Agent.
"RCRA" shall mean the Resource Conservation and Recovery Act,
42 U.S.C. 6901 et seq., as same may be amended from time to time.
"Real Property" shall mean all of each Borrower's right, title
and interest in and to any real property, whether owned or leased by such
Borrower.
"Receivables" shall mean and include, as to each Borrower, all
of such Borrower's accounts, contract rights, instruments (including those
evidencing Indebtedness owed to a Borrower by any of its Affiliates),
documents, chattel paper, general intangibles relating to accounts, drafts
and acceptances, and all other forms of obligations owing to such Borrower
arising out of or in connection with the sale or lease of Inventory or the
rendition of services, all guarantees and other security therefor, whether
secured or unsecured, now existing or hereafter created, and whether or
not specifically sold or assigned to Agent hereunder.
"Receivables Advance Rate" shall have the meaning set forth in Section
2.1(a)(y)(i) hereof.
"Release" shall have the meaning set forth in Section 5.7(c)(i) hereof.
Of any Borrower.
~ 72406.7 ~ 00 1 246-00024
"Reportable Event" shall mean a reportable event described in
Section 4043(b) of ERISA or the regulations promulgated thereunder.
"Required Lenders" shall mean Lenders holding at least
fifty-one percent (51%) of the Advances and, if no Advances are
outstanding, shall mean Lenders holding fifty-one percent (51 %) of the
Commitment Percentages; provided, however, that if any Lender shall be in
breach of its obligations hereunder to any Borrower or Agent, including
any breach resulting from its failure to honor its commitment in
accordance with the terms of this Agreement, then, for so long as such
breach continues, the term "Required Lenders" shall mean Lenders
(excluding each Lender that is in breach of its obligations hereunder)
holding at least fifty-one percent (51%) of the Advances, and, if no
Advances are outstanding, at least fifty-one percent (51%) of the
Commitment Percentages.
"Reserve Percentage" shall mean the maximum effective
percentage in effect on any day as prescribed by the Board of Governors of
the Federal Reserve System (or any successor) for determining the reserve
requirements (including supplemental, marginal and emergency reserve
requirements) with respect to euroccurency funding.
"Revolving Advances" shall mean Advances made under this Agreement to be
for the benefit
- - - 19
- - -
Section 2. 1 (a) hereof.
"Revolving Credit Notes" shall mean, collectively, promissory notes
referred to in
"Revolving Interest Rate" shall mean an interest rate per
annum equal to (a) the sum of the Alternate Base Rate p1~ the Applicable
Margin with respect to Domestic Rate Loans, (b) the sum of the Eurodollar
Rate ~21~ the Applicable Margin with respect to Eurodollar Rate Loans.
"Sale/Leaseback Transaction" shall mean a transaction in which
a Borrower shall sell a portion of its Equipment to a Person and shall
concurrently lease such Equipment back from such Person, pursuant to the
terms of a written lease (whether or not such lease constitutes a true
lease or a financing lease).
"Settlement Date" shall mean the Closing Date and thereafter
Wednesday of each week unless such day is not a Business Day in which case
it shall be the next succeeding Business Day.
"Solvent" shall mean, with respect to any Person, such Person
(i) owns Property whose fair saleable value is greater than the amount
required to pay all of such Person's Indebtedness (including contingent),
(ii) is able to pay all of its Indebtedness as such Indebtedness matures,
(iii) has capital sufficient to carry on its business and transactions and
all business and transactions in which it is about to engage, and (iv) is
not "insolvent" within the meaning of Section 101(32) of the Bankruptcy
Code.
"Subordinated Debt Documents" shall mean all instruments and
agreements now or hereafter executed by any or all of Borrowers in favor
of any Person to evidence any Borrower's obligation to pay any
Subordinated Indebtedness, including the Indenture and the Subordinated
Notes.
"Subordinated Indebtedness" shall mean the Indebtedness of
Reptron evidenced by the Subordinated Notes and all of the Indebtedness of
any or all of Borrowers that is fully and completely subordinated to the
payment of the Obligations in a manner acceptable to Agent.
"Subordinated Notes" shall mean the 63/~% Convertible
Subordinated Notes issued by Reptron pursuant to the Indenture.
"Subordinated Loan Documents" shall mean (i) the Indenture,
(ii) each of the Subordinated Notes, (iii) any and all other agreements,
instruments and documents, and all other writings heretofore, now or
hereafter executed by Reptron or any other Person in respect of the
transactions contemplated by the Indenture and (iv) any other instrument
or agreement or hereafter executed by any Borrower in favor of a Person to
evidence the obligation of such Borrower to pay Subordinated Indebtedness.
"Subsidiary" shall mean a corporation or other entity of whose
shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other Persons performing similar
functions for such entity, are owned, directly or indirectly, by such
Person.
"Term" shall have the meaning set forth in Section 13.1 hereof.
"Termination Event" shall mean (i) a Reportable Event with
respect to any Plan or Multiemployer Plan; (ii) the withdrawal of any
Borrower or any member of the Controlled Group from a Plan
~ 72406.7 } 00 1 246-00024
- - - 20 -
- - - -
or Multiemployer Plan during a plan year in which such entity was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii) the
providing of notice of intent to terminate a Plan in a distress termination
described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of
proceedings to terminate a Plan or Multiemployer Plan; (v) any event or
condition (a) which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Plan or Multiemployer Plan, or (b) that may result in termination of a
Multiemployer Plan pursuant to Section 4041 A of ERISA; or (vi) the partial
or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of any Borrower or any member of the Controlled Group from a
Multiemployer Plan.
"Toxic Substance" shall mean and include any material present
on the Real Property or the Leasehold Interests which has been shown to
have significant adverse effect on human health or which is subject to
regulation under the Toxic Substances Control Act (TSCA), 15 U.S.C. 2601
et seq., applicable state law, or any other applicable Federal or state
laws now in force or hereafter enacted relating to toxic substances. "Toxic
Substance" includes asbestos, polychlorinated biphenyls (PCBs) and
lead-based paints.
"Trademark Security Agreement" shall mean the Trademark
Security Agreement to be executed by Reptron in favor of Agent on or before
the Closing Date and by which Reptron shall collaterally assign and grant a
Lien to Agent, for its benefit and for the ratable benefit of Lenders, as
security for the Obligations, all of Reptron's right, title and interest in
and to all of its trademarks.
,,~
"Transferee" shall have the meaning set forth in Section 16.3(b) hereof.
~CC" shall mean the Uniform Commercial Code (or any successor
statute) as adopted and in force in the State of Georgia or, when the laws
of any other state govern the method or manner of the perfection or
enforcement of any security interest in any of the Collateral, the Uniform
Commercial Code (or any successor statute) of such state.
"Undrawn Availability" at a particular date shall mean an
amount equal to (a) the lesser of (i) the Formula Amount or (ii) the
Maximum Revolving Advance Amount, minus (b) the sum of (i) the outstanding
amount of Advances, plus (ii) all amounts due and owing to Borrowers' trade
creditors which are 60 days or more past due, plus (iii) fees and expenses
for which Borrowers are liable but which have not been paid or charged to
Borrowers' Account.
"Unfunded Capital Expenditures" shall mean, for any period,
the Capital Expenditures of a Person not financed by a means other than an
Advance hereunder.
"Upstream Payment" shall mean a payment or distribution of
cash or other property by a Subsidiary of a Borrower to such Borrower,
whether in repayment of Indebtedness owed by such Subsidiary to such
Borrower, to pay dividends on account of such Borrower's ownership of
Equity Interests or otherwise.
"Value" shall mean, with reference to the value of Inventory,
value determined on the basis of the lower of cost or market of such
Inventory, with the cost thereof calculated on a first-in, first-out basis,
determined in accordance with GAAP.
"Week" shall mean the time period commencing with the opening
of business on a Wednesday and ending on the end of business the following
Tuesday.
~ 72406 7 ~ 00 1 246-00024
- - - 21 -
1.3 UCC Terms. All terms used herein and defined in the UCC as
adopted in the State of Georgia shall have the meaning given therein
unless otherwise defined herein.
1.4 Certain Matters of Construction. The terms "herein,"
"hereof," and "hereunto. and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders.
Wherever appropriate in the context, terms used herein in the singular
also include the plural and vice versa. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references herein to the time of day shall
mean the time in Atlanta, Georgia. Unless otherwise provided all
references to any instruments or agreements to which Agent is a party,
including references to any of the Other Documents, shall include any and
all modifications or amendments thereto and any and all extensions or
renewals thereof. Whenever the words "including" or "include" shall be
used, such words shall be understood to mean "including, without
limitation" or "include, without limitation." A Default or Event of
Default shall be deemed to exist at all times during the period commencing
on the date that such Default or Event of Default occurs to the date on
which such Default or Event of Default is waived in writing pursuant to
this Agreement or, in the case of a Default, is cured with any period of
cure expressly provided for in this Agreement; and an Event of Default
shall "continue" or be "continuing" until such Event of Default has been
waived in writing by Agent. Any Lien referred to in this Agreement or any
of the Other Documents as having been created in favor of Agent, any
agreement entered into by Agent pursuant to this Agreement or any of the
Other Documents, any payment made by or to or funds received by Agent
pursuant to or as contemplated by this Agreement or any of the Other
Documents, or any act taken or admitted to be taken by Agent, shall,
unless otherwise expressly provided, be created, entered into, made or
received, or taken or omitted, for the benefit or account of Agent and
Lenders.
.
SECTION 2. ADVANCES. PAYMENTS.
2.1 Revolving Advances. (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 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) 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) 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 the right
(exercisable at such time or times as Agent deems
{72406 7) 001246-00024
- - - 22 -
appropriate) to require that separate calculations of the 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.
(b) Discretionary Rights. The Advance Rates may be increased
or decreased by Agent at any time and from time to time in the exercise of
its reasonable discretion. Each Borrower consents to any such increases or
decreases and acknowledges that decreasing the Advance Rates or increasing
the reserves may limit or restrict Advances requested by Borrowing Agent.
Agent shall give Borrowing Agent five (5) days prior written notice of its
intention to decrease the Advance Rates.
(c) Out-of-Formula Loans. If the unpaid balance of Revolving
Advances outstanding at any time should exceed the Formula Amount at such
time (an "Out-of-Formula Condition"), such Revolving Advances shall
nevertheless constitute Obligations that are secured by the Collateral and
entitled to all of the benefits of the Loan Documents. If Agent or Lenders
are willing in their sole and absolute discretion to make Out-of-Formula
Loans, such Out-of-Formula Loans shall be payable on demand and shall bear
interest at the Default Rate; provided that, if Lenders do make
Out-of-Formula Loans, neither Agent nor Lenders shall be deemed thereby to
have changed the limits of Section 2.1 (a) or be obligated to honor
requests for Revolving Advances when an Out-of-Formula Condition exists or
would result therefrom.
2.2 Procedure for Revolving Advances Borrowing.
(a) Borrowing Agent on behalf of any Borrower may notify Agent
prior to 12:00 noon (New York time) on a Business Day of a Borrower's
request to incur, on that day, a Revolving Advance hereunder. Should any
amount required to be paid as interest hereunder, or as fees or other
charges under this Agreement or any other agreement with Agent or Lenders,
or with respect to any other Obligation, become due, same shall be deemed
a request for a Revolving Advance as of the date such payment is due, in
the amount required to pay in full such interest, fee, charge or
Obligation under this Agreement or any other agreement with Agent or
Lenders, and such request shall be irrevocable.
(b) Notwithstanding the provisions of (a) above, in the event
any Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent
shall give Agent at least three (3) Business Days prior written notice,
specifying (i) the date of the proposed borrowing (which shall be a
Business Day), (ii) the type of borrowing and the amount on the date of
such Advance to be borrowed, which amount shall be an integral multiple of
$1,000,000 and (iii) the duration of the first Interest Period therefor.
Interest Periods for Eurodollar Rate Loans shall be for one, two, three or
six months; provided, if an Interest Period would end on a day that is not
a Business Day, it shall end on the next succeeding Business Day unless
such day falls in the next succeeding calendar month in which case the
Interest Period shall end on the next preceding Business Day. No
Eurodollar Rate Loan shall be made available to Borrower during the
continuance of a Default or an Event of Default.
(c) Each Interest Period of a Eurodollar Rate Loan shall
commence on the date such Eurodollar Rate Loan is made and shall end on
such date as Borrowing Agent may elect as set forth in (b)(iii) above
provided that the exact length of each Interest Period shall be determined
in accordance with the practice of the interbank market for offshore
Dollar deposits and no Interest Period shall end after the last day of the
Term.
{72406 7} 001246-00024
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Borrowing Agent shall elect the initial Interest Period
applicable to a Eurodollar Rate Loan by its notice of borrowing given to
Agent pursuant to Section 2.2(b) or by its notice of conversion given to
Agent pursuant to Section 2.2(d), as the case may be. Borrowing Agent shall
elect the duration of each succeeding Interest Period by giving irrevocable
written notice to Agent of such duration not less than three (3) Business
Days prior to the last day of the then current Interest Period applicable
to such Eurodollar Rate Loan. If Agent does not receive timely notice of
the Interest Period elected by Borrowing Agent, Borrowers shall be deemed
to have elected to convert to a Domestic Rate Loan subject to Section
2.2(d) herein below.
(d) Provided that no Event of Default shall have occurred and
be continuing, Borrowing Agent may, on the last Business Day of the then
current Interest Period applicable to any outstanding Eurodollar Rate Loan,
or on any Business Day with respect to Domestic Rate Loans, convert any
such loan into a loan of another type in the same aggregate principal
amount provided that any conversion of a Eurodollar Rate Loan shall be made
only on the last Business Day of the then current Interest Period
applicable to such Eurodollar Rate Loan. If Borrowing Agent desires to
convert a loan, Borrowing Agent shall give Agent not less than three (3)
Business Days prior written notice to convert from a Domestic Rate Loan to
a Eurodollar Rate Loan or one (1) Business Day's prior written notice to
convert from a Eurodollar Rate Loan to a Domestic Rate Loan, specifying the
date of such conversion, the loans to be converted and if the conversion is
from a Domestic Rate Loan to any other type of loan, the duration of the
first Interest Period therefor. After giving effect to each such
conversion, there shall not be outstanding more than five (5) Eurodollar
Rate Loans, in the aggregate.
(e) Borrowers shall jointly and severally indemnify Agent and
Lenders and hold Agent and Lenders harmless from and against any and all
losses or expenses that Agent and Lenders may sustain or incur as a
consequence of any prepayment, conversion of or any default by Borrowers in
the payment of the principal of or interest on any Eurodollar Rate Loan or
failure by Borrowers to complete a borrowing of, a prepayment of or
conversion of or to a Eurodollar Rate Loan after notice thereof has been
given, including any interest payable by Agent or Lenders to lenders of
funds obtained by it in order to make or maintain its Eurodollar Rate Loans
hereunder. A certificate as to any additional amounts payable pursuant to
the foregoing sentence submitted by Agent or any Lender to Borrowing Agent
shall be conclusive absent manifest error.
,
,
(f) Notwithstanding any other provision hereof, if any
applicable law, treaty, regulation or directive, or any change therein or
in the interpretation or application thereof, shall make it unlawful for
any Lender (for purposes of this subsection (g), the term "Lender" shall
include any Lender and the of Lice or branch where any Lender or any
corporation or bank controlling such Lender makes or maintains any
Eurodollar Rate Loans) to make or maintain its Eurodollar Rate Loans, the
obligation of Lenders to make Eurodollar Rate Loans hereunder shall
forthwith be canceled and Borrowers shall, if any affected Eurodollar Rate
Loans are then outstanding, promptly upon request from Agent, either pay
all such affected Eurodollar Rate Loans or convert such affected Eurodollar
Rate Loans into loans of another type. If any such payment or conversion of
any Eurodollar Rate Loan is made on a day that is not the last day of the
Interest Period applicable to such Eurodollar Rate Loan, Borrowers shall
pay Agent, upon Agent's request, such amount or amounts as may be necessary
to compensate Lenders for any loss or expense sustained or incurred by
Lenders in respect of such Eurodollar Rate Loan as a result of such payment
or conversion, including any interest or other amounts payable by Lenders
to lenders of funds obtained by Lenders in order to make or maintain such
Eurodollar Rate Loan. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by Lenders to Borrowing Agent
shall be conclusive absent manifest error.
(72406 7) 001246-00024
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2.3 Disbursement of Advance Proceeds. All Advances shall be
disbursed from whichever office or other place Agent may designate from
time to time and, together with any and all other Obligations of Borrowers
to Agent or Lenders, shall be charged to Borrowers' Account on Agent's
books. During the Term, Borrowers may use the Revolving Advances by
borrowing, prepaying and reborrowing, all in accordance with the terms and
conditions hereof. The proceeds of each Revolving Advance requested by
Borrowers or deemed to have been requested by Borrowers under Section
2.2(a) hereof shall, with respect to requested Revolving Advances to the
extent Lenders make such Revolving Advances, be made available to the
Borrowers on the day so requested by way of credit to such operating
account at PNC, or such other bank as Borrowing Agent may designate
following notification to Agent, in immediately available federal funds or
other immediately available funds or, with respect to Revolving Advances
deemed to have been requested by any Borrower, be disbursed to Agent to be
applied to the outstanding Obligations giving rise to such deemed request.
2.4 Intentionally Omitted.
2.5 Maximum Advances. The aggregate balance of Revolving
Advances outstanding at any time shall not exceed the lesser of (a)
Maximum Revolving Advance Amount or (b) the Formula Amount.
2.6 Repayment of Obligations.
(a) The Advances and other Obligations shall be due and
payable in full on the last day of the Term subject to earlier prepayment
as herein provided.
(b) Each Borrower recognizes that the amounts evidenced by
checks, notes, drafts or any other items of payment relating to and/or
proceeds of Collateral may not be collectible by Agent on the date
received. In consideration of Agent's agreement to conditionally credit
Borrowers' Account as of the Business Day on which Agent receives those
items of payment, each Borrower agrees that, in computing the charges
under this Agreement, all items of payment shall be deemed applied by
Agent on account of the Obligations one ( I ) Business Day after the
Business Day Agent receives such payments via wire transfer or electronic
depository check. Agent is not, however, required to credit Borrowers'
Account for the amount of any item of payment that is unsatisfactory to
Agent and Agent may charge Borrowers' Account for the amount of any item
of payment which is returned to Agent unpaid.
(c) All payments of principal, interest and other amounts
payable hereunder, or under any of the related agreements shall be made to
Agent at the Payment Office not later than 1:00 p.m. (Pittsburgh,
Pennsylvania time) on the due date therefor in lawful money of the United
States of America in federal funds or other funds immediately available to
Agent. Agent shall have the right to effectuate payment on any and all
Obligations due and owing hereunder by charging Borrowers' Account or by
making Advances as provided in Section 2.2 hereof.
(d) Borrowers shall pay principal, interest, and all other
amounts payable hereunder, or under any related agreement, without any
deduction whatsoever, including any deduction for any setoff or
counterclaim.
2.7 Repayment of Excess Advances. The aggregate balance of
Advances outstanding at any time in excess of the maximum amount of
Advances permitted hereunder shall be immediately due and
{72406.7} 001246-00024
- - - 25 -
- - -
payable without the necessity of any demand, at the Payment Office, whether
or not a Default or Event of Default has occurred.
2.8 Statement of Account. Agent shall maintain, in accordance
with its customary procedures, a loan account ("Borrowers' Account") in the
name of Borrowers in which shall be recorded the date and amount of each
Advance made by Agent or Lenders and the date and amount of each payment in
respect thereof; provided, however, the failure by Agent to record the date
and amount of any Advance shall not adversely affect Agent or any Lender.
Each month, Agent shall send to Borrowing Agent a statement showing the
accounting for the Advances made, payments made or credited in respect
thereof, and other transactions among Agent, Lenders and Borrowers during
such month. The monthly statements shall be deemed correct and binding upon
Borrowers in the absence of manifest error and shall constitute an account
stated between Lenders and Borrowers, unless Agent receives a written
statement of Borrowers' specific exceptions thereto within thirty (30) days
after such statement is received by Borrowing Agent. The records of Agent
with respect to the Borrowers' Account shall be conclusive evidence absent
manifest error of the amounts of Advances and other charges thereto and of
payments applicable thereto.
2.9 Intentionally Omitted.
2.10 Intentionally Omitted.
2.11 Intentionally Omitted.
2.12 Additional Payments. Any sums expended by Agent or any
Lender due to any Borrower's failure to perform or comply with its
obligations under this Agreement or any Other Document, including any
Borrower's obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1
hereof, may be charged to Borrowers' Account as a Revolving Advance and
added to the Obligations.
2.13 Manner of Borrowing and Payment.
(a) Each borrowing of Revolving Advances shall be advanced
according to the Commitment Percentages of Lenders.
(b) Each payment (including each prepayment) by Borrowers on
account of the principal of and interest on the Revolving Advances, shall
be applied to the Revolving Advances pro rata according to the applicable
Commitment Percentages of Lenders. Except as expressly provided herein, all
payments to be made by any Borrower on account of principal, interest and
fees shall be made without set off or counterclaim and shall be made to
Agent on behalf of the Lenders to the Payment Office, in each case on or
prior to 1:00 p.m., in Dollars and in immediately available funds.
(c) (i) Notwithstanding anything to the contrary contained in
Sections 2.1 3(a) and (b) hereof, commencing with the first Business Day
following the Closing Date, each borrowing of Revolving Advances shall be
advanced by Agent and each payment by any Borrower on account of Revolving
Advances shall be applied first to those Revolving Advances advanced by
Agent. On or before 1:00 p.m., on each Settlement Date commencing with the
first Settlement Date following the Closing Date, Agent and Lenders shall
make certain payments as follows: (i) if the aggregate amount of new
Revolving Advances made by Agent during the preceding Week (if any) exceeds
the aggregate amount of repayments applied to outstanding Revolving
Advances during such preceding Week, then each Lender shall provide Agent
with funds
~ 72406.7 } 00 1 246-00024
- - - 26 -
in an amount equal to its applicable Commitment Percentage of the
difference between (w)such Revolving Advances and (x) such repayments and
(ii) if the aggregate amount of repayments applied to outstanding Revolving
Advances during such Week exceeds the aggregate amount of new Revolving
Advances made during such Week, then Agent shall provide each Lender with
funds in an amount equal to such Lender's applicable Commitment Percentage
of the difference between (y) such repayments and (z) such Revolving
Advances.
(ii) Agent and each Lender shall be entitled to earn
interest at the applicable Revolving Interest Rate on outstanding Advances
which it has funded.
(iii) Promptly following each Settlement Date, Agent
shall submit to each Lender a certificate with respect to payments received
and Advances made during the Week immediately preceding such Settlement
Date. Such certificate of Agent shall be conclusive in the absence of
manifest error.
(d) If any Lender or Participant (a "benefitted Lender") shall
at any time receive any payment of all or part of its Advances, or interest
thereon, or receive any Collateral in respect thereof (whether voluntarily
or involuntarily or by set-off) in a greater proportion than any such
payment to and Collateral received by any other Lender, if any, in respect
of such other Lender's Advances, or interest thereon, and such greater
proportionate payment or receipt of Collateral is not expressly permitted
hereunder, such benefitted Lender shall purchase for cash from the other
Lenders a participation in such portion of each such other Lender's
Advances, or shall provide such other Lender with the benefits of any such
Collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Lender to share the excess payment or benefits of such
Collateral or proceeds ratably with each of Lenders; provided, however,
that if all or any portion of such excess payment or benefits is thereafter
recovered from such benefitted Lender, such purchase shall be rescinded,
and the purchase price and benefits returned, to the extent of such
recovery, but without interest. Each Lender so purchasing a portion of
another Lender's Advances may exercise all rights of payment (including
rights of set-off) with respect to such portion as fully as if such Lender
were the direct holder of such portion.
Ad..
.-
(e) Unless Agent shall have been notified by telephone,
confirmed in writing, by any Lender that such Lender will not make the
amount which would constitute its applicable Commitment Percentage of the
Advances available to Agent, Agent may (but shall not be obligated to)
assume that such Lender shall make such amount available to Agent on the
next Settlement Date and, in reliance upon such assumption, make available
to Borrowers a corresponding amount. Agent will promptly notify Borrowers
of its receipt of any such notice from a Lender. If such amount is made
available to Agent on a date after such next Settlement Date, such Lender
shall pay to Agent on demand an amount equal to the product of (i) the
daily average Federal Funds Rate (computed on the basis of a year of 360
days) during such period as quoted by Agent, times (ii) such amount, times
(iii) the number of days from and including such Settlement Date to the
date on which such amount becomes immediately available to Agent. A
certificate of Agent submitted to any Lender with respect to any amounts
owing under this paragraph (e) shall be conclusive, in the absence of
manifest error. If such amount is not in fact made available to Agent by
such Lender within three (3) Business Days after such Settlement Date,
Agent shall be entitled to recover such an amount, with interest thereon at
the rate per annum then applicable to such Revolving Advances hereunder, on
demand from Borrowers; provided however, that Agent's right to such
recovery shall not prejudice or otherwise adversely affect Borrowers'
rights (if any) against such Lender.
{72406 7) 001246-00024
- - - 27 -
~ -
2.14 Mandatory Prepayments.
(a) When any Borrower sells or otherwise disposes of any
Collateral (other than Inventory in the ordinary course of business),
Borrowers shall repay the Advances in an amount equal to the net proceeds
of such sale (i.e., gross proceeds less the reasonable costs of such sales
or other dispositions), such repayments to be made promptly but in no event
more than one (l) Business Day following receipt of such net proceeds, and
until the date of payment, such proceeds shall be held in trust for Agent.
The foregoing shall not be deemed to be implied consent to any such sale
otherwise prohibited by the terms and conditions hereof. Such repayments
shall be applied to the Obligations in such order as Agent may determine,
subject to Borrowers' ability to reborrow Revolving Advances in accordance
with the terms hereof.
(b) Intentionally Omitted.
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
transaction; (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
this Agreement, provided that the aggregate amount of all Advances used to
redeem or 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; and (v) provide for
Borrowers' working capital needs.
2.16 Defaulting Lender.
(a) Notwithstanding anything to the contrary contained herein,
in the event any Lender (x) has refused (which refusal constitutes a breach
by such Lender of its obligations under this Agreement) to make available
its portion of any Advance or (y) notifies either Agent or Borrowing Agent
that it does not intend to make available its portion of any Advance (if
the actual refusal would constitute a breach by such Lender of its
obligations under this Agreement) (each, a "Lender Default"), all rights
and obligations hereunder of such Lender (a "Defaulting Lender") as to
which a Lender Default is in effect and of the other parties hereto shall
be modified to the extent of the express provisions of this Section 2. l 6
while such Lender Default remains in effect.
(b) Advances shall be incurred pro rata from Lenders (the
"Non-Defaulting Lenders") which are not Defaulting Lenders based on their
respective Commitment Percentages, and no Commitment Percentage of any
Lender or any pro rata share of any Advances required to be advanced by any
Lender shall be increased as a result of such Lender Default. Amounts
received in respect of principal of any type of Advances shall be applied
to reduce the applicable Advances of each Lender pro rata based on the
aggregate of the outstanding Advances of that type of all Lenders at the
time of such application; provided, that, such amount shall not be applied
to any Advances of a Defaulting Lender at any time when, and to the extent
that, the aggregate amount of Advances of any Non-Defaulting Lender exceeds
such Non-Defaulting Lender's Commitment Percentage of all Advances then
outstanding.
(72406 7} 001246-00024
- - - 28 -
(c) A Defaulting Lender shall not be entitled to give
instructions to Agent or to approve, disapprove, consent to or vote on any
matters relating to this Agreement and the Other Documents. All amendments,
waivers and other modifications of this Agreement and the Other Documents
may be made without regard to a Defaulting Lender and, for purposes of the
definition of "Required Lenders," a Defaulting Lender shall be deemed not
to be a Lender and not to have Advances outstanding.
(d) Other than as expressly set forth in this Section 2.16,
the rights and obligations of a Defaulting Lender (including the obligation
to indemnify Agent) and the other parties hereto shall remain unchanged.
Nothing in this Section 2.16 shall be deemed to release any Defaulting
Lender from its obligations under this Agreement and the Other Documents,
shall alter such obligations, shall operate as a waiver of any default by
such Defaulting Lender hereunder, or shall prejudice any rights which any
Borrower, Agent or any Lender may have against any Defaulting Lender as a
result of any default by such Defaulting Lender hereunder.
(e) In the event a Defaulting Lender retroactively cures to
the satisfaction of Agent the breach which caused a Lender to become a
Defaulting Lender, such Defaulting Lender shall no longer be a Defaulting
Lender and shall be treated as a Lender under this Agreement.
SECTION 3. INTEREST AND FEES.
,
3.1 Interest. Interest on Advances shall be payable in arrears
on the last day of each month with respect to Domestic Rate Loans and, with
respect to Eurodollar Rate Loans, at the end of each Interest Period or,
for Eurodollar Rate Loans with an Interest Period in excess of three
months, at (a) each three months on the anniversary date of the
commencement of such Eurodollar Rate Loan and (b) the end of the Interest
Period. Interest charges shall be computed on the actual principal amount
of Advances outstanding during the month (the "Monthly Advances") at a rate
per annum equal to the applicable Revolving Interest Rate. Whenever,
subsequent to the date of this Agreement, the Alternate Base Rate is
increased or decreased, the applicable Revolving Interest Rate for Domestic
Rate Loans shall be similarly changed without notice or demand of any kind
by an amount equal to the amount of such change in the Alternate Base Rate
during the time such change or changes remain in effect. The Eurodollar
Rate shall be adjusted with respect to Eurodollar Rate Loans without notice
or demand of any kind on the effective date of any change in the Reserve
Percentage as of such effective date. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, the Obligations
other than Eurodollar Rate Loans shall bear interest at the applicable
Revolving Interest Rate plus two (2%) percent per annum (the "Default
Rate").
3.2 Interest Rate Disclosure and Calculation. The Advances to
be made by Lenders to Borrowers on the Closing Date shall be made as
Domestic Rate Loans. The Alternate Base Rate on the date hereof is seven
and three-quarter percent (7.75%) per annum and, therefore, the rate of
interest in effect hereunder on the date hereof for Domestic Rate Loans,
expressed in simple interest terms, is seven and three-quarter percent
(7.75%) per annum.
3.3 Closing. Facility and Agent Fees.
(a) Upon the execution of this Agreement, Borrowers shall pay
to Agent for the ratable benefit of Lenders a closing fee of $187,500.
t72406.7} 001246-00024
- - - 29 -
(b) If, for any month during the Term, the average daily
unpaid balance of the Revolving Advances for each day of such month does
not equal the Maximum Revolving Advance Amount for such month, then
Borrowers shall pay to Agent for the ratable benefit of Lenders a fee at a
rate equal to Applicable Facility Fee Percentage on the amount by which
the Maximum Revolving Advance Amount exceeds such average daily unpaid
balance. Such fee shall be payable to Agent in arrears on the last day of
each month.
(c) In consideration of Agent's syndication of this Agreement
and service as Agent hereunder, Borrowers shall pay to Agent an agency fee
of $25,000 per year, which fee shall be payable on the Closing Date and on
each anniversary of the date of this Agreement.
3.4 Collateral Evaluation and Monitoring Fee.
(a) Borrowers shall pay Agent a collateral evaluation fee
equal to $1,750 per month, commencing on the first day of the month
following the Closing Date and on the first day of each month thereafter
during the Term. The collateral evaluation fee shall be deemed earned in
full on the date when same is due and payable hereunder and shall not be
subject to rebate or proration upon termination of this Agreement for any
reason.
(b) Borrowers shall pay to Agent on the first day of each
month following any month in which Agent performs any collateral
monitoring - namely any field examination, collateral analysis or other
business analysis, the need for which is to be determined by Agent and
which monitoring is undertaken by Agent or for Agent's benefit - a
collateral monitoring fee in an amount equal to $675 per day for each
person (other than Agent's management personnel) employed to perform such
monitoring and in an amount equal to $675 per day for each manager of
Agent performing such monitoring, plus all costs and disbursements
incurred by Agent in the performance of such examination or analysis.
3.5 Computation of Interest and Fees. Interest and fees
hereunder shall be computed on the basis of a year of 360 days and for the
actual number of days elapsed. If any payment to be made hereunder becomes
due and payable on a day other than a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and interest thereon
shall be payable at the applicable Revolving Interest Rate during such
extension.
3.6 Maximum Charges. In no event whatsoever shall interest and
other charges charged hereunder exceed the highest rate permissible under
Applicable Law. In the event interest and other charges as computed
hereunder would otherwise exceed the highest rate permitted under
Applicable Law, such excess amount shall be first applied to any unpaid
principal balance owed by Borrowers, and if the then remaining excess
amount is greater than the previously unpaid principal balance, Lenders
shall promptly refund such excess amount to Borrowers and the provisions
hereof shall be deemed amended to provide for such permissible rate.
3.7 Increased Costs. In the event that any Applicable Law,
treaty or governmental regulation, or any change therein or in the
interpretation or application thereof, or compliance by any Lender (for
purposes of this Section 3.7, the term "Lender" shall include Agent or any
Lender and any corporation or bank controlling Agent or any Lender) and
the office or branch where Agent or any Lender (as so defined) makes or
maintains any Eurodollar Rate Loans with any request or directive (whether
or not having the force of law) from any central bank or other financial,
monetary or other authority, shall:
{72406 7) 001246-00024
- - - 30 -
(a) subject Agent or any Lender to any tax of any kind
whatsoever with respect to this Agreement or any Other Document or change
the basis of taxation of payments to Agent or any Lender of principal,
fees, interest or any other amount payable hereunder or under any Other
Documents (except for changes in the rate of tax on the overall net income
of Agent or any Lender by the jurisdiction in which it maintains its
principal office);
(b) impose, modify or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held by, or
deposits in or for the account of, advances or loans by, or other credit
extended by, any of flee of Agent or any Lender, including pursuant to
Regulation D of the Board of Governors of the Federal Reserve System; or
(c) impose on Agent or any Lender or the London interbank
Eurodollar market any other condition with respect to this Agreement or
any Other Document;
and the result of any of the foregoing is to increase the cost to Agent or
any Lender of making, renewing or maintaining its Advances hereunder by an
amount that Agent or such Lender deems to be material or to reduce the
amount of any payment (whether of principal, interest or otherwise) in
respect of any of the Advances by an amount that Agent or such Lender
deems to be material, then, in any case Borrowers shall promptly pay Agent
or such Lender, upon its demand, such additional amount as will compensate
Agent or such Lender for such additional cost or such reduction, as the
case may be, provided that the foregoing shall not apply to increased
costs which are reflected in the Eurodollar Rate. Agent or such Lender
shall certify the amount of such additional cost or reduced amount to
Borrowers, and such certification shall be conclusive absent manifest
error.
3.S Basis For Determining Interest Rate Inadequate or Unfair.
In the event that Agent or any Lender shall have determined that:
(a) reasonable means do not exist for ascertaining the
Eurodollar Rate applicable pursuant to Section 2.2 hereof for any Interest
Period; or
(b) Dollar deposits in the relevant amount and for the
relevant maturity are not available in the London interbank Eurodollar
market, with respect to an outstanding Eurodollar Rate Loan, a proposed
Eurodollar Rate Loan, or a proposed conversion of a Domestic Rate Loan
into a Eurodollar Rate Loan,
then Agent shall give Borrowing Agent prompt written, telephonic or
telegraphic notice of such determination. If such notice is given, (i) any
such requested Eurodollar Rate Loan shall be made as a Domestic Rate Loan,
unless Borrowing Agent shall notify Agent no later than 10:00 a.m. (New
York City time) two (2) Business Days prior to the date of such proposed
borrowing, that its request for such borrowing shall be cancelled or made
as an unaffected type of Eurodollar Rate Loan, (ii) any Domestic Rate Loan
or Eurodollar Rate Loan that was to have been converted to an affected
type of Eurodollar Rate Loan shall be continued as or converted into a
Domestic Rate Loan, or, if Borrowing Agent shall notify Agent, no later
than 10:00 a.m. (New York City time) two (2) Business Days prior to the
proposed conversion, shall be maintained as an unaffected type of
Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar Rate
Loans shall be converted into a Domestic Rate Loan, or, if Borrowing Agent
shall notify Agent, no later than 10:00 a.m. (New York City time) two (2)
Business Days prior to the last Business Day of the then current Interest
Period applicable to such affected Eurodollar Rate Loan, shall be
converted into an unaffected type of Eurodollar Rate Loan, on the last
Business Day of the then current Interest Period for such affected
Eurodollar Rate Loans. Until such
{72406 7} 001246-00024
- - - 31 -
- - -
notice has been withdrawn, Lenders shall have no obligation to make an
affected type of Eurodollar Rate Loan or maintain outstanding affected
Eurodollar Rate Loans and no Borrower shall have the right to convert a
Domestic Rate Loan or an unaffected type of Eurodollar Rate Loan into an
affected type of Eurodollar Rate Loan.
3.9 Capital Adequacy.
(a) In the event that Agent or any Lender shall have
determined that any Applicable Law, rule, regulation or guideline regarding
capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Agent or any Lender (for purposes
of this Section 3.9, the term "Lender" shall include Agent or any Lender
and any corporation or bank controlling Agent or any Lender) and the office
or branch where Agent or any Lender (as so defined) makes or maintains any
Eurodollar Rate Loans with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing
the rate of return on Agent or any Lender's capital as a consequence of its
obligations hereunder to a level below that which Agent or such Lender
could have achieved but for such adoption, change or compliance (taking
into consideration Agent's and each Lender's policies with respect to
capital adequacy) by an amount deemed by Agent or any Lender to be
material, then, from time to time, Borrowers shall pay upon demand to Agent
or such Lender such additional amount or amounts as will compensate Agent
or such Lender for such reduction. In determining such amount or amounts,
Agent or such Lender may use any reasonable averaging or attribution
methods. The protection of this Section 3.9 shall be available to Agent and
each Lender regardless of any possible contention of invalidity or
inapplicability with respect to any Applicable Law or condition.
(b) A certificate of Agent or such Lender setting forth such
amount or amounts as shall be necessary to compensate Agent or such Lender
with respect to Section 3.9(a) hereof when delivered to Borrowers shall be
conclusive absent manifest error.
SECTION 4. COLLATERAL: GENERAL TERMS.
4.1 Security Interest in the Collateral. To secure the prompt
payment and performance to Agent and each Lender of the Obligations, each
Borrower hereby assigns, pledges and grants to Agent, for its benefit and
the ratable benefit of Lenders, a continuing security interest in and to
all of its Collateral, whether now owned or existing or hereafter acquired
or arising and wheresoever located. Each Borrower shall mark its books and
records as may be necessary or appropriate to evidence, protect and perfect
Agent's security interest and shall cause its financial statements to
reflect such security interest.
4.2 Perfection of Security Interest. Each Borrower shall take
all action that may be necessary or desirable, or that Agent may request,
so as at all times to maintain the validity, perfection, enforceability and
priority of Agent's security interest in the Collateral and to enable Agent
to protect, exercise or enforce its rights hereunder and in the Collateral,
including (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining landlords' or mortgagees' Lien waivers, (iii)
delivering to Agent, endorsed or accompanied by such instruments of
assignment as Agent may specify, and stamping or marking, in such manner as
Agent may specify, any and all chattel paper, instruments, letters of
credits and advices thereof and documents evidencing or forming a part of
the Collateral, (iv) entering into warehousing, lockbox and other custodial
arrangements satisfactory to Agent, and (v) executing and delivering, or
causing to be
{72406 7) 001246-00024
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executed or delivered, Lien Perfection Documents requested by Agent, in
each case in form and substance satisfactory to Agent, relating to the
creation, validity, perfection, maintenance or continuation of Agent's
security interest under the UCC or other Applicable Law. Agent is hereby
authorized to file financing statements signed by Agent instead of Borrower
in accordance with Section 9-402(2) of the UCC as adopted in the State of
Georgia. Reptron Pennsylvania shall execute and deliver the Note Pledge
and, pursuant to the terms thereof, deliver to Agent the original of the
NationsBank Term Note and NationsBank Mortgage, as security for the payment
of the Obligations. All charges, expenses and fees Agent may incur in doing
any of the foregoing, and any local taxes relating thereto, shall be
charged to Borrowers' Account as a Revolving Advance of a Domestic Rate
Loan and added to the Obligations, or, at Agent's option, shall be paid to
Agent for the ratable benefit of Lenders immediately upon demand.
4.3 Disposition of Collateral. Each Borrower will safeguard
and protect all Collateral for Agent's general account and make no
disposition thereof whether by sale, lease or otherwise except (a) the sale
of Inventory in the ordinary course of business, (b) the disposition or
transfer of Equipment in the ordinary course of business during any Fiscal
Year having an aggregate fair market value of not more than $3,000,000 and
only to the extent that (i) the proceeds of any such disposition are used
to acquire replacement Equipment which is subject to Agent's first priority
security interest or (ii) the proceeds of which are remitted to Agent for
application to the Obligations in accordance with this Agreement, and (c)
Permitted Sale/Leaseback Transactions.
4.4 Preservation of Collateral. Following the occurrence of a
Default or Event of Default, in addition to the rights and remedies set
forth in Section 11.1 hereof, Agent: (a) may at any time take such steps as
Agent deems necessary to protect Agent's interest in and to preserve the
Collateral, including the hiring of such security guards or the placing of
other security protection measures as Agent may deem appropriate; (b) may
employ and maintain at any of any Borrower's premises a custodian who shall
have full authority to do all acts necessary to protect Agent's interests
in the Collateral; (c) may lease warehouse facilities to which Agent may
move all or part of the Collateral; (d) may use any Borrower's owned or
leased lifts, hoists, trucks and other facilities or equipment for handling
or removing the Collateral; and (e) shall have, and is hereby granted, a
right of ingress and egress to the places where the Collateral is located,
and may proceed over and through any Borrower's Real Property. Each
Borrower shall cooperate fully with all of Agent's efforts to preserve the
Collateral and will take such actions to preserve the Collateral as Agent
may direct. All of Agent's expenses of preserving the Collateral, including
any expenses relating to the bonding of a custodian, shall be charged to
Borrowers' Account as a Revolving Advance of a Domestic Rate Loan and added
to the Obligations.
4.5 Ownership of Collateral. With respect to the Collateral,
at the time the Collateral becomes subject to Agent's security interest:
(a) each Borrower shall be the sole owner of and fully authorized and able
to sell, transfer, pledge and/or grant a first priority security interest
in each and every item of its respective Collateral to Agent; and, except
for Permitted Encumbrances the Collateral shall be free and clear of all
Liens whatsoever; (b) each document and agreement executed by each Borrower
or delivered to Agent or any Lender in connection with this Agreement shall
be true and correct in all respects; (c) all signatures and endorsements of
each Borrower that appear on such documents and agreements shall be
genuine, and each Borrower shall have full capacity to execute same; and
(d) each Borrower's Equipment and Inventory shall be located as set forth
on Schedule 4.5 and shall not be removed from such locations without the
prior written consent of Agent except with respect to the sale of Inventory
in the ordinary course of business and Equipment to the extent permitted in
Section 4.3 hereof. In no event shall (i) the aggregate Value of Consigned
Inventory on any date exceed ten percent (10%) of the aggregate Value of
all Inventory,
(72406.7) 001246 00024
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(ii) the aggregate Value of inventory at all locations leased by any
Borrower and not subject to a landlord, mortgagee or warehouseman
agreement satisfactory to Agent exceed eight percent (8%) of the aggregate
Value of all Inventory, and (iii) the aggregate Value of Inventory at any
single location leased by a Borrower and not subject to a landlord,
mortgagee or warehouseman agreement satisfactory to Agent exceed five
percent (5%) of the aggregate Value of all Inventory,.
4.6 Defense of Agent's and Lenders' Interests. Until (a)
payment and performance in full of all of the Obligations and (b)
termination of this Agreement, Agent's interests in the Collateral shall
continue in full force and effect. During such period no Borrower shall,
without Agent's prior written consent, pledge, sell (except Inventory in
the ordinary course of business and Equipment to the extent permitted in
Section 4.3 hereof), assign, transfer, create or suffer to exist a Lien
upon or encumber or allow or suffer to be encumbered in any way except for
Permitted Encumbrances, any part of the Collateral. Each Borrower shall
defend Agent's interests in the Collateral against any and all Persons
whatsoever. At any time following demand by Agent for payment of all
Obligations, Agent shall have the right to take possession of the indicia
of the Collateral and the Collateral in whatever physical form contained,
including labels, stationery, documents, instruments and advertising
materials. If Agent exercises this right to take possession of the
Collateral, Borrowers shall, upon demand, assemble it in the best manner
possible and make it available to Agent at a place reasonably convenient
to Agent. In addition, with respect to all Collateral, Agent and Lenders
shall be entitled to all of the rights and remedies set forth herein and
further provided by the UCC or other Applicable Law. Each Borrower shall,
and Agent may, at its option, instruct all suppliers, carriers,
forwarders, warehouses or others receiving or holding cash, checks,
Inventory, documents or instruments in which Agent holds a security
interest to deliver same to Agent and/or subject to Agent's order and if
they shall come into any Borrower's possession, they, and each of them,
shall be held by such Borrower in trust as Agent's trustee, and such
Borrower will immediately deliver them to Agent in their original form
together with any necessary endorsement.
4.7 Books and Records. Each Borrower shall (a) keep proper
books of record and account in which full, true and correct entries will
be made of all dealings or transactions of or in relation to its business
and affairs; (b) set up on its books accruals with respect to all Charges
and claims; and (c) on a reasonably current basis set up on its books,
from its earnings, allowances against doubtful Receivables, advances and
investments and all other proper accruals (including by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties),
which should be set aside from such earnings in connection with its
business. All determinations pursuant to this subsection shall be made in
accordance with, or as required by, GAAP consistently applied in the
opinion of such independent public accountant as shall then be regularly
engaged by Borrowers.
4.8 Financial Disclosure. Each Borrower hereby irrevocably
authorizes and directs all accountants and auditors employed by such
Borrower at any time during the Term to exhibit and deliver to Agent and
each Lender copies of any of any Borrower's financial statements, trial
balances or other accounting records of any sort in the accountant's or
auditor's possession, and to disclose to Agent and each Lender any
information such accountants may have concerning such Borrower's financial
status and business operations. Each Borrower hereby authorizes all
federal, state and municipal authorities to furnish to Agent and each
Lender copies of reports or examinations relating to such Borrower,
whether made by such Borrower or otherwise; however, Agent and each Lender
will attempt to obtain such information or materials directly from such
Borrower prior to obtaining such information or materials from such
accountants or such authorities.
(72406.7} 001246-00024
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- - - --
4.9 Compliance with Laws. Each Borrower shall comply in all
material respects with all Applicable Law with respect to its respective
Collateral or any part thereof or to the operation of such Borrowers
business the non-compliance with which could reasonably be expected to have
a Material Adverse Effect on such Borrower. Each Borrower may, however,
contest or dispute any acts, rules, regulations, orders and directions of
those bodies or officials in any reasonable manner, provided that such
contest or dispute is pursued diligently, in good faith and by appropriate
proceedings, any related Lien is inchoate or stayed and sufficient reserves
are established to the reasonable satisfaction of Agent to protect Agent's
Lien on or security interest in the Collateral. The Collateral at all times
shall be maintained in accordance with the requirements of all insurance
carriers which provide insurance with respect to the Collateral so that
such insurance shall remain in full force and effect.
4.10 Inspection of Premises. At all reasonable times Agent and
each Lender shall have full access to and the right to audit, check,
inspect and make abstracts and copies from each Borrower's books, records,
audits, correspondence and all other papers relating to the Collateral and
the operation of each Borrower's business. Agent, any Lender and their
agents may enter upon any of Borrower's premises at any time during
business hours and at any other reasonable time, and from time to time, for
the purpose of inspecting the Collateral and any and all records pertaining
thereto and the operation of such Borrower's business.
4.11 Insurance. Each Borrower shall bear the full risk of any
loss of any nature whatsoever with respect to the Collateral. At each
Borrower's own cost and expense in amounts and with carriers acceptable to
Agent, each Borrower shall (a) keep all its properties in which it has an
interest insured against the hazards of fire, flood, sprinkler leakage,
those hazards covered by extended coverage insurance and such other
hazards, and for such amounts, as is customary in the case of companies
engaged in businesses similar to such Borrower's including business
interruption insurance; (b) maintain a bond in such amounts as is customary
in the case of companies engaged in businesses similar to such Borrower
insuring against larceny, embezzlement or other criminal misappropriation
of insured's officers and employees who may either singly or jointly with
others at any time have access to the assets or funds of such Borrower
either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property
damage suffered by others; (d) maintain all such worker's compensation or
similar insurance as may be required under the laws of any state or
jurisdiction in which such Borrower is engaged in business; (e) furnish
Agent with (i) copies of all policies and evidence of the maintenance of
such policies by the renewal thereof at least thirty (30) days before any
expiration date, and (ii) appropriate loss payable endorsements in form and
substance satisfactory to Agent, naming Agent as a co-insured and loss
payee as its interests may appear with respect to all insurance coverage
referred to in clauses (a) and (c) above, and providing (A) that all
proceeds thereunder shall be payable to Agent, (B) no such insurance shall
be affected by any act or neglect of the insured or owner of the property
described in such policy, and (C) that such policy and loss payable clauses
may not be cancelled, amended or terminated unless at least thirty (30)
days prior written notice is given to Agent. In the event of any loss
thereunder, the carriers named therein are hereby directed by Agent and the
applicable Borrower to make payment for such loss to Agent and not to such
Borrower and Agent jointly. If any insurance losses are paid by check,
draft or other instrument payable to any Borrower and Agent jointly, Agent
may endorse such Borrower's name thereon and do such other things as Agent
may deem advisable to reduce the same to cash. When any Event of Default
exists, Agent is hereby authorized to adjust and compromise claims under
insurance coverage referred to in clauses (a) and (b) above. All loss
recoveries received by Agent upon any such insurance may be applied to the
Obligations, in such order as Agent in its sole discretion shall determine.
Any surplus shall be paid by Agent to Borrowers or applied as may be
otherwise required by Applicable Law.
, .
{72406 7) 001246-00024
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Any deficiency thereon, after application of such insurance proceeds,
shall be paid by Borrowers to Agent, on demand.
4.12 Failure to Pay Insurance. If any Borrower fails to obtain
insurance as hereinabove provided, or to keep the same in force, Agent, if
Agent so elects, may obtain such insurance and pay the premium therefor on
behalf of Borrower, and charge Borrowers' Account therefor as a Revolving
Advance of a Domestic Rate Loan and such expenses so paid shall be part of
the Obligations.
4.13 Payment of Taxes. Each Borrower will pay, when due, all
Charges lawful!, ., . or assessed upon such Borrower or any of the
Collateral, including real and personal property taxes, assessments and
charges and all franchise, income, employment, social security benefits,
withholding, and sales taxes. If any tax by any governmental authority is
or may be imposed on or as a result of any transaction between any
Borrower and Agent or any Lender which Agent or any Lender may be required
to withhold or pay or if Charges remain unpaid after the date fixed for
their payment, or if any claim shall be made which, in Agent's or any
Lender's opinion, may possibly create a valid Lien on the Collateral,
Agent may without notice to Borrowers pay the Charges and each Borrower
hereby indemnifies and holds Agent and each Lender harmless in respect
thereof. Agent will not pay any taxes, assessments or Charges to the
extent that any Borrower has contested or disputed those taxes,
assessments or Charges in good faith, by expeditious protest,
administrative or judicial appeal or similar proceeding provided that any
related tax lien is stayed and sufficient reserves are established to the
reasonable satisfaction of Agent to protect Agent's security interest in
or Lien on the Collateral. The amount of any payment by Agent under this
Section 4.13 shall be charged to Borrowers' Account as a Revolving Advance
and added to the Obligations and, until Borrowers shall furnish Agent with
an indemnity therefor (or supply Agent with evidence satisfactory to Agent
that due provision for the payment thereof has been made), Agent may hold
without interest any balance standing to Borrowers' credit and Agent shall
retain its security interest in any and all Collateral held by Agent.
4.14 Payment of Leasehold Obligations. Each Borrower shall at
all times pay, when and as due, its rental obligations under all leases
under which it is a tenant, and shall otherwise comply, in all material
respects, with all other terms of such leases and keep them in full force
and effect and, at Agent's request will provide evidence of having done
so.
4.15 Receivables.
(a) Nature of Receivables. Each of the Receivables shall be a
bona fide and valid account representing a bona fide indebtedness incurred
by the Customer therein named, for a fixed sum as set forth in the invoice
relating thereto (provided immaterial or unintentional invoice errors
shall not be deemed to be a breach hereof) with respect to an absolute
sale or lease and delivery of goods upon stated terms of a Borrower, or
work, labor or services theretofore rendered by a Borrower as of the date
each Receivable is created. Same shall be due and owing in accordance with
the applicable Borrower's standard terms of sale without dispute, setoff
or counterclaim except as may be stated on the accounts receivable
schedules delivered by Borrowers to Agent.
(b) Solvency of Customers. Each Customer, to the best of each
Borrower's knowledge, as of the date each Receivable is created, is and
will be Solvent and able to pay all Receivables on which the Customer is
obligated in full when due or with respect to such Customers of any
Borrower who are not Solvent, such Borrower has set up on its books and in
its financial records bad debt reserves adequate to cover such
Receivables.
t72406 7} 001246-00024
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(c) Locations of Borrower. Each Borrower's chief executive
office is located at the addresses set forth on Schedule 4.1 5(c) hereto.
Until written notice is given to Agent by Borrowing Agent of any other
office at which any Borrower keeps its records pertaining to Receivables,
all such records shall be kept at such executive office.
(d) Collection of Receivables. Each Borrower shall notify its
customers to make remittance of all payments with respect to all
Receivables to a lockbox established at PNC. If at any time a Borrower
shall receive payment or proceeds with respect to any Receivables, such
Borrower shall hold such payment or proceeds in trust for Agent and
Lenders, shall not commingle such payments or proceeds with any Borrower's
funds or otherwise use the same, except to pay the Obligations, and shall
promptly remit all such payments and collections directly to Agent for
application to the Obligations, in accordance with this Agreement.
(e) Notification of Assignment of Receivables. At any time that
an Event of Default exists, Agent shall have the right to send notice of
the assignment of, and Agent's security interest in, the Receivables to any
and all Customers or any third party holding or otherwise concerned with
any of the Collateral. Thereafter, Agent shall have the sole right to
collect the Receivables, take possession of the Collateral, or both.
Agent's actual collection expenses, including stationery and postage,
telephone and telegraph, secretarial and clerical expenses and the salaries
of any collection personnel used for collection, may be charged to
Borrowers' Account and added to the Obligations.
(0 Power of Agent to Act on Borrowers' Behalf. Agent shall have
the right to receive, endorse, assign and/or deliver in the name of Agent
or any Borrower any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and each Borrower hereby
waives notice of presentment, protest and non-payment of any instrument so
endorsed. Each Borrower hereby constitutes Agent or Agent's designee as
such Borrower's attorney with power (i) to endorse such Borrower's name
upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral; (ii) to sign such Borrower's name on
any invoice or bill of lading relating to any of the Receivables, drafts
against Customers, assignments and verifications of Receivables; (iii) to
send verifications of Receivables to any Customer; (iv) to sign such
Borrower's name on all financing statements or any other documents or
instruments deemed necessary or appropriate by Agent to preserve, protect,
or perfect Agent's interest in the Collateral and to file same; (v) to
demand payment of the Receivables; (vi) to enforce payment of the
Receivables by legal proceedings or otherwise; (vii) when any Event of
Default exists, to exercise all of Borrowers' rights and remedies with
respect to the collection of the Receivables and any other Collateral;
(viii) when any Event of Default exists, to settle, adjust, compromise,
extend or renew the Receivables; (ix) when any Event of Default exists, to
settle, adjust or compromise any legal proceedings brought to collect
Receivables; (x) when any Event of Default exists, to prepare, file and
sign such Borrower's name on a proof of claim in bankruptcy or similar
document against any Customer; (xi) to prepare, file and sign such
Borrower's name on any notice of Lien, assignment or satisfaction of Lien
or similar document in connection with the Receivables; and (xii) to do all
other acts and things necessary to carry out this Agreement. All acts of
said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of omission or
commission nor for any error of judgment or mistake of fact or of law,
unless done maliciously or with gross (not mere) negligence; this power
being coupled with an interest is irrevocable while any of the Obligations
remain unpaid. Agent shall have the right at any time following the
occurrence of an Event of Default or Default, to change the address for
delivery of mail addressed to any Borrower to such address as Agent may
designate and to receive, open and dispose of all mail addressed to any
Borrower.
{72406 7) 001246-00024
- - - 37 -
(g) No Liability. Neither Agent nor any Lender shall, under
any circumstances or in any event whatsoever, have any liability for any
error or omission or delay of any kind occurring in the settlement,
collection or payment of any of the Receivables or any instrument received
in payment thereof, or for any damage resulting therefrom. Following the
occurrence of a Default or an Event of Default or Default Agent may,
without notice or consent from any Borrower, sue upon or otherwise
collect, extend the time of payment of, compromise or settle for cash,
credit or upon any terms any of the Receivables or any other securities,
instruments or insurance applicable thereto and/or release any obliger
thereof. Agent is authorized and empowered to accept following the
occurrence of an Event of Default or Default the return of the goods
represented by any of the Receivables, without notice to or consent by any
Borrower, all without discharging or in any way affecting any Borrower's
liability hereunder.
(h) Establishment Cash Management System. All proceeds of
Collateral shall, at the direction of Agent, be deposited by Borrowers
into a lockbox account, dominion account or other "blocked account"
("Blocked Account") as Agent may require pursuant to an arrangement with
such bank or banks as may be selected by Borrowers and be acceptable to
Agent. Borrowers shall issue to any such bank, an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to
Agent, either to any account maintained by Agent at said bank or by wire
transfer to appropriate account(s) of Agent. All funds deposited into any
Blocked Account shall immediately become the property of Agent and
Borrowers shall obtain the agreement by each bank at which a Blocked
Account is maintained to waive any offset rights against the funds so
deposited. Neither Agent nor any Lender assumes any responsibility for
such Blocked Account, including any claim of accord and satisfaction or
release with respect to deposits accepted by any bank thereunder. Agent
may also establish depository accounts ("Depository Accounts") in the name
of Agent at a bank or banks for the deposit of such funds and Borrowers
shall deposit all proceeds of Collateral or cause same to be deposited, in
kind, in such Depository Accounts of Agent.
(i) Adjustments. No Borrower will, without Agent's consent,
compromise or adjust any Receivables (or extend the time for payment
thereof) or accept any returns of merchandise or grant any additional
discounts, allowances or credits thereon except for those compromises,
adjustments, returns, discounts, credits and allowances as have been
heretofore customary in the business of such Borrower.
4.16 Inventory. To the extent Inventory held for sale or lease
has been produced by any Borrower, it has been and will be produced by
such Borrower in accordance with the Federal Fair Labor Standards Act of
1938 and all rules, regulations and orders thereunder.
4.17 Maintenance of Equipment. The Equipment shall be
maintained in good operating condition and repair (reasonable wear and
tear excepted) and all necessary replacements of and repairs thereto shall
be made so that the value and operating efficiency of the Equipment shall
be maintained and preserved. No Borrower shall use or operate the
Equipment in violation of any Applicable Law. Each Borrower shall have the
right to sell Equipment to the extent set forth in Section 4.3 hereof.
4.18 Exculpation of Liability. Nothing herein contained shall
be construed to constitute Agent or any Lender as any Borrower's agent for
any purpose whatsoever, nor shall Agent or any Lender be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any
part of the Collateral wherever the same may be located and regardless of
the cause thereof. Neither Agent nor any Lender, whether by anything
herein or in any assignment or otherwise, assume any of any Borrower's
obligations under any contract or agreement assigned to Agent or such
Lender, and neither Agent nor any Lender shall be responsible in any way
for the performance by any Borrower of any of the terms and conditions
thereof.
t72406 7} 001246-00024
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4.19 Environmental Matters.
(a) Borrowers shall ensure that the Real Property remains in
compliance with all Environmental Laws, and they shall not place or permit
to be placed any Hazardous Substances on any Real Property to the extent
prohibited by Applicable Law, except in each case where noncompliance
could reasonably be expected to have a Material Adverse Effect .
(b) Borrowers shall establish and maintain a system to assure
and monitor continued compliance with all applicable Environmental Laws
which system shall include periodic reviews of such compliance.
(c) Except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect, Borrowers shall (i) employ in
connection with the use of the Real Property appropriate technology
necessary to maintain compliance with any applicable Environmental Laws
and (ii) dispose of any and all Hazardous Waste generated at the Real
Property only at facilities and with carriers that maintain valid permits
under RCRA and any other applicable Environmental Laws. Borrowers shall
use their best efforts to obtain certificates of disposal, such as
hazardous waste manifest receipts, from all treatment, transport, storage
or disposal facilities or operators employed by Borrowers in connection
with the transport or disposal of any Hazardous Waste generated at the
Real Property.
(d) In the event any Borrower obtains, gives or receives
notice of any Release or threat of Release of a reportable quantity of any
Hazardous Substances at the Real Property (any such event being
hereinafter referred to as a "Hazardous Discharge") or receives any notice
of violation, request for information or notification that it is
potentially responsible for investigation or cleanup of environmental
conditions at the Real Property, demand letter or complaint, order,
citation, or other written notice with regard to any Hazardous Discharge
or violation of Environmental Laws affecting the Real Property or any
Borrower's interest therein (any of the foregoing is referred to herein as
an "Environmental Complaint") from any Person, including any state agency
responsible in whole or in part for environmental matters in the state in
which the Real Property is located or the United States Environmental
Protection Agency (any such person or entity hereinafter the "Authority"),
then Borrowing Agent shall, within five (5) Business Days, give written
notice of same to Agent detailing facts and circumstances of which any
Borrower is aware giving rise to the Hazardous Discharge or Environmental
Complaint. Such information is to be provided to allow Agent to protect
its security interest in the Real Property and is not intended to create
nor shall it create any obligation upon Agent or any Lender with respect
thereto.
(e) Borrowers shall promptly forward to Agent copies of any
request for information, notification of potential liability, demand
letter relating to potential responsibility with respect to the
investigation or cleanup of Hazardous Substances at any other site owned,
operated or used by any Borrower to dispose of Hazardous Substances and
shall continue to forward copies of correspondence between any Borrower
and the Authority regarding such claims to Agent until the claim is
settled. Borrowers shall promptly forward to Agent copies of all documents
and reports concerning a Hazardous Discharge at the Real Property that any
Borrower is required to file under any Environmental Laws. Such
information is to be provided solely to allow Agent to protect Agent's
security interest in the Real Property and the Collateral.
{72406 71 001246-00024
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for
(f) Borrowers shall respond promptly to any Hazardous
Discharge or Environmental Complaint and take all necessary action in
order to safeguard the health of any Person and to avoid subjecting the
Collateral or Real Property to any Lien. If any Borrower shall fail to
respond promptly to any Hazardous Discharge or Environmental Complaint or
any Borrower shall fail to comply with any of the requirements of any
Environmental Laws, Agent on behalf of Lenders may, but without the
obligation to do so, for the sole purpose of protecting Agent's interest
in Collateral: (A) give such notices or (B) enter onto the Real Property
(or authorize third parties to enter onto the Real Property) and take such
actions as Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental
Complaint. All reasonable costs and expenses incurred by Agent and Lenders
(or such third parties) in the exercise of any such rights, including any
sums paid in connection with any judicial or administrative investigation
or proceedings, fines and penalties, together with interest thereon from
the date expended at the Default Rate for Domestic Rate Loans constituting
Revolving Advances shall be paid upon demand by Borrowers, and until paid
shall be added to and become a part of the Obligations secured by the
Liens created by the terms of this Agreement or any other agreement
between Agent, any Lender and any Borrower.
(g) Promptly upon the written request of Agent from time to
time, Borrowers shall provide Agent, at Borrowers' expense, with an
environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of
Agent, to assess with a reasonable degree of certainty the existence of a
Hazardous Discharge and the potential costs in connection with abatement,
cleanup and removal of any Hazardous Substances found on, under, at or
within the Real Property. Any report or investigation of such Hazardous
Discharge proposed and acceptable to an appropriate Authority that is
charged to oversee the clean-up of such Hazardous Discharge shall be
acceptable to Agent. If such estimates, individually or in the aggregate,
exceed $100,000, Agent shall have the right to require Borrowers to post a
bond, letter of credit or other security reasonably satisfactory to Agent
to secure payment of these costs and expenses.
(h) Borrowers shall defend and indemnify Agent and Lenders and
hold Agent, Lenders and their respective employees, agents, directors and
officers harmless from and against all loss, liability, damage and
expense, claims, costs, fines and penalties, including attorney's fees,
suffered or incurred by Agent or Lenders under or on account of any
Environmental Laws, including the assertion of any Lien thereunder, with
respect to any Hazardous Discharge, the presence of any Hazardous
Substances affecting the Real Property, whether or not the same originates
or emerges from the Real Property or any contiguous real estate, including
any loss of value of the Real Property as a result of the foregoing except
to the extent such loss, liability, damage and expense is attributable to
any Hazardous Discharge resulting from actions on the part of Agent or any
Lender. Borrowers' obligations under this Section 4.19 shall arise upon
the discovery of the presence of any Hazardous Substances at the Real
Property, whether or not any federal, state, or local environmental agency
has taken or threatened any action in connection with the presence of any
Hazardous Substances. Borrowers' obligation and the indemnifications
hereunder shall survive the termination of this Agreement.
(i) For purposes of Section 4.19 and 5.7, all references to
Real Property shall be deemed to include all of Borrowers' right, title
and interest in and to its owned and leased premises.
4.20 Financing Statements. Except as respects the financing
statements filed by Agent and the financing statements described on
Schedule LAB, no financing statement covering any of the Collateral or any
proceeds thereof is on file in any public office.
{72406 7} 001246-00024
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SECTION 5. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants to Agent and each Lender, as
follows:
5.1 Authority. Each Borrower has full power, authority and
legal right to enter into this Agreement and the Other Documents and to
perform all its respective Obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and of the Other
Documents (a) are within such Borrower's corporate powers, have been duly
authorized, are not in contravention of any Applicable Law or the terms of
such Borrower's Organization Documents relating to such Borrower's
formation or to the conduct of such Borrower's business or of any material
agreement or undertaking to which such Borrower is a party or by which
such Borrower is bound, and (b) will not conflict with nor result in any
breach in any of the provisions of or constitute a default under or result
in the creation of any Lien except Permitted Encumbrances upon any asset
of such Borrower under the provisions of any agreement, Organization
Documents or other instrument to which such Borrower or its property is a
party or by which it may be bound.
5.2
Formation and Qualification.
(a) Each Borrower is duly organized and in good standing under
the laws of the state listed on Schedule 5.2fa! and is qualified to do
business and is in good standing in the states listed on Schedule 5.2(a!
which constitute all states in which qualification and good standing are
necessary for such Borrower to conduct its business and own its property
and where the failure to so qualify could reasonably be expected to have a
Material Adverse Effect on such Borrower. Each Borrower has delivered to
Agent true and complete copies of its Organization Documents and will
promptly notify Agent of any amendment or changes thereto.
(b) The only Subsidiaries of each Borrower are listed on Schedule 5.2(b!.
5.3 Survival of Representations and Warranties. All
representations and warranties of such Borrower contained in this
Agreement and the Other Documents shall be true at the time of such
Borrower's execution of this Agreement and the Other Documents, and shall
survive the execution, delivery and acceptance thereof by the parties
thereto and the closing of the transactions described therein or related
thereto.
5.4 Tax Returns. Each Borrower's federal tax identification
number is set forth on Schedule 5.4. Each Borrower has filed all federal,
state and local tax returns and other reports each is required by law to
file and has paid all taxes, assessments, fees and other governmental
charges that are due and payable. Federal, state and local income tax
returns of each Borrower have been examined and reported upon by the
appropriate taxing authority or closed by applicable statute and satisfied
for all fiscal years prior to and including the Fiscal Year ending
December 3 1, 1997. The provision for taxes on the books of each Borrower
are adequate for all years not closed by applicable statutes, and for its
current Fiscal Year, and no Borrower has any knowledge of any deficiency
or additional assessment in connection therewith not provided for on its
books.
~ 72406.7 ~ ()0 1 246-00024
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- - - -
5.5 Financial Statements.
(a) The pro forma balance sheet of Borrowers on a
consolidated basis (the "Pro Forma Balance Sheet") furnished to Agent on
the Closing Date reflects the consummation of the transactions
contemplated under this Agreement (the "Transactions") and is accurate,
complete and correct and fairly reflects the financial condition of
Borrowers on a consolidated basis as of the Closing Date after giving
effect to the Transactions, and has been prepared in accordance with GAAP,
consistently applied. The Pro Forma Balance Sheet has been certified as
accurate, complete and correct in all material respects by the President
and Chief Financial Officer of Reptron. All financial statements referred
to in this subsection 5.5(a), including the related schedules and notes
thereto, have been prepared, in accordance with GAAP, except as may be
disclosed in such financial statements.
(b) The twelve-(12) month cash flow projections of Borrowers
on a consolidated basis and their projected balance sheets as of the
Closing Date, copies of which are annexed hereto as Exhibit C (the
"Projections") were prepared by the Chief Financial Officer of Borrowers,
are based on underlying assumptions which provide a reasonable basis for
the projections contained therein and reflect Borrowers' judgment based on
present circumstances of the most likely set of conditions and course of
action for the projected period. The cash flow Projections together with
the Pro Forma Balance Sheet, are referred to as the "Pro Forma Financial
Statements."
(c) The consolidated and consolidating balance sheets of the
Borrowers and such other Persons described therein as of September 30,
1998, and the related statements of income, changes in stockholder's
equity, and changes in cash flow for the period ended on such date, copies
of which have been delivered to Agent, have been prepared in accordance
with GAAP, consistently applied (except for changes in application in
which such accountants concur and present fairly the financial position of
the Borrowers at such date and the results of their operations for such
period. Since September 30, 1998 there has been no change in the
condition, financial or otherwise, of Borrowers as shown on the
consolidated balance sheet as of such date and no change in the aggregate
value of machinery, equipment and Real Property owned by Borrowers, except
changes in the ordinary course of business, none of which individually or
in the aggregate has been materially adverse.
5.6 Corporate Name. No Borrower has been known by any other
corporate name in the past five (5) years and does not sell Inventory
under any other name except as set forth on Schedule 5.6, nor has any
Borrower been the surviving corporation of a merger or consolidation or
acquired all or substantially all of the assets of any Person during the
preceding five (5) years.
5.7 O.S.H.A. and Environmental Compliance.
(a) Each Borrower has duly complied with, and its facilities,
business, assets, property, leaseholds and Equipment are in compliance in
all material respects with, the provisions of the Federal Occupational
Safety and Health Act, the Environmental Protection Act, RCRA and all
other Environmental Laws except where noncompliance could not reasonably
be expected to have a Material Adverse Effect; there have been no
outstanding citations, notices or orders of non-compliance issued to any
Borrower or relating to its business, assets, property, leaseholds or
Equipment under any such laws, rules or regulations.
{72406 7} 001246-00024
- - - 42 -
r
(b) Each Borrower has been issued all required federal, state
and local licenses, certificates or permits relating to all applicable
Environmental Laws where the failure to obtain such licenses, certificates
or permits could reasonably be expected to have a Material Adverse Effect.
(c)(i) There are no visible signs of releases, spills,
discharges, leaks or disposal (collectively referred to as "Releases") of
Hazardous Substances at, upon, under or within any Real Property or any
property leased by any Borrower; (ii) there are no underground storage
tanks or polychlorinated biphenyls on Real Property owned or leased by any
Borrower; (iii) neither any real property owned or any other premises
leased by any Borrower has ever been used as a treatment, storage or
disposal facility of Hazardous Waste; and (iv) no Hazardous Substances are
present on the Real Property or any premises leased by any Borrower'
excepting such quantities as are handled in accordance with all applicable
manufacturer's instructions and governmental regulations and in proper
storage containers and as are necessary for the operation of the
commercial business of any Borrower or of its tenants.
5.8 Solvency: No Litigation, Violation. Indebtedness or Default.
Solvent.
(a) After giving effect to the Transactions, each Borrower is and will at
all times remain
(b) Except as disclosed in Schedule 5.8(b!, no Borrower has
(i) any pending or threatened litigation, arbitration, actions or
proceedings which involve the possibility of having a Material Adverse
Effect on such Borrower, and (ii) any liabilities or Indebtedness for
Money Borrowed other than the Obligations.
No Borrower is in violation of any Applicable Law in any
respect which could reasonably be expected to have a Material Adverse
Effect on such Borrower, nor is any Borrower in violation of any order of
any Governmental Body or arbitration board or other tribunal.
(d) No Borrower nor any member of the Controlled Group
maintains or contributes to any Plan other than those listed on Schedule
5.8(d) hereto. Except as set forth in Schedule 5.8(d!, (i) no Plan has
incurred any "accumulated funding deficiency," as defined in Section
302(a)(2) of ERISA and Section 412(a) of the Code, whether or not waived,
and each Borrower and each member of the Controlled Group has met all
applicable minimum funding requirements under Section 302 of ERISA in
respect of each Plan, (ii) each Plan which is intended to be a qualified
plan under Section 401(a) of the Code as currently in effect has been
determined by the Internal Revenue Service to be qualified under Section
401(a) of the Code and the trust related thereto is exempt from federal
income tax under Section 501(a) of the Code, (iii) no Borrower nor any
member of the Controlled Group has incurred any liability to the PBGC
other than for the payment of premiums, and there are no premium payments
which have become due which are unpaid, (iv) no Plan has been terminated
by the plan administrator thereof nor by the PBGC, and there is no
occurrence which would cause the PBGC to institute proceedings under Title
IV of ERISA to terminate any Plan, (v) at this time, the current value of
the assets of each Plan exceeds the present value of the accrued benefits
and other liabilities of such Plan and no Borrower nor any member of the
Controlled Group knows of any facts or circumstances which would
materially change the value of such assets and accrued benefits and other
liabilities, (vi) no Borrower nor any member of the Controlled Group has
breached any of the responsibilities, obligations or duties imposed on it
by ERISA with respect to any Plan, (vii) no Borrower nor any member of a
Controlled Group has incurred any liability for any excise tax arising
under Section 4972 or 4980B of the Code, and no fact exists which could
give rise to any such liability, (viii) no Borrower nor any member of the
Controlled Group nor any fiduciary of, nor any trustee to, any Plan, has
engaged in a "prohibited transaction"
(72406 7} 001246-00024
- - - 43 -
described in Section 406 of the ERISA or Section 4975 of the Code nor
taken any action which would constitute or result in a Termination Event
with respect to any such Plan which is subject to ERISA, (ix) each
Borrower and each member of the Controlled Group has made all
contributions due and payable with respect to each Plan, (x) there exists
no event described in Section 4043(b) of ERISA, for which the thirty (30)
day notice period contained in 29 CFR 2615.3 has not been waived, (xi) no
Borrower nor any member of the Controlled Group has any fiduciary
responsibility for investments with respect to any plan existing for the
benefit of persons other than employees or former employees of any
Borrower and any member of the Controlled Group, and (xii) no Borrower nor
any member of the Controlled Group has withdrawn, completely or partially,
from any Multiemployer Plan so as to incur liability under the
Multiemployer Pension Plan Amendments Act of 1980.
5.9 Patents, Trademarks, Copyrights and Licenses. All
patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, copyrights, copyright applications,
design rights, tradenames, assumed names, trade secrets and licenses owned
or utilized by any Borrower are set forth on Schedule 5.9, are valid and
have been duly registered or filed with all appropriate governmental
authorities and constitute all of the intellectual property rights which
are necessary for the operation of its business; there is no objection to
or pending challenge to the validity of any such material patent,
trademark, copyright, design right, tradename, trade secret or license and
no Borrower is aware of any grounds for any challenge, except as set forth
in Schedule 5.9 hereto. Each patent, patent application, patent license,
trademark, trademark application, trademark license, service mark, service
mark application, service mark license, copyright, copyright application
and copyright license owned or held by any Borrower and all trade secrets
used by any Borrower consist of original material or property developed by
such Borrower or was lawfully acquired by such Borrower from the proper
and lawful owner thereof. Each of such items has been maintained so as to
preserve the value thereof from the date of creation or acquisition
thereof. With respect to all software used by any Borrower, such Borrower
is in possession of all source and object codes related to each piece of
software or is the beneficiary of a source code escrow agreement, each
such source code escrow agreement being listed on Schedule 5.9 hereto.
5.10 Licenses and Permits. Except as set forth in Schedule
5.10, each Borrower (a) is in compliance with and (b) has procured and is
now in possession of, all material licenses or permits required by any
Applicable Law or regulation for the operation of its business in each
jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits could have a
Material Adverse Effect on such Borrower.
5.11 Default of Indebtedness. No Borrower is in default in
the payment of the principal of or interest on any Indebtedness or under
any instrument or agreement under or subject to which any Indebtedness has
been issued and no event has occurred under the provisions of any such
instrument or agreement which with or without the lapse of time or the
giving of notice, or both, constitutes or would constitute an event of
default thereunder.
5.12 No Default. No Borrower is in default in the payment or
performance of any of its contractual obligations and no Default has
occurred.
5.13 No Burdensome Restrictions. No Borrower is party to any
contract or agreement the performance of which could have a Material
Adverse Effect on such Borrower. No Borrower has agreed or consented to
cause or permit in the future (upon the happening of a contingency or
otherwise) any of its
{72406.7) 00 1 246-00024
- - - 44 -
~ -
property, whether now owned or hereafter acquired, to be subject to a Lien
that is not a Permitted Encumbrance.
5.14 No Labor Disputes. No Borrower is involved in any labor
dispute which could reasonably be expected to have a Material Adverse
Effect; there are no strikes or walkouts or union organization of any
Borrower's employees threatened or in existence which could reasonably be
expected to have a Material Adverse Effect; and no labor contract is
scheduled to expire during the Term other than as set forth on Schedule
5.14 hereto.
5.15 Margin Regulations. No Borrower is engaged, nor will it
engage, principally or as one of its important activities, in the business
of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" within the respective meanings of each of the quoted terms
under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect. No part of the proceeds
of any Advance will be used for "purchasing" or "carrying" "margin stock"
as defined in Regulation U of such Board of Governors.
5.16 Investment Company Act. No Borrower is an "investment
company" registered or required to be registered under the Investment
Company Act of 1940, nor is it controlled by such a company.
5.17 Disclosure. No representation or warranty made by any
Borrower in this Agreement or in any financial statement, report,
certificate or any other document furnished in connection herewith
contains any untrue statement of fact or omits to state any fact necessary
to make the statements herein or therein not misleading. There is no fact
known to Borrowers or which reasonably should be known to Borrowers which
Borrowers have not disclosed to Agent in writing with respect to the
transactions contemplated by this Agreement which could reasonably be
expected to have a Material Adverse Effect on any Borrower.
5.18 Delivery of Subordinated Indebtedness Documents. Agent
has received complete copies of all documents evidencing the Subordinated
Indebtedness (including all exhibits, schedules and disclosure letters
referred to therein or delivered pursuant thereto, if any) and all
amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of such documents and
agreements has been amended or supplemented, nor have any of the
provisions thereof been waived, except pursuant to a written agreement or
instrument which has heretofore been delivered to Agent.
5.19 Swaps. No Borrower is a party to, nor will it be a party
to, any swap agreement whereby such Borrower has agreed or will agree to
swap interest rates or currencies unless same provides that damages upon
termination following an event of default thereunder are payable on an
unlimited "two-way basis" without regard to fault on the part of either
party.
5.20 Conflicting Agreements. No provision of any mortgage,
indenture, contract, agreement, judgment, decree or order binding on any
Borrower or affecting the Collateral conflicts with, or requires any
Consent which has not already been obtained to, or would in any way
prevent the execution, delivery or performance of, the terms of this
Agreement or the Other Documents.
5.21 Application of Certain Laws and Regulations. No Borrower
nor any Affiliate of any Borrower is subject to any statute, rule or
regulation which regulates the incurrence of any Indebtedness,
- - -
{72406 7} 001246-00024
- - - 45 -
including statutes or regulations relative to common or interstate
carriers or to the sale of electricity, gas, steam, water, telephone,
telegraph or other public utility services.
5.22 Business and Property of Borrower. Upon and after the
Closing Date, Borrowers do not propose to engage in any business other
than distribution of electronic components and the manufacture of
electronic and mechanical products and activities necessary to conduct the
foregoing. On the Closing Date, each Borrower will own all the property
and possess all of the rights and Consents necessary for the conduct of
the business of such Borrower.
5.23 Compliance with Laws. Each Borrower is in compliance
with all Applicable Law relating to the conduct of such Borrower's
business where the failure to comply with such Applicable Law could
reasonably be expected to have a Material Adverse Effect.
5.24 Hibbing Maryland. Hibbing Maryland conducts no business
activities, owns no assets and has no liabilities other than accrued
liabilities which may be owed to Hayes Corporation.
SECTION 6. AFFIRMATIVE COVENANTS.
Each Borrower shall, until payment in full of the Obligations and
termination of this Agreement:
6.1 Payment of Fees. Pay to Agent on demand all usual and
customary fees and expenses which Agent incurs in connection with (a) the
forwarding of Advance proceeds and (b) the establishment and maintenance
of any Blocked Account or Depository Accounts as provided for in Section
4.15(h). Agent may, without making demand, charge Borrowers' Account for
all such fees and expenses.
6.2 Conduct of Business and Maintenance of Existence and
Assets. (a) Conduct continuously and operate actively its business
according to good business practices and maintain all of its properties
useful or necessary in its business in good working order and condition
(reasonable wear and tear excepted and except as may be disposed of in
accordance with the terms of this Agreement), including all licenses,
patents, copyrights, design rights, tradenames, trade secrets and
trademarks and take all actions necessary to enforce and protect the
validity of any intellectual property right or other right included in the
Collateral; (b) keep in full force and effect its existence and comply in
all material respects with Applicable Law governing the conduct of its
business where the failure to do so could reasonably be expected to have a
Material Adverse Effect on such Borrower; and (c) make all such reports
and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its
rights, licenses, leases, powers and franchises under the laws of the
United States or any political subdivision thereof where the failure to do
so could reasonably be expected to have a Material Adverse Effect on such
Borrower.
6.3 Violations. Promptly notify Agent in writing of any
violation of any law, statute, regulation or ordinance of any Governmental
Body, or of any agency thereof, applicable to any Borrower which could
reasonably be expected to have a Material Adverse Effect on any Borrower.
6.4 Government Receivables. Take all steps necessary to
protect Agent's interest in the Collateral under the Federal Assignment of
Claims Act or other Applicable Law and deliver to Agent appropriately
endorsed, any instrument or chattel paper connected with any Receivable
arising out of contracts
{72406 7) 001246-00024
- - - 46 -
- - -
/
between any Borrower and the United States, any state or any department,
agency or instrumentality of any of them.
6.5 Pricing Formula Ratio. Commencing on the earlier of (a)
April 1, 2000, and (b) such time as the Borrowers fail to maintain an
Undrawn Availability of at least $10,000,000, maintain a Pricing Formula
Ratio, as determined at the end of each Fiscal Quarter for the immediately
preceding four (4) Fiscal Quarters, of at least 1.00 to 1.
6.6 Execution of Supplemental Instruments. Execute and
deliver to Agent from time to time, upon demand, such supplemental
agreements, statements, assignments and transfers, or instructions or
documents relating to the Collateral, and such other instruments as Agent
may request, in order that the full intent of this Agreement may be
carried into effect.
6.7 Payment of Indebtedness. Pay, discharge or otherwise
satisfy at or before maturity (subject, where applicable, to specified
grace periods and, in the case of the trade payables, to normal payment
practices) all its obligations and liabilities of whatever nature, except
when the failure to do so could not reasonably be expected to have a
Material Adverse Effect or when the amount or validity thereof is
currently being contested diligently and in good faith by appropriate
proceedings and each Borrower shall have provided for such reserves as
Agent may reasonably deem proper and necessary, subject at all times to
any applicable subordination arrangement in favor of Lenders.
6.S Standards of Financial Statements. Cause all financial
statements referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13
and 9.14 as to which GAAP is applicable to be complete and correct in all
material respects (subject, in the case of interim financial statements,
to normal year-end audit adjustments) and to be prepared in reasonable
detail and in accordance with GAAP applied consistently throughout the
periods reflected therein (except as concurred in by such reporting
accountants or officer, as the case may be, and disclosed therein).
6.9 Year 2000 Compatibility. Take all action necessary to
assure that such Borrower's computer based systems are able to operate and
effectively process data, including dates on and after January I, 2000.
Such Borrower shall provide Agent with copies of all disclosures required
by the Year 2000 Information and Readiness Disclosure Act of 1998 and such
disclosures shall indicate that such systems are Year 2000 compliant on or
before June 30, 1999. Such Borrower shall (i) promptly and in no event
later than June 30, 1999, take all action necessary to ensure that all
computer based systems of such Borrower and its Subsidiaries are capable
of the following: (a) handling date information involving all and any
dates before, during and/or after January 1, 2000, including accepting
input, providing output and performing date calculations in whole or in
part; (b) operating, accurately without interruption on and in respect of
any and all dates before, during and/or after January 1,2000, and without
any change in performance; (c) responding to and processing two-digit year
input without creating any ambiguity as to the century; (d) storing and
providing date input information without creating any ambiguity as to the
century; and (ii) promptly and in no event later than June 30, 1999, take
all action necessary to ensure that all computer based systems of each of
their vendors, suppliers and customers are capable of (a) through (d)
above, where noncompliance could be reasonably expected to have a Material
Adverse Effect. In addition, at the request of Agent, such Borrower shall
provide Agent assurances in form and substance satisfactory to Agent of
such Borrower's and each of its Subsidiaries' Year 2000 compatibility.
~ 72406 7' 00 1 246-00024
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SECTION 7. NEGATIVE COVENANTS.
No Borrower shall, until satisfaction in full of the Obligations and
termination of this Agreement:
7.1 Merger. Consolidation. Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other
reorganization with or into any other Person, or acquire all or a
substantial portion of the assets or Equity Interests of any Person other
than another Borrowers, or permit any other Person (other than another
Borrower) to consolidate with or merge with it, other than Permitted
Acquisitions.
(b) Sell, lease, transfer or otherwise dispose of any of its
properties or assets to any Person other than another Borrower, except (i)
sales by a Borrower of its Inventory in the ordinary course of its
business as presently conducted, (ii) transfers of Consigned Inventory by
a Borrower to the extent not prohibited by this Agreement, (iii) Permitted
Sale/Leaseback Transactions, (iv) sales and other dispositions of
Equipment of a Borrower to the extent permitted by this Agreement, (v)
Permitted Spinoffs, (vi) and other dispositions expressly authorized by
this Agreement.
7.2 Creation of Liens. Create or suffer to exist any Lien or
transfer upon or against any of its property or assets now owned or
hereafter acquired, except Permitted Encumbrances.
7.3 Guarantees. Become liable upon the obligations of any
Person by assumption, endorsement or guaranty thereof or otherwise (other
than to Lenders), except (i) the endorsement of checks in the ordinary
course of business, and (ii) the guaranty by Reptron of certain
Indebtedness for Money Borrowed by Hibbing to Norwest Equipment Finance,
Inc. in a maximum principal amount not to exceed
$ 1 73 50,000.
7.4 Investments. Purchase or acquire obligations or stock of,
or any other interest in, any Person, except (a) obligations issued or
guaranteed by the United States of America or any agency thereof, (b)
commercial paper with maturities of not more than 180 days and a published
rating of not less than A- I or P- I (or the equivalent rating), (c)
certificates of time deposit and bankers' acceptances having maturities of
not more than 180 days and repurchase agreements backed by United States
government securities of a commercial bank if (i) such bank has a combined
capital and surplus of at least $500,000,000, or (ii) its debt
obligations, or those of a holding company of which it is a Subsidiary,
are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency, (d) U.S. money market funds that
invest solely in obligations issued or guaranteed by the United States of
America or an agency thereof, (e) redemptions or repurchases of the common
stock of Reptron to the extent permitted by Section 7.7 hereof and (f)
Permitted Acquisitions.
7.5 Loans. Make advances, loans or extensions of credit to any
Person, including any Parent, Subsidiary or Affiliate except (i) with
respect to the extension of commercial trade credit in connection with the
sale of Inventory in the ordinary course of its business; (ii) loans or
advances of money made by one Borrower to another Borrower or to a
Guarantor, provided that any instrument given to evidence any such loan or
advance is promptly pledged to Agent as security for the Obligations; and
(iii) advances to employees for travel, relocation and other lawful
purposes, not to exceed $50,000 in aggregate for any individual or
$250,000 in aggregate for all such advances.
t72406.7} 00 1 246-00024
- - - 48 -
7.6 Capital Expenditures. Contract for or make any Capital
Expenditures in any Fiscal Year in an amount in excess of $12,500,000.
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 (
l 0) 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 $10,000,000, and, (iii) the sum of all
redemptions, repurchases and prepayments of Subordinated Indebtedness
permitted by Section 7. l 7 hereof do not exceed, in the aggregate,
$20,000,000.
7.8 Indebtedness. Create, incur or suffer to exist any
Indebtedness other than (i) the Obligations; (ii) Subordinated
Indebtedness existing on the Closing Date and such other Subordinated
Indebtedness incurred after the Closing Date with Agent's prior written
consent; (iii) accounts payable by a Borrower to trade creditors and
current operating expenses that are not aged more than ninety (90) days
from the billing date or more than thirty (30) days from due date, in each
case incurred in the ordinary course of business and paid within such time
period, unless the same are being actively contested in good faith and by
appropriate, lawful proceedings; (iv) obligations to pay rent to the
extent not prohibited by this Agreement; (v) Permitted Purchase Money
Indebtedness; (vi) Indebtedness of Borrowers for Money Borrowed, but only
to the extent that such Indebtedness is outstanding on the date of this
Agreement and is not satisfied on or about the Closing Date from the
proceeds of the Advances; (vii) contingent Indebtedness arising out of
endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of a Borrower's business; (viii)
Permitted Sale/Leaseback Transactions; and (ix) Indebtedness not included
in clauses (i) through (viii) that is not secured by Lien (unless such
Lien is a Permitted Encumbrance) and does not exceed at any time, in the
aggregate the sum of $3,000,000 as to all Borrowers and all of their
respective Subsidiaries.
7.9 Nature of Business. Substantially change the nature of
the business in which it is presently engaged, nor except as specifically
permitted hereby purchase or invest, directly or indirectly, in any assets
or property other than in the ordinary course of business for assets or
property which are useful in, necessary for and are to be used in its
business as presently conducted.
7.10 Transactions with Affiliates. Directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer or lease
any property to, or otherwise deal with, any Affiliate (other than another
Borrower), except transactions disclosed in the ordinary course of
business, on an arms-length basis on terms no less favorable than terms
which would have been obtainable from a Person other than an Affiliate.
7.11 Leases. Enter as lessee into any lease arrangement for
real or personal property (unless capitalized and permitted under Section
7.6 hereof) if after giving effect thereto, aggregate annual rental
payments for all leased property would exceed $3,000,000 in any one Fiscal
Year
172406 71 001246-00024
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7.12 Subsidiaries. Form or maintain any Subsidiary other than
a wholly-owned Subsidiary organized under the laws of a state of the
United States and formed or acquired as part of a Permitted Acquisition or
a Permitted Spinoff; enter into any partnership, joint venture or similar
arrangement; or own less than all of the Equity Interests of any
Subsidiary that is a Borrower or Guarantor.
7.13 Fiscal Year and Accounting Changes. Change its Fiscal
Year from December 31, permit any Subsidiary to have a fiscal year that is
different from the Fiscal year or make any change (i) in accounting
treatment and reporting practices except as required by GAAP or (ii) in
tax reporting treatment except as required by Applicable Law.
7.14 Pledge of Credit. Now or hereafter pledge Agent's or any
Lender's credit on any purchases or for any purpose whatsoever or use any
portion of any Advance in or for any business other than such Borrower's
business as conducted on the date of this Agreement.
7.15 Amendment of Organization Documents. Amend, modify or
waive any term or material provision of its Organization Documents except
as required by Applicable Law.
7.16 Compliance with ERISA. (i) (x) Maintain, or permit any
member of the Controlled Group to maintain, or (y) become obligated to
contribute, or permit any member of the Controlled Group to become
obligated to contribute, to any Plan, other than those Plans disclosed on
Schedule 5.8(d!, (ii) engage, or permit any member of the Controlled Group
to engage, in any non-exempt "prohibited transaction," as that term is
defined in Section 406 of ERISA and Section 4975 of the Code, (iii) incur,
or permit any member of the Controlled Group to incur, any "accumulated
funding deficiency," as that term is defined in Section 302 of ERISA or
Section 412 of the Code, (iv) terminate, or permit any member of the
Controlled Group to terminate, any Plan where such event could result in
any liability of any Borrower or any member of the Controlled Group or the
imposition of a Lien on the property of any Borrower or any member of the
Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or permit
any member of the Controlled Group to assume, any obligation to contribute
to any Multiemployer Plan not disclosed on Schedule 5.8(d!, (vi) incur, or
permit any member of the Controlled Group to incur, any withdrawal
liability to any Multiemployer Plan, (vii) fail promptly to notify Agent
of the occurrence of any Termination Event, (viii) fail to comply, or
permit a member of the Controlled Group to fail to comply, with the
requirements of ERISA or the Code or other applicable laws in respect of
any Plan, or (ix) fail to meet, or permit any member of the Controlled
Group to fail to meet, all minimum funding requirements under ERISA or the
Code or postpone or delay or allow any member of the Controlled Group to
postpone or delay any funding requirement with respect of any Plan.
7.17 Prepayment of Indebtedness. At any time, directly or
indirectly, prepay any Indebtedness (other than to the Obligations), 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, as 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; (ii) at the time of such prepayment and after giving
effect thereto no Default or Event of Default exists, Borrowers have
Undrawn Availability (as determined by Agent) of at least $10,000,000; 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.
{72406 7) 001246-00024
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7.18 Subordinated Loan Documents. At any time, directly or
indirectly, amend or modify the terms of any agreement applicable to the
Subordinated Indebtedness, other than to extend the time of payment
thereof or to reduce the rate of interest payable in connection therewith.
7.19 Upstream Payments. Create or suffer to exist any
encumbrance or restriction on the ability of any Borrower or a Subsidiary
of any Borrower to make any Upstream Payment, except for encumbrances or
restrictions (i) pursuant to any of the Other Documents and (ii) existing
under Applicable
Law.
7.20 Consigned Inventory. Permit the aggregate Value of all
Consigned Inventory to exceed ten percent ( 10%) of the Value of all
Inventory on any date. If and to the extent requested to do so by Agent,
each Borrower having any Consigned Inventory shall execute and deliver to
Agent, for its benefit and the pro rata benefit of Lenders, collateral
assignments of all UCC consignment filings and other documents at any time
executed, delivered or filed with any Governmental Body to evidence or
perfect such Borrower's rights with respect to such Consigned Inventory.
7.21 Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary.
7.22 Conduct of Business. Engage in any business other than
the business engaged by it on the Closing Date and any business or
activities that are substantially similar, related or incidental thereto.
7.23 Hibbing Maryland. Permit Hibbing Maryland to conduct any
business activities, own any assets or incur any liabilities.
SECTION 8. CONDITIONS PRECEDENT.
8.1 Conditions to Initial Advances. The agreement of Lenders
to make the initial Advances requested to be made on the Closing Date is
subject to the satisfaction, or waiver by Lenders, immediately prior to or
concurrently with the making of such Advances, of the following conditions
precedent:
(a) Other Documents. Agent shall have received each of the
Other Documents duly executed and delivered by an authorized officer of
each of the parties thereto, including each Borrower;
(b) Filings Registrations and Recordings. Each document
(including any UCC financing statement) required by this Agreement or any
Other Documents or under Applicable Law or reasonably requested by the
Agent to be filed, registered or recorded in order to create, in favor of
Agent, a perfected security interest in or Lien upon the Collateral shall
have been properly filed, registered or recorded in each jurisdiction in
which the filing, registration or recordation thereof is so required or
requested, and Agent shall have received an acknowledgment copy, or other
evidence satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee,
tax or expense relating thereto;
{72406.7) 00 1 246-00024
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(c) Corporate Proceedings of Borrowers. Agent shall have
received a copy of the resolutions in form and substance reasonably
satisfactory to Agent, of the Board of Directors of each Borrower
authorizing (i) the execution, delivery and performance of each of the
Loan Documents and (ii) the granting by each Borrower of the security
interests in and Liens upon the Collateral, in each case certified by the
Secretary or an Assistant Secretary of each Borrower as of the Closing
Date; and, such certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded as of the
date of such certificate;
(d) incumbency Certificates of Borrowers. Agent shall have
received a certificate of the Secretary or an Assistant Secretary of each
Borrower, dated the Closing Date, as to the incumbency and signature of
the officers of each Borrower executing this Agreement, any certificate or
other documents to be delivered by it pursuant hereto, together with
evidence of the incumbency of such Secretary or Assistant Secretary;
(e) Organization Documents. Agent shall have received a copy
of the Organization Documents of each Borrower, and all amendments
thereto, certified by the Secretary of State or other appropriate official
of its jurisdiction of organization, together with copies of the By-Laws
of each Borrower and all agreements of each Borrower's shareholders
certified as accurate and complete by the Secretary of each Borrower;
(f) Good Standing Certificates. Agent shall have received
good standing certificates for each Borrower dated not more than fifteen (
15) days prior to the Closing Date, issued by the Secretary of State or
other appropriate official of each Borrower's jurisdiction of
incorporation and each jurisdiction where the conduct of each Borrower's
business activities or the ownership of its properties necessitates
qualification;
(g) Legal Opinion. Agent shall have received the favorable
legal opinions of Borrowers' counsel (qualified to practice in the States
of Florida, Michigan, Minnesota and Pennsylvania) in form and substance
satisfactory to Agent, which shall cover such matters incident to the
transactions contemplated by this Agreement and the Other Documents as
Agent may require, and each Borrower hereby authorizes and directs each
such counsel to deliver such opinions to Agent;
(h) No Litigation. No litigation, investigation or proceeding
before or by any arbitrator or Governmental Body shall be continuing or
threatened against any Borrower or against the officers or directors of
any Borrower (A) in connection with any of the Loan Documents or any of
the transactions contemplated thereby and which, in the reasonable opinion
of Agent, is deemed material or (B) which could, in the reasonable opinion
of Agent, have a Material Adverse Effect; and no injunction, writ,
restraining order or other order of any nature materially adverse to any
Borrower or the conduct of its business or inconsistent with the due
consummation of the transactions shall have been issued by any
Governmental Body;
(i) Collateral Examination. Agent shall have completed
Collateral examinations and received appraisals, the results of which
shall be satisfactory in form and substance to Lenders, of the
Receivables, Inventory, General Intangibles, and Equipment of each
Borrower and all books and records in connection therewith;
(j) Fees. Agent shall have received all fees payable to Agent
and Lenders on or prior to the Closing Date pursuant to Section 3 hereof;
t72406.7} 001246-00024
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(k) Pro Forma Financial Statements. Agent shall have received
a copy of the Pro Forma Financial Statements which shall be satisfactory
in all respects to Agent;
(1) Insurance. Agent shall have received in form and
substance satisfactory to Agent, certified copies of Borrowers' casualty
insurance policies, together with loss payable endorsements on Agent's
standard form of loss payee endorsement naming Agent as loss payee, and
certified copies of Borrowers' liability insurance policies, together with
endorsements naming Agent as a co-insured;
(m) Payment Instructions. Agent shall have received written
instructions from Borrowers directing the application of proceeds of the
initial Advances made pursuant to this Agreement;
(n) Lockbox Blocked Account Agreements. Agent shall have
received duly executed agreements establishing the Blocked Accounts
acceptable in all respects to Agent, for the collection and servicing of
the Receivables and other proceeds of Collateral;
(o) Consents. Agent shall have received any and all Consents
necessary to permit the effectuation of the transactions contemplated by
any of the Loan Documents; and, Agent shall have received such Consents
and waivers of such third parties as might assert claims with respect to
the Collateral, as Agent and its counsel shall deem necessary;
(p) No Adverse Material Change. Since September 30, 1998,
there shall not have occurred any event, condition or state of facts which
could reasonably be expected to have a Material Adverse Effect and no
representations made or information supplied to Agent shall have been
proven to be inaccurate or misleading in any material respect;
(q) Leasehold Agreements. Agent shall have received landlord,
mortgagee or warehouseman agreements satisfactory to Agent with respect to
all premises owned or leased by any Borrower in Tampa, Florida and
Hibbing, Minnesota;
(r) Contract Review. Agent shall have reviewed all material
contracts of Borrowers including leases, union contracts, labor contracts,
vendor supply contracts, license agreements and distributorship agreements
and such contracts and agreements shall be satisfactory in all respects to
Agent;
(s) Closing Certificate. Agent shall have received a closing
certificate signed by the Chief Financial Officer of Borrowing Agent, on
behalf of each Borrower, dated as of the date hereof, stating that (i) all
representations and warranties set forth in this Agreement and the Other
Documents are true and correct on and as of such date, (ii) Borrowers are
on such date in compliance with all the terms and provisions set forth in
each of the Loan Documents and (iii) on such date no Default or Event of
Default has occurred Or is continuing;
(t) Borrowing Base. Agent shall have received evidence from
Borrowers that the aggregate amount of Eligible Receivables and Eligible
Inventory is sufficient in value and amount to support Advances in the
amount requested by Borrowers on the Closing Date;
(u) Undrawn Availability. After giving effect to the initial
Advances hereunder to be made on the Closing Date, Borrowers shall have
Undrawn Availability of at least $10,000,000;
{72406 7) 001246-00024
'] _
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(v) Subordinated Indebtedness. Agent shall have received,
reviewed and found acceptable copies of all the Subordinated Loan
Documents relating to the Subordinated Notes and shall have received duly
executed and delivered copies of any and all intercreditor agreements
with the holders of the Subordinated Notes, in form and substance
acceptable to Agent;
(w) No Labor Disputes. Agent shall have received assurances
satisfactory to it that there are no threats of strikes or work stoppages
by any employees, or organization of employees, of any Borrower or any
Guarantor, which Agent reasonably determines may have a Material Adverse
Effect; and
(x) Other. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated hereby shall be satisfactory in form and
substance to Agent and its counsel.
8.2 Conditions to Each Advance. The agreement of Lenders to
make any Advance requested to be made on any date (including the initial
Advance) is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a) Representations and Warranties. Each of the
representations and warranties made by any Borrower in or pursuant to
this Agreement and any of the Other Documents, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection
with this Agreement or any of the Other Documents shall be true and
correct in all material respects on and as of such date as if made on and
as of such date;
(b) No Default. No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving
effect to the Advances requested to be made, on such date; provided,
however, that Lenders, in their sole discretion, may continue to make
Advances notwithstanding the existence of an Event of Default or Default
and that any Advances so made shall not be deemed a waiver of any such
Event of Default or Default;
(c) Borrowing Base Certificates: Maximum Advances. Agent
shall have received each Borrowing Base Certificate required by the terms
of this Agreement or otherwise requested by Agent, and, in the case of
any Advances requested to be made, after giving effect thereto, the
aggregate Advances shall not exceed the maximum amount of Advances
permitted under Section 2.1 hereof;
(d) No Litigation. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or
proposed before any court or Governmental Body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or
arises out of, this Agreement or any of the Other Documents or the
consummation of the transactions contemplated hereby or thereby; and
(e) No Material Adverse Effect. No event shall have occurred
and no condition shall exist which has or could be reasonably expected to
have a Material Adverse Effect.
Each request for an Advance by any Borrower hereunder shall constitute a
representation and warranty by each Borrower as of the date of such
Advance that the conditions contained in this subsection shall have been
satisfied.
SECTION 9. INFORMATION AS TO BORROWERS.
{72406.7} 001246-00024
- - - 54 -
Agreement:
Each Borrower shall, until satisfaction in full of the Obligations and the
termination of this
9.1 Disclosure of Material Matters. Immediately upon learning
thereof, report to Agent all matters materially affecting the value,
enforceability or collectibility of any portion of the Collateral
including any Borrower's reclamation or repossession of, or the return to
any Borrower of, a material amount of goods or claims or disputes asserted
by any Customer or other obliger.
9.2 Schedules. Deliver to Agent on or before the fifteenth (
15th) day of each month as and for the prior month (a) accounts receivable
agings, (b) accounts payable schedules, (c) Inventory reports, and (d) a
Borrowing Base Certificate. In addition, each Borrower will deliver to
Agent at such intervals as Agent may require: (i) confirmatory assignment
schedules, (ii) copies of Customer's invoices, (iii) evidence of shipment
or delivery, and (iv) inch further schedules. documents and/or information
regarding the Collateral as Agent may require including trial balances and
test verifications. Agent shall have the right to confirm and verify all
Receivables by any manner and through any medium it considers advisable
and do whatever it may deem reasonably necessary to protect its interests
hereunder. The items to be provided under this Section are to be in form
satisfactory to Agent and executed by each Borrower and delivered to Agent
from time to time solely for Agent's convenience in maintaining z records
of the Collateral, and any Borrower's failure to deliver any of such items
to Agent shall not affect, terminate, modify or otherwise limit Agent's
Lien with respect to the Collateral.
9.3 Environmental Reports. Furnish Agent, concurrently with
the delivery of the financial statements referred to in Sections 9.7 and
9.8, with a certificate signed by the Chief Financial Officer of Borrowing
Agent, on behalf of each Borrower, stating, to the best of his knowledge,
that each Borrower is in compliance in all material respects with all
Environmental Laws and laws relating to occupational safety and health. To
the extent any Borrower is not in compliance with the foregoing laws, the
certificate shall set forth with specificity all areas of non-compliance
and the proposed action such Borrower will implement in order to achieve
full compliance.
9.4 Litigation. Promptly notify Agent in writing of any
litigation, suit or administrative proceeding affecting any Borrower,
whether or not the claim is covered by insurance, and of any suit or
administrative proceeding, which in any such case could reasonably be
expected to have a Material Adverse Effect on any Borrower.
9.5 Material Occurrences. Promptly notify Agent in writing
upon the occurrence of (a) any Default or Event of Default; (b) any event
of default under any Subordinated Debt Documents; (c) any event which with
the giving of notice or lapse of time, or both, would constitute an event
of default under any Subordinated Debt Documents; (d) any event,
development or circumstance whereby any financial statements or other
reports furnished to Agent fail in any material respect to present fairly,
in accordance with GAAP consistently applied, the financial condition or
operating results of any Borrower as of the date of such statements; (e)
any accumulated retirement plan funding deficiency which, if such
deficiency continued for two plan years and was not corrected as provided
in Section 4971 of the Code, could subject any Borrower to a tax imposed
by Section 4971 of the Code; (f) each and every default by any Borrower
which might result in the acceleration of the maturity of any
Indebtedness, including the names and addresses of the holders of such
Indebtedness with respect to which there is a default existing or with
respect to which the maturity has been or could be accelerated, and the
amount of such Indebtedness; and (g) any other development in the
t72406.7i 001246-00024
- - - 55 -
business or affairs of any Borrower which could reasonably be expected to
have a Material Adverse Effect; in each case describing the nature thereof
and the action Borrowers propose to take with respect thereto.
9.6 Government Receivables. Notify Agent immediately if any
of its Receivables arise out of contracts between any Borrower and any
Governmental Body.
9.7 Annual Financial Statements. Furnish Agent within ninety
(90) days after the end of each Fiscal Year of Borrowers, financial
statements of Borrowers on a consolidating and consolidated basis
including statements of income and stockholders' equity and cash flow from
the beginning of the current Fiscal Year to the end of such Fiscal Year
and the balance sheet as at the end of such Fiscal Year, all prepared in
accordance with GAAP applied on a basis consistent with prior practices,
and in reasonable detail and reported upon without qualification by an
independent certified public accounting firm selected by Borrowers and
satisfactory to Agent (the "Accountants"). The report of the Accountants
shall be accompanied by a statement of the Accountants certifying that (i)
they have caused the Loan Agreement to be reviewed, (ii) in making the
examination upon which such report was based either no information came to
their attention which to their knowledge constituted an Event of Default
or a Default under this Agreement or any related agreement or, if such
information came to their attention, specifying any such Default or Event
of Default, its nature, when it occurred and whether it is continuing, and
such report shall contain or have appended thereto calculations which set
forth Borrowers' compliance with the requirements or restrictions imposed
by Sections 6.5, 7.6 and 7.1 l hereof. In addition, the reports shall be
accompanied by a Compliance Certificate.
9.8 Quarterly Financial Statements. Furnish Agent within
forty-five (45) days after the end of each Fiscal Quarter, an unaudited
balance sheet of Borrowers on a consolidated and consolidating basis and
unaudited statements of income and stockholders' equity and cash flow of
Borrowers on a consolidated and consolidating basis reflecting results of
operations from the beginning of the Fiscal Year to the end of such
quarter and for such quarter, prepared on a basis consistent with prior
practices and complete and correct in all material respects, subject to
normal year end adjustments. The reports shall be accompanied by a
Compliance Certificate.
9.9 Monthly Financial Statements. Furnish Agent within
forty-five (45) days after the end of each month from the Closing Date
through June 30, 1999 and thirty (30) days after the end of each month
thereafter, an unaudited balance sheet of Borrowers on a consolidated and
consolidating basis and unaudited statements of income and stockholders'
equity and cash flow of Borrowers on a consolidated and consolidating
basis reflecting results of operations from the beginning of the Fiscal
Year to the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments.
Certificate.
The reports shall be accompanied by a Compliance
9.10 Other Reports. Furnish Agent as soon as available, but
in any event within ten (10) days after the issuance thereof, (i) with
copies of such financial statements, reports and returns as each Borrower
shall send to its stockholders and (ii) copies of all notices sent
pursuant to the Subordinated Documents.
(72406 7} 001246-00024
9.11 Additional Information. Furnish Agent with such
additional information as Agent shall reasonably request in order to
enable Agent to determine whether the terms, covenants, provisions and
conditions of this Agreement and the Revolving Credit Notes have been
complied with by Borrowers including, without limitation and without the
necessity of any request by Agent, (a) copies of all
- - - 56 -
- - -
environmental audits and reviews, (b) at least thirty (30) days prior
thereto, notice of any Borrower's opening of any new office or place of
business or any Borrower's closing of any existing office or place of
business, and (c) promptly upon any Borrower's learning thereof, notice of
any labor dispute to which any Borrower may become a party, any strikes or
walkouts relating to any of its plants or other facilities, and the
expiration of any labor contract to which any Borrower is a party or by
which any Borrower is bound.
9.12 Projected Operating Budget. Furnish Agent, no later than
thirty (30) days prior to the beginning of each Borrower's Fiscal Years
commencing with Fiscal Year 1999, a Fiscal Quarter by Fiscal Quarter
projected operating budget and cash flow of Borrowers on a consolidated
and consolidating basis for such Fiscal Year (including an income
statement for each Fiscal Quarter and a balance sheet as at the end of
each Fiscal Quarter), such projections to be accompanied by a certificate
signed by the President or Chief Financial Officer of Borrowing Agent, on
behalf of each Borrower, to the effect that such projections have been
prepared on the basis of sound financial planning practice consistent with
past budgets and financial statements and that such officer has no reason
to question the reasonableness of any material assumptions on which such
projections were prepared.
9.13 Variances From Operating Budget. Furnish Agent,
concurrently with the delivery of the financial statements referred to in
Section 9.S, a written report summarizing all material variances from
budgets submitted by Borrowers pursuant to Section 9. l 2 and a discussion
and analysis by management with respect to such variances.
9.14 Notice of Suits. Adverse Events. Furnish Agent with
prompt notice of (i) any lapse or other termination of any Consent issued
to any Borrower by any Governmental Body or any other Person that is
material to the operation of any Borrower's business, (ii) any refusal by
any Governmental Body or any other Person to renew or extend any such
Consent; and (iii) copies of any periodic or special reports filed by any
Borrower with any Governmental Body or Person, if such reports indicate
any material change in the business, operations, affairs or condition of
any Borrower, or if copies thereof are requested by Lender, and (iv)
copies of any material notices and other communications from any
Governmental Body or Person which specifically relate to any Borrower.
9.15 ERISA Notices and Requests. Furnish Agent with immediate
written notice in the event that (i) any Borrower or any member of the
Controlled Group knows or has reason to know that a Termination Event has
occurred, together with a written statement describing such Termination
Event and the action, if any, which such Borrower or member of the
Controlled Group has taken, is taking, or proposes to take with respect
thereto and, when known, any action taken or threatened by the Internal
Revenue Service, Department of Labor or PBGC with respect thereto, (ii)
any Borrower or any member of the Controlled Group knows or has reason to
know that a prohibited transaction (as defined in Sections 406 of ERISA
and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which such Borrower or any
member of the Controlled Group has taken, is taking or proposes to take
with respect thereto, (iii) a funding waiver request has been filed with
respect to any Plan together with all communications received by any
Borrower or any member of the Controlled Group with respect to such
request, (iv) any increase in the benefits of any existing Plan or the
establishment of any new Plan or the commencement of contributions to any
Plan to which any Borrower or any member of the Controlled Group was not
previously contributing shall occur, (v) any Borrower or any member of the
Controlled Group shall receive from the PBGC a notice of intention to
terminate a Plan or to have a trustee appointed to administer a Plan,
together with copies of each such notice, (vi) any Borrower or any member
of the Controlled Group shall receive any favorable or unfavorable
determination letter from the Internal Revenue Service regarding the
qualification
~ 72406.7 ) 00 1 246-00024
- - - 57 -
of a Plan under Section 401(a) of the Code, together with copies of each
such letter; (vii) any Borrower or any member of the Controlled Group
shall receive a notice regarding the imposition of withdrawal liability,
together with copies of each such notice; (viii) any Borrower or any
member of the Controlled Group shall fail to make a required installment
or any other required payment under Section 412 of the Code on or before
the due date for such installment or payment; (ix) any Borrower or any
member of the Controlled Group knows that (a) a Multiemployer Plan has
been terminated, (b) the administrator or plan sponsor of a Multiemployer
Plan intends to terminate a Multiemployer Plan, or (c) the PBGC has
instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.
9.16 Additional Documents. Execute and deliver to Agent, upon
request, such documents and agreements as Agent may, from time to time,
reasonably request to carry out the purposes, terms or conditions of this
Agreement.
SECTION 10. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
10.1 failure by any Borrower to pay any principal or interest
on the Obligations when due (whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement or by notice of
intention to prepay, or by required prepayment) or failure to pay any
other liabilities or make any other payment, fee or charge provided for
herein or in any Other Document when due;
10.2 any representation or warranty made or deemed made by
any Borrower in this Agreement or any Other Document or in any
certificate, document or financial or other statement furnished at any
time in connection herewith or therewith shall prove to have been
misleading in any material respect on the date when made or deemed to have
been made;
10.3 failure by any Borrower to (i) furnish financial
information when due or when requested, or (ii) permit the inspection of
its books or records except for a failure or neglect of a Borrower to
furnish the information required by Section 9.9 hereof which is cured
within fifteen (15) days from the occurrence of such failure or neglect,
provided that such opportunity to cure shall not apply if the Borrower
have failed or neglected to furnish the required information two (2)
previous times within the previous twelve ( 12) months
10.4 issuance of a notice of Lien, levy, assessment,
injunction or attachment against a material portion of any Borrower's
property which is not stayed or lifted within thirty (30) days;
10.5 except as otherwise provided for in Sections 10.1 and
10.3, failure or neglect of any Borrower to perform, keep or observe any
term, provision, condition, covenant herein contained, or contained in any
other agreement or arrangement, now or hereafter entered into between any
Borrower and Agent or any Lender except for a failure or neglect of a
Borrower to perform, keep or observe any term, provision, condition or
covenant contained in Sections 4.6, 4.7, 4.9, 4.11, 6.1, 6.3, 6.4, 9.4 or
9.6 hereof which is cured within twenty (20) days from the occurrence of
such failure or neglect;
10.6 any judgment or judgments are rendered against any
Borrower or Guarantor for an aggregate amount in excess of $250,000 and
either (i) enforcement proceedings shall have been
~ 72406.7 } 00 1 246-00024
- - - SS
~ _
commenced upon such judgment or (ii) there shall be any period of thirty
(30) consecutive days during which a stay of enforcement of such judgment,
by reason of a pending appeal or otherwise, shall not be in effect.
10.7 any Borrower shall (i) apply for, consent to or suffer
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or similar fiduciary of itself or of all or a
substantial part of its property, (ii) make a general assignment for the
benefit of creditors, (iii) commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (iv) be
adjudicated a bankrupt or declared insolvent, (v) file a petition seeking
to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing;
10.8 any Borrower or Guarantor shall admit in writing its
inability, or be generally unable, to pay its debts as they become due,
cease operations of its present business or cease to be Solvent;
10.9 any Subsidiary of any Borrower, or any Guarantor, shall
(i) apply for, consent to or suffer the appointment of, or the taking of
possession by, a receiver, custodian, trustee, liquidator or similar
fiduciary of itself or of all or a substantial part of its property, (ii)
admit in writing its inability, or be generally unable, to pay its debts
as they become due, cease operations of its present business or cease to
be Solvent, (iii) make a general assignment for the benefit of creditors,
(iv) commence a voluntary case under any state or federal bankruptcy laws
(as now or hereafter in effect), (v) be adjudicated a bankrupt or declared
insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for
the purpose of effecting any of the foregoing;
10.10 any change in any Borrower's condition or affairs
(financial or otherwise) which, in Agent's opinion, has a Material Adverse
Effect;
10.11 any Lien created hereunder or provided for hereby or
under any Other Document for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest;
10.12 an event of default has occurred and been declared
under the Subordinated Debt Documents, which default shall not have been
cured or waived within any applicable grace period;
10.13 a default of the obligations of any Borrower under any
other agreement to which it is a party shall occur that has or could be
reasonably expected to have a Material Adverse Effect and which is not
cured within any applicable grace period;
10.14 termination or breach of any Guaranty Security
Documents executed and delivered to Agent in connection with the
Obligations or, if any Guarantor attempts to terminate or challenges the
validity of or its liability under, any such Guaranty or Guaranty Security
Documents or similar agreement;
10.1S any Change of Control shall occur;
10.16 any material provision of this Agreement or any of the
Other Documents shall, for any reason, cease to be valid and binding on
any Borrower, or any Borrower shall so claim in writing to Agent;
{72406 7} 001246-00024
_ 59 _
7
10.17 (i) any Governmental Body shall (A) revoke, terminate,
suspend or adversely modify any license, permit, patent trademark or
tradename of any Borrower, the continuation of which is material to the
continuation of any Borrower's business, or (B) commence proceedings to
suspend, revoke, terminate or adversely modify any such license, permit,
trademark, tradename or patent and such proceedings shall not be dismissed or
discharged within sixty (60) days, or (c) schedule or conduct a hearing on
the renewal of any license, permit, trademark, tradename or patent necessary
for the continuation of any Borrower's business and the staff of such
Governmental Body issues a report recommending the termination, revocation,
suspension or material, adverse modification of such license, permit,
trademark, tradename or patent; (ii) any agreement which is necessary or
material to the operation of any Borrower's business shall be revoked or
terminated and not replaced by a substitute acceptable to Agent within thirty
(30) days after the date of such revocation or termination, and such
revocation or termination and non-replacement would reasonably be expected to
have a Material Adverse Effect on any Borrower;
10.18 any portion of the Collateral shall be seized or taken by a
Governmental Body, or any Borrower or the title and rights of any Borrower or
any original owner which is the owner of any material portion of the
Collateral shall have become the subject matter of litigation which might, in
the opinion of Agent, upon final determination, result in impairment or loss
of the security provided by this Agreement or the Other Documents;
10.19 the operations of any Borrower's manufacturing facility are
interrupted at any time for more than forty-eight (48) hours during any
period of fourteen (14) consecutive days, unless such Borrower shall (i) be
entitled to receive for such period of interruption, proceeds of business
interruption insurance sufficient to assure that its per diem cash needs
during such period is at least equal to its average per diem cash needs for
the consecutive three-(3) month period immediately preceding the initial date
of interruption and (ii) receive such proceeds in the amount described in
clause (i) preceding not later than thirty (30) days following the initial
date of any such interruption; provided, however, that notwithstanding the
provisions of clauses (i) and (ii) of this section, an Event of Default shall
be deemed to have occurred if such Borrower shall be receiving the proceeds
of business interruption insurance for a period of thirty (30) consecutive
days;
10.20 an event or condition specified in Sections 7.16 or 9.15
hereof shall occur or exist with respect to any Plan and, as a result of such
event or condition, together with all other such events or conditions, any
Borrower or any member of the Controlled Group shall incur, or in the opinion
of Agent be reasonably likely to incur, a liability to a Plan or the PBGC (or
both) which, in the reasonable judgment of Agent, could reasonable be
expected to have a Material Adverse Effect on any Borrower; or
10.21 any Borrower shall cease to be entitled to use or operate
any machinery or equipment leased by it from another Person by reason of such
Person's insolvency, bankruptcy, dissolution, receivership or other winding
up of its affairs or liquidation of its assets.
SECTION 11. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1 Rights and Remedies. Upon the occurrence of (i) an Event of
Default pursuant to Section 10.7 all Obligations shall be immediately due and
payable and this Agreement and the obligation of Lenders to make Advances
shall be deemed terminated; and, (ii) any of the other Events of Default and
at any time thereafter (such default not having previously been cured), at
the option of Required Lenders all
~ 72406.7) 00 1246-00024
- - - 60 -
Obligations shall be immediately due and payable and Lenders shall have
the right to terminate this Agreement and to terminate the obligation of
Lenders to make Advances and (iii) a filing of a petition against any
Borrower in any involuntary case under any state or federal bankruptcy
laws, the obligation of Lenders to make Advances hereunder shall be
terminated other than as may be required by an appropriate order of the
bankruptcy court having jurisdiction over any Borrower. Upon or after the
occurrence of any Event of Default, Agent shall have the right to exercise
any and all other rights and remedies provided for herein, under the UCC
and at law or equity generally, including the right to foreclose the
security interests granted herein and to realize upon any Collateral by
any available judicial procedure and/or to take possession of and sell any
or all of the Collateral with or without judicial process. Agent may enter
any of Borrower's premises or other premises without legal process and
without incurring liability to any Borrower therefor, and Agent may
thereupon, or at any time thereafter, in its discretion without notice or
demand, take the Collateral and remove the same to such place as Agent may
deem advisable and Agent may require Borrowers to make the Collateral
available to Agent at a convenient place. With or without having the
Collateral at the time or place of sale, Agent may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one
or more sales, at such price or prices, and upon such terms, either for
cash, credit or future delivery, as Agent may elect. Except as to that
part of the Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Agent shall give Borrowers reasonable notification of such sale or sales,
it being agreed that in all events written notice mailed to Borrowers at
least five (5) days prior to such sale or sales is reasonable
notification. At any public sale Agent or any Lender may bid for and
become the purchaser, and Agent, any Lender or any other purchaser at any
such sale thereafter shall hold the Collateral sold absolutely free from
any claim or right of whatsoever kind, including any equity of redemption
and such right and equity are hereby expressly waived and released by each
Borrower. In connection with the exercise of the foregoing remedies, Agent
is granted permission to use all of each Borrower's trademarks, trade
styles, trade names, patents, patent applications, licenses, franchises
and other proprietary rights which are used in connection with (a)
Inventory for the purpose of marketing, advertising for sale and disposing
of such Inventory and (b) Equipment for the purpose of completing the
manufacture of unfinished goods. The proceeds realized from the sale of
any Collateral shall be applied as follows: first, to the reasonable
costs, expenses and attorneys' fees and expenses incurred by Agent for
collection and for acquisition, completion, protection, removal, storage,
sale and delivery of the Collateral; second, to interest due upon any of
the Obligations and any fees payable under this Agreement; and, third, to
the principal of the Obligations. If any deficiency shall arise, Borrowers
shall remain liable to Agent and Lenders therefor.
11.2 Agent's Discretion. Agent shall have the right in its
sole discretion to determine which rights, Liens, security interests or
remedies Agent may at any time pursue, relinquish, subordinate, or modify
or to take any other action with respect thereto and such determination
will not in any way modify or affect any of Agent's or Lenders' rights
hereunder.
11.3 Setoff. In addition to any other rights which Agent or
any Lender may have under Applicable Law, upon the occurrence of an Event
of Default hereunder, Agent and such Lender shall have a right to apply
any Borrower's property held by Agent and such Lender to reduce the
Obligations.
11.4 Rights and Remedies not Exclusive. The enumeration of
the foregoing rights and remedies is not intended to be exhaustive and the
exercise of any right or remedy shall not preclude the exercise of any
other right or remedies provided for herein or otherwise provided by law,
all of which shall be cumulative and not alternative.
- - -
{72406.7) 001246-00024
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SECTION 12. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1 Waiver of Notice. Each Borrower hereby waives notice of
non-payment of any of the Receivables, demand, presentment, protest and
notice thereof with respect to any and all instruments, notice of
acceptance hereof, notice of loans or advances made, credit extended,
Collateral received or delivered, or any other action taken in reliance
hereon, and all other demands and notices of any description, except such
as are expressly provided for herein.
12.2 Delay. No delay or omission on Agent's or any Lender's
part in exercising any right, remedy or option shall operate as a waiver
of such or any other right, remedy or option or of any default.
12.3 Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR
THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS
AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
SECTION 13. EFFECTIVE DATE AND TERMINATION.
13.1 Term. This Agreement shall become effective on the date
hereof and shall continue in full force and effect until January 8, 2004
(the "Term") unless sooner terminated as herein provided. Borrowers may
terminate this Agreement at any time upon ninety (90) days prior written
notice upon payment in full of the Obligations. In the event the
Obligations are prepaid in full prior to the last day of the Term (the
date of such prepayment hereinafter referred to as the "Early Termination
Date"), Borrowers shall pay to Agent for the benefit of Lenders an early
termination fee in an amount equal to one percent (1%) of the Maximum
Revolving Amount if the Early Termination Date occurs on or after the
Closing Date to and including the date immediately preceding the third
anniversary of the Closing Date; provided, however, that such early
termination fee shall be reduced to one-half percent (0.5%) of the Maximum
Revolving Amount if (i) the Early Termination Date occurs in connection
with the consummation of an Acquisition (other than a Permitted
Acquisition) which the Required Lenders did not agree to permit after
being requested to do so by Borrowers and (ii) the funds to prepay the
Obligations in full were advanced by a new lender or lenders
contemporaneously with the consummation of such Acquisition.
13.2 Termination. The termination of the Agreement shall not
affect any Borrower's, Agent's or any Lender's rights, or any of the
Obligations having their inception prior to the effective date of such
termination, and the provisions hereof shall continue to be fully
operative until all transactions entered into, rights or interests created
or Obligations have been fully disposed of, concluded or liquidated. The
security interests, Liens and rights granted to Agent and Lenders
hereunder and the financing statements filed
{72406.7) 001246-00024
- - - 62 -
hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Borrowers' Account may from
time to time be temporarily in a zero or credit position, until all of the
Obligations of each Borrower have been paid or performed in full after the
termination of this Agreement or each Borrower has furnished Agent and
Lenders with an indemnification satisfactory to Agent and Lenders with
respect thereto. Accordingly, each Borrower waives any rights which it may
have under Section 9-404(1 ) of the UCC to demand the filing of
termination statements with respect to the Collateral, and Agent shall not
be required to send such termination statements to each Borrower, or to
file them with any filing of rice, unless and until this Agreement shall
have been terminated in accordance with its terms and all Obligations paid
in full in immediately available funds. All representations, warranties,
covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are paid or performed in full.
SECTION 14. REGARDING AGENT.
14.1 Appointment. Each Lender hereby designates PNC to act as
Agent for such Lender under this Agreement and the Other Documents. Each
Lender hereby irrevocably authorizes Agent to take such action on its
behalf under the provisions of each of the Loan Documents and to exercise
such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto and
Agent shall hold all Collateral, payments of principal and interest, fees
(except the fees set forth in Sections 3.3(a) and 3.4), charges and
collections (without giving effect to any collection days) received
pursuant to this Agreement, for its benefit and the ratable benefit of
Lenders. Agent may perform any of its duties hereunder by or through its
agents or employees. As to any matters not expressly provided for by this
Agreement (including collection of the Revolving Credit Notes) Agent shall
not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the
Required Lenders, and such instructions shall be binding; provided,
however, that Agent shall not be required to take any action which exposes
Agent to liability or which is contrary to this Agreement or the Other
Documents or Applicable Law unless Agent is furnished with an
indemnification reasonably satisfactory to Agent with respect thereto.
14.2 Nature of Duties. Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and
the Other Documents. Neither Agent nor any of its officers, directors,
employees or agents shall be (i) liable for any action taken or omitted by
them as such hereunder or in connection herewith, unless caused by their
gross (not mere) negligence or willful misconduct, or (ii) responsible in
any manner for any recitals, statements, representations or warranties
made by any Borrower or any officer thereof contained in this Agreement,
or in any of the Other Documents or in any certificate, report, statement
or other document referred to or provided for in, or received by Agent
under or in connection with, any of the Loan Documents or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any
of the Loan Documents or for any failure of any Borrower to perform its
obligations hereunder. Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, any of the Loan
Documents, or to inspect the properties, books or records of any Borrower.
The duties of Agent as respects the Advances to Borrowers shall be
mechanical and administrative in nature; Agent shall not have by reason of
this Agreement a fiduciary relationship in respect of any Lender; and
nothing in this Agreement, expressed or implied, is intended to or shall
be so construed as to impose upon Agent any obligations in respect of this
Agreement except as expressly set forth herein.
14.3 Lack of Reliance on Agent and Resignation.
.
(72406.7} 001246-00024
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(a) Independently and without reliance upon Agent or any other
Lender, each Lender has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of each
Borrower in connection with the making and the continuance of the Advances
hereunder and the taking or not taking of any action in connection
herewith, and (ii) its own appraisal of the creditworthiness of each
Borrower. Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Lender with any credit or other
information with respect thereto, whether coming into its
r
possession before making of the Advances or at any time or times
thereafter except as shall be provided by any Borrower pursuant to the
terms hereof. Agent shall not be responsible to any Lender for any
recitals, statements, information, representations or warranties herein or
in any agreement, document, certificate or a statement delivered in
connection with or for the execution, effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of any of the Loan
Documents, or of the financial condition of any Borrower, or be required
to make any inquiry concerning either the performance or observance of any
of the terms, provisions or conditions of this Agreement, the Revolving
Credit Notes, the Other Documents or the financial condition of any
Borrower, or the existence of any Event of Default or any Default.
(b) Agent may resign on sixty (60) days written notice to each
of Lenders and Borrowing Agent and upon such resignation, the Required
Lenders will promptly designate a successor Agent reasonably satisfactory
to Borrowers. Any such successor Agent shall succeed to the rights, powers
and duties of Agent, and the term "Agent" shall mean such successor agent
effective upon its appointment, and the former Agent's rights, powers and
duties as Agent shall be terminated, without any other or further act or
deed on the part of such former Agent. After any Agent's resignation as
Agent, the provisions of this Section l 4 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under
this Agreement.
14.4 Certain Rights of Agent. If Agent shall request
instructions from Lenders with respect to any act or action (including
failure to act) in connection with this Agreement or any Other Document,
Agent shall be entitled to refrain from such act or taking such action
unless and until Agent shall have received instructions from the Required
Lenders; and Agent shall not incur liability to any Person by reason of so
refraining. Without limiting the foregoing, Lenders shall not have any
right of action whatsoever against Agent as a result of its acting or
refraining from acting hereunder in accordance with the instructions of
the Required Lenders.
14.5 Reliance. Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
order or other document or telephone message believed by it to be genuine
and correct and to have been signed, sent or made by the proper person or
entity, and, with respect to all legal matters pertaining to this
Agreement and the Other Documents and its duties hereunder, upon advice of
counsel selected by it. Agent may employ agents and attorneys-in-fact and
shall not be liable for the default or misconduct of any such agents or
attorneys-in-fact selected by Agent with reasonable care.
14.6 Notice of Default. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder or under the Other Documents, unless Agent has received notice
from a Lender or a Borrower referring to this Agreement or the Other
Documents, describing such Default or Event of Default and stating that
such notice is a "notice of default." In the event that Agent receives
such a notice, Agent shall give notice thereof to Lenders. Agent shall
take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders; provided, however, that,
unless and until Agent shall have received such directions, Agent may (but
shall not
{72406.7) 001246-00024
- - - 64 -
- - -
be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem
advisable in the best interests of Lenders.
14.7 Indemnification. To the extent Agent is not reimbursed
and indemnified by Borrowers, each Lender will reimburse and indemnify
Agent in proportion to its respective portion of the Advances (or, if no
Advances are outstanding, according to its Commitment Percentage), from
and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or
asserted against Agent in performing its duties hereunder, or in any way
relating to or arising out of this Agreement or any Other Document;
provided that, Lenders shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from Agent's gross (not
mere) negligence or willful misconduct.
14.8 Agent in its Individual Capacity. With respect to the
obligation of Agent to lend under this Agreement, the Advances made by it
shall have the same rights and powers hereunder as any other Lender and as
if it were not performing the duties as Agent specified herein; and the
term "Lender" or any similar term shall, unless the context clearly
otherwise indicates, include Agent in its individual capacity as a Lender.
Agent may engage in business with any Borrower as if it were not
performing the duties specified herein, and may accept fees and other
consideration from any Borrower for services in connection with this
Agreement or otherwise without having to account for the same to Lenders.
14.9 Delivery of Documents. To the extent Agent receives
financial statements required under Sections 9.7, 9.8, and 9.9 from any
Borrower pursuant to the terms of this Agreement, Agent will promptly
furnish such documents and information to Lenders.
14.10 Borrowers' Undertaking to Agent. Without prejudice to
their respective obligations to Lenders under the other provisions of this
Agreement, each Borrower hereby undertakes with Agent to pay to Agent from
time to time on demand all amounts from time to time due and payable by it
for the account of Agent or Lenders or any of them pursuant to this
Agreement to the extent not already paid. Any payment made pursuant to any
such demand shall pro tanto satisfy the relevant Borrower's obligations to
make payments for the account of Lenders or the relevant one or more of
them pursuant to this Agreement.
SECTION 15. CO-BORROWER PROVISIONS.
15.1 Borrowing Agency: Joint and Several Liability.
(a) Each Borrower hereby irrevocably designates Borrowing
Agent to be its attorney and agent and in such capacity to borrow, sign
and endorse notes, and execute and deliver all instruments, documents,
writings and further assurances now or hereafter required hereunder, on
behalf of such Borrower or Borrowers, and hereby authorizes Agent to pay
over or credit all loan proceeds hereunder in accordance with the request
of Borrowing Agent.
(b) The handling of this credit facility as a co-borrowing
facility with a borrowing agent in the manner set forth in this Agreement
is solely as an accommodation to Borrowers and at their request. In order
to utilize the financial powers of each Borrower in the most efficient and
economical manner, and in order to facilitate the financing of each
Borrower's needs, Lenders will, at the request of the Borrowing Agent,
make Advances and other financial accommodations to all Borrowers on a
combined basis and in
{72406.7} 001246-00024
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accordance with the provisions set forth in this Agreement. Borrowers
acknowledge that their business is a mutual and collective enterprise and
Borrowers believe that the consolidation of all Advances and other
financial accommodations under this Agreement will enhance the aggregate
borrowing powers of each Borrower and ease the administration of their
loan relationship with Lenders, all to the mutual advantage of Borrowers.
Agent's and Lenders' willingness to extend credit to Borrowers pursuant to
the terms hereof and to administer each Borrower's portion of the
Collateral therefor, on a combined basis as more fully set forth in this
Agreement, is done solely as an accommodation to Borrowers, at their
request and in furtherance of their mutual and collective enterprise. To
induce Agent and Lenders to do so and in consideration thereof, each
Borrower hereby indemnifies Agent and each Lender and holds Agent and each
Lender harmless from and against any and all liabilities, expenses,
losses, damages and claims of damage or injury asserted against Agent or
any Lender by any Person arising from or incurred by reason of the
handling of the financing arrangements of Borrowers as provided herein,
reliance by Agent or any Lender on any request or instruction from
Borrowing Agent or any other action taken by Agent or any Lender with
respect to this Section 15.1 except due to willful misconduct or gross
(not mere) negligence by the indemnified party.
(c) All Obligations shall be joint and several, and each
Borrower shall make payment upon the maturity of the Obligations by
acceleration or otherwise, and such obligation and liability on the part
of each Borrower shall in no way be affected by any extensions, renewals
and forbearance granted to Agent or any Lender to any Borrower, failure of
Agent or any Lender to give any Borrower notice of borrowing or any other
notice, any failure of Agent or any Lender to pursue or preserve its
rights against any Borrower, the release by Agent or any Lender of any
Collateral now or thereafter acquired from any Borrower, and such
agreement by each Borrower to pay upon any notice issued pursuant thereto
is unconditional and unaffected by prior recourse by Agent or any Lender
to the other Borrowers or any Collateral for such Borrower's Obligations
or the lack thereof.
,~
(d) Each Borrower's joint and several liability hereunder with
respect to the Advances and other Obligations shall, to the fullest extent
permitted by Applicable Law, be unconditional irrespective of (i) the
validity, enforceability, avoidance or subordination of any of the
Obligations or of any promissory note or other document evidencing all or
any part of the Obligations, (ii) the absence of any attempt to collect
any of the Obligations from any other Borrower or Guarantor or any
Collateral or other security therefor, or the absence of any other action
to enforce the same, (iii) the waiver, consent, extension, forbearance or
granting of any indulgence by Agent or any Lender with respect to any of
the Obligations or any instrument or agreement evidencing or securing the
payment of any of the Obligations, or any other agreement now or hereafter
executed by any other Borrower and delivered to Agent or any Lender, (iv)
the failure by Lender to take any steps to perfect or maintain the
perfected status of its security interest in or Lien upon, or to preserve
its rights to, any of the Collateral or other security for the payment or
performance of any of the Obligations, or Agent's or any Lender's release
of any Collateral or of its Liens upon any Collateral, (v) Agent's or any
Lenders' election, in any proceeding instituted under the Bankruptcy Code,
for the application of Section 111 l(b)(2) of the Bankruptcy Code, (vi)
any borrowing or grant of a security interest by any other Borrower, as
debtor-in-possession under Section 364 of the Bankruptcy Code, (vii) the
release or compromise, in whole or in part, of the liability of any
Borrower or Guarantor for the payment of any of the Obligations, (viii)
any amendment or modification of any of the Loan Documents or waiver of
any Default or Event of Default thereunder, (ix) any increase in the
amount of the Obligations beyond any limits imposed herein or in the
amount of any interest, fees or other charges payable in connection
therewith, or any decrease in the same, (x) the disallowance of all or any
portion of Lender's claims for the repayment of any of the Obligations
under Section 502 of the Bankruptcy Code, or (xi) any other circumstance
that might constitute a legal or equitable discharge or defense of any
Borrower and
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Guarantor. At any time an Event of Default exists, Lender may proceed
directly and at once, without notice to any Borrower or Guarantor, against
any or all of Borrowers or Guarantors to collect and recover all or any
part of the Obligations, without first proceeding against any other
Borrower or Guarantor or against any Collateral or other security for the
payment or performance of any of the Obligations, and each Borrower waives
any provision that might otherwise require Agent or any Lender under
Applicable Law to pursue or exhaust its remedies against any Collateral or
any other Borrower or Guarantor before pursuing such Borrower. Each
Borrower consents and agrees that Agent and any Lender shall be under no
obligation to marshal! any assets in favor of any Borrower or Guarantor or
against or in payment of any or all of the Obligations.
(e) Each Borrower is unconditionally obligated to repay the
Obligations as a joint and several obliger under this Agreement. If, as of
any date, the aggregate amount of payments made by a Borrower on account
of the Obligations and proceeds of such Borrower's Collateral that are
applied to the Obligations exceeds the aggregate amount of Advances
actually used by such Borrower in its business (such excess amount being
referred to as an "Accommodation Payment"), then each of the other
Borrowers shall be obligated to make contribution to such Borrower (the
"Paying Borrower") in an amount equal to (A) the product derived by
multiplying the sum of each Accommodation Payment of each Borrower by the
Allocable Percentage of the Borrower from whom contribution is sought less
(B) the amount, if any, of the then outstanding Accommodation Payment of
such Contributing Borrower (such last mentioned amount which is to be
subtracted from the aforesaid product to be increased by any amounts
theretofore paid by such Contributing Borrower by way of contribution
hereunder, and to be decreased by any amounts theretofore received by such
Contributing Borrower by way of contribution hereunder); provided,
however, that a Paying Borrower's recovery of contribution hereunder from
the other Borrowers shall be limited to that amount paid by the Paying
Borrower in excess of its Allocable Percentage of all Accommodation
Payments then outstanding of all Borrowers. As used herein, the term
"Allocable Percentage" shall mean, on any date of determinations thereof,
a fraction the denominator of which shall be equal to the number of
Borrowers who are parties to this Agreement on such date and the numerator
of which shall be 1; provided, however, that such percentages shall be
modified in the event that contribution from a Borrower is not possible by
reason of insolvency, bankruptcy or otherwise by reducing such Borrower's
Allocable Percentage equitably and by adjusting the Allocable Percentage
of the other Borrowers proportionately so that the Allocable Percentages
of all Borrowers at all times equals 100%.
15.2 Subordination. Each Borrower expressly subordinates and
postpones the exercise of any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution of any other claim
that such Borrower may now or hereafter have against the other Borrowers
or other Person directly or contingently liable for the Obligations
hereunder, or against or with respect to the other Borrowers' property
(including any property which is Collateral for the Obligations), arising
from the existence or performance of this Agreement, until termination of
this Agreement and repayment in full of the Obligations.
SECTION 16. MISCELLANEOUS,
16.1 Governing Law: Process. This Agreement shall be governed
by and construed in accordance with the laws of the State of Georgia
applied to contracts to be performed wholly within the State of Georgia.
Any judicial proceeding brought by or against any Borrower with respect to
any. of the Obligations, this Agreement or any related agreement may be
brought in any court of competent jurisdiction in the State of Georgia,
United States of America, and, by execution and delivery of this
Agreement, each Borrower accepts for itself and in connection with its
properties, generally and unconditionally,
{72406.7} 00 1 246-00024
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the non-exclusive jurisdiction of the aforesaid courts, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with
this Agreement. Each Borrower hereby waives personal service of any and
all process upon it and consents that all such service of process may be
made by registered mail (return receipt requested) directed to Borrowing
Agent at its address set forth in Section 16.6 and service so made shall
be deemed completed five (5) days after the same shall have been so
deposited in the mails of the United States of America, or, at the Agent's
and/or any Lender's option, by service upon Borrowing Agent which each
Borrower irrevocably appoints as such Borrower's Agent for the purpose of
accepting service within the State of Georgia. Nothing herein shall affect
the right to serve process in any manner permitted by law or shall limit
the right of Agent or any Lender to bring proceedings against any Borrower
in the courts of any other jurisdiction. Each Borrower waives any
objection to jurisdiction and venue of any action instituted hereunder and
shall not assert any defense based on lack of jurisdiction or venue or
based upon forum non convenient. Any judicial proceeding by any Borrower
against Agent or any Lender involving, directly or indirectly, any matter
or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or
state court located in the County of Cobb, State of Georgia.
16.2 Entire Understanding.
.
(a) This Agreement and the documents executed concurrently
herewith contain the entire understanding between each Borrower, Agent and
each Lender and supersedes all prior agreements and understandings, if
any, relating to the subject matter hereof. Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall
have no force and effect unless in writing, signed by each Borrower's,
Agent's and each Lender's respective officers. Neither this Agreement nor
any portion or provisions hereof may be changed, modified, amended,
waived, supplemented, discharged, cancelled or terminated orally or by any
course of dealing, or in any manner other than by an agreement in writing,
signed by the party to be charged. Each Borrower acknowledges that it has
been advised by counsel in connection with the execution of this Agreement
and Other Documents and is not relying upon oral representations or
statements inconsistent with the terms and provisions of this Agreement.
(b) The Required Lenders, Agent with the consent in writing of
the Required Lenders, and Borrowers may, subject to the provisions of this
Section 16.2(b), from time to time enter into written supplemental
agreements to this Agreement or any of the Other Documents executed by
Borrowers, for the purpose of adding or deleting any provisions or
otherwise changing, varying or waiving in any manner the rights of
Lenders, Agent or Borrowers thereunder or the conditions, provisions or
terms thereof of waiving any Event of Default thereunder, but only to the
extent specified in such written agreements; provided, however, that no
such supplemental agreement shall, without the consent of all Lenders:
(i) increase the Commitment Percentage of any Lender;
(ii) extend the maturity of any Revolving Credit Note or the due
date for any amount payable hereunder, or decrease the rate of interest or
reduce any fee payable by Borrowers to Lenders pursuant to this Agreement;
(iii) alter the definition of the term Required Lenders or alter,
amend or modify this Section 16.2(b);
(iv) release any Collateral during any calendar year (other than in
accordance with the provisions of this Agreement) having an aggregate
value in excess of $1,000,000;
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(v) change the rights and duties of Agent;
(vi) increase the Maximum Revolving Advance Amount or permit any
Out-of-Formula Loan to be made if after giving effect thereto the total of
Revolving Advances outstanding hereunder would exceed the Formula Amount
for more than sixty (60) consecutive Business Days or exceed one hundred
and ten percent (110%) of the Formula Amount; or
(vii) Increase the Advance Rates above the Advance Rates in effect
on the Closing Date.
Any such supplemental agreement shall apply equally to each Lender and
shall be binding upon Borrowers, Lenders and Agent and all future holders
of the Obligations. In the case of any waiver, Borrowers, Agent and
Lenders shall be restored to their former positions and rights, and any
Event of Default waived shall be deemed to be cured and not continuing,
but no waiver of a specific Event of Default shall extend to any
subsequent Event of Default (whether or not the subsequent Event of
Default is the same as the Event of Default which was waived), or impair
any right consequent thereon.
In the event that Agent requests the consent of a Lender pursuant to
this Section 16.2 and such Lender shall not respond or reply to Agent in
writing within ten (10) days of delivery of such request, such Lender
shall be deemed to have consented to matter that was the subject of the
request. In the event that Agent requests the consent of a Lender pursuant
to this Section 16.2 and such consent is denied, then PNC may, at its
option, require such Lender to assign its interest in the Advances to PNC
or to another Lender or to any other Person designated by the Agent (the
"Designated Lender"), for a price equal to the then outstanding principal
amount thereof plus accrued and unpaid interest and fees due such Lender,
which interest and fees shall be paid when collected from Borrower. In the
event PNC elects to require any Lender to assign its interest to PNC or to
the Designated Lender, PNC will so notify such Lender in writing within
forty five (45) days following such Lender's denial, and such Lender will
assign its interest to PNC or the Designated Lender no later than five (5)
days following receipt of such notice pursuant to a Commitment Transfer
Supplement executed by such Lender, PNC or the Designated Lender, as
appropriate, and Agent.
16.3 Successors and Assigns: Participations: New Lenders.
(a) This Agreement shall be binding upon and inure to the
benefit of Borrowers, Agent, each Lender, all future holders of the
Obligations and their respective successors and assigns, except that no
Borrower may assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of Agent and each Lender.
(b) Each Borrower acknowledges that in the regular course of
commercial banking business one or more Lenders may at any time and from
time to time sell participating interests in the Advances to other
financial institutions (each such Participant or purchaser of a
participating interest, a "Participant"). Each Participant may exercise
all rights of payment (including rights of set-off) with respect to the
portion of such Advances held by it or other Obligations payable hereunder
as fully as if such Participant were the direct holder thereof provided
that Borrowers shall not be required to pay to any Participant more than
the amount which it would have been required to pay to Lender which
granted an interest in its Advances or other Obligations payable hereunder
to such Participant had such Lender retained such interest in the Advances
hereunder or other Obligations payable hereunder and in no event shall
{72406.7} 001246-00024
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nothing contained herein shall prohibit or restrict PNC from assigning any
of its rights and obligations under the Loan Document to any other Person
after the Closing Date. Upon such execution, delivery, acceptance and
recording, from and after the transfer effective date determined pursuant
to such Commitment Transfer Supplement, (i) Eligible Assignee thereunder
shall be a party hereto and, to the extent provided in such Commitment
Transfer Supplement, have the rights and obligations of a Lender
thereunder with a Commitment Percentage as set forth therein, and (ii) the
transferor Lender thereunder shall, to the extent provided in such
Commitment Transfer Supplement, be released from its obligations under
this Agreement, the Commitment Transfer Supplement creating a novation for
that purpose. Such Commitment Transfer Supplement shall be deemed to amend
this Agreement to the extent, and only to the extent, necessary to reflect
the addition of such Eligible Assignee and the resulting adjustment of the
Commitment Percentages arising from the purchase by such Eligible Assignee
of all or a portion of the rights and obligations of such transferor
Lender under this Agreement and the Other Documents. Borrowers hereby
consent to the addition of such Eligible Assignee and the resulting
adjustment of the Commitment Percentages arising from the purchase by such
Eligible Assignee of all or a portion of the rights and obligations of
such transferor Lender under this Agreement and the Other Documents.
Borrowers shall execute and deliver such further documents and do such
further acts and things in order to effectuate the foregoing.
(d) Agent shall maintain at its address a copy of each
Commitment Transfer Supplement delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Advances
owing to each Lender from time to time. The entries in the Register shall
be conclusive, in the absence of manifest error, and Borrowers, Agent and
Lenders may treat each Person whose name is recorded in the Register as
the owner of the Advance recorded therein for the purposes of this
Agreement. The Register shall be available for inspection by Borrowers or
any Lender at any reasonable time and from time to time upon reasonable
prior notice. Agent shall receive a fee in the amount of $3,500 payable by
the applicable Eligible Assignee upon the effective date of each transfer
or assignment to such Eligible Assignee.
(e) Borrowers authorize each Lender to disclose to any
Participant or Eligible Assignee and any prospective Participant or
Eligible Assignee any and all financial information in such Lender's
possession concerning Borrowers which has been delivered to such Lender by
or on behalf of Borrowers pursuant to this Agreement or in connection with
such Lender's credit evaluation of Borrowers.
16.4 Application of Payments. Agent shall have the continuing
and exclusive right to apply or reverse and re-apply any payment and any
and all proceeds of Collateral to any portion of the Obligations. To the
extent that any Borrower makes a payment or Agent or any Lender receives
any payment or proceeds of the Collateral for any Borrower's benefit,
which are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver, custodian or any other party under any bankruptcy
law, common law or equitable cause, then, to such extent, the Obligations
or part thereof intended to be satisfied shall be revived and continue as
if such payment or proceeds had not been received by Agent or such Lender.
16.5 Indemnity. Each Borrower shall indemnify Agent, each
Lender and each of their respective officers, directors, Affiliates,
employees and agents from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind or nature whatsoever (including
fees and disbursements of counsel) which may be imposed on, incurred by,
or asserted against Agent or any Lender in any litigation, proceeding or
investigation instituted or conducted by any Governmental Body or any
other Person with respect to any aspect of, or any transaction
contemplated by, or referred to in, or any matter related to, any of the
Loan Documents, whether or not Agent
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or any Lender is a party thereto, except to the extent that any of the
foregoing arises out of the willful misconduct of the party being
indemnified.
16.6 Notice. Any notice or request hereunder may be given to
any Borrower or to Agent or any Lender at their respective addresses set
forth below or at such other address as may hereafter be specified in a
notice designated as a notice of change of address under this Section. Any
notice or request hereunder shall be given by (a) hand delivery, (b)
overnight courier, (c) registered or certified mail, return receipt
requested, (d) telex or telegram, subsequently confirmed by registered or
certified mail, or (e) telecopy to the number set out below (or such other
number as may hereafter be specified in a notice designated as a notice of
change of address) with electronic confirmation of its receipt. Any notice
or other communication required or permitted pursuant to this Agreement
shall be deemed given (a) when personally delivered to any officer of the
party to whom it is addressed, (b) on the earlier of actual receipt
thereof or three (3) days following posting thereof in the U.S. Mail by
certified or registered mail, postage prepaid, or (c) upon actual receipt
thereof when sent by a recognized overnight delivery service or (d) upon
actual receipt thereof when sent by telecopier to the number set forth
below with electronic confirmation of its receipt, in each case addressed
to each party at its address set forth below or at such other address as
has been furnished in writing by a party to the other by like notice:
(A) If to Agent or
PNC at:
with a copy to:
PNC Bank, National Association
Two PNC Plaza
620 Liberty Avenue
18th Floor
Pittsburgh, Pennsylvania 15222
Attention: Richard F. Muse, Jr.
Telephone: (412) 762-4471
Telecopier: (412) 768-4369
Parker, Hudson, Rainer & Dobbs LLP
1500 Marquis Two Tower
285 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303
Attention: C. Edward Dobbs, Esq.
Telephone: (404) 523-5300
Telecopier: (404) 522-8409
(B) If to a Lender other than Agent, as specified on the signature
pages hereof
(C) If to Borrowing Agent
or any Borrower, at: Reptron Electronics, Inc.
14401 McCormick Drive
Tampa, Florida 33626
Attention: President
Telephone: (813) 855-4656
Telecopier: (813) 855-1697
with a copy to:
William Elson,Esq.
Suite 2960
3000 Town Center
Southfield, Michigan 48075
Telephone: (248) 353-6850
Telecopier: (248) 358-4425
16.7 Survival. The obligations of Borrowers under Sections
2.2(f), 3.7,3.8, 3.9, 4.19(h),
14.7 and 16.5 shall survive termination of this Agreement and the Other
Documents and payment in full of
the Obligations.
16.8 Severability. If any part of this Agreement is contrary
to, prohibited by, or deemed invalid under Applicable Law or regulations,
such provision shall be inapplicable and deemed omitted to the extent so
contrary, prohibited or invalid, but the remainder hereof shall not be
invalidated thereby and shall be given effect so far as possible.
16.9 Expenses. All costs and expenses including reasonable
attorneys' fees (including the allocated costs of in house counsel) and
disbursements incurred by Agent, Agent on behalf of Lenders and Lenders
(a) in all efforts made to enforce payment of any Obligation or effect
collection of any Collateral, (b) in connection with the entering into,
modification, amendment, administration and enforcement of this Agreement
or any consents or waivers hereunder and all related agreements, documents
and instruments, (c) in instituting, maintaining, preserving, enforcing
and foreclosing on Agent's security interest in or Lien on any of the
Collateral, whether through judicial proceedings or otherwise, (d) in
defending or prosecuting any actions or proceedings arising out of or
relating to Agent's or any Lender's transactions with any Borrower, or (e)
in connection with any advice given to Agent or any Lender with respect to
its rights and obligations under this Agreement and all related
agreements, may be charged to Borrowers' Account and shall be part of the
Obligations.
16.10 Injunctive Relief. Each Borrower recognizes that, in
the event any Borrower fails to perform, observe or discharge any of its
obligations or liabilities under this Agreement, any remedy at law may
prove to be inadequate relief to Lenders; therefore, Agent, if Agent so
requests, shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving that actual damages are
not an adequate remedy.
16.11 Consequential Damages. Neither Agent nor any Lender,
nor any agent or attorney for any of them, shall be liable to any Borrower
for consequential damages arising from any breach of contract, tort or
other wrong relating to the establishment, administration or collection of
the Obligations.
16.12 Captions. The captions at various places in this
Agreement are intended for convenience only and do not constitute and
shall not be interpreted as part of this Agreement.
16.13 Counterparts; Telecopied Signatures. This Agreement may
be executed in any number of and by different parties hereto on separate
counterparts, all 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.
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16.14 Construction. The parties acknowledge that each party
and its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of this
Agreement or any amendments, schedules or exhibits thereto.
16.15 Confidentialiy: Sharing Information.
(a) Agent, each Lender and each Participant shall hold all
non-public information obtained by Agent, such Lender or such Participant
pursuant to the requirements of this Agreement in accordance with Agent's,
such Lender's and such Participant's customary procedures for handling
confidential information of this nature; provided, however, Agent, each
Lender and each Participant may disclose such confidential information (a)
to its examiners, affiliates, outside auditors, counsel and other
professional advisors, (b) to Agent, any Lender or to any prospective
Participants and Eligible Assignees, and (c) as required or requested by
any Governmental Body or representative thereof or pursuant to legal
process; provided, further that (i) unless specifically prohibited by
Applicable Law or court order, Agent, each Lender and each Participant
shall use its best efforts prior to disclosure thereof, to notify the
applicable Borrower of the applicable request for disclosure of such
non-public information (A) by a Governmental Body or representative
thereof (other than any such request in connection with an examination of
the financial condition of a Lender or a Participant by such Governmental
Body) or (B) pursuant to legal process and (ii) in no event shall Agent,
any Lender or any Participant be obligated to return any materials
furnished by any Borrower other than those documents and instruments in
possession of Agent or any Lender in order to perfect its Lien on the
Collateral once the Obligations have been paid in full and this Agreement
has been terminated.
(b) Borrower acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided
to such Borrower or one or more of its Affiliates (in connection with this
Agreement or otherwise) by any Lender or by one or more Subsidiaries or
Affiliates of such Lender and each Borrower hereby authorizes each Lender
to share any information delivered to such Lender by such Borrower and its
Subsidiaries pursuant to this Agreement, or in connection with the
decision of such Lender to enter into this Agreement, to any such
Subsidiary or Affiliate of such Lender, it being understood that any such
Subsidiary or Affiliate of any Lender receiving such information shall be
bound by the provision of Section l 6.15 as if it were a Lender hereunder.
Such authorization shall survive the repayment of the other Obligations
and the termination of the Loan Agreement.
16.16 Publicity. Each Borrower and each Lender hereby
authorizes Agent to make appropriate announcements of the financial
arrangement entered into among Borrowers, Agent and Lenders, including
announcements which are commonly known as tombstones, in such publications
and to such selected parties as Agent shall in its sole and absolute
discretion deem appropriate.
16.17 Acknowledgment. The parties hereto acknowledge that this
Agreement is intended (i) to act as a "Credit Support Document" (as
defined in the 1992 ISDA Master Agreement (together with any and all
schedules, annexes, confirmations and amendments relating thereto or any
successor ISDA agreement, the "Master Agreement")) with respect to each
party and is made part of the Schedule to said Master Agreement by and
between or which may be entered into by and between some of the parties
hereto, and (ii) as a "transfer" under a swap agreement, made by or to a
swap participant, in connection with a swap agreement within the meaning
of U.S. Bankruptcy Code Section 546(g).
{72406.7} 001246-00024
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16.18 Designated Senior Indebtedness. All of the Obligations
of the Borrowers under this Agreement and the Other Documents are intended
to be and are hereby expressly designated as "Designated Senior
Indebtedness" as such term is used in the Indenture. It is the intent
hereof that all of the Subordinated Indebtedness arising under or pursuant
to the Indenture shall be subordinated in accordance with the provisions
thereof to the full and final payment of the Obligations.
Each of the parties has executed and delivered this Agreement in
Atlanta, Georgia as of the day and year first above written.
REPTRON ELECTRONICS, INC.
By: /s/ M. Branca
Michael Branch, Chief Financial Officer
corporate SEAL
14401 McCormick Drive
Tampa, Florida 33626
Telecopier: (813) 855-1697
REPTRON ELECTRONICS OF PA, INC.
By: /s/ M. Branca
Michael Branca, Vice President and Chief Financial Officer
[CORPORATE SEAL]
14401 McCormick Drive
Tampa, Florida 33626
Telecopier: (813) 855-1697
LAKE SUPERIOR MERGER CORPORATION
By: /s/ M. Branca
Michael Branca, Vice President and
Chief Financial Officer
[CORPORATE SEAL ]
14401 McCormick Drive
Tampa, Florida 33626
Telecopier: (813) 855-1697
HIBBING ELECTRONICS CORPORATION
By: /s/ M. Branca
Michael Branca, Vice President and Chief Financial Officer
[CORPORATE SEAL ]
3125 East 14th Avenue
Hibbing, Minnesota 55746
Telecopier: (218) 263-8970
PNC BANK, NATIONAL ASSOCIATION, as
Lender and as Agent
By: /s/ Richard F. Muse Jr.
Name: Richard F. Muse Jr.
Title: Vice President
Telecopier: (412) 768-4369
Commitment Percentage: 100%
Exhibit 21.0
Reptron Electronics of PA, Inc.
Lake Superior Merger Corporation
Hibbing Electronics Corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated February 5, 1999, 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, 1998. We hereby consent to the incorporation by reference
of said reports in the Registration Statement of Reptron Electronics,
Inc., on Form S-8 (File No. 33-87854, effective December 22, 1994).
GRANT THORNTON LLP
Tampa, Florida
February 5, 1999