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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996
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: 0-27744
PCD Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2604950
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2 Technology Drive
Centennial Park
Peabody, Massachusetts
(Address of principal executive offices)
01960-7977
(Zip Code)
Registrant's telephone number, including area code: 508-532-8800
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was approximately $90,554,645 as of February
26, 1997, based upon the closing sale price on Nasdaq for that date.
There were 5,889,733 shares of the registrant's Common Stock, $0.01 par value,
issued and outstanding as of February 26, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Certain of the information called for by Parts I through IV of this report on
Form 10-K is incorporated by reference from certain portions of the Proxy
Statement of the registrant to be filed pursuant to Regulation 14A and to be
sent to stockholders in connection with the Annual Meeting of Stockholders to
be held on May 9, 1997. Such Proxy Statement, except for the parts therein
that have been specifically incorporated herein by reference, shall not be
deemed "filed" as part of this report on Form 10-K.
PART I
ITEM 1. BUSINESS
FORWARD LOOKING INFORMATION
Statements in this report concerning the Company's future revenues,
profitability, financial resources, product mix, market demand and product
development and other statements in this report concerning the future results
of operations, financial condition and business of the Company are
forward-looking statements made pursuant to the safe harbor provisions of the
Securities Exchange Act of 1934, as amended. The Company's actual results in
the future may differ materially from those projected in the forward-looking
statements due to risks and uncertainties that exist in the Company's
operations and business environment including, but not limited to:
DEPENDENCE ON PRINCIPAL CUSTOMERS. Altera Corporation ("Altera"), a
provider of high performance, high density programmable-logic devices, has
been the Company's largest customer since 1994. Altera accounted for 17.4%,
16.6% and 15.3% of the Company's net sales for the years ended December 31,
1996, 1995 and 1994, respectively. Substantially all of the Company's sales of
production/PLD sockets (formerly known as programmable-logic interconnect
sockets or "PLIS") during this period have been to Altera. The Company has no
agreement with Altera providing minimum purchase obligations, and there is no
assurance that Altera will purchase the Company's products beyond those
covered by released purchase orders. The loss of, or significant decrease in,
business from Altera for any reason would have a material adverse effect on
the financial condition, results of operations and business of the Company.
DEPENDENCE ON SEMICONDUCTOR INDUSTRY. The Company's burn-in sockets and
production/PLD sockets are used by either producers or testers of integrated
circuits ("ICs") and OEMs. For the year ended December 31, 1996, the Company
derived 37.6% of its net sales from these products. The Company's future
success will depend in significant part on the vitality of the related IC
package industry. Historically, this industry has been driven by both the
technology requirements and unit demands of the semiconductor industry.
Depressed general economic conditions and cyclical downturns in the IC
industry have had an adverse economic effect on the IC package industry and
the related burn-in socket and production/PLD markets. In addition, the
product cycle of existing IC package designs and the timing of new IC package
development and introduction can affect the demand for burn-in sockets and
production/PLD sockets. Reduced demand for ICs and their related packages
would have a material adverse effect on the financial condition, results of
operations and business of the Company.
FLUCTUATIONS IN OPERATING RESULTS. The variability of the level and timing
of orders from, and shipments to, major customers may result in significant
fluctuations in the Company's
PAGE 2 OF 52
quarterly results of operations. The Company generally does not obtain
long-term purchase orders or commitments but instead seeks to work closely
with its customers to anticipate the volume of future orders. Generally,
customers may cancel, reduce or delay purchase orders and commitments without
penalty. Cancellations, reductions or delays in orders by a customer or groups
of customers could have a material adverse effect on the financial condition,
results of operations and business of the Company. In addition to the
variability resulting from the short-term nature of its customers'
commitments, other factors have contributed, and may in the future contribute,
to such fluctuations. These factors may include, among other things,
customers' announcement and introduction of new products or new generations of
products, evolutions in the life cycles of customers' products, timing of
expenditures in anticipation of future orders, effectiveness in managing
manufacturing processes, changes in cost and availability of labor and
components, shifts in the Company's product mix and changes or anticipated
changes in economic conditions. In addition, it is not uncommon in the
electronic connector industry for results of operations to display a seasonal
pattern of declining revenues in the third quarter of the calendar year.
Although the Company's results of operations did not display this pattern in
the years ended December 31, 1995 and 1994, it did occur in 1996 and it is
likely that this pattern will present itself in the future. Because the
Company's operating expenses are based on anticipated revenue levels and a
high percentage of the Company's operating expenses are relatively fixed, any
unanticipated shortfall in revenue in a quarter may have a material adverse
impact on the Company's results of operations for the quarter. Results of
operations for any period should not be considered indicative of the results
to be anticipated for any future period.
TECHNOLOGICAL EVOLUTION. The rapid technological evolution of the
electronics industry requires the Company to anticipate and respond rapidly to
changes in industry standards and customer needs and to develop and introduce
new and enhanced products on a timely and cost-effective basis. In particular,
the Company must target its development of burn-in and production/PLD sockets
based on which next generation IC package designs the Company expects to be
successful. The Company must manage transitions from products using present
technology to those that utilize next generation technology in order to
maintain or increase sales and profitability, minimize disruptions in customer
orders and avoid excess inventory of products that are less responsive to
customer demand. The failure of the Company to respond to changes in industry
standards and customer needs, develop and introduce new products and manage
product transitions would have a material adverse effect on the financial
condition, results of operations and business of the Company.
MANAGEMENT OF GROWTH. The Company has grown rapidly in recent years. A
continuing period of rapid growth could place a significant strain on the
Company's management, operations and other resources. The Company's ability to
manage its growth will
PAGE 3 OF 52
require it to continue to invest in its operational, financial and management
information systems, and to attract, retain, motivate and effectively manage
its employees. The inability of the Company's management to manage growth
effectively would have a material adverse effect on the financial condition,
results of operation and business of the Company.
PROPRIETARY TECHNOLOGY AND PRODUCT PROTECTION. The Company's success
depends in part on its ability to maintain the proprietary and confidential
aspects of its products as they are released. The Company seeks to use a
combination of patents and other means to establish and protect its
proprietary rights. There can, however, be no assurance that the precautions
taken by the Company will be adequate to protect the Company's technology. In
addition, many of the Company's competitors have obtained or developed, and
may be expected to obtain or develop in the future, patents or other
proprietary rights that cover or affect products that perform functions
similar to those performed by products offered by the Company. There can be no
assurance that, in the future, the Company's products will not be held to
infringe patent claims of its competitors, or that the Company is aware of all
patents containing claims that may pose a risk of infringement by its
products. The inability of the Company for any reason to protect existing
technology or otherwise acquire such technology could prevent distribution of
the Company's products, having a material adverse effect on the financial
condition, results of operations and business of the Company.
PATENT LITIGATION. The Company became aware of patent infringement actions
brought by Wayne K. Pfaff, an individual residing in Texas ("Pfaff"), against
Wells Electronics, Inc., a burn-in connector manufacturer unrelated to the
Company that offers certain products in competition with the Company's
products. One of these actions is still pending. On August 21, 1995, the
Company's wholly-owned subsidiary, CTi Technologies, Inc. ("CTi"), filed an
action against Pfaff and Plastronics Socket Company, Inc., a corporation
affiliated with Pfaff, seeking a declaratory judgment to the effect that two
United States patents issued to Pfaff are invalid and are not infringed by
CTi. Pfaff has filed a counterclaim alleging that CTi infringes Pfaff's patent
that relate to certain burn-in sockets for leadless IC packages and has
requested an award of damages. Pfaff has also sought a permanent injunction
against further infringement by CTi of the above referenced patent. Pfaff may
also, at any time, seek an injunction against the manufacture and sale in the
United States of certain CTi products. There can be no assurance that this
litigation will be resolved without material adverse effect on the financial
condition, results of operations and business of the Company.
COMPETITION. The electronic connector industry is highly competitive and
fragmented, with over 1,500 manufacturers worldwide. The Company believes that
competition in its targeted segments is primarily based on design,
responsiveness, quality,
PAGE 4 OF 52
price, reputation and reliability. The Company's significant competitors are
much larger and have substantially broader product lines and greater financial
resources than the Company. There can be no assurance that the Company will
compete successfully, and any failure to compete successfully would have a
material adverse effect on the financial condition, results of operations and
business of the Company.
CONTROL BY EXISTING STOCKHOLDERS. The current officers, directors and
principal stockholders of the Company beneficially own approximately 54.6% of
the outstanding shares of the Common Stock of the Company as of December 31,
1996. Accordingly, such persons, if they act together, will have effective
control over the Company through their ability to control the election of
directors and all other matters that require action by the Company's
stockholders, irrespective of how other stockholders may vote. Such persons
could prevent or delay a change in control of the Company which may be favored
by a majority of the remaining stockholders. Such ability to prevent or delay
such a change in control of the Company also may have an adverse effect on the
market price of the Company's Common Stock.
DEPENDENCE ON KEY PERSONNEL. The Company is largely dependent upon the
skills and efforts of John L. Dwight, Jr., its Chairman of the Board, Chief
Executive Officer and President, Jeffrey A. Farnsworth, its Vice President and
General Manager -- CTi, and other officers and key employees. The Company does
not have employment agreements with any of its officers or key employees
providing for their employment for any specific term. The loss of key
personnel or the inability to hire or retain qualified personnel could have a
material adverse effect on the financial condition, results of operations and
business of the Company.
DEPENDENCE UPON INDEPENDENT DISTRIBUTORS. Sales through such distributors
accounted for 28.1%, 35.7% and 37.4% of the Company's net sales for the years
ended December 31, 1996, 1995 and 1994, respectively. The Company's agreements
with its independent distributors are nonexclusive and may be terminated by
either party upon 30 days written notice, provided that if the Company
terminates the agreement with an independent distributor, the Company will be
obligated to purchase certain of such distributor's pre-designated unsold
inventory shipped by the Company within an agreed-upon period prior to the
effective date of such termination. The Company's distributors are not within
the control of the Company, are not obligated to purchase products from the
Company, and may also sell other lines of products. There can be no assurance
that these distributors will continue their current relationships with the
Company or that they will not give higher priority to the sale of other
products, which could include products of competitors. A reduction in sales
efforts or discontinuance of sales of the Company's products by its
distributors could lead to reduced sales and could materially adversely affect
the Company's business, results of operations and financial condition. The
Company grants to its distributors limited inventory return and stock
rotation rights. The Company
PAGE 5 OF 52
has not historically experienced any significant product returns, and the
Company is not aware of any factor that is likely to cause this pattern to
change. However, in the event the Company's distributors were to increase
their general levels of inventory of the Company's products, the Company could
face an increased risk of product returns from its distributors. There can be
no assurance that the Company's historical return rate will remain at a low
level in the future or that such product returns will not have a material
adverse effect on the Company's financial condition, results of operations and
business.
PRODUCT LIABILITY. The Company's products provide electrical connections
between various electrical and electronic components. Any failure by the
Company's products could result in claims against the Company. Except with
respect to avionics products, the Company does not maintain insurance to
protect against possible claims associated with the use of its products. A
successful claim brought against the Company could have a material adverse
effect on the financial condition, results of operations and business of the
Company. Even unsuccessful claims could result in the Company's expenditure of
funds in litigation and management time and resources. There can be no
assurance that the Company will not be subject to product liability claims.
ENVIRONMENTAL COMPLIANCE. The Company is subject to a wide range of
environmental laws and regulations relating to the use, storage, discharge and
disposal of hazardous chemicals used during its manufacturing process. A
failure by the Company to comply with present or future laws and regulations
could subject it to future liabilities or the suspension of production. Such
laws and regulations could also restrict the Company's ability to expand its
facilities or could require the Company to acquire costly equipment or incur
other significant expenses.
GENERAL
PCD Inc. designs, manufactures and markets electronic connectors to defined
niche markets in semiconductor, industrial equipment, and avionic industries
worldwide. Headquartered in Peabody, Massachusetts, PCD focuses on four
distinct product categories: industrial terminal blocks, avionic control
connectors, burn-in sockets, and production/PLD sockets. The Company employs
a carefully targeted approach to product development and marketing, focusing
on the key segments of each market which meet its growth and profit
objectives. Looking forward, the Company intends to use this strategy to
further develop its product base in existing markets as well as to identify
and expand into additional select electronic connector market.
Industrial terminal blocks are used in industrial equipment systems that
require input/output ("I/O") connectors to link the rugged electrical
environment of operating equipment to the
PAGE 6 OF 52
electrical environment of controllers and sensors.
Avionic control connectors perform the same function as industrial
connectors, but are designed and built to operate in the harsher environment
and meet more critical performance requirements of avionics applications.
Burn-in sockets, targeted at the semiconductor market, are
specially-designed devices that connect ICs to printed circuit boards during
burn-in, a testing process that is a critical step in the production of ICs.
Production/PLD sockets target broader applications within the semiconductor
market. They are used to facilitate the handling and programming of high
performance, high density programmable-logic devices and interconnect ball
grid array ("BGA") packages to printed circuit boards in production
applications.
The Company believes it is benefitting from four trends affecting the
electronics industry: (i) the increasing complexity of ICs and evolution of IC
package designs, which favor growth in PCD's burn-in socket market; (ii) time
to market pressures and the resulting growth in programmable-logic devices
("PLD"), which foster greater demand in PCD's production/PLD socket market;
(iii) the growing use of increasingly complex electronic controllers and
sensors in industrial and avionics applications, which benefits PCD's
industrial equipment and avionics markets; and (iv) the resurgence in the
demand for both regional and large transport commercial aircraft.
BACKGROUND
Electronic connectors are essential and pervasive links within all
electronic systems and are found in virtually every product utilizing
electronics, including computers and peripherals, VCRs, appliances, airplanes,
automobiles, medical instruments, cellular telephones and controllers of
industrial equipment. Electronic connectors enable an electrical current or
signal to pass from one part of an electronic system to another part of the
system by linking wires, cables, printed circuit boards and other electronic
components to each other and to related equipment within the system.
The electrical and electronic systems which utilize these connectors have
become increasingly widespread and complex, in part, as a result of increased
automation of business systems and manufacturing equipment. Consequently, the
electronic connector industry has grown in size and electronic connectors have
become more sophisticated.
The growth in the electronics industry has resulted in equipment
manufacturers placing greater demands for service and product complexity on
the manufacturers of component parts,
PAGE 7 OF 52
including electronic connectors. Demand for smaller yet more powerful products
has resulted in continued improvements in electronic systems in general and
electronic connectors in particular. Product cycles continue to shorten and,
as equipment manufacturers seek to reduce inventory and contend with pressures
to keep up with new product innovations, time to market becomes increasingly
important. The growing demands for electronic connector complexity, coupled
with reduced product development cycles and delivery lead times, create a need
for closer cooperation between connector suppliers and equipment
manufacturers, often leading to new connector requirements and market
opportunities.
The electronic connector market is both large and broad. Bishop &
Associates, a leading electronic connector industry market research firm,
projects the total 1997 worldwide market at $21.7 billion. Market
fragmentation is evidenced by the fact that an industry market analyst cites
over 1,500 total suppliers. While many of these companies produce connectors
which are relatively standard and often produced in large quantities, a
substantial portion of the industry is comprised of companies which produce
both proprietary and standard products in relatively low volumes for
specialized applications. An industry analyst has identified over 900 separate
electronic connector product lines presently offered in the marketplace.
The following table sets forth the relative percentages of the Company's
total net sales attributable to the Company's product categories for the
periods indicated:
Years Ended December 31,
------------------------
1996 1995 1994
------ ------ ------
Product Categories
- ------------------
Industrial terminal blocks 22.5% 16.5% 25.0%
Avionics terminal blocks and sockets 39.9 30.8 39.9
Burn-in sockets 20.2 35.7 19.8
Production/PLD sockets 17.4 17.0 15.3
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
The Company markets its products on a worldwide basis and currently sells
to its customers directly or through U.S. and foreign distributors in major
electronics markets. International sales, which consist of export sales and
sales to foreign customers through U.S. distributors, were 22.1%, 28.0%, and
12.5% in the years ended December 31, 1996, 1995 and 1994 respectively.
PCD focuses its products and sales efforts in the selected key markets
listed below.
PAGE 8 OF 52
INDUSTRIAL EQUIPMENT MARKET: The industrial equipment market is comprised
of a broad range of control, measurement and manufacturing equipment. Terminal
blocks are most commonly used in this equipment to provide an electrical link
between discrete functions, such as monitoring and measuring, and controlling
devices, such as programmable-logic controllers ("PLCs"), stand-alone PCs and
single function controllers. The use of terminal blocks has increased as
electronic controllers and sensors in the industrial environment have evolved
to control more complex, multi-function activities. In addition to increasing
in number, these controllers and their connectors are becoming smaller and are
being configured in increasing variations.
PCD is benefitting from the proliferation of factory automation and the
embedded electronics which control manufacturing processes. This trend has
spurred demand not only for increased unit volume of terminal blocks but also
for connectors with higher density and greater diversity of configurations.
AVIONICS MARKET: The avionics market requires a diverse range of electronic
connectors that are designed and manufactured specifically for avionics
applications. Over the last few years, commercial aircraft applications have
represented an increasingly important part of this market. The Company
participates in selected areas of this market with terminal blocks and sockets
that perform the same function as its industrial connectors but are designed
to operate in the harsher environment and meet the more critical performance
requirements of avionics applications.
BURN-IN MARKET: The burn-in process seeks to uncover latent defects by
exposing an Integrated Circuit to controlled stresses which simulate the first
several hundred hours of operation. During the test, the IC is secured in a
burn-in socket, a high temperature electro-mechanical interconnect device,
which is a permanent fixture on the burn-in printed circuit board. After the
test is completed, the IC must be removed from the socket. PCD's sockets are
designed to withstand elevated temperature and to permit easy
insertion/removal of the IC before and after the test.
The market strategy for PCD's burn-in sockets focuses on aggressive product
development and penetration of worldwide markets. The Company's product
development is directed at surface-mount, high lead count packages. The
primary product direction has been in quad flat pack ("QFP") burn-in sockets.
In 1996, a total of 10 new QFP product configurations were added. PCD now has
one of the largest offerings of this product worldwide with more than 50
different configurations.
PCD's Ball Grid Array burn-in socket was introduced in late 1996. This
product uses state-of-the-art, open top socket technology and provides end
users with the industry's lowest applied cost. The industry's BGA package is
a high-density array using solder balls for its interconnect point instead of
the traditional perimeter-leaded interconnect. This package, which is still
in its introductory phase, is meeting with wide
PAGE 9 OF 52
acceptance throughout the semiconductor industry. Typical applications where
this industry package is most competitive are surface-mount devices of more
than 100 leads where data transmission speed and package size are important
considerations. It is the Company's strategy to greatly expand its offering
of BGA burn-in sockets in 1997 in the event that the expected customer demand
materializes.
PRODUCTION/PLD MARKET: Production sockets are used by OEMs to achieve
flexibility in the assembly process, facilitate upgrades by the end customer
and reduce integrated circuit inventories and related expenses. The current
North American market for production sockets is more than $400 million.
PCD's strategy in this market is to leverage the knowledge gained in
developing burn-in sockets by transferring it into production sockets for
specific niches. Production sockets differ from their burn-in counterparts in
that they are used in far greater quantities, have a lower selling price and
are constructed of lower temperature materials. Our initial product in this
market is a socket/carrier system used by Altera in conjunction with their
complex programmable-logic devices.
The Altera carrier/socket system is used for the handling, programming and
onboard electrical and mechanical prototyping of PLDs. The system consists of
a carrier, programming socket, and development socket. The demand for these
products experienced significant fluctuations during 1996, but for the year
achieved single-digit growth.
A production BGA socket, which uses the same basic technology as the
burn-in BGA socket, was introduced in early 1997. The patented, surface mount
production BGA socket has a low profile design and features zero insertion
force for ease of use. This design will accommodate the majority of package
configurations available in the market today.
STRATEGY
The Company's strategy is to identify and expand into selected electronic
connector markets where it can establish a position of leadership. The Company
intends to expand its presence in the markets in which it participates through
internal investment in product development and possible strategic acquisitions
of established manufacturers. The elements of the Company's strategy are:
-SELECTION OF KEY MARKETS: The Company actively identifies and pursues
areas of the electronic connector market which have the following
characteristics: demand for electronic connectors with relatively high
engineering content, high degree of customer interface, changing technology,
significant growth opportunities and a market size appropriate to the
Company's resources. Strategic market selection has contributed to the
Company's compound growth rate in sales of 28% since 1994.
- AGGRESSIVE PRODUCT DEVELOPMENT WITH MARKET LEADERS: The Company seeks to
anticipate evolving market requirements and
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capitalize on its design capabilities to rapidly develop products to meet
those needs. The Company works directly with customers, typically the market
leaders, early in the design stage of their new product development to create
proprietary products with industry-wide potential. In order to rapidly exploit
new product opportunities and reduce product development lead time, the
Company has introduced concurrent engineering, solid model design capability
and the use of computer-generated prototype models in its development efforts.
The Company realized approximately 43% of its net sales in 1996 from products
introduced in the last five years.
- CUSTOMER RESPONSIVENESS/SHORT DELIVERY CYCLE: The Company believes that
responding quickly to customers is a critical competitive factor in the
markets in which it participates. Increasing emphasis on inventory reduction
and shorter, more frequent production runs has reduced the delivery lead times
required by customers. The Company believes it generally has the shortest lead
times in the markets it serves, and its strategy is to maintain and leverage
its leadership position. Across all our markets, PCD's on-time percentage
increased to a record 95%.
- BEST COST, HIGH QUALITY PRODUCTION: In the markets in which the Company
competes, high quality is a prerequisite. The Company's goal is to be the best
cost producer in each of these markets while maintaining high quality. The
Company strives for continuous cost reduction and monitors its progress
closely throughout the year. As part of this program, engineering and
manufacturing work closely together from the inception of all new product
programs. As a result, gross profit as a percentage of sales for 1996 was
46.2%.
- PENETRATION OF WORLDWIDE MARKETS: The Company has recently placed
greater emphasis on marketing its products on a worldwide basis and currently
sells to its foreign customers directly and through U.S. and foreign
distributors. As a result, 22% of sales in 1996 were for customers outside
the United States.
PRODUCTS AND APPLICATIONS
The Company markets electronic connector products in four product
categories, each targeting a specific market. These product categories are:
industrial terminal blocks, avionic control connectors, burn-in sockets, and
production/PLD sockets. The products offered within each product category can
be characterized as either proprietary, application-specific or industry
standard, as described below.
Proprietary connectors are unique Company designs, but are introduced and
sold to a broad market rather than a single customer.
Application-specific connectors are products which are designed and
developed for a specific application, normally for one customer. They can also
subsequently be developed into proprietary product lines.
PAGE 11 OF 52
Industry standard connectors are normally produced in accordance with a
relatively detailed industry or military design and performance
specifications, and sold to the broad market to which those specifications
relate.
The Company markets over 3,500 products in a wide variety of product lines.
The Company introduced three important product lines: FlexiPlug™, BGA
burn-in socket, and BGA production sockets.
INDUSTRIAL TERMINAL BLOCKS
Terminal blocks are most commonly used in industrial equipment to provide
an electrical link between discrete functions, such as monitoring and
measuring, and a controlling device. The Company's terminal blocks are
targeted at the industrial and process control markets and such affiliated
markets and applications as environmental control systems, food and beverage
preparation, motor controls, machine tools, robotics, instrumentation and test
equipment.
Terminal blocks are used in applications where I/O power or signal wires
are fed into a PLC or similar (and often simpler) control system, and a
connector is required to interface between the electrical environment of
relatively heavy wires and the electronic environment of controllers and
sensors. The Company's terminal blocks connect to and capture the wires in
screw-clamp terminations, and interface with printed circuit boards in a
variety of manners. The Company concentrates on five major product lines
within this market: pluggable terminal blocks, fixed mount terminal blocks,
edgecard terminal blocks, high density terminal blocks and
application-specific terminal blocks. Application-specific terminal blocks are
developed for customers who are of strategic importance to the Company,
represent significant potential volume and are recognized market leaders.
AVIONICS TERMINAL BLOCKS AND SOCKETS
Avionics terminal blocks perform the same function as industrial terminal
blocks, linking discrete wires that are individually terminated to a
connector. However, avionics terminal blocks are designed to withstand the
harsher environment and far more critical operating requirements to which they
are subject. The primary differences are that: contacts are gold plated; wires
are terminated by the crimped (metal deformation) technique rather than screw
clamps; and individual wires are installed and removed from the connector
through use of spring actuated locking devices. The avionics connectors are
normally completely environmentally sealed through use of a silicon elastomer
sealing grommet or are designed to operate in a sealed compartment.
The Company concentrates on three major product lines in the avionics
market:
RELAY SOCKETS: Relay sockets are used throughout aircrafts as a means to
facilitate installation, repair and maintenance of electro-mechanical relays
which are utilized for a wide variety of control purposes ranging from main
control circuits to landing gear.
PAGE 12 OF 52
JUNCTION MODULES: Junction modules are environmentally sealed, airborne
terminal blocks.
APPLICATION-SPECIFIC AVIONICS CONNECTORS: Application-specific junction
modules have been developed in conjunction with Boeing Commercial Aircraft for
use on the 737-747-757-767 series of commercial aircraft; and with Douglas
Aircraft Company for the MD11 and C17 aircraft. Application-specific relay
sockets are marketed to Boeing subcontractors for the 777 commercial aircraft
program and to Douglas for the MD11 and C17 aircraft.
BURN-IN SOCKETS
Burn-in testing attempts to uncover latent defects by exposing an IC to
controlled stresses which simulate the first several hundred hours of
operation. During the test, the IC is secured in a socket, an
electro-mechanical interconnect, which is a permanent fixture on the burn-in
printed circuit board. After the test is completed, the IC must be removed
from the socket. The socket is designed to permit easy insertion and removal
of the IC before and after the test.
ICs are generally encased in a plastic or ceramic package to protect the
device and facilitate its connection with other system components. The IC
package industry offers a wide variety of evolving package designs. New
package designs are driven by the need to accommodate the increasing
complexity and higher lead counts of ICs. Each unique IC package configuration
requires a burn-in socket that corresponds to the package's specific
characteristics. One of the most prevalent packages is the quad flat pack.
QUAD FLAT PACK SOCKETS: The QFP is a plastic package with leads on four
sides. It is used for high lead count surface mount applications and is
characterized by lead counts typically ranging between 44 and 304 leads. The
QFP is currently a predominant and rapidly growing technology for packaging of
leading edge ICs used in microprocessor, communication and memory
applications.
In 1992, the Company introduced a burn-in socket targeted at a leading edge
package known as the thin quad flat pack ("TQFP"). The Company built on its
success with TQFP sockets by introducing a QFP socket in 1993. The Company
currently produces over 50 distinct sockets to accommodate a wide variety of
QFP packages.
Industry analysts estimate the QFP package has in excess of 20% of the
surface mount market. Further, these analysts project that as pin counts
increase, the market for QFP packages should grow at annual growth rates in
excess of 20% over the next five years. The Company believes that its broad
product line, superior customer support, just-in-time manufacturing and
flexible, cost effective design capacity positions it favorably to participate
in this projected growth.
SMART POWER SOCKETS: Smart power devices have both logic and discrete
functions on the same silicon die, and are widely used in automotive (antilock
braking systems, airbags), major appliance and electric power conditioning
applications. Due to
PAGE 13 OF 52
the critical nature of their end use environment, smart power devices are
required to be highly dependable and the majority undergo extended production
burn-in testing prior to being used by the end customer.
The Company believes it currently has the industry's most extensive smart
power socket product line, which includes sockets for both through hole and
surface mount package applications. In addition, the Company provides the
industry's only family of zero insertion force smart power sockets. These are
used in volume on fully automated IC assembly lines. The Company also sells
sockets for more mature single function devices.
BALL GRID ARRAY SOCKETS: The BGA is a high density array package using
solder balls for its interconnect point instead of the traditional
perimeter-leaded interconnect. The BGA package is in the introductory phase
and is meeting with wide acceptance throughout the semiconductor industry.
The typical applications where it is most competitive are surface mount
packages over 100 leads where data transmission speed and package size and
weight are important considerations. During the fourth quarter of 1996, the
Company introduced and shipped the first in a series of top loaded burn-in
sockets which accept the BGA package.
Industry analysts estimate that the BGA package will grow at a compound
growth rate of 66% through the year 2000 and that it will surpass the present
commonly used pin grid array package ("PGA") in total unit volume by 1998.
PRODUCTION/PLD SOCKETS
With the introduction of the production BGA socket in early 1997, the
Company has expanded its product offering of production/PLD sockets. Burn-in
sockets are used to test and verify the IC, whereas the production sockets are
used by the manufacturer as a means of attaching the IC to the printed
circuit. Production sockets differ from burn-in in that they are used in far
higher volume, have a lower selling price and are construed of different
materials. They do not have to withstand the high temperatures or high number
of insertions or withdrawals of the burn-in sockets. The main reasons that
these types of sockets are used by the manufacturer is flexibility in the
assembly process, ease of replacement by the end customer, reduction in
inventory of expensive IC components and protection against thermal mismatch.
The market potential for this product is a multiple of the market potential
of the burn-in socket. Although the Company believes it has a superior
technical product, it has no experience in distributing this type of product
and the present sales and marketing resources will not be adequate to make a
major success of this product.
The Company jointly developed, manufactures, and is the sole supplier of
application-specific production/PLD sockets for Altera, a producer of high
performance, high density programmable-logic devices. Substantially all of the
Company's
PAGE 14 OF 52
sales of production/PLD sockets have been to Altera. This product line
consists of device carriers, programming sockets and development sockets for
five different device configurations.
DEVICE CARRIER: One of the major means of packaging Altera's high
performance, high density programmable-logic device is the QFP. The molded
plastic carrier sheaths the QFP packaged device completely, supporting and
segregating each lead in a separate molded cavity. The carrier fits over the
device, protecting the leads, and provides a means to interconnect to a
programming socket.
PROGRAMMING SOCKET: The programming socket is a zero insertion force
socket which accepts the carrier-protected QFP programmable logic device. Once
it is placed in the programming socket, the device can be electronically
reconfigured.
DEVELOPMENT SOCKET: After the device has been programmed, the carrier is
inserted into a development socket. A development socket is a
surface-mountable socket that can be mounted on either a pre-production or a
production board. A unique feature of the development socket is that the
socket and the QFP device have identical footprints. This feature allows a
seamless transfer from prototype to production without requiring costly and
time intensive re-design of the printed circuit board.
CUSTOMERS
In 1996, the Company's products were sold to over 1,000 customers in a wide
range of industries and applications in its target markets. Roughly 40% of
these customers are serviced by the Company on a direct basis, and the
balance are handled through a combination of direct sales and a U.S. and
international network of authorized stocking distributors. One customer
accounted for approximately 17.4%, 16.6% and 15.3% of the Company's net sales
in 1996, 1995 and 1994, respectively. A second customer accounted for
approximately 13.4% and 10.3% of the Company's sales in 1995 and 1994,
respectively. International sales increased to 22.1% in 1996 from 12.5% in
1994.
SALES AND MARKETING
The Company distributes its products through a combination of its own
dedicated direct sales forces, a worldwide network of manufacturers
representatives and authorized distributors. The Company maintains separate
sales forces for the burn-in and production/PLD markets, and for the
industrial equipment and avionics markets. The Company generally uses its
direct sales forces and manufacturer representatives for large customers, new
product introductions and application-specific products and uses its
authorized distributors for smaller and medium-sized customers of standard and
proprietary products. The Company's sales and marketing program is focused on
maintaining and achieving close working relationships with its customers early
in
PAGE 15 OF 52
the design phase of the customer's own product development.
COMPETITION
The markets in which PCD operates are highly competitive, and the Company
faces competition from a number of different manufacturers. The principal
competitive factors effecting the market for the Company's products include
design, responsiveness, quality, price, reputation and reliability. The
Company believes that it competes favorably on these factors.
Generally, the electronic connector industry is competitive and fragmented,
with over 1,500 manufacturers worldwide. Competition among manufacturers of
application-specific connectors in the industrial terminal blocks market is
particularly fragmented and depends greatly on the customer, market and
specific nature of the requirement. Competition is similarly fragmented in the
avionics market, but there are fewer competitors due to the demanding nature
of the military and customer specifications which control much of the markets
and the cost and time required to tool and qualify military standard parts.
Competition in the burn-in market, however, is highly concentrated among a
small number of significant competitors. The production/PLD market consists of
two products; the sockets PCD produces exclusively for Altera and their
franchised distributors for which there is no known competition and the BGA
production sockets which are in a new and evolving market. At this time
there are a number of companies that are attempting to enter the production
socket market, however, there is no clearly identified competitor. In each of
the markets in which the Company participates, the Company's significant
competitors are much larger and have substantially broader product lines and
greater financial resources than the Company. There can be no assurance that
the Company will compete successfully, and any failure to compete successfully
could have a material adverse effect on the financial condition, results of
operations and business of the Company.
BACKLOG
The Company defines its backlog as of any date as orders that are scheduled
for delivery within 12 months from such date. The Company estimates that its
backlog of unfilled orders was approximately $7.3 million and $6.2 million at
December 31, 1996 and 1995, respectively. The level and timing of orders
placed by the Company's customers vary due to customer attempts to manage
inventory, changes in manufacturing strategy and variations in demand for
customer products due to, among other things, introductions of new products,
product life cycles, competitive conditions or general economic conditions.
The Company generally does not obtain long-term purchase orders or commitments
but instead seeks to work closely with its customers to anticipate the volume
of future orders. Based on anticipated future volumes, the Company makes other
significant decisions regarding the level of business it will accept, the
timing of production and the
PAGE 16 OF 52
levels and utilization of personnel and other resources. A variety of
conditions, both specific to the individual customer and generally affecting
the customer's industry, may cause customers to cancel, reduce or delay
purchase orders that were either previously made or anticipated. Generally,
customers may cancel, reduce or delay purchase orders and commitments without
penalty. For these reasons, backlog may not be indicative of future demand or
results of operations.
MANUFACTURING AND ENGINEERING
The Company is vertically integrated from the initial concept stage through
final design and manufacturing with regard to the key production processes
which the Company believes are critical to product performance and service.
These processes include precision stamping, plastic injection molding and
automated assembly. The Company believes that this vertical integration
allows the Company to respond to customers quickly, control quality and reduce
the time to market for new product development.
The Company seeks to reduce costs in its manufacturing fabrication and
assembly operations through formalized cost savings programs. Complementary
programs are dedicated to maximizing the return on capital investments and
reducing overhead expense.
The Company believes it is a leader in its target markets in delivery
responsiveness. The introduction of just-in-time "JIT" manufacturing,
inventory control techniques and quick-change, in-house production tooling
have substantially reduced delivery lead times. Production cells operate
under a JIT pull system, with customer orders assembled as received. An
additional advantage of JIT manufacturing is the almost complete elimination
of rework. Shop floor orders are not handled in bulk and are relatively
small, and problems are resolved as they occur, rather than through an
extended production run.
In late 1994, the Company transferred a portion (approximately 4% by
revenue volume of product in 1996 and 6% in 1995) of its labor-intensive
product assembly to a U.S. based subcontractor with a manufacturing facility
in Mexico. This arrangement is terminable by the Company upon 90 days written
notice to the subcontractor, and by the subcontractor upon 180 days written
notice to the Company. In either event, the Company is not required to pay
penalties or significant termination costs and could transfer such product
assembly to another subcontractor with a manufacturing facility in Mexico, or
back to the United States or elsewhere.
PRODUCT DEVELOPMENT
The Company markets over 3,500 products in a wide variety of product
lines. The Company's product development strategy is to continually innovate
and introduce new products in markets where
PAGE 17 OF 52
the Company has already established a leadership position and to develop next
generation products for other markets in which the Company wishes to
participate. The Company realized approximately 43% of its net sales in 1996
from products introduced in the last five years.
The Company seeks to broaden its product lines and to expand its technical
capabilities in order to meet its customers' anticipated needs. Generally,
the Company's product development strategy is to work closely with its
customers to develop highly engineered products that continue to meet the
customer's changing needs.
Among the Company's current product development projects are those which
target new package device designs such as ball grid arrays in the burn-in
sockets and production/PLD market.
INTELLECTUAL PROPERTY
The Company seeks to use a combination of patents and other means to
establish and protect its intellectual property rights in various products. In
some cases, including the production/PLD sockets for Altera's initial two
device configurations, such intellectual property rights are owned jointly
with co-developers. The Company intends to vigorously defend its intellectual
property rights against infringement or misappropriation. Due to the nature of
its products, the Company believes that intellectual property protection is
less significant than the Company's ability to further develop, enhance and
modify its current products. The Company believes that its products do not
infringe on the intellectual property rights of others. However, many of the
Company's competitors have obtained or developed, and may be expected to
obtain or develop in the future, patents or other proprietary rights that
cover or affect products that perform functions similar to those performed by
products offered by the Company. There can be no assurance that, in the
future, the Company's products will not be held to infringe patent claims of
its competitors, or that the Company is aware of all patents containing claims
that may pose a risk of infringement by its products.
EMPLOYEES
As of December 31, 1996, the Company had 174 employees and 10 contract
workers. The Company's 184 employees and contract workers include 159 in
manufacturing and engineering, 15 in sales and marketing and 10 in
administration. None of the Company's employees or contract workers are
represented by a union or other collective bargaining group. The Company
believes that its relations with its work force are good.
PAGE 18 OF 52
ENVIRONMENTAL
The Company is subject to a wide range of environmental laws and
regulations relating to the use, storage, discharge and disposal of hazardous
chemicals used during its manufacturing process. A failure by the Company to
comply with present or future laws and regulations could also restrict the
Company's ability to expand its facilities or could require the Company to
acquire costly equipment or incur other significant expenses.
ITEM 2. PROPERTIES
PCD, headquartered in Peabody, Massachusetts, operates leased production
facilities in Peabody, Massachusetts (50,000 square feet) and in Phoenix,
Arizona (24,000 square feet). In October 1996 the Company signed the Third
Amendment to the Peabody Lease Agreement whereby PCD will lease an additional
10,000 square feet effective December 1, 1997.
The Phoenix facility is responsible for assembly and quality assurance
functions relating to burn-in sockets and production/PLD sockets, as well as
related product design and development. The Peabody facility is responsible
for assembly, manufacturing automation development and quality assurance
functions relating to industrial terminal blocks and avionics terminal blocks
and sockets, as well as related product design and development. Stamping and
molding fabrication of components for both facilities is handled at the
Peabody facility. The Company believes that its facilities are adequate for
its operations in the foreseeable future.
PAGE 19 OF 52
ITEM 2A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, and their ages as of
of December 31, 1996, are as follows:
Name Age Position
John L. Dwight, Jr. 52 Chairman of the Board,
Chief Executive Officer,
President and Director
Michael S. Cantor 60 Vice President,
Sales and Marketing
Jeffrey A. Farnsworth 50 Vice President and
General Manager -- CTi
C. Russel Hansen, Jr. 50 Vice President, General Counsel
Mary L. Mandarino 42 Vice President,
Finance and Administration,
Chief Financial Officer and
Treasurer
Roddy J. Powers 53 Vice President, Operations
Mr. Dwight has served as Chairman of the Board, Chief Executive Officer,
President and a director of the Company since November 1980, when Mr. Dwight
purchased a controlling interest in PCD. Mr. Dwight was previously Vice
President -- International of Burndy Corporation, an electronic connector
manufacturer. Mr. Dwight has 26 years of management and operating experience
in the connector industry.
Mr. Cantor has served as Vice President, Sales and Marketing since 1988.
Mr. Cantor joined the Company in 1983 and has held various positions in
management. From 1980 to 1983, Mr. Cantor was President -- U.S. Operations for
Balteau S.A. and from 1972 to 1980, Director of Regional Operations at Burndy
Corporation. Mr. Cantor has 35 years of experience in the connector industry.
Mr. Farnsworth has served as Vice President and the General Manager -- CTi
since 1993. Mr. Farnsworth was a founder of Component Technologies, Inc. in
1983, and remained with the Company, in various positions in sales and
marketing, following the acquisition of Component Technologies, Inc. by the
Company in 1988. Mr. Farnsworth has 21 years of experience in the connector
industry.
Mr. Hansen has been Vice President and General Counsel of the Company since
July 1996 and of BGS Systems, Inc. for more than five years. A graduate of
Harvard College and Harvard Law School and a former Senior Partner at Hale and
Dorr, Mr. Hansen has also been Chairman of The Governance Institute since
1996 and Editor-Publisher of Van Rensselaer Press since 1995.
PAGE 20 OF 52
Ms. Mandarino has served as Vice President, Finance and Administration,
Chief Financial Officer and Treasurer since 1989. Ms. Mandarino joined the
Company in 1986 and has held several positions of increasing responsibility in
finance. Prior to joining PCD, Ms. Mandarino held various financial positions
with American Brands and Dresser Industries.
Mr. Powers has served as Vice President, Operations since he joined the
Company in 1983. Previously, he was the General Manager of the Incon Division
of Transitron, which was acquired by PCD.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of
the Company.
ITEM 3. LEGAL PROCEEDINGS
On August 21, 1995, the Company's wholly-owned subsidiary, CTi
Technologies, Inc. ("CTi"), filed an action in the United States District
Court for the District of Arizona seeking a declaratory judgment against Wayne
K. Pfaff, an individual residing in Texas ("Pfaff"), and Plastronics Socket
Company, Inc., a corporation affiliated with Pfaff, alleging and seeking a
declaratory judgment that two United States patents issued to Pfaff and
relating to certain burn-in sockets for "leadless" IC packages (the "Pfaff
Leadless Patent") and ball grid array ("BGA") IC packages (the "Pfaff BGA
Patent") (collectively, the "Pfaff Patents") are invalid and are not infringed
by CTi, the products of which include burn-in sockets for certain "leaded"
packages (including Quad Flat Paks)(the "CTi Leaded Products") and BGA
packages (the "CTi BGA Products")(collectively, the "CTi Products"). Pfaff has
filed a counterclaim alleging that CTi infringes the "Pfaff Leadless Patent"
and has requested an award of damages; the counterclaim does not allege
infringement of the Pfaff BGA Patent. Pfaff has also sought a permanent
injunction against further infringement by CTi of the Pfaff Leadless Patent.
The Company understands that Pfaff has been issued patents for the
inventions covered by the Pfaff Leadless Patents in Germany, France, Great
Britain, Japan and Malaysia (together with the United States, the
"Territory"). Revenue from sales of CTi Leaded Products in the Territory in
1996 and 1995 was approximately $1.9 million and $5.8 million, respectively,
which represented approximately 7% and 23% of the Company's net sales in 1996
and 1995, respectively. The CTi BGA Products will not make a significant
contribution to revenues of the Company until years subsequent to 1996. The
Pfaff Leadless Patent has been the subject of earlier litigation initiated by
Pfaff against a burn-in connector manufacturer unrelated to the Company, Wells
Electronics, Inc. ("Wells"), in which Pfaff alleged that the
PAGE 21 OF 52
manufacture and sale of a wide range of Wells products infringed the Pfaff
Leadless Patent. Included among the Wells products covered by the Pfaff
litigation was a group of burn-in sockets produced by Wells for certain leaded
packages (the "Wells Leaded Products"). The Wells Leaded Products compete
directly with CTi Leaded Products and accept similar IC packages. The Company
believes that Pfaff may assert in CTi's litigation with Pfaff that Wells
Leaded Products are similar in design to CTi Leaded Products. In October 1995,
the United States District Court for the Northern District of Texas (the
"Texas Court") found certain claims in the Pfaff Leadless Patent to be
invalid, but found other claims in the patent not to be invalid and to be
infringed by certain Wells products, including the Wells Leaded Products. On
December 19, 1995, the Texas Court issued a permanent injunction against the
manufacture and sale by Wells of the products found to be infringing. In
January 1996, the United States Court of Appeals (Federal Circuit) stayed the
injunction, pending appeal, based on its finding that Wells had demonstrated
that it is likely to succeed in its contention that the Pfaff Leadless Patent
is invalid. In that appeal, the Federal Circuit Court of Appeals heard oral
argument in October 1996, but has not issued a decision. The Pfaff BGA Patent
was not involved in the Pfaff/Wells litigation.
The CTi-Pfaff action in the District of Arizona has been stayed pending the
outcome of the appeal from the Pfaff-Wells case. Should the Pfaff Leadless
Patent be found invalid in that appeal then Pfaff will be unable to assert
that patent against CTi. Should the Federal Circuit Court of Appeals find the
patent not to be invalid, then the litigation in the District of Arizona will
go forward to determine whether or not the CTi Leaded Products infringe the
Pfaff patent. The Company believes, based on the advice of counsel, that CTi
has meritorious defenses against any claim that CTi Products infringe the
Pfaff Patents, and CTi intends to prosecute and defend vigorously its position
in its declaratory judgment action and any related or subsequent litigation.
Although Wells invoked similar defenses on the Pfaff Leadless Patent in its
lawsuit with Pfaff, the Company believes that CTi will be better positioned to
present these defenses. There can be no assurance, however, that the Company
or CTi will prevail in pending or any future litigation with Pfaff, and an
adverse outcome could have a material adverse effect on the financial
condition, results of operations and business of the Company. Such adverse
effect could include, without limitation, the requirement that CTi pay
substantial damages for past infringement and an injunction against the
manufacture or sale in the United States of such products as are found to be
infringing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PAGE 22 OF 52
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
On March 26, 1996, the Securities and Exchange Commission declared
effective the Company's registration statement relating to the initial public
offering of 2,113,280 shares of common stock, of which, 1,100,000 shares were
sold by the Company, at an offering price of $11.00 per share. The Company's
Common Stock is traded on the Nasdaq National Market tier of The Nasdaq Stock
Market under the Symbol "PCDI". The following table sets forth on a per share
basis the high and low sales prices for the Common Stock for 1996.
HIGH LOW
------ ------
First Quarter......................... 12-1/2 11
Second Quarter........................ 16 11-1/4
Third Quarter......................... 13-3/4 10-1/8
Fourth Quarter........................ 13-7/8 10
As of March 19, 1997, there were approximately 1,557 holders of record of
the Company's Common Stock.
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain future earnings, if any, to
fund the development and growth of its business and does not anticipate paying
any cash dividends on the Common Stock in the foreseeable future.
The Company has revolving lines of credit with a bank, renewable on June
30, 1997, under which there currently are no outstanding borrowings. However,
there are no provisions of the lines that would prohibit or effectively
restrict the payment of cash dividends, even if the Company borrowed funds
under the lines.
On July 2, 1996, the Company filed registration statements on Form S-8 for
the 1992 Stock Option Plan, the 1996 Stock Plan and the PCD 1996 Eligible
Directors Stock Plan.
In 1996, the Company issued the following securities that were not
registered under the Securities Act:
On February 3, 1996, the Company issued 12,000 shares of Common Stock to an
employee who was not an executive officer of the Company, upon exercise of
stock options previously granted, at an exercise price of $1.15 per share.
On April 12, 1996, the Company issued 10,000 shares of Common Stock to an
employee who is an executive officer of the Company, upon exercise of stock
options previously granted, at an exercise price of $1.15 per share.
On May 2, 1996, the Company issued 4,800 shares of Common
Stock to an employee who is an executive officer of the Company, upon exercise
of stock options previously granted, at an exercise price of $1.15 per share.
PAGE 23 OF 52
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act or Rule 701
promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
Years Ended December 31,
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- -------- ------
CONSOLIDATED
STATEMENT OF INCOME DATA:
Net sales.................... $26,857 $25,616 $15,850 $12,691 $11,081
Cost of sales........... .... 14,457 13,477 9,834 8,494 7,848
------- ------- ------- ------- -------
Gross profit................. 12,400 12,139 6,016 4,197 3,233
Operating expenses........... 5,445 5,667 3,859 3,330 2,908
------- ------- ------- ------- -------
Income from operations....... 6,955 6,472 2,157 867 325
Other income, net............ 725 112 23 1 120
------- ------- ------- ------- -------
Income before income taxes... 7,680 6,584 2,180 868 445
Provision for income taxes... 2,895 2,721 879 361 173
------- ------- ------- ------- -------
Net income................... $ 4,785 $ 3,863 $ 1,301 $ 507 $ 272
======= ======= ======= ======= =======
Net income per share......... $ 0.76 $ 0.74 $ 0.28 $ 0.11 $ 0.05
======= ======= ======= ======= =======
Weighted average number of
common and common equivalent
shares outstanding.......... 6,257 5,201 4,631 4,637 5,044
======= ======= ======= ======= =======
December 31,
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- -------- ------
CONSOLIDATED
BALANCE SHEET DATA:
Working capital.............. $23,054 $ 7,671 $ 5,089 $ 4,249 $ 4,471
Total assets................. 32,456 15,929 10,783 8,945 8,665
Long-term debt,
net of current maturities... - - - 37 127
Stockholders' equity......... 28,706 12,812 8,774 7,473 7,291
PAGE 24 OF 52
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. The table
below sets forth operating results expressed as a percentage of net sales for
the periods indicated:
Year Ended December 31,
------------------------
1996 1995 1994
------ ------ ------
Net sales.................. 100.0% 100.0% 100.0%
Cost of sales.............. 53.8 52.6 62.0
----- ----- -----
Gross profit............... 46.2 47.4 38.0
Operating expenses......... 20.3 22.1 24.3
----- ----- -----
Income from operations..... 25.9 25.3 13.7
Other income, net 2.7 0.4 0.1
----- ----- -----
Income before income taxes. 28.6 25.7 13.8
Provision for income taxes. 10.8 10.6 5.5
----- ----- -----
Net income................. 17.8% 15.1% 8.3%
===== ===== =====
NET SALES. Net sales increased 4.8% to $26.9 million in 1996 compared to
$25.6 million in 1995 and $15.9 million in 1994. The growth of net sales in
1996 was attributable to overall market growth and increased penetration of
the Company's products in three of its four product categories: industrial
terminal blocks, avionic terminal blocks and relay sockets, and production/PLD
sockets. The greatest portion of this growth was derived from higher volume
in the industrial terminal block and avionics terminal block and relay socket
product categories. Production/PLD products increased only slightly,
however, in line with the Company's internal projections. The burn-in socket
product line, which services the semiconductor market, declined due to the
volatility within that market. In 1995, the increase in net sales was
attributable to growth in market demand for the Company's products across all
of the Company's product lines.
International sales, which consist of export sales and sales to foreign
customers through U.S. distributors, was 22.1% of net sales in 1996, a change
from 28.0% and 12.5% in 1995 and 1994, respectively. The lower international
sales volume was the result of weaker demand in those segments of the global
semiconductor market serviced by the Company's key customers.
PAGE 25 OF 52
Net sales in past periods may not be indicative of net sales in the future,
which may be affected by other business environment and risk factors as well
as other factors included elsewhere herein.
GROSS PROFIT. Gross profit was $12.4 million or 46.2% of net sales in 1996,
compared to $12.1 million or 47.4% of net sales and $6.0 million or 38.0% of
net sales in 1995 and 1994, respectively. The decline in gross profit
percentage in 1996 was affected by two primary factors: a product mix shift
from burn-in sockets to industrial terminal blocks and avionics terminal
blocks and relay sockets, and a one-time expense for a design change to a
nonstandard product in the burn-in socket category. The decline was
partially offset by increased manufacturing and labor efficiencies resulting
from higher sales volume and the best cost producer program. The gross profit
percentage increase in 1995 compared to 1994 was attributable to several
factors: (i) product mix, which included increased sales of the Company's
higher margin burn-in sockets and production/PLD sockets; (ii) improved
pricing on selected avionics products; (iii) increased manufacturing, labor
and capacity efficiencies resulting from higher sales volume and (iv) cost
reduction programs.
OPERATING EXPENSES. Operating expenses include selling, general and
administrative expenses and costs of product development. As a percentage of
net sales, operating expenses decreased to 20.3% in 1996 from 22.1% and 24.3%
in 1995 and 1994, respectively, which was a decrease to $5.4 million in 1996
from $5.7 million in 1995 and an increase from $3.9 million in 1994. The
reduction of operating expenses in 1996 compared to 1995 is a result of having
recorded in 1995 professional fees associated with pending patent litigation
offset by costs associated with our status as a publicly-traded company.
OTHER INCOME AND EXPENSE, NET. Interest income was approximately $725,000 or
2.7% of net sales in 1996 compared to $112,000 in 1995 and $23,000 in 1994.
The increase in interest income in 1996 was mainly the result of interest
income earned on the proceeds of the Company's public stock offering.
INCOME TAXES. The Company's effective tax rate was 37.7%, 41.3%, and 40.3%
in 1996, 1995, and 1994, respectively. The change in effective rate for
income taxes is due to the application of the appropriate effective tax rates
for each of the state tax jurisdictions in which the Company operates. In
addition, the Company established a wholly-owned subsidiary which is engaged
in holding PCD securities. This corporate structure allows for favorable tax
treatment of passive income in the Commonwealth of Massachusetts.
PAGE 26 OF 52
LIQUIDITY AND CAPITAL RESOURCES.
As of December 31, 1996 and December 31, 1995, the combined cash and cash
equivalent balances were $20.5 million and $4.0 million, respectively. Cash
provided by operating activities in 1996 was $7.8 million, compared to $5.5
million in 1995. Increases in cash provided by operating activities were
primarily due to increases in net income, depreciation and the tax benefit
from stock options exercised. Cash used in investing activities was $1.9
million and $2.5 million in 1996 and 1995, respectively, which consisted
primarily of purchases of tooling and equipment required to support the
Company's business. Cash provided by financing activities in 1996 was $10.7
million which primarily consisted of the net proceeds of $10.5 million from
the issuance of common stock relating to the Company's public stock
offering.
The Company believes that funds generated from operating activities in
combination with existing cash balances will be sufficient to meet the
Company's cash requirements at least through 1997. The Company expects to use
the net proceeds for working capital and other general corporate purposes.
The company considers, on a continuing basis, potential acquisitions of
products and businesses complementary to the Company's current business, and
the Company's capital needs may change depending on the timing of any such
acquisitions.
INFLATION AND COSTS. The cost of the Company's products is influenced by the
cost of a wide variety of raw materials, including gold used in plating,
copper and brass used for contacts, and plastic material used in molding
connector components. In the past, increases in the cost of raw materials,
labor and services have been offset by price increases, productivity
improvements and cost saving programs.
PAGE 27 OF 52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PCD Inc.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Report of Independent Accountants 29
Consolidated Balance Sheets - December 31, 1996 and 1995 30
Consolidated Statements of Income for the
Years ended December 31, 1996, 1995 and 1994 31
Consolidated Statements of Stockholders' Equity
for the Years ended 1996, 1995 and 1994 32-33
Consolidated Statements of Cash Flows
for the Years ended 1996, 1995 and 1994 34
Notes to Consolidated Financial Statements 35-48
All schedules called for under Regulation S-X are not submitted because
they are not applicable or not required or because the information is included
in the financial statements or notes thereto.
PAGE 28 OF 52
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of PCD Inc.:
We have audited the accompanying consolidated balance sheets of PCD Inc. as
of December 31, 1996 and 1995 and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PCD Inc. as
of December 31, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
Boston, Massachusetts
January 27, 1997
PAGE 29 OF 52
PCD Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31,
--------------
1996 1995
------ ------
ASSETS
Current assets:
Cash and cash equivalents................... $20,529 $ 3,958
Accounts receivable - trade (less allowance
for uncollectible accounts of $232 in
1996 and $192 in 1995)................ 3,578 3,564
Inventory................................... 2,608 2,867
Prepaid expenses and other current assets... 89 399
------- -------
Total current assets...................... 26,804 10,788
Equipment and improvements, net............... 5,337 4,931
Deferred tax asset............................ 82 2
Other assets.................................. 233 208
------- -------
Total assets.................................. $32,456 $15,929
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade.................... $ 627 $ 686
Accrued liabilities......................... 3,123 2,431
------- -------
Total current liabilities..................... 3,750 3,117
Commitments and contingencies (Note 8)........
Stockholders' equity:
Preferred stock - $0.10 par value;
1,000,000 shares authorized; no shares issued
Common stock - $0.01 par value;
authorized 25,000,000 shares, 5,854,733
shares issued in 1996 and 4,987,032 shares
issued in 1995............................... 59 50
Additional paid-in capital..................... 14,838 4,124
Retained earnings.............................. 13,906 9,121
Deferred compensation.......................... (97) (155)
Treasury stock................................. - (328)
------- -------
Total stockholders' equity..................... 28,706 12,812
------- -------
Total liabilities and stockholders' equity $32,456 $15,929
======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
PAGE 30 OF 52
PCD Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
Net sales...................... $26,857 $25,616 $15,850
Cost of sales.................. 14,457 13,477 9,834
------- ------- -------
Gross profit................... 12,400 12,139 6,016
Operating expenses............. 5,445 5,667 3,859
------- ------- -------
Income from operations......... 6,955 6,472 2,157
Other income................... - 20 22
Interest income................ 734 105 17
Interest expense............... (9) (13) (16)
------- ------- -------
Income before income taxes..... 7,680 6,584 2,180
Provision for income taxes..... 2,895 2,721 879
------- ------- -------
Net income..................... $ 4,785 $ 3,863 $ 1,301
======= ======= =======
Net income per share........... $ 0.76 $ 0.74 $ 0.28
======= ======= =======
Weighted average number
of common and common
equivalent shares outstanding 6,257 5,201 4,631
======= ======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
PAGE 31 OF 52
PCD Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Common Stock Additional
---------------- Paid-in Retained Deferred
Shares Par Value Capital Earnings Compensation
------ --------- ---------- -------- ------------
Balance,
December 31, 1993 4,951,032 $50 $ 3,794 $ 3,957
Net income 1,301
--------- --- ------- ------ ------
Balance,
December 31, 1994 4,951,032 50 3,794 5,258
Exercise of
stock options 36,000 41
Issuance of
stock options 239 $(239)
Tax benefit from
non-qualified
stock options
exercised 50
Amortization
of deferred
compensation 84
Net income 3,863
--------- --- ------- ------- ------
Balance,
December 31, 1995 4,987,032 50 4,124 9.121 (155)
Public stock
offering, net 1,100,000 11 10,490
Exercise of
stock options 157,701 2 192
Retired
treasury shares (390,000) (4) (324)
Tax benefit from
stock options
exercised 356
Amortization of
deferred
compensation 58
Net income 4,785
--------- --- ------- ------- ------
Balance,
December 31, 1996 5,854,733 $59 $14,838 $13,906 $ (97)
========= === ======= ======= ======
The accompanying notes are an integral part of the
consolidated financial statements.
PAGE 32 OF 52
PCD Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
(In thousands, except share amounts)
Treasury Stock Total
-------------- Stockholders'
Shares Amount Equity
------- ------ -------------
Balance,
December 31, 1993 390,000 $(328) $ 7,473
Net income 1,301
------- ----- -------
Balance,
December 31, 1994 390,000 (328) 8,774
Exercise of
stock options 41
Issuance of
stock options
Tax benefit from
non-qualified
stock options
exercised 50
Amortization
of deferred
compensation 84
Net income 3,863
------- ------ -------
Balance,
December 31, 1995 390,000 (328) 12,812
Public stock
offering, net 10,501
Exercise of
stock options 194
Retired
treasury shares (390,000) 328
Tax benefit from
stock options
exercised 356
Amortization of
deferred
compensation 58
Net income 4,785
------- ------ -------
Balance,
December 31, 1996 $28,706
=======
The accompanying notes are an integral part of the
consolidated financial statements.
PAGE 33 OF 52
PCD Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
------------------------
1996 1995 1994
------ ------ ------
Cash flows from operating activities:
Net income......................................... $4,785 $3,863 $1,301
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 1,389 1,026 985
Loss on disposition of
equipment and improvements.................... 107 261 -
Allowance for uncollectible accounts........... 40 76 33
Amortization of deferred compensation.......... 58 84 -
Tax benefit from stock options exercised....... 356 50 -
Provision for deferred taxes................... (80) (192) 33
Changes in operating assets and liabilities:
Increase in accounts receivable.............. (54) (623) (1,065)
Decrease (increase) in inventory............. 259 (256) 58
Decrease (increase) in prepaid
expenses and other current assets.......... 310 (48) (295)
Increase in other assets..................... (25) (45) (26)
Increase(decrease)in accounts payable........ (59) 205 163
Increase in accrued liabilities.............. 692 1,130 431
------- ------ ------
Total adjustments....................... 2,993 1,668 317
------- ------ ------
Net cash provided by operating activities........ 7,778 5,531 1,618
------- ------ ------
Cash flows from investing activities:
Capital expenditures............................... (1,902) (2,505) (1,416)
------- ------ ------
Net cash used in investing activities............ (1,902) (2,505) (1,416)
------- ------ ------
Cash flows from financing activities:
Exercise of common stock options................... 194 41 -
Proceeds from issuance of common stock, net........ 10,501 - -
Principal payments under long-term debt obligations - (37) (90)
------- ------ ------
Net cash (used in) provided by financing activities 10,695 4 (90)
------- ------ ------
Net increase in cash............................... 16,571 3,030 112
Cash and cash equivalents at beginning of year..... 3,958 928 816
------- ------ ------
Cash and cash equivalents at end of year........... $20,529 $3,958 $ 928
======= ====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest...................................... $ 9 $ 13 $ 16
======= ====== ======
Income taxes.................................. $ 2,452 $2,553 $ 837
======= ====== ======
The accompanying notes are an integral part of the
consolidated financial statements.
PAGE 34 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business:
PCD Inc. is engaged principally in designing, manufacturing
and marketing electronic connectors to defined niche markets
in the semiconductor, industrial equipment and avionics
industries worldwide. Electronic connectors are used in
virtually all electronic systems, including data
communications, telecommunications, computers and computer
peripherals, industrial controls, avionics and test and
measurement instrumentation.
2. Summary of Significant Accounting Policies:
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated.
REVENUE RECOGNITION
Revenue is recognized upon shipment to customers.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or fewer
to be cash equivalents. The Company invests excess cash in a
money market fund and indirect obligations of the United
States government. Approximately $16.1 million and $0.2
million of cash and cash equivalents is invested at December
31, 1996 and 1995. The Company classifies its investments as
available for sale; however at December 31, 1996 and 1995,
cost approximates market.
CONCENTRATIONS OF CREDIT RISK AND ESTIMATES
Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of cash
investments and trade receivables. The Company invests
primarily in high quality securities with short maturities
that are managed by financial institutions with strong credit
ratings. Accordingly, these investments are subject to
minimal credit and market risk. Concentration of credit risk
with respect to trade receivables is limited due to the large
number of customers comprising the Company's customer base,
and their dispersion across different geographies. The
Company provides credit to customers in the normal course of
business. Collateral is not required for trade receivables,
but ongoing credit evaluations of customer's financial
condition are performed. Additionally, the Company maintains
reserves for potential credit losses. As of December 31, 1996
and 1995, the Company had no significant concentrations of
credit risk.
PAGE 35 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. The most significant estimates included in these
financial statements are allowances for uncollectible accounts
and allowances for inventory valuation.
INVENTORY
Inventories are stated at the lower of cost, determined on
a first-in, first-out method, or market value.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as
incurred.
NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted
average number of shares of common stock outstanding and
common equivalent shares outstanding. Common equivalent
shares are included in the per share calculation where the
effect of their inclusion would be dilutive. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common and common equivalent shares issued during the
twelve month period preceding the date of the initial filing
(February 12, 1996) of the registration statement relating to
the Company's initial public offering have been included in
the calculation using the treasury stock method and the
public offering price ($11 per share), as if they were
outstanding for all periods prior to January 1, 1996. Fully
diluted net income per common share is not materially
different from the reported primary net income per share.
EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are recorded at cost.
Maintenance and repairs which neither materially add to the
value of the property nor appreciably prolong its life are
charged to expense as incurred. Upon retirement or other
disposition, the cost and related accumulated depreciation are
eliminated from the accounts and the resulting gain or loss is
included in the results of operations.
Depreciation of equipment and improvements is computed
using the straight-line method over the estimated useful lives
of the assets as follows:
PAGE 36 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Estimated Useful
Life in Years
----------------
Tools, dies and molds 5
Machinery and equipment 10
Office furniture and fixtures 5
Transportation equipment 4
Leasehold improvements Shorter of lease
term or useful life
INCOME TAXES
The Company utilizes the asset and liability approach of
accounting for income taxes. Under the asset and liability
approach, deferred taxes are determined based on the
difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.
Deferred tax expense (benefit) represents the change in the
deferred tax asset/liability balance. Tax credits are treated
as reductions of income taxes in the year in which the credits
become available for tax purposes.
3. INVENTORY:
Inventory consisted of the following at December 31:
1996 1995
------ ------
(in thousands)
Raw materials and
finished subassemblies $1,908 $1,945
Work in process 226 260
Finished goods 474 662
------ ------
Total $2,608 $2,867
====== ======
PAGE 37 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
4. EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements consisted of the following at
December 31:
1996 1995
------ ------
(in thousands)
Tools, dies and molds $5,192 $4,202
Machinery and equipment 2,586 2,230
Office furniture and fixtures 1,025 1,191
Transportation equipment 168 149
Leasehold improvements 493 468
------ ------
9,464 8,240
Less accumulated depreciation 4,379 3,749
------ ------
5,085 4,491
Capital expenditures in progress 252 440
------ ------
Property and improvements, net $5,337 $4,931
====== ======
5. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December
31,
1996 1995
------ ------
(in thousands)
Compensation and benefits $ 760 $ 721
Professional fees 1,002 733
Other 1,361 977
------ ------
Total $3,123 $2,431
====== ======
6. DEBT:
The Company has revolving lines of credit with a bank,
renewable on June 30, 1997, whereby it may borrow up to an
aggregate of $5,250,000 with interest payable monthly at the
bank's base lending rate. There were no outstanding
borrowings under the lines as of December 31, 1996 or 1995.
The Company made the final payment on a term loan in May,
1995.
PAGE 38 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
7. INCOME TAXES:
The provision (benefit) for income taxes for the years
ended December 31, 1996, 1995 and 1994 was as follows:
1996 1995 1994
------ ------ ----
(in thousands)
Current
Federal $2,504 $2,466 $713
State 471 447 133
------ ------ ----
Total current 2,975 2,913 846
------ ------ ----
Deferred
Federal (62) (174) 26
State (18) (18) 7
------ ------ ----
Total deferred (80) (192) 33
------ ------ ----
$2,895 $2,721 $879
====== ====== ====
The components of the net deferred tax asset consisted of
the following at December 31, 1996 and 1995:
1996 1995
---- ----
(in thousands)
Deferred tax assets (liabilities):
Difference in accounting for inventory $195 $ 85
Accounts receivable allowances 90 72
Vacation and other accruals 297 266
Difference in depreciation methods (500) (421)
---- ----
Net deferred tax asset $ 82 $ 2
==== ====
The analysis of the variance of income taxes as reported
from income taxes compiled at the U.S. statutory federal
income tax rate for continuing operations is as follows:
PAGE 39 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
1996 1995 1994
---- ---- ----
(in thousands)
Income taxes at U.S. statutory rate of 34% $2,611 $2,239 $741
State income taxes 300 284 92
Other, net (16) 198 46
------ ------ ----
$2,895 $2,721 $879
====== ====== ====
8. COMMITMENTS AND CONTINGENCIES:
Litigation:
On August 21, 1995, the Company's wholly-owned subsidiary,
CTi Technologies, Inc. ("CTi"), filed an action in the United
States District Court for the District of Arizona seeking a
declaratory judgment against Wayne K. Pfaff, an individual
residing in Texas ("Pfaff"), and Plastronics Socket Company,
Inc., a corporation affiliated with Pfaff, alleging and
seeking a declaratory judgment that two United States patents
issued to Pfaff and relating to certain burn-in sockets for
"leadless" IC packages (the "Pfaff Leadless Patent") and ball
grid array ("BGA") IC packages (the "Pfaff BGA Patent")
(collectively, the "Pfaff Patents") are invalid and are not
infringed by CTi, the products of which include burn-in
sockets for certain "leaded" packages (including Quad Flat
Paks)(the "CTi Leaded Products") and BGA packages (the "CTi
BGA Products")(collectively, the "CTi Products"). Pfaff has
filed a counterclaim alleging that CTi infringes the Pfaff
Leadless Patent and has requested an award of damages; the
counterclaim does not allege infringement of the Pfaff BGA
Patent. Pfaff has also sought a permanent injunction against
further infringement by CTi of the Pfaff Leadless Patent.
The Company understands that Pfaff has been issued patents
for the inventions covered by the Pfaff Leadless Patents in
Germany, France, Great Britain, Japan and Malaysia (together
with the United States, the "Territory"). Revenue from sales
of CTi Leaded Products in the Territory in 1996 and 1995 was
approximately $1.9 million and $5.8 million, respectively,
which represented approximately 7% and 23% of the Company's
net sales in 1996 and 1995, respectively. The CTi BGA
Products will not make a significant contribution to revenues
of the Company until years subsequent to 1996. The Pfaff
PAGE 40 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Leadless Patent has been the subject of earlier litigation
initiated by Pfaff against a burn-in connector manufacturer
unrelated to the Company, Wells Electronics, Inc. ("Wells"),
in which Pfaff alleged that the manufacture and sale of a wide
range of Wells products infringed the Pfaff Leadless Patent.
Included among the Wells products covered by the Pfaff
litigation was a group of burn-in sockets produced by Wells
for certain leaded packages (the "Wells Leaded Products"). The
Wells Leaded Products compete directly with CTi Leaded
Products and accept similar IC packages. The Company believes
that Pfaff may assert in CTi's litigation with Pfaff that
Wells Leaded Products are similar in design to CTi Leaded
Products. In October 1995, the United States District Court
for the Northern District of Texas (the "Texas Court") found
certain claims in the Pfaff Leadless Patent to be invalid, but
found other claims in the patent not to be invalid and to be
infringed by certain Wells products, including the Wells
Leaded Products. On December 19, 1995, the Texas Court issued
a permanent injunction against the manufacture and sale by
Wells of the products found to be infringing. In January 1996,
the United States Court of Appeals (Federal Circuit) stayed
the injunction, pending appeal, based on its finding that
Wells had demonstrated that it is likely to succeed in its
contention that the Pfaff Leadless Patent is invalid. In that
appeal, the Federal Circuit Court of Appeals heard oral
argument in October 1996, but has not issued a decision. The
Pfaff BGA Patent was not involved in the Pfaff/Wells
litigation.
The CTi-Pfaff action in the District of Arizona has been
stayed pending the outcome of the appeal from the Pfaff-Wells
case. Should the Pfaff Leadless Patent be found invalid in
that appeal then Pfaff will be unable to assert that patent
against CTi. Should the Federal Circuit Court of Appeals find
the patent not to be invalid, then the litigation in the
District of Arizona will go forward to determine whether or
not the CTi Leaded Products infringe the Pfaff patent. The
Company believes, based on the advice of counsel, that CTi has
meritorious defenses against any claim that CTi Products
infringe the Pfaff Patents, and CTi intends to prosecute and
defend vigorously its position in its declaratory judgment
action and any related or subsequent litigation. Although
Wells invoked similar defenses on the Pfaff Leadless Patent in
its lawsuit with Pfaff, the Company believes that CTi will be
better positioned to present these defenses. There can be no
PAGE 41 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
assurance, however, that the Company or CTi will prevail in
pending or any future litigation with Pfaff, and an adverse
outcome could have a material adverse effect on the financial
condition, results of operations and business of the Company.
Such adverse effect could include, without limitation, the
requirement that CTi pay substantial damages for past
infringement and an injunction against the manufacture or sale
in the United States of such products as are found to be
infringing.
Leases:
The Company leases office and production facilities in
Peabody, Massachusetts and Phoenix, Arizona, with rentals
subject to escalation in real estate taxes and operating
expenses. Rental expense for the years ended December 31,
1996, 1995 and 1994 was $498,000, $500,000, and $506,000
respectively.
Minimum future rental commitments under leases with
remaining terms in excess of one year are approximately as
follows:
Year Ended
December 31, Amount
------------- --------
1997 $474,200
1998 552,500
1999 560,000
2000 572,000
2001 and thereafter 1,574,000
9. STOCKHOLDERS' EQUITY:
Preferred Stock
The Board of Directors is authorized, subject to any
limitations prescribed by law, from time to time to issue up
to an aggregate of 1,000,000 shares of Preferred Stock, $0.10
par value per share, with such powers, designations,
preferences and relative, participating, optional or other
special rights and such qualifications, limitations or
restrictions thereof, as shall be determined by the Board of
Directors in a resolution or resolutions providing for the
issuance of such Preferred Stock.
PAGE 42 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Common Stock
In February 1996, the stockholders approved an increase in
the authorized common stock of the Company to 25,000,000
shares, $0.01 par value per share and the stockholders
approved a twelve-for-one stock split effected in the form of
a stock dividend. All references to the number of shares and
per share amounts have been restated to reflect the split.
Treasury Stock
On January 30, 1996, the Board of Directors approved a
resolution to restore any and all shares of common stock of
the Company which had been repurchased by the Company to the
status of authorized but unissued shares.
STOCK OPTIONS:
DIRECTORS STOCK PLAN
The Company's 1996 Eligible Directors Stock Plan (the
"Directors Stock Plan") was approved by the Board of Directors
on January 30, 1996 and thereafter by the Company's
stockholders. Under the Directors Stock Plan, commencing with
the 1997 annual meeting of stockholders, each director who is
not an officer or employee of the Company or any subsidiary of
the Company (an "outside director") who has not previously
been granted an option to purchase shares of Common Stock will
be granted, on the thirtieth day after such meeting, an option
to purchase 3,000 shares of Common Stock at an exercise price
equal to the fair market value on the date of grant. In
addition, on the thirtieth day after such meeting, each
outside director will be granted an option at each annual
meeting of stockholders to purchase 1,500 shares of Common
Stock at an exercise price equal to the fair market value on
the date of grant. A total of 36,000 shares of Common Stock
are available for awards under the Directors Stock Plan.
Subsequent to the end of the year, the Board of Directors
amended the Directors Stock Plan to allow for each option to
vest 6 months after, and expire 10 years from, the date of
grant of such option. No options may be granted under the
Directors Stock Plan after January 29, 2006.
1996 STOCK PLAN
The Company's 1996 Stock Plan was approved by the Board of
Directors on January 30, 1996, and thereafter by the
Company's stockholders. The 1996 Stock Plan provides for the
grant or award of stock options, restricted stock and other
performance awards which may or may not be denominated in
PAGE 43 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
shares of Common Stock or other securities (collectively, the
"Awards"). Stock options granted under 1996 Stock Plan may be
either incentive stock options or non-qualified options. The
1996 Stock Plan is administered by the Compensation Committee.
Subject to the provisions of the 1996 Stock Plan, the
Committee has the authority to designate participants,
determine the types of Awards to be granted, the number of
shares to be covered by each Award, the time at which each
Award is exercisable or may be settled, the method of payment
and any other terms and conditions of the Awards. While the
Committee determines the prices at which options and other
Awards may be exercised under the 1996 Stock Plan, the
exercise price of an option shall be at least 100% of the fair
market value (as determined under the terms of the 1996 Stock
Plan) of a share of Common Stock on the date of grant. The
aggregate number of shares of Common Stock available for
awards under the Plan is 324,000. No option shall be
exercisable with respect to any shares later than 10 years
after the date of grant of such options or 5 years in the case
of incentive options granted to the owner of stock possessing
more than 10% of the value of all classes of stock of the
Company. Vesting is determined in the sole discretion of the
Compensation Committee of the Board of Directors. In
connection with the Committee's grants to date, it has fixed
vesting in four approximately equal annual installments, the
first of which vests on the date of grant. No awards
may be made under the 1996 Stock Plan after January 29, 2006.
1992 STOCK OPTION PLAN
The Company's 1992 Stock Option Plan as amended on January
30, 1996 provides for the grant or award of stock options,
which may be either incentive stock options or non-qualified
stock options to key employees and directors. The aggregate
number of shares of Common Stock reserved for issuance under
the 1992 Stock Plan is 954,000 shares. No option will be
exercisable with respect to any shares later than 10 years
after the date of grant of such options or 5 years in the case
of incentive options granted to the owner of stock possessing
more than 10% of the value of all classes of stock of the
Company. Vesting is determined in the sole discretion of the
Compensation Committee of the Board of Directors. In
connection with Committee's grants to date, it has fixed
vesting in four approximately equal annual installments, the
first of which vests on the date of grant. The Compensation
Committee administers the 1992 Stock Option Plan.
PAGE 44 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The following table summarizes the transactions from these
plans:
Weighted
exercise
Options average price
------- -------------
Options outstanding at December 31, 1993 954,000 $ 1.15
Options canceled (132,000) 1.15
Options granted 24,000 1.15
-------
Options outstanding at December 31, 1994 846,000 1.15
Options exercised (36,000) 1.15
Options granted 144,000 1.68
-------
Options outstanding at December 31, 1995 954,000 1.23
Options exercised (157,701) 1.22
Options granted 15,000 12.00
-------
Options outstanding at December 31, 1996 811,299 1.43
=======
Summarized information about stock options outstanding at
December 31, 1996 is as follows:
Exercisable
Weighted -------------------
average Weighted Weighted
Number of remaining average average
Range of options contractual exercise Number of exercise
exercise prices outstanding life price options price
--------------- ----------- ----------- -------- --------- --------
$ 1.15 672,299 5.7 $ 1.15 666,299 $ 1.15
1.54-2.08 124,000 8.4 1.66 70,000 1.62
12.00 15,000 9.5 12.00 3,750 12.00
For the years ended December 31, 1996, 1995 and 1994,
options to purchase 740,049 shares, 825,000 shares and 753,000
shares of Common Stock, respectively, were exercisable with
the remaining options becoming exercisable at various dates
through December 31, 1998. The Company has recorded deferred
compensation of $239,000 for the difference between fair value
and exercise price for options granted in 1995 and such
deferred compensation is being amortized over the option
vesting period.
PAGE 45 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Generally, when shares acquired pursuant to the exercise of
incentive stock options are sold within one year of exercise
or within two years from the date of grant, the Company
derives a tax deduction measured by the amount that the fair
market value exceeds the option price at the date the options
are exercised. When non-qualified stock options are
exercised, the Company derives a tax deduction measured by the
amount that the fair market value exceeds the option price at
the date the options are exercised.
SUPPLEMENTAL DISCLOSURE FOR STOCK BASED COMPENSATION:
The Company has three stock-based compensation plans, which
are described above. In October 1995, the FASB issued SFAS
123, "Accounting for Stock-Based Compensation." SFAS 123 is
effective for periods beginning after December 15, 1995. SFAS
123 requires that companies either recognize compensation
expense for grants of stock, stock options, and other equity
instruments based on fair value, or provide pro forma
disclosure of net income and earnings per share in the notes
to the financial statements. The Company adopted the
disclosure provisions of SFAS 123 in 1996 and has applied APB
Opinion 25 and related Interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the
Company's stock-based compensation plans been determined based
on the fair value at the grant dates as calculated in
accordance with SFAS 123, the Company's net income and
earnings per share for the years ended December 31, 1996 and
1995 would have been reduced to the pro forma amounts
indicated below:
1996 1995
---------------------- ----------------------
Net income Net income
Net income per share Net income per share
---------- ---------- ---------- ----------
As Reported $4,785 $0.76 $3,863 $0.74
Pro Forma 4,665 0.75 3,772 0.73
The fair value of each stock option is estimated on the
date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions:
PAGE 46 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
1996 1995
---- ----
Dividend yield none none
Expected volatility 45.0% 0.0%
Risk free interest rate 7.27% 7.13%
Expected life (years) 10.0 10.0
Weighted average fair value of options granted at fair value
at date of grant:
1996 $7.83
=====
Weighted average fair value of options granted below fair
value at date of grant:
1995 $2.53
=====
The effect of applying SFAS 123 in this pro forma
disclosure are not indicative of future amounts. The SFAS
does not apply to awards made prior to 1995. Additional
awards in future years are anticipated.
10. PROFIT SHARING PLAN:
Effective May 1, 1992, the Company adopted a Plan pursuant
to Section 401 of the Internal Revenue Code, whereby employees
may contribute a percentage of compensation, but not in excess
of the maximum allowed under the Code. Employees are eligible
for participation at the beginning of the calendar quarter
following their one year anniversary. The Company makes
matching contributions of fifty percent of employee
contributions up to 6% of employee compensation, however, the
Company's total contribution may not exceed 15% of the prior
year's pre-tax income.
The Company's matching contributions were approximately
$80,000, $82,000 and $72,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
PAGE 47 OF 52
PCD Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
11. SIGNIFICANT CUSTOMERS AND EXPORT SALES:
One customer accounted for approximately 17.4%, 16.6% and
15.3% of the Company's sales in 1996, 1995 and 1994,
respectively. A second customer accounted for approximately
13.4% and 10.3% of the Company's sales in 1995 and 1994,
respectively. The Company had export sales of approximately
$2,975,000, $3,022,000 and $1,155,000 in 1996, 1995 and 1994,
respectively. All export sales are in U.S. dollars.
12. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED):
(in thousands, except per share data)
-------------------------------------------------------------------------
For the Three Months Ended
-------------------------------------------------------------------------
Mar 31, Jun 29, Sep 28, Dec 31,
-------------------------------------------------------------------------
1996
----
Net sales $7,087 $7,223 $6,222 $6,325
Gross profit 3,235 3,222 2,725 3,218
Net income 1,130 1,348 1,068 1,239
Net income per share $0.21 $0.21 $0.16 $0.19
-------------------------------------------------------------------------
Apr 1, Jul 1, Sep 30, Dec 31,
-------------------------------------------------------------------------
1995
----
Net sales $6,022 $6,260 $6,609 $6,725
Gross profit 2,802 2,921 3,236 3,180
Net income 984 1,010 978 891
Net income per share $0.20 $0.20 $0.18 $0.17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PAGE 48 OF 52
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to Instruction G(3) to Form 10-K, the information required with
respect to the Directors of the Registrant is incorporated by reference from
the Company's definitive proxy statement which is expected to be filed
pursuant to Regulation 14A on or before April 30, 1997.
The information required by Item 10 with respect to the Executive Officers
of the Registrant has been included in Part I of this Form 10-K in reliance
with General Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to Instruction G(3) to Form 10-K, the information required in Item
11 is incorporated by reference from the Company's definitive proxy statement
which is expected to be filed pursuant to Regulation 14A on or before April
30, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to Instruction G(3) to Form 10-K, the information required in Item
11 is incorporated by reference from the Company's definitive proxy statement
which is expected to be filed pursuant to Regulation 14A on or before April
30, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to Instruction G(3) to Form 10-K, the information required in Item
11 is incorporated by reference from the Company's definitive proxy statement
which is expected to be filed pursuant to Regulation 14A on or before April
30, 1997.
Since January 1, 1996, two subsidiaries of Emerson Electric Co., which
currently owns 32.3% of the outstanding Common Stock of the Company, have
purchased or ordered from the Company, or a distributor of the Company's
products, certain of the Company's industrial terminal block products for an
aggregate purchase price of approximately $82,700. Such products were sold by
the Company on the Company's customary pricing and other terms.
PAGE 49 OF 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
A. List of Documents filed as part of this report
1. Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
All financial statements and schedules have
been omitted because the required information is
included in the consolidated financial statements or
the notes thereto, or is not applicable or required.
3. Listing of Exhibits
(3.2) Restated Articles of Organization of the
Registrant (Incorporated by reference to
to Exhibit 3.2 to Form S-1 Registration
Statement No. 333-1266).
(3.4) By-laws of Registrant effective March 26, 1996.
(Incorporated by reference to Exhibit 3.4 to
Form S-1 Registration Statement No. 333-1266).
(4.1) Articles 3,4,5 and 6 of the Restated Articles
of Organization of Registrant(Included in
Exhibit 3.2)
(4.2) Specimen Stock Certificate (Incorporated by
reference to Exhibit 4.2 to Form S-1
Registration Statement No. 333-1266).
(10.1) Lease dated June 29, 1987, between Centennial
Park Associates Realty Trust II and the Company
for premises located at Two Technology Drive,
Centennial Park, Peabody, Massachusetts
(Incorporated by reference to Exhibit 10.1 to
Form S-1 Registration Statement No. 333-1266).
(10.2) Lease dated May 1995, between CMD Southwest
Four and CTi Technologies, Inc. for premises
located at 2102 W. Quail Avenue, Phoenix,
Arizona. (Incorporated by reference to Exhibit
10.2 to Form S-1 Registration Statement No.
333-1266).
PAGE 50 OF 52
(10.3) Registrant's 1992 Stock Option Plan and related
forms of stock option agreement (Incorporated
by reference to Exhibit 10.3 to Form S-1
Registration Statement No. 333-1266).
(10.4) Registrant's 1996 Stock Plan (Incorporated by
reference to Exhibit 10.4 to Form S-1
Registration Statement No. 333-1266).
(10.5) Registrant's 1996 Eligible Directors Stock Plan
(Incorporated by reference to Exhibit 10.5 to
Form S-1 Registration Statement No. 333-1266).
(10.6) April 2, 1985 Stock Purchase Agreement and
Amendment to Stock Purchase Agreement dated
March 31, 1983. (Incorporated by reference to
Exhibit 10.6 to Form S-1 Registration Statement
No. 333-1266).
(10.7) Credit Agreement dated as of October 1, 1996
between the Company and Eastern Bank.
(10.8) Third amendment to lease agreement dated as of
June 25, 1996 between the Company and
Centennial Park Associates Partnership III.
(10.9) Form of option agreements for the 1996 Stock
Plan.
(10.10) Form of option agreement for the Directors
Stock Plan.
(10.11) Powers of Attorney.
(11.1) Statement RE Computation of Earnings per Share.
(21.1) Subsidiaries of the Registrant.
(23.1) Consent of Coopers & Lybrand L.L.P.,
independent accountants.
(27.1) Financial Data Schedule for the period ended
December 31, 1996.
B. Reports on Form 8-K.
There were no Current Reports on Form 8-K filed by
the Company during the fourth quarter of 1996.
PAGE 51 OF 52
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.
PCD Inc.
Dated: March 28, 1997 BY: /s/ John L. Dwight, Jr.
---------------------------
John L. Dwight, Jr.
Chairman of the Board,
Chief Executive Officer,
and President
Dated: March 28, 1997 BY: /s/ Mary L. Mandarino
---------------------------
Mary L. Mandarino
Vice President - Finance
and Administration
Chief Financial Officer,
and Treasurer (principal
financial and accounting
officer)
Pursuant to 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.
Dated: March 28, 1997 /s/ John L. Dwight, Jr.
------------------------------
John L. Dwight, Jr.
Director
Dated: March 28, 1997 /s/ C. Russel Hansen, Jr. for
------------------------------
Bruce E. Elmblad
Director
Dated: March 28, 1997 /s/ C. Russel Hansen, Jr. for
------------------------------
Harold F. Faught
Director
Dated: March 28, 1997 /s/ C. Russel Hansen, Jr. for
------------------------------
C. Wayne Griffith
Director
Dated: March 28, 1997 /s/ C. Russel Hansen, Jr. for
------------------------------
Theodore C. York
Director
PAGE 52 OF 52
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------------------------------------
10.7 Credit Agreement dated as of October 1, 1996
between the Company and Eastern Bank.
10.8 Third amendment to lease agreement dated as of
June 25, 1996 between the Company and
Centennial Park Associates Partnership III
10.9 Form of option agreements for the 1996 Stock Plan
10.10 Form of option agreement for the Directors Stock
Plan
10.11 Powers of Attorney
11.1 Statement RE: Computation of Earnings per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand L.L.P., independent
accountants.
27.1 Financial Data Schedule for the period ended
December 31, 1996.
EXHIBIT 10.7
Credit Agreement
between
PCD Inc.
and
EASTERN BANK
Dated as of October 1, 1996
TABLE OF CONTENTS
ARTICLE 1. - DEFINITIONS..................................... 1
1.1. Defined Terms........................................... 1
1.2. Accounting and Banking Terms............................ 1
ARTICLE 2. - PCD LOANS........................................ 1
2.1. PCD Revolving Credit Commitment......................... 1
2.2. Procedure for Revolving Credit Borrowings............... 1
2.3. Interest on PCD Revolving Credit Loans.................. 2
2.4. Mandatory Prepayment.................................... 2
2.5. PCD Revolving Credit Note and Records................... 2
2.6. PCD Revolving Credit Loan Proceeds...................... 2
2.7. Calculation of Interest................................. 2
2.8. Default Rate............................................ 3
2.9. Interest Limitation..................................... 3
2.10. Late Payment Charge..................................... 3
2.11. Payments................................................ 3
2.12. Termination of PCD Credit Commitment.................... 3
2.13. Revolving Credit Commitment to CTi...................... 3
2.14. Procedure for Revolving Credit Borrowings............... 4
2.15. Interest on CTi Revolving Credit Loans.................. 4
2.16. Mandatory Prepayment.................................... 4
2.17. CTi Revolving Credit Note and Records................... 4
2.18. CTi Revolving Credit Loan Proceeds...................... 5
2.19. Calculation of Interest................................. 5
2.20. Default Rate............................................ 5
2.21. Interest Limitation..................................... 5
2.22. Late Payment Charge..................................... 5
2.23. Payments................................................ 5
2.24. Termination of Credit Commitment........................ 6
ARTICLE 3. - REPRESENTATIONS AND WARRANTIES
3.0. Financial Condition..................................... 6
3.1. No Change............................................... 6
3.2. Organization, Existence, Good Standing.................. 6
3.3. Subsidiaries; Capitalization............................ 7
3.4. Power and Authority..................................... 7
3.5. Legal, Valid, Binding Obligation........................ 7
3.6. Consents................................................ 7
3.7. No Legal Bar............................................ 7
3.8. No Litigation........................................... 7
3.9. No Default.............................................. 8
3.10. Assets, No Liens; Intellectual Property................. 8
3.11. No Burdensome Restrictions.............................. 8
3.12. Taxes................................................... 8
3.13. Regulation U, Etc....................................... 8
3.14. ERISA................................................... 9
3.15. Investment Company Act, Etc............................. 9
3.16. Indebtedness............................................ 9
3.17. Contingent Liabilities.................................. 9
3.18. Chief Place of Business; Locations of Collateral........ 9
3.19. Laws Including Environmental and Safety Matters......... 10
3.20. Negative Pledges........................................ 10
3.21. Full Disclosure......................................... 10
ARTICLE 4. - AFFIRMATIVE COVENANTS............................ 10
4.1. Financial Statements and Other Documents................ 10
4.2. Existence; Compliance with Laws; Etc.................... 11
4.3 Business................................................ 12
4.4. Maintain Property....................................... 12
4.5. Insurance............................................... 12
4.6. Record keeping; Rights of Inspection.................... 12
4.7. Notice of Material Events............................... 12
4.8. Deposit Accounts........................................ 13
ARTICLE 5. - NEGATIVE COVENANTS............................... 13
5.1. Indebtedness............................................ 13
5.2. Contingent Liabilities.................................. 14
5.3. Limitation on Liens..................................... 14
5.4. Prohibition of Fundamental Changes...................... 14
5.5 Investments and Loans................................... 15
5.8. Transactions with Affiliates............................ 15
5.9. Negative Pledge......................................... 15
5.8. Change of Senior Management............................. 15
ARTICLE 6. - CONDITIONS PRECEDENT............................. 15
6.1. Conditions of Initial Extension of Credit............... 15
6.2. Conditions of All Loans................................. 17
ARTICLE 7. - EVENTS OF DEFAULT................................ 18
7.1. Events of Default....................................... 18
7.2. Lender's Remedies....................................... 20
7.3. Cross Default........................................... 20
7.4. Setoff.................................................. 20
ARTICLE 8. - MISCELLANEOUS.................................... 20
8.1. Notices................................................. 20
8.2. No Waiver of Rights..................................... 21
8.3. Cumulative Remedies..................................... 22
8.4. Successors.............................................. 22
8.5. Governing Law........................................... 22
8.6. Submission to Jurisdiction; Waiver of Trial by Jury..... 22
8.7. Complete Agreement, Amendments.......................... 23
8.8. Expenses................................................ 23
8.9. Indemnification......................................... 23
8.11. Survival of Agreements.................................. 23
8.12. Severability............................................ 24
8.13. Descriptive Headings.................................... 24
8.14. Counterparts............................................ 24
SCHEDULES AND EXHIBITS
Schedule 3.0 (Financial Statements of Borrower)
Schedule 3.2 (Foreign Qualifications - List of States)
Schedule 3.3 (Subsidiaries and Investments/+5% Shareholders)
Schedule 3.8 (Litigation)
Schedule 5.1 (Disclosed Indebtedness)
Schedule 5.3 (Disclosed Liens)
Exhibit A - PCD Revolving Credit Note
Exhibit B - CTi Revolving Credit Note
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of October 1, 1996 between PCD INC., a
Massachusetts corporation ("Borrower"), CTi TECHNOLOGIES, INC., a
Massachusetts corporation, which is a wholly owned subsidiary of the Borrower
("CTi"), and EASTERN BANK, a Massachusetts banking corporation ("Lender").
WHEREAS, Borrower has requested that Lender provide it and CTi with
revolving lines of credit;
WHEREAS, Lender is willing, on the terms and subject to the conditions in
this Agreement, to make a revolving line of credit available to Borrower and
CTi;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of
which are acknowledged, Lender, Borrower and CTi agree as follows.
ARTICLE 1. - DEFINITIONS
1.1. DEFINED TERMS. Unless otherwise defined herein, the capitalized
terms, as used in this Agreement, shall have the meanings as set forth on
Schedule 1 hereto.
1.2. ACCOUNTING AND BANKING TERMS. All accounting and banking terms not
specifically defined herein shall be construed, in the case of accounting
terms, in accordance with GAAP consistently applied and, in the case of
banking terms, in accordance with general practice among commercial banks in
Boston, Massachusetts.
ARTICLE 2. - LOANS TO PCD AND CTi
2.1. PCD REVOLVING CREDIT COMMITMENT. Subject to the terms and
conditions hereof, Lender agrees to make revolving credit loans to Borrower
from time to time during the Commitment Period, provided, however, that the
aggregate principal amount of all outstanding PCD Revolving Credit Loans does
not exceed $5,000,000.00 (the "PCD Revolving Credit Limit"). The PCD
Revolving Credit Loans may be repaid by Borrower at any time, without penalty
or premium and reborrowed only during the Commitment Period, and shall be due
and payable on the first to occur of the Termination Date or demand by Lender.
2.2. PROCEDURE FOR REVOLVING CREDIT BORROWINGS. Subject to the terms
and conditions hereof, Borrower may borrow under the PCD Revolving Credit
Commitment during the PCD Revolving Credit Commitment Period on any Business
Day. Borrower may request PCD Revolving Credit Loans, from time to time, by
submitting irrevocable Loan requests in such form and manner as Lender may
require or permit (including, without limitation, telephone requests),
specifying the amount to be borrowed, the requested Borrowing Date, and the
manner in which Borrower would like the proceeds of such Loan disbursed. A
PCD Revolving Credit Loan
-1-
request must be properly made and received by Lender prior to 12:00 noon
(Eastern Time) on a Business Day for Lender to make a PCD Revolving Credit
Loan on the same Business Day. Lender may require telephone requests to be
confirmed promptly in writing and Borrower shall indemnify and hold Lender
harmless for any action, including the making of any Loan or any loss or
expenses taken or incurred by Lender in reliance upon any such telephone
request. Except as otherwise agreed by Lender, the proceeds of all PCD
Revolving Credit Loans will be made available to Borrower by Lender by
crediting Borrower's deposit account with Lender.
2.3. INTEREST ON PCD REVOLVING CREDIT LOANS. The Borrower shall pay
interest on the unpaid principal amount of each PCD Revolving Credit Loan
outstanding at any time, and from time to time, for the period from the
Borrowing Date at a fluctuating rate per annum equal to the Base Rate.
Interest on all PCD Revolving Credit Loans shall be payable in arrears on the
first (1st) Business Day of each month commencing on the first such day to
occur after the date of this Agreement, and monthly thereafter until the PCD
Revolving Credit Loans are fully paid.
2.4. MANDATORY PREPAYMENT. If at any time the aggregate unpaid
principal amount of the PCD Revolving Credit Loans exceeds the amount
permitted under Section 2.1 Borrower shall immediately prepay an amount at
least equal to such excess, together with accrued interest on the amount
prepaid to the date of prepayment.
2.5. PCD REVOLVING CREDIT NOTE AND RECORDS. The PCD Revolving Credit
Loans shall be evidenced by the PCD Revolving Credit Note. Lender shall
maintain records of each (i) PCD Revolving Credit Loan and (ii) payments of
principal and interest and shall furnish periodic reports to Borrower showing
the outstanding principal balance of the PCD Revolving Credit Loans. The
Lender's records shall constitute prima facie evidence of the accuracy of the
information recorded therein and in the event that Borrower fails to object,
within thirty (30) days of receipt of Lender's periodic reports to Borrower
with respect to PCD Revolving Credit Loans, the information in such reports
shall be conclusive and binding as against Borrower; provided, however, that
any failure by Lender to maintain such records or furnish such reports shall
not affect the obligations of Borrower under the PCD Revolving Credit Note or
this Agreement.
2.6. PCD REVOLVING CREDIT LOAN PROCEEDS. Borrower shall use the
proceeds of the PCD Revolving Credit Loans for its working capital purposes.
2.7. CALCULATION OF INTEREST. Interest and fees shall be calculated on
the basis of a 360-day year for the actual days elapsed, from and including
the date of such Loan to but excluding the date of any repayment. Any change
in rate resulting from a change in the Base Rate shall become effective as of
the day on which such change in the Base Rate becomes effective.
2.8. DEFAULT RATE. Notwithstanding anything to the contrary contained
herein, after maturity (whether at the stated maturity, upon demand or an
Event of Default or otherwise), interest shall be payable on the unpaid
principal balance of the PCD Revolving Credit Loans and on all other
obligations of the Borrower to the Lender at a fluctuating rate per annum
equal to the Base Rate plus three percent (3%), until fully paid.
-2-
2.9. INTEREST LIMITATION. No provision of this Agreement or the Note
shall require the payment, or permit the collection, of interest in excess of
the highest rate permitted by applicable law. To the extent that any interest
received by Lender exceeds the maximum amount permitted, such payment shall be
credited to unpaid principal, provided, however, that any excess amount
remaining after full payment of principal shall be refunded to Borrower.
2.10. LATE PAYMENT CHARGE. Any payment of principal or interest not paid
by Borrower within ten (10) days after the date such payment is due shall be
subject to a late charge equal to three percent (3%) of the amount overdue.
2.11. PAYMENTS. All payments (including prepayments) made by Borrower
hereunder or under the PCD Note shall be made in immediately available funds
not later than 1:00 p.m., (Eastern time), on the due date at Lender's office
located at 605 Broadway, Saugus, MA 01906 (or at such other office as Lender
may specify to Borrower in writing). If any payment becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the applicable rate during such extension. All
payments shall be made without setoff or counterclaim and free and clear of,
and without deduction for, any charge of any kind. All payments received by
Lender after 1:00 p.m. on any Business Day shall not be deemed received until
the next Business Day. On the date any payment of principal or interest is
due on account of the PCD Loans, Lender may, but shall not be obligated to,
effect payment by debiting Borrower's deposit accounts with Lender in an
amount equal to all or any portion of such payment due.
2.12. TERMINATION OF PCD CREDIT COMMITMENT. To terminate the PCD
Revolving Credit Commitment, Borrower shall give Lender not less than five (5)
Business Days prior written notice and on the termination date prepay in full
all Loans together with accrued interest, fees, and charges thereon to the
date of prepayment. The PCD Revolving Credit Commitment may be terminated by
Lender or shall terminate automatically as set forth in Article 7.
2.13. REVOLVING CREDIT COMMITMENT TO CTi. Subject to the terms and
conditions hereof, Lender agrees to make Revolving Credit Loans to CTi from
time to time during the Commitment Period, provided, however, that the
aggregate principal amount of all outstanding CTi Revolving Credit Loans does
not exceed $250,000 (the "CTi Revolving Credit Limit"). The CTi Revolving
Credit Loans may be repaid by CTi at any time, without penalty or premium and
reborrowed only during the Commitment Period, and shall be due and payable on
the first to occur of the CTi Termination Date or a demand by Lender. The
Borrower shall guaranty the prompt payment of all CTi Revolving Credit Loans.
2.14. PROCEDURE FOR REVOLVING CREDIT BORROWINGS. Subject to the terms
and conditions hereof, CTi may borrow under the CTi Revolving Credit
Commitment during the CTi Revolving Credit Commitment Period on any Business
Day. CTi may request CTi Revolving Credit Loans, from time to time, by
submitting irrevocable Loan requests in such form and manner as Lender may
require or permit (including, without limitation, telephone requests),
specifying the amount to be borrowed, the requested
-3-
Borrowing Date, and the manner in which CTi would like the proceeds of such
Loan disbursed. A CTi Revolving Credit Loan request must be properly made and
received by Lender prior to 12:00 noon (Eastern Time) on a Business Day for
Lender to make a CTi Revolving Credit Loan on the same Business Day. Lender
may require telephone requests to be confirmed promptly in writing and CTi
shall indemnify and hold Lender harmless for any action, including the making
of any Loan or any loss or expenses taken or incurred by Lender in reliance
upon any such telephone request. Except as otherwise agreed by Lender, the
proceeds of all CTi Revolving Credit Loans will be made available to CTi by
Lender by crediting CTi's deposit account with Lender.
2.15. INTEREST ON CTi REVOLVING CREDIT LOANS. CTi shall pay interest on
the unpaid principal amount of each CTi Revolving Credit Loan outstanding at
any time, and from time to time, for the period from the Borrowing Date at a
fluctuating rate per annum equal to the Base Rate. Interest on all Cti
Revolving Credit Loans shall be payable in arrears on the first (1st) Business
Day of each month commencing on the first such day to occur after the date of
this Agreement, and monthly thereafter until the CTi Revolving Credit Loans
are fully paid.
2.16. MANDATORY PREPAYMENT. If at any time the aggregate unpaid
principal amount of the CTi Revolving Credit Loans exceeds the amount
permitted under Section 2.1 CTi shall immediately prepay an amount at least
equal to such excess, together with accrued interest on the amount prepaid to
the date of prepayment.
2.17. CTi REVOLVING CREDIT NOTE AND RECORDS. The CTi Revolving Credit
Loans shall be evidenced by the CTi Revolving Credit Note. Lender shall
maintain records of each (i) CTi Revolving Credit Loan and (ii) payments of
principal and interest and shall furnish periodic reports to CTi showing the
outstanding principal balance of the CTi Revolving Credit Loans. The Lender's
records shall constitute prima facie evidence of the accuracy of the
information recorded therein and in the event that CTi fails to object, within
thirty (30) days of receipt of Lender's periodic reports to CTi with respect
to CTi Revolving Credit Loans, the information in such reports shall be
conclusive and binding as against CTi; provided, however, that any failure by
Lender to maintain such records or furnish such reports shall not affect the
obligations of CTi under the CTi Revolving Credit Note or this Agreement.
2.18. CTi REVOLVING CREDIT LOAN PROCEEDS. CTi shall use the proceeds of
the CTi Revolving Credit Loans for its working capital purposes.
2.19. CALCULATION OF INTEREST. Interest and fees shall be calculated on
the basis of a 360-day year for the actual days elapsed, from and including
the date of such Loan to but excluding the date of any repayment. Any change
in rate resulting from a change in the Base Rate shall become effective as of
the day on which such change in the Base Rate becomes effective.
2.20. DEFAULT RATE. Notwithstanding anything to the contrary contained
herein, after maturity (whether at the stated maturity, upon demand or an
Event of Default or otherwise), interest shall be payable on the unpaid
principal balance of the CTi Revolving Credit Loans and on all other
obligations of the
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CTi to the Lender at a fluctuating rate per annum equal to the Base Rate plus
three percent (3%), until fully paid.
2.21. INTEREST LIMITATION. No provision of this Agreement or the CTi
Note shall require the payment, or permit the collection, of interest in
excess of the highest rate permitted by applicable law. To the extent that
any interest received by Lender exceeds the maximum amount permitted, such
payment shall be credited to unpaid principal, provided, however, that any
excess amount remaining after full payment of principal shall be refunded to
CTi.
2.22. LATE PAYMENT CHARGE. Any payment of principal or interest not paid
by CTi within ten (10) days after the date such payment is due shall be
subject to a late charge equal to three percent (3%) of the amount overdue.
2.23. PAYMENTS. All payments (including prepayments) made by CTi
hereunder or under the CTi Note shall be made in immediately available funds
not later than 1:00 p.m., (Eastern time), on the due date at Lender's office
located at 605 Broadway, Saugus, MA 01906 (or at such other office as Lender
may specify to CTi in writing). If any payment becomes due and payable on a
day other than a Business Day, such payment shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the applicable rate during such extension. All
payments shall be made without setoff or counterclaim and free and clear of,
and without deduction for, any charge of any kind. All payments received by
Lender after 1:00 p.m. on any Business Day shall not be deemed received until
the next Business Day. On the date any payment of principal or interest is
due on account of the CTi Loans, Lender may, but shall not be obligated to,
effect payment by debiting CTi's deposit accounts with Lender in an amount
equal to all or any portion of such payment due.
2.24. TERMINATION OF CREDIT COMMITMENT. To terminate the CTi Revolving
Credit Commitment, CTi shall give Lender not less than five (5) Business Days
prior written notice and on the termination date prepay in full all Loans
together with accrued interest, fees, and charges thereon to the date of
prepayment. The CTi Revolving Credit Commitment may be terminated by Lender
or shall terminate automatically as set forth in Article 7.
ARTICLE 3. - REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement and to make the
Revolving Credit Loans, Borrower represents and warrants to Lender, except as
otherwise set forth in a schedule attached hereto and made a part hereof,
that:
3.0. FINANCIAL CONDITION.
(a) The Financial Statements previously delivered to Lender and
attached hereto as Schedule 3.0 present fairly the financial position of
Borrower and its Subsidiaries on a consolidated basis as of the dates thereof
and its and their results of operations, shareholders' equity and cash flows
for the periods then ended. All Financial Statements and information,
including any related schedules and notes, and any other financial information
or statements furnished in accordance
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herewith, have been prepared in accordance with GAAP, except as otherwise
disclosed therein, subject only in the case of unaudited interim Financial
Statements to normal year-end audit adjustments and the absence of footnotes.
In the case of each Revolving Credit Loan, the representations and warranties
in this Section shall be deemed to have been made in respect of the then most
recent Financial Statements of Borrower furnished to Lender.
(b) The Borrower and its Subsidiaries are each, and collectively as
a whole, Solvent.
3.1. NO CHANGE. There has been no Material Adverse Change since the
Financial Statements dated as of December 31, 1995.
3.2. ORGANIZATION, EXISTENCE, GOOD STANDING. Borrower (i) is duly
organized, validly existing and in good standing as a corporation under the
laws of the Commonwealth of Massachusetts, (ii) has obtained all licenses,
permits, approvals and consents and has filed all registrations necessary for
the lawful operation of its business, (iii) has the corporate power and
authority and the legal right to own, lease and operate its property and to
conduct the business in which it is currently engaged, and (iv) is duly
qualified to do business and is in good standing as a foreign corporation
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except
where the failure to be so qualified would not have a Material Adverse
Effect. Schedule 3.2 lists all states where Borrower is qualified or
authorized as a foreign corporation.
3.3. SUBSIDIARIES; CAPITALIZATION. Except as set forth on Schedule 3.3,
Borrower has no Subsidiaries or Investments in any other Person. The
authorized capitalization, the number of shares of each class of capital stock
issued and outstanding of Borrower and each of the record holders holding more
than 5% of the issued and outstanding shares of the Borrower are set forth
on Schedule 3.3. All outstanding shares of Borrower's stock have been duly
authorized, validly issued, and are fully paid and non-assessable.
3.4. POWER AND AUTHORITY. Borrower and CTi have (i) full corporate
power, authority and legal right to execute, deliver and perform their
obligations under the Loan Documents to which they are a party and to borrow
hereunder, (ii) taken all necessary actions to authorize the execution,
delivery and performance by them of each Loan Document to which each is a
party and to authorize their borrowings hereunder, and (iii) caused to be duly
executed and delivered on behalf of the Borrower and CTi each of the Loan
Documents to which Borrower and CTi is a party.
3.5. LEGAL, VALID, BINDING OBLIGATION. Each of the Loan Documents and
each agreement, certificate, document, instrument or other paper delivered
pursuant thereto, to which Borrower and CTi are parties, constitutes the
legal, valid, and binding obligation of Borrower and CTi enforceable against
Borrower and CTi in accordance with its terms.
3.6. CONSENTS. No consent, permit, license, approval or authorization
of, or registration, declaration or filing with or notice to, any governmental
authority, bureau or agency or any
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other Person is required in connection with the execution, delivery or
performance by Borrower, or CTi, or the validity or enforceability against
Borrower, or CTi, of any Loan Document to which either of them is a party,
except for the consents and approvals which have been obtained.
3.7. NO LEGAL BAR. The execution, delivery and performance by Borrower
and CTi of the Loan Documents, and each agreement, certificate, document,
instrument or other paper delivered pursuant thereto, to which Borrower and
CTi are parties, does not and will not conflict with or cause a breach of any
provision of any existing law, rule or regulation, order, judgment, award or
decree of any court, arbitrator or governmental authority, bureau or agency,
or of the charter documents or Bylaws of, or any security issued by, Borrower
or CTi or of any material mortgage, deed of trust, indenture, lease, contract
or other agreement or undertaking to which Borrower or CTi is a party or by
which any of their properties may be bound, and will not result in the
creation or imposition of any Lien on any of their revenues or properties,
except in favor of Lender.
3.8. NO LITIGATION. Except as set forth on Schedule 3.8, no litigation,
investigation or other proceeding of or before any court, arbitrator or
governmental authority is currently pending nor, to the knowledge of Borrower
or CTi threatened against Borrower or CTi or their properties, or the revenues
of Borrower's Subsidiaries which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect.
3.9. NO DEFAULT. Neither Borrower nor any of its Subsidiaries is in
default in any respect in the payment or performance of any of its obligations
for monies borrowed or under any mortgage, deed of trust, indenture, lease,
contract or other agreement or undertaking to which it is a party or by which
it or any of its property may be bound or affected and no Default or Event of
Default has occurred and is continuing. Neither Borrower nor any of its
Subsidiaries is in default under any order, award or decree of any court,
arbitrator or governmental authority binding upon or affecting it or by which
any of its property may be bound or affected, and no such order, award or
decree has or could reasonably be expected to have a Material Adverse Effect.
3.10. ASSETS, NO LIENS; INTELLECTUAL PROPERTY. Borrower and its
Subsidiaries have good and marketable title to, or valid leasehold interest
in, all of their real property and good title to all its personal property,
including assets carried on its books and reflected in the Financial
Statements, subject to no Liens except for (i) Liens permitted under Section
5.3 hereof, or (ii) assets sold or otherwise disposed of in the ordinary
course of its business. Borrower and its Subsidiaries own or license all
Intellectual Property necessary for the conduct of their businesses and no
claims, suit or proceedings are pending or threatened which would reasonably
be expected to impair in any material respect Borrower's and its Subsidiaries
rights in any such Intellectual Property.
3.11. NO BURDENSOME RESTRICTIONS. Neither Borrower nor any of its
Subsidiaries is a party to or bound by any contract, agreement or instrument
or subject to any corporate restriction
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(including any restriction set forth in its charter or Bylaws) that would have
a Material Adverse Effect.
3.12. TAXES. All federal, state, local and other tax reports and returns
which are required to be filed by Borrower and its Subsidiaries have been
filed, except where extensions have been properly obtained, and Borrower and
its Subsidiaries have paid or made adequate provision for all taxes, interest
and penalties shown to be due and payable on such returns or on any
assessments made against them or any of their properties and all other taxes,
fees or other charges imposed on them or any of their properties by any
governmental authority, including, without limitation, all payroll withholding
taxes, have been paid and no tax liens have been filed and no claims are being
asserted with respect to any such taxes, fees or other charges.
3.13. REGULATION U, ETC. Neither Borrower nor any of its Subsidiaries is
engaged and will not 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 Regulations U, T, G or X of the Board of
Governors of the Federal Reserve System and any successors thereto as now and
from time to time hereafter in effect), and no part of the proceeds of any
Loan hereunder will be used for "purchasing" or "carrying" any "margin stock"
as so defined or for any purpose which violates, or which would be
inconsistent with, the provisions of Regulation U or Regulation G of the
Federal Reserve Board.
3.14. ERISA. The Borrower, all Commonly Controlled Entities, and all
their Plans are and have been in substantial compliance with the provisions of
ERISA, the qualification requirements of IRC Section 401(a), and the published
interpretations thereunder. No notice of intent to terminate a Plan has been
filed under Section 4041 of ERISA, nor has any Plan been terminated under
Section 4041(e) of ERISA which resulted in substantial liability to Borrower
or any of its Commonly Controlled Entities. The PBGC has not instituted
proceedings to terminate, or appoint a trustee to administer, a Plan and no
event has occurred or condition exists which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan. Neither Borrower nor any Commonly Controlled
Entities would be liable for any amount pursuant to Sections 4063 or 4064 of
ERISA if all Plans terminated as of the most recent valuation dates of such
Plans. Neither Borrower nor any Commonly Controlled Entities have: withdrawn
from a Multiemployer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; or failed to make a
payment to a Plan required under Section 302(f)(1) of ERISA such that security
would have to be provided pursuant to Section 307 of ERISA. No lien upon the
assets of Borrower has arisen with respect to a Plan. To the best knowledge
of Borrower, no prohibited transaction or Reportable Event has occurred with
respect to a Plan. Borrower and each Commonly Controlled Entities have made
all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan,
whether or not waived.
3.15. INVESTMENT COMPANY ACT, ETC. Borrower is not an "investment
company" registered or required to be registered under the Investment Company
Act of 1940, or a company
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"controlled" (within the meaning of such Investment Company Act) by such an
"investment company". Borrower is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act or to any other federal or state statute or regulation limiting
its ability to incur indebtedness for money borrowed.
3.16. INDEBTEDNESS. Borrower and its Subsidiaries have no Indebtedness
of any type except Indebtedness incurred under this Agreement and that which
is permitted under Section 5.1 of this Agreement.
3.17. CONTINGENT LIABILITIES. Except as set forth in the notes to the
Financial Statements, Borrower and its Subsidiaries have no material
Contingent Liabilities.
3.18. CHIEF PLACE OF BUSINESS; LOCATIONS OF COLLATERAL. The chief
executive office of Borrower is located at 2 Technology Drive, Peabody, MA
01960 and all books and records of Borrower are located at that address.
3.19. LAWS INCLUDING ENVIRONMENTAL AND SAFETY MATTERS. Borrower and its
Subsidiaries are in compliance in all material respects with all laws, rules
and regulations, orders of court or other governmental bodies, applicable to
it including, without limitation, all environmental, health and safety
statutes and regulations and specifically the Federal Resource Conservation
and Recovery Act, the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Clean Water Act, the Clean Air
Act, the requirements and regulations of the Nuclear Regulatory Commission,
and the Federal Occupational Safety and Health Act. Borrower is not subject
to any judicial or administrative proceedings alleging the violation of any
applicable law or regulation which could reasonably be expected to have a
Material Adverse Effect. Borrower is not the subject of any federal, state or
local investigation regarding, among other matters, the release of any
Hazardous Material into the environment, the results of which could reasonably
be expected to have a Material Adverse Effect. Borrower has not filed any
notice under any applicable law indicating past or present treatment, storage,
disposal, generation, transportation or reporting a spill or release into the
environment of any Hazardous Material which could reasonably be expected to
have a Material Adverse Effect. Borrower has not placed or disposed of, used,
generated or transported any Hazardous Material in violation of any applicable
law or regulation, upon or over any real property owned or leased by Borrower
and Borrower has no knowledge of such Hazardous Material on such real
property.
3.20. NEGATIVE PLEDGES. Neither Borrower nor any of its Subsidiaries is
a party to or bound by any agreement, indenture, or other instrument which
prohibits the creation, incurrence or allowance to exist of any mortgage, deed
of trust, pledge, lien, security interest or other encumbrance or conveyance
upon any of Borrower&WP1-9;s property.
3.21. FULL DISCLOSURE. The Financial Statements referred to in Section
3.1, Schedules hereto, the Loan Documents and any list, certificate, written
statement, instrument, paper or other information furnished by Borrower to
Lender in connection with the Loan Documents do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
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make the statements contained therein and herein, in light of the
circumstances in which they are made, not misleading.
ARTICLE 4. - AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Credit
Commitment remains in effect, the Note remains outstanding and unpaid, in
whole or in part, or any other amount is owing to Lender hereunder:
4.1. FINANCIAL STATEMENTS AND OTHER DOCUMENTS. Borrower shall furnish
or cause to be furnished to Lender:
(a) ANNUAL STATEMENTS. As soon as available, but in any event not
later than one hundred twenty (120) days after the last day of each fiscal
year of Borrower, audited Financial Statements of Borrower for such fiscal
year, as prepared by the Borrower's independent accounting firm (which shall
be reasonably satisfactory to Lender), together with the audit report of
such independent accounting firm which shall not be qualified in any manner
(except for a qualification for a change in accounting principles in which the
accounting firm concurs);
(b) QUARTERLY STATEMENTS. As soon as available, but in any event
not later than thirty (30) days after the last day of each fiscal quarter of
Borrower, Financial Statements internally prepared by management of Borrower
for such quarter;
(c) QUARTERLY ACCOUNTS RECEIVABLE AGINGS. As soon as available,
but in any event not later than thirty (30) days after the last day of each
fiscal quarter of Borrower, an accounts receivable aging report as of the end
of such quarter;
(d) MANAGEMENT LETTER. As soon as available, but in any event not
later than one hundred twenty (120) days after the last day of each fiscal
year of Borrower, copies of any written recommendations concerning the
management, finances, financial controls, or operations of Borrower received
from Borrower's independent public accountants; and
(e) OTHER INFORMATION. Such other financial and other information
concerning the affairs of Borrower as Lender may from time to time reasonably
request.
4.2. EXISTENCE; COMPLIANCE WITH LAWS; ETC. Borrower shall:
(a) CORPORATE EXISTENCE. Preserve and keep in full force and
effect its corporate existence and all franchises, licenses and permits
material to the proper conduct of its business;
(b) COMPLIANCE WITH APPLICABLE LAWS. Comply and cause its
Subsidiaries to comply with all applicable laws and duly observe all valid
requirements of governmental authorities the breach of which could reasonably
be expected to have a Material Adverse Effect, except when contested with due
diligence, in good
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faith and in proper proceedings. Without limitation of the foregoing,
Borrower shall file or cause to be filed all tax returns and reports which are
required by law to be filed by it, and pay and discharge, or cause to be paid
and discharged, when due, all taxes, assessments and other governmental
charges and levies imposed upon it or any of its property or any part thereof,
or upon the income or profits therefrom, including, without limitation,
payroll withholding taxes, as well as all claims for labor, materials or
supplies which, if unpaid, might become a Lien upon any of its property
(unless and to the extent only that any such item is being contested in good
faith by appropriate proceedings and no Lien has been obtained). Borrower
shall also pay all of its other Indebtedness and obligations promptly and in
accordance with normal terms and trade practices.
4.3 BUSINESS. Borrower shall and shall cause each of its Subsidiaries
to engage primarily in the business of designing and manufacturing electronic
connectors for computers.
4.4. MAINTAIN PROPERTY. Borrower shall keep and maintain all property
useful and necessary in its business in good operating condition and repair,
ordinary wear and tear excepted.
4.5. INSURANCE. Borrower shall keep adequately insured by financially
sound and responsible insurers (a) all property owned or leased by it and all
property of an insurable nature, such insurance to be in at least such amounts
and covering loss or damage from at least such risks and hazards (including,
without limitation, business interruption insurance and use and occupancy
insurance) as are usually insured against in the same geographic areas by
companies engaged in similar businesses and reasonably acceptable to Lender,
and (b) all liabilities of Borrower for damage to property, death or bodily
injury, including without limitation insurance required under all applicable
workman's compensation laws, and insurance for such liabilities resulting
from, caused by or arising out of any product sold by any predecessor of
Borrower or by Borrower, all such insurance to be in at least such amounts as
are usually insurance against by companies engaged in the same or similar
businesses and reasonably acceptable to Lender. The Lender shall be named the
sole loss payee and an additional insured under such policies and all such
policies shall provide that no termination or nonrenewal shall be effective
unless Lender is given thirty (30) days prior written notice.
4.6. RECORDKEEPING; RIGHTS OF INSPECTION. Borrower shall (i) keep
proper books of record and account in which full, true and correct entries, in
conformity with GAAP, are made of all dealings and transactions in relation to
its property, business and activities; (ii) permit Persons authorized by
Lender to visit and inspect its property, to inspect its books of record and
account and to make photocopies thereof, to review its accounts and to discuss
the affairs, finances and accounts of Borrower with its officers and
independent public accountants, all upon reasonable notice and at such times
during normal business hours and as often as Lender may reasonably request;
and (iii) permit Lender to perform field examinations and audits of such books
and records of account, all upon reasonable notice and at such times during
normal business hours and as often as Lender may reasonably request.
4.7. NOTICE OF MATERIAL EVENTS. Borrower will, promptly upon any
officer of Borrower obtaining knowledge thereof, give notice to Lender of (i)
any Default or Event of Default; (ii) any
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material casualty, loss or depreciation to any inventory or other property of
Borrower or any other force majeure, or any litigation, investigation or other
proceeding against or involving Borrower the result of any of which might have
a Material Adverse Effect; (iii) any litigation, investigation, other
proceeding or dispute affecting Borrower (A) which relates, in whole or in
part, to any of the transactions contemplated by any of the Loan Documents,
(B) which involves an amount in excess of Fifty Thousand Dollars ($50,000), or
(C) which may exist between Borrower and any governmental body; (iv) any
Reportable Event in respect of any Plan or any other event or change in a Plan
which might have a Material Adverse Effect or (v) any release of any
Hazardous Materials at any location owned or leased by Borrower or any
investigation or proceeding by any governmental body alleging or relating to
the violation by Borrower of any law or regulation. Borrower will furnish to
Lender from time to time all information which Lender shall reasonably request
with respect to the status of any litigation, investigation, other proceeding
or dispute to which Borrower is a party.
4.8. DEPOSIT ACCOUNTS. Borrower shall maintain with Lender deposit
accounts or accounts to be used as its principal depository and operating
account(s) and utilize the cash management services of Lender to be provided
by Lender at competitive rates.
ARTICLE 5. - NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Revolving Credit
Commitment is in effect, the Notes remain outstanding and unpaid, in whole or
in part, or any other amount is owing Lender hereunder, Borrower will not,
directly or indirectly, and Borrower will not permit any of its Subsidiaries
to:
5.1. INDEBTEDNESS. Create, incur, assume or allow to exist any
Indebtedness, except:
(a) LOAN DOCUMENT INDEBTEDNESS. Indebtedness evidenced by the
Notes and any other Indebtedness owing to or held by Lender arising under any
of the Loan Documents;
(b) DISCLOSED INDEBTEDNESS. Indebtedness of Borrower existing on
the Initial Borrowing Date and disclosed in Schedule 5.1; provided, however,
that none of such Indebtedness shall be renewed, extended or otherwise
modified in any material respect and may be extended by Borrower only on
substantially the same terms and conditions as in effect on the date hereof;
(c) UNSECURED CURRENT LIABILITIES. Unsecured current liabilities
(not the result of borrowing) incurred in the ordinary course of business
which are not evidenced by notes or instruments and which are not more than
thirty (30) days overdue from the original due dates thereof (unless and to
the extent only that any such liability is contested by Borrower in good faith
by appropriate proceedings and adequate reserves have been set aside with
respect thereto in accordance with GAAP);
(d) CAPITAL LEASES AND PURCHASE MONEY FINANCINGS. Capital Leases
and purchase money financings incurred by Borrower for the lease or purchase
of Capital Equipment (and Borrower
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agrees to furnish copies of the documentation for its outstanding Capital
Leases and purchase money financings to Lender upon reasonable request);
(e) INTERCOMPANY OBLIGATIONS. Indebtedness of any wholly owned
Subsidiary to Borrower; and
(f) APPROVED INDEBTEDNESS. Indebtedness for borrowed money
incurred after the Initial Borrowing Date with prior notice to and the written
consent of Lender.
5.2. CONTINGENT LIABILITIES. Except for Contingent Liabilities existing
on the Initial Borrowing Date and disclosed on the Financial Statements,
create, incur, assume or allow to exist any Contingent Liabilities except for
Contingent Liabilities arising out of the endorsement of instruments for
deposit or collection in the ordinary course of business.
5.3. LIMITATION ON LIENS. Create, incur, assume or allow to exist, any
Lien upon any of its property, income or profits, whether now owned or held or
hereafter acquired, including attachment, levy, garnishment or other judicial
process relating to such property, except:
(a) TAXES. Liens for taxes not yet due;
(b) CARRIERS'; WAREHOUSEMEN'S; MECHANICS' ETC. Carriers',
warehousemen's, mechanics', landlords', materialmen's, repairmen's, workmen's
or other like Liens arising in the ordinary course of business with respect to
obligations which are not yet due;
(c) SOCIAL SECURITY. Pledges, deposits in connection with workers'
compensation, unemployment insurance and other social security legislation
made in the ordinary course of business;
(d) EASEMENTS, RESTRICTIONS, ETC. Easements, rights of way,
covenants, consents, reservations, encroachments, variations, and other
restrictions of record, with respect to Borrower's real property which do not
interfere materially with the conduct of Borrower's businesses, and do not
detract materially from the value of such property or impair Borrower's use
thereof;
(e) CAPITAL LEASES. Liens incurred in respect of Capital Leases or
purchase money financings permitted under Section 5.1; provided however, that
the Lien granted in respect of any Capital Lease or purchase money financings
shall only cover the Capital Equipment subject to such lease or financing and
secure only the Indebtedness incurred in respect of the purchase thereof and
so long as such Indebtedness is only secured by such Lien; and
(f) DISCLOSED LIENS. Liens existing on the Initial Borrowing Date,
disclosed on Schedule 5.3.
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5.4. PROHIBITION OF FUNDAMENTAL CHANGES. (a)Enter into any transaction
of merger or consolidation or amalgamation other than such that pursuant to
which Borrower is the surviving corporation; (b)liquidate, wind-up or dissolve
itself (or allow any such liquidation or dissolution of a Subsidiary);
(c)convey, sell, issue, exchange, lease, assign, transfer or otherwise dispose
of all or any material portion of its business or property (other than sales
of inventory in the ordinary course of business and obsolete equipment or
equipment no longer used or useful in the business of Borrower); (d) change
its name or the location of its chief executive office or the location of any
Collateral except on thirty (30) days prior written notice to Lender.
5.5 INVESTMENTS AND LOANS. This Section is intentionally deleted.
5.6. TRANSACTIONS WITH AFFILIATES. Enter into or be a party to any
agreement or transaction with any Affiliate, except in the ordinary course of
Borrower's business and pursuant to reasonable requirements of Borrower's
business and upon fair and reasonable terms and conditions which are fully
disclosed to Lender and are no less favorable to Borrower than would obtain in
a comparable arm's length transaction with a Person not an Affiliate of
Borrower.
5.7. NEGATIVE PLEDGE. Directly or indirectly, enter into any agreement,
indenture, or other instrument which prohibits the creation, incurrence or
allowance to exist of any mortgage, deed of trust, pledge, lien, security
interest or other encumbrance or conveyance upon any of Borrower's property.
5.8 CHANGE OF SENIOR MANAGEMENT. Change its Chief Executive Officer
without giving the Lender written notice thereof.
ARTICLE 6. - CONDITIONS PRECEDENT
6.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Lender to make a Revolving Credit Loan on the Initial Borrowing Date is
subject to the satisfaction of the condition precedent that Lender shall have
received on or before such date, the following items in form and substance
satisfactory to Lender and its counsel executed where appropriate by a duly
authorized officer of Borrower.
LOAN DOCUMENTS:
(a) CREDIT AGREEMENT. This Agreement;
(b) PCD REVOLVING CREDIT NOTE. The PCD Revolving Credit Note;
(c) CTi REVOLVING CREDIT NOTE. The $250,000 Note of even date
given by CTi Technologies Inc. to Lender ("CTi Note");
(d) GUARANTY. Borrower's Guaranty of the CTi Note.
CORPORATE DOCUMENTS:
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(g) CORPORATE RESOLUTIONS. Copies of resolutions of the Board of
Directors of Borrower, and CTi authorizing the execution, delivery and
performance of the Loan Documents to which Borrower and CTi are a party, and
the transactions contemplated thereby, certified as of the Initial Borrowing
Date by the Secretary/Clerk or Assistant Secretary/Clerk of Borrower and CTi
(which certificate shall state that such resolutions have not been amended,
modified, revoked or rescinded as of such date);
(h) CORPORATE INCUMBENCY CERTIFICATE. Certificate of the
Secretary/Clerk or Assistant Secretary/Clerk of Borrower and CTi, dated as of
the Initial Borrowing Date, certifying the names and titles of the officers
authorized to execute the Loan Documents to which Borrower and CTi are a party
and any other documents related to any thereof, together with specimen
signatures of such officers;
(i) CHARTER DOCUMENTS. Copies of (i) the charter documents and all
amendments thereto of Borrower and CTi, currently certified by the relevant
governmental filing authority, and (ii) the By-Laws of Borrower and CTi
certified as of the Initial Borrowing Date by the Secretary/Clerk or Assistant
Secretary/Clerk of the Borrower and CTi;
(j) LEGAL GOOD STANDING CERTIFICATES. For Borrower and CTi, a
certificate of legal existence and good standing issued by the Secretary of
State of the state of Borrower's and CTi's incorporation, and a certificate of
foreign qualification and good standing issued by the Secretary of State of
each state of foreign qualification or authorization, all of which shall be
dated currently;
(k) TAX GOOD STANDING CERTIFICATES. For Borrower and CTi, a
certificate of tax good standing currently dated from each jurisdiction in
which such party is obliged to file tax returns and pay taxes (or, to the
extent any such certificates are unobtainable, because it is not the practice
of the taxing authority to issue such certificate, or because of time delays
in the issuance of such certificate attributable to such taxing authority, a
letter from Borrower's and CTi's chief financial officer setting forth the
nature of the tax obligation and the relevant jurisdiction, and certifying
that all required returns have been duly filed and all required taxes shown
thereon paid;
MISCELLANEOUS DOCUMENTS:
(l) LEGAL OPINION. A written opinion of counsel for Borrower in
form and content satisfactory to Lender, dated the Initial Borrowing Date,
addressed to Lender and covering such matters related to the Borrower and CTi
and the transactions contemplated hereby as Lender may reasonably request;
(m) LIEN SEARCH. Search reports certified by a party acceptable to
Lender, dated a date reasonably close to the Initial Borrowing Date,
confirming the absence of any security interests, tax liens or other Liens
made against Borrower and CTi, or any of their assets, wherever located;
-15-
(n) CONSENTS. Copies of all consents or approvals of any Person
that may be required in connection with the transactions contemplated by the
Loan Documents;
(o) FEES. Payment of the estimated fees and disbursements of
Lender's counsel in connection with the Loan Documents and the transactions
contemplated hereby;
(p) CASUALTY AND LIABILITY INSURANCE. Certificates of insurance in
respect of insurance required by the provisions of Section 4.5 of this
Agreement; and
(q) ADDITIONAL CLOSING AGENDA ITEMS. Fulfillment, to Lender's
satisfaction, of each of the additional items set forth on the closing Agenda
for this transaction.
(r) DISBURSEMENT INSTRUCTIONS. The Borrower's and CTi's
instructions for wire transfer of the proceeds of its initial borrowing.
6.2. CONDITIONS OF ALL LOANS. The Lender's obligation to make any
Revolving Credit Loan is subject to the fulfillment of the following
additional conditions precedent:
(a) REPRESENTATIONS. The representations and warranties made by any
party to any Loan Document (other than Lender) in any Loan Document or in any
certificate, document or financial or other statement furnished at any time
under or in connection therewith shall be true and correct on and as of the
Borrowing Date for such Loan as if made on and as of such date;
(b) NO DEFAULT. No Default or Event of Default shall have occurred
and be continuing on the Borrowing Date for such Loan either before or after
giving effect to the Loan made on such date;
(c) NO MATERIAL ADVERSE EFFECT. There shall have occurred no event
or change in circumstances having a Material Adverse Effect;
(d) CREDIT LIMIT COMPLIANCE. The aggregate unpaid principal amount
of the Revolving Credit Loans outstanding on any Borrowing Date shall not
exceed the amounts permitted under Section 2.1 and 2.13 on such date; and
(e) ADDITIONAL MATTERS. Lender shall have received such other
documents, statements, certificates, information and evidence including a
Compliance Certificate as Lender may reasonably request. All documents and
legal matters in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and content to Lender and
its counsel, and all actions required to be taken on or before the Borrowing
Date for such Loan shall have been taken.
Each request for a Revolving Credit Loan by Borrower or CTi hereunder
shall constitute a representation and warranty by Borrower and CTi as of the
date of such request or application that the conditions contained in
paragraphs (a) through (e) of this Section 6.2 have been satisfied.
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ARTICLE 7. - EVENTS OF DEFAULT
7.1. EVENTS OF DEFAULT. Borrower acknowledges and agrees that all Loans
hereunder are and shall at all times be payable ON DEMAND by Lender. If any
of the events set forth below shall occur and be continuing, the Lender may,
but shall not be obligated to, make such demand; such events are set forth
only for illustrating certain circumstances in which the Lender may, but shall
not be obligated to make such demand. Such circumstances are not exclusive
and shall not limit the Lender's right of demand in any other circumstances.
The occurrence of any of the following shall constitute an Event of Default:
(a) FAILURE OF PAYMENT. If Borrower or CTi fails to pay any
principal, interest or other amount due, under this Agreement or with respect
to any Loan on the date due (whether on a scheduled payment date or otherwise)
and in the manner provided herein;
(b) MISSTATEMENTS. If any representation, warranty or other
statement made herein or in any other Loan Document or otherwise in writing by
or on behalf of Borrower or CTi in connection herewith proves to be or to have
been incorrect or misleading in any material respect as of the date at which
it is made or deemed to be made;
(c) PERFORMANCE OF OTHER COVENANTS. If Borrower defaults in the
due performance or observance of (i) any covenant contained in Sections 4.1,
4.2, 4.5 or in Article 5 or (ii) any other covenant, condition or provision to
be performed or observed by it hereunder or under any of the Loan Documents
(other than a payment or covenant default the performance or observance of
which is dealt with specifically elsewhere in this Section 7.1) and the breach
of such other provision is not cured to Lender&WP1-9;s satisfaction within ten
(10) days after the sooner to occur of Borrower&WP1-9;s receipt of notice of
such breach from Lender or the date on which such failure or neglect first
becomes known to any officer of Borrower.
(d) OTHER INDEBTEDNESS. If Borrower or CTi defaults, which default
continues after any applicable grace or cure period, in any payment of
principal of or interest on any Indebtedness for borrowed money including,
without limitation, on any Capital Lease or any other default occurs with
respect to any Indebtedness for borrowed money giving the holder thereof the
right to accelerate the payment thereof or require such Indebtedness to be
paid before its stated maturity or before any regularly scheduled date of
prepayment;
(e) MATERIAL CONTRACTS. Any default occurs under any material
contract of Borrower which default gives any other party to such contract the
right to terminate such contract or exercise remedies and such termination or
remedies are reasonably likely to have a Material Adverse Effect;
(f) JUDGMENTS. If Borrower permits any judgment against it in
excess of $100,000 to remain undischarged for a period of more than thirty
(30) days unless during such period such judgment is effectively stayed or
bonded, on appeal or otherwise;
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(g) LEVY, ATTACHMENTS. If any levy, seizure, attachment, execution
or similar process shall be issued on any of the Borrower's or any
Subsidiaries' cash, accounts or any material property;
(h) VOLUNTARY BANKRUPTCY. If Borrower or any of its Subsidiaries
(i) commences a voluntary case under the Bankruptcy Code (as now or hereafter
in effect); or (ii) files a petition or commences any case, proceeding, or
action in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up, arrangement, composition, readjustment of its debts or any other
relief under any other bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement, composition, readjustment of debt or similar act or
law of any jurisdiction, now or hereafter existing; or (iii) takes any action
indicating its consent to, approval of, or acquiescence in, any such case,
proceeding or other action; or (iv) applies for a receiver, trustee or
custodian of it or for all or a substantial part of its property; or (v) makes
an assignment for the benefit of creditors; or (vi) is unable to pay its debts
as they mature or admits in writing such inability; or (vii) is adjudicated
insolvent or bankrupt;
(i) INVOLUNTARY BANKRUPTCY. (i) If there is commenced against
Borrower or any of its Subsidiaries (1) an involuntary case under the
Bankruptcy Code (as now or hereafter in effect); or (2) any case or proceeding
or any other action in bankruptcy or seeking reorganization, liquidation,
dissolution, winding-up, arrangement, composition, readjustment of its debts
or any other relief under any other bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement, composition, readjustment of debt or
similar act or law of any jurisdiction, now or hereafter existing, or seeking
appointment of a receiver, trustee or custodian of Borrower or any of its
Subsidiaries or for all or a substantial part of its property, and any of the
foregoing cases, proceedings, or actions is not dismissed within sixty (60)
days; or (ii) if an order, judgment or decree approving any of the foregoing
is entered or a warrant of attachment, execution or similar process against
any substantial part of the property of Borrower or any of its Subsidiaries is
issued, and such order, judgment, decree, warrant, execution or similar
process is not vacated or stayed within sixty (60) days; or (iii) if an order
for relief under the Bankruptcy Code (as now or hereafter in effect) is
entered against Borrower or any of its Subsidiaries; or
(j) CRIMINAL PROCEEDINGS. If there is an indictment or threatened
indictment of Borrower under any criminal statute, or commencement or
threatened commencement of criminal proceedings against Borrower, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any material property of Borrower; or
(k) MATERIAL ADVERSE CHANGE. There is a material adverse change in
the financial condition, business, affairs or control of the Borrower since
the date of its last financial statement most recently delivered to the Lender
in accordance the requirement of Section 4.1 hereof.
7.2. LENDER'S REMEDIES. Upon the occurrence of any such Event of
Default, Lender may, at Lender&WP1-9;s option, immediately exercise one or
more of the following rights: (a) declare all obligations of Borrower and/or
CTi to Lender, including, without limitation, the Revolving Credit Commitments
to be terminated, whereupon such obligations shall immediately terminate; and
(b) declare all obligations of Borrower and CTi
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to Lender, including, without limitation, the Loans and all other amounts
owing under this Agreement and the Notes to be immediately due and payable,
whereupon they shall immediately become due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived; provided, however, that upon the occurrence of any such Event of
Default specified in Sections 7.1(h) or 7.1(i), the Revolving Credit
Commitments shall immediately terminate and all obligations of Borrower and
CTi to Lender, including, without limitation, Loans and all other amounts
owing under this Agreement, and the Notes shall immediately become due and
payable without presentment, further demand, protest or notice of any kind,
all of which are hereby expressly waived.
7.3. CROSS DEFAULT It is agreed by Borrower that any Event of Default
under this Agreement will constitute an event of default under all Loans and
all of the Loan Documents and all other agreements and evidences of
Indebtedness between Borrower and CTi and Lender, whether now existing or
hereafter executed and whether or not such is an event of default therein.
7.4. SETOFF. In addition to any rights and remedies of Lender provided
by law, Lender shall have the right, (a) upon and during the continuance of an
Event of Default or (b) at any time, whether or not an Event of Default has
occurred and is continuing, in the event of any attachment, trustee process,
garnishment, or other levy or lien is, or is sought to be imposed, on any
cash, accounts or any material property of Borrower and CTi, and without prior
notice to Borrower or CTi, any such notice being expressly waived by Borrower
and CTi to the extent permitted by applicable law, and regardless of the
adequacy of any collateral, to set off and apply against any indebtedness,
whether matured or unmatured, of Borrower and CTi to Lender, any amount owing
or otherwise available under any applicable agreement or contract (including
without limitation all deposits maintained at Lender, whether general or
special, time or demand, provisional or final, joint or otherwise) from Lender
to Borrower and CTi, and such right of setoff may be exercised by Lender
against Borrower and CTi or against any bankruptcy trustee,
debtor-in-possession, assignee for the benefit of creditors, receiver, or
execution, judgment or attachment creditor of Borrower and CTi, or against
anyone else claiming through or against Borrower or CTi, or such Person.
ARTICLE 8. - MISCELLANEOUS
8.1. NOTICES. Except as otherwise specified herein, all notices to or
upon the parties hereto shall be in writing (including teletransmissions),
shall be given or made to the party to which such notice is required or
permitted to be given or made under this Agreement at the address or telex or
telecopier number set forth below or at such other address or telex or
telecopier number as any party hereto may hereafter specify to the others in
writing, and (unless otherwise specified herein) shall be deemed delivered on
receipt, if teletransmitted or delivered by hand, or three (3) Business Days
after mailing, and all mailed notices shall be by registered or certified
mail, postage prepaid:
If to Borrower or CTi to:
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PCD Inc.
2 Technology Drive
Peabody, MA 01960
Attention: Mr. John Dwight
(Facsimile No. 508-532-6800)
With a copy to:
c/o C. Russel Hansen, Jr., Esquire
General Counsel
PCD Inc.
2 Technology Drive
Peabody, MA 01960
(Facsimile No. 508-532-6800)
If to Lender to:
Eastern Bank
605 Broadway
Saugus, MA 01906
Attention: Mr. John P. Farmer, Vice President
(Facsimile No. 617-231-4858)
With a copy to:
Jeffrey M. Freedman, Esquire
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
(Facsimile No. 617-856-8201)
8.2. NO WAIVER OF RIGHTS. No failure to exercise nor any delay in
exercising, on the part of Lender, any right, remedy, power or privilege under
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power, or privilege operate as a waiver
of any further or complete exercise thereof. No waiver shall be effective
unless in writing. No waiver or condonation of any breach on one occasion
shall be deemed a waiver or condonation on any other occasion.
8.3. CUMULATIVE REMEDIES. Each of the Loan Documents and the
obligations of Borrower thereunder are in addition to and not in substitution
for any other obligations or security interests now or hereafter held by
Lender and shall not operate as a merger of any contract or debt or suspend
the fulfillment of or affect the rights, remedies, powers, or privileges of
Lender in respect of any obligation or other security interest held by it for
the fulfillment thereof. The rights and remedies provided in the Loan
Documents are cumulative and not exclusive of any other rights or remedies
provided by law.
-20-
8.4. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of Borrower, CTi, Lender and all future holders of the Notes, and
their respective successors and assigns, except that Borrower and CTi may not
assign or transfer their rights or obligations hereunder without the prior
written consent of Lender. Borrower and CTi acknowledge that Lender may, from
time to time, sell participation interests in the Loans and Borrower's other
obligations hereunder, to third parties, on such terms and conditions as
Lender may determine, and Borrower and CTi specifically consent thereto.
Lender also may from time to time assign its rights and delegate its
obligations, including its obligation to make part or all of the Loans or
grant part or all of any other financial accommodation under this Agreement,
in which event Borrower and CTi shall only have recourse to the
assignee for the performance of Lender's obligations that have been so
delegated. For these purposes Lender may disclose to an intended or actual
participant or assignee all or any information supplied to Lender by or on
behalf of Borrower or Cti.
8.5. GOVERNING LAW. This Agreement, the Note and other Loan Documents
shall be governed by, and construed and interpreted in accordance with, the
laws of the Commonwealth of Massachusetts.
8.6. SUBMISSION TO JURISDICTION; WAIVER OF TRIAL BY JURY.
(a) For purposes of any action or proceeding involving the Loan
Documents or any other agreement or document referred to therein, Borrower and
CTi hereby submit to the jurisdiction of all federal and state courts located
in the Commonwealth of Massachusetts and consent that any order, process,
notice of motion or other application to or by any of said courts or a judge
thereof may be served within or without such court's jurisdiction by
registered mail or by personal service, provided a reasonable time for
appearance is allowed (but not less than the time otherwise afforded by any
law or rule).
(b) THE BORROWER, CTi AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAW) (i) ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING
TO THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT OR ANY OTHER AGREEMENT OR
DOCUMENT REFERRED TO HEREIN OR THEREIN AND AGREES THAT ANY SUCH DISPUTE SHALL
BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY; AND (ii) ANY RIGHT TO CONTEST
THE APPROPRIATENESS OF ANY ACTION BROUGHT WITHIN THE JURISDICTION MENTIONED IN
PARAGRAPH (a) OF THIS SECTION BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE, OR FORUM NON CONVENIENS.
8.7. COMPLETE AGREEMENT, AMENDMENTS. This Agreement, together with the
Notes and other Loan Documents contains the entire agreement between the
parties with respect to the transactions contemplated hereby, and supersedes
all negotiations, presentations, warranties, commitments, offers, contracts
and writings prior to the date hereof relating to the subject matter. This
Agreement may only be amended, modified,
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waived, discharged or terminated by a writing signed by the party to be
charged with such amendment, modification, waiver, discharge or termination.
8.8. EXPENSES. The Borrower shall pay on demand, regardless of whether
any Default or Event of Default has occurred or whether any proceeding to
enforce any Loan Document has been commenced, all out-of-pocket expenses
(including, without limitation, the reasonable fees and disbursements of
counsel to Lender) incurred by Lender in connection with (a) the
administration, filing or recording of the Loan Documents, and any future
requests for amendments or waivers of the Loan Documents (whether or not the
transactions contemplated thereby shall be consummated), (b) the collection of
the Loans and any and all other obligations of Borrower to Lender whether now
existing or hereafter arising, or with the preservation, exercise or
enforcement of Lender's rights and remedies under or in connection with the
Loan Documents, including, without limitation, any and all expenses incurred
by Lender in or in connection with any case commenced by or against Borrower
under the Bankruptcy Code, and (c) any claim or liability for any stamp,
excise or other similar taxes and any penalties or interest with respect
thereto that may be levied, collected, withheld or assessed by any
jurisdiction in connection with the execution and delivery of the Loan
Documents or any modification thereof. This covenant shall survive payment of
the Loans and termination of this Agreement. Borrower hereby authorizes
Lender to make Loans to pay any amount owed by Borrower under this Section or
to debit Borrower's deposit accounts if Borrower fails to pay such amount
promptly after demand.
8.9. INDEMNIFICATION. Borrower and CTi agree to indemnify and hold
Lender harmless from and against any and all loss, liability, obligations,
damages, penalties, judgments, actions, claims, costs and expenses (including,
without limitation, attorneys&WP1-9; fees and disbursements) now or in the
future incurred by or asserted against Lender by any Person arising out of or
in connection with any past, present, or future action or inaction by Lender,
Borrower or CTi in connection with any Loan Document, or any transaction
contemplated thereby, except any action or inaction arising out of Lender's
gross negligence or willful misconduct.
8.10. SURVIVAL OF AGREEMENTS. All covenants, agreements, representations
and warranties made herein and in the certificates delivered pursuant hereto
shall survive the making of Loans and the execution and delivery to Lender of
the Notes and shall continue in full force and effect so long as the Notes are
outstanding and unpaid or this Agreement remains in effect. All agreements,
obligations and liabilities of Borrower and CTi under this Agreement
concerning the payment of money to Lender, other than the obligation to pay
principal of and interest on Loans, shall survive the payment in full of Loans
and termination of this Agreement.
8.11. SEVERABILITY. Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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8.12. DESCRIPTIVE HEADINGS. The Table of Contents and the captions in
this Agreement are for convenience of reference only and shall not define or
limit the provisions hereof.
8.13. COUNTERPARTS. This Agreement may be executed by one or more of the
parties on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their respective duly authorized officers as of the
date first written above.
WITNESS: PCD Inc.
/s/ Lorraine M. Bailey By: /s/ John L. Dwight, Jr.
- ---------------------- ---------------------------
Name: John L. Dwight, Jr.
Title: President
WITNESS: CTi Technologies, Inc.
/s/ Lorraine M. Bailey By: /s/ John L. Dwight, Jr.
- ---------------------- ---------------------------
Name: John L. Dwight, Jr.
Title: President
Eastern Bank
By: /s/ John P. Farmer
- ---------------------- ---------------------------
Name: John P. Farmer
Title: Vice President
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SCHEDULE 1
Definitions
"Affiliate" - as to any Person (a) any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with such Person, or (b) any other Person who is an officer or director of
such Person, or (c) any Person described in clause (a) above (other than any
Subsidiary all of the capital stock of which is owned by Borrower).
"Bankruptcy Code" - The Bankruptcy Reform Act of 1978, as heretofore and
hereafter amended, and codified as 11 U.S.C. Section 101, et seq.
"Borrowing Date" - the Business Day on which any Loan is made.
"Business Day" - any day on which commercial banks are open for business
in Boston, Massachusetts.
"Capital Equipment" - equipment that in accordance with GAAP is required
or permitted to be depreciated or amortized on Borrower's balance sheet.
"Capital Expenditures" - for any period, the sum of (i) all expenditures
that, in accordance with GAAP, are required to be included in land, property,
plant or equipment or similar fixed asset account (whether involving real or
personal property) and (ii) Capital Lease Obligations incurred during such
period (excluding renewals of Capital Leases).
"Capital Lease" - any capital lease, conditional sales contract or other
title retention agreement relating to the acquisition of Capital Equipment.
"Capital Lease Obligations" - the aggregate capitalized amount of the
obligations of Borrower under all Capital Leases.
"Cash Equivalents" - (a) securities with maturities of 180 days or less
from the date of acquisition issued or fully guaranteed or insured as to
payment of principal and interest by the United States or any agency thereof,
(b) certificates of deposit with maturities of 365 days or less from the date
of acquisition issued by Lender or any domestic commercial bank having capital
and surplus reasonably acceptable to Lender and (c) commercial paper of a
domestic issuer rated at least either A-2 by Standard & Poor's or B-2 by
Moody's Investors Service with maturities of 180 days or less from the date of
acquisition.
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"COBRA" - the Consolidated Omnibus Budget Reconciliatory Act of 1985, as
amended, including the sections of the IRC affected by it and all regulations
promulgated under such Act or the IRC.
"Collateral" - has the meaning given such term in the Security Agreement.
"Commitment Period" - the period from and including the Initial Borrowing
Date to and including the Termination Date.
"Commonly Controlled Entity" - an entity, whether or not incorporated,
which is under common control with Borrower within the meaning of Section
414(b) or (c) of the IRC.
"Contingent Liability" - any obligation of Borrower or CTi guaranteeing
or in effect guaranteeing any Indebtedness, leases, dividends or other
obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly.
"CTi Revolving Credit Commitment" - the commitment by the Lender to make
CTi Revolving Credit Loans pursuant to SeCTion 2.13.
"CTi Revolving Credit Loan" - any loan made pursuant to Section 2.13.
"CTi Revolving Credit Limit" - Two Hundred Fifty Thousand Dollars
($250,000.00).
"CTi Revolving Credit Note" - a promissory note of CTi made to evidence
the CTi Revolving Credit Loans, in the form of Exhibit B, as it may be
amended, supplemented or otherwise modified from time to time.
"CTi Termination Date" - the earlier of (a) June 30, 1997 and (b) the
date the Lender's commitment to make CTi Loans is terminated pursuant to
Section 7.2 of Article 7.
"Default" - any event specified in Article 7, whether or not any
requirement for the giving of notice or lapse of time or any other condition
has been satisfied.
"Dividends" means, for any applicable period, the aggregate of all
amounts paid or payable (without duplication) as dividends (exclusive of
dividends payable solely in capital stock of Borrower), distributions or owner
withdrawals with respect to Borrower's shares of capital stock, whether now or
hereafter outstanding and includes any purchase, redemption or other
retirement of any shares of the Borrower's stock, directly or indirectly.
"Dollars" and "$" - lawful money of the United States. Any reference to
payment means payment in immediately available Dollar funds.
"ERISA" - the Employee Retirement Income Security Act of 1974, as amended
from time to time, including all regulations promulgated under such Act.
-25-
"Earnings" - for any period, the net income from continuing operations (or
deficit) of the Borrower determined in accordance with GAAP excluding all
extraordinary and nonrecurring gains.
"Event of Default" - any event specified in Article 7, provided that any
requirement for the giving of notice or lapse of time or any other condition
has been satisfied.
"Financial Statements" - financial statements of Borrower and its
Subsidiaries, on a consolidated basis, prepared on a consistent basis in
accordance with GAAP and containing balance sheets, statements of income and
retained earnings and statements of cash flow. Financial Statements for a
fiscal year shall contain an audit report without qualification (except for
changes in GAAP with which such accountants concur) by independent certified
public accountants selected by Borrower and acceptable to Lender. Financial
Statements for a quarter shall be certified by the chief financial officer of
Borrower as prepared in accordance with GAAP except for year-end adjustments
and except that such interim statements need not contain footnotes.
"GAAP" - those generally accepted accounting principles set forth in
Statements of the Financial Accounting Standards Board and in Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants or which have other substantial authoritative support in the
United States and are applicable in the circumstances, as applied on a
consistent basis. As used in the preceding sentence "consistent basis" shall
mean that the accounting principles observed in the current period are
comparable in all material respects to those applied in the preceding period.
"Hazardous Material" - any hazardous waste, toxic substance hazardous
chemical, radioactive material, hazardous material, oil or gasoline, under any
applicable federal or state statute, county or municipal law or ordinance,
including (without limitation) any substance defined as a "hazardous
substance" or "toxic substance" (or comparable term) in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended (42 U.S.C.
9601, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. 1802),
or the Resource Conservation and Recovery Act (42 U.S.C. 6901, et seq.).
"Indebtedness" - with respect to any Person, any item that would properly
be included as a liability on the liability side of a balance sheet of such
Person as of any date as of which Indebtedness is to be determined and
includes (but is not limited to) (a) all obligations for borrowed money
including all Loans, (b) all obligations evidenced by bonds, debentures,
notes
or other similar instruments, (c) all obligations to pay the deferred purchase
price of property or services, (d) all Capital Lease Obligations and (e) all
obligations in respect of advances made or to be made under letters of credit
issued for such Person's account and in respect of acceptances of drafts
drawn
by such Person.
"Initial Borrowing Date" - the date of this Agreement.
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"Intellectual Property" - shall mean "Intellectual Property," as defined
in Section 101(60) of the Bankruptcy Code, now or hereafter owned by Borrower,
together with all of the following property now or hereafter owned by
Borrower: all domestic and foreign patents and patent applications;
inventions, discoveries and improvements, whether or not patentable;
trademarks, trademark applications and registrations; service marks, service
mark applications and registrations; copyrights, copyright applications and
registrations; all licenses therefor; trade secrets and all other proprietary
information.
"Investment" - any transfers of property to, contribution to capital of,
acquisition of stock, other securities or evidences of indebtedness of,
acquisition of businesses or acquisition of property of any Person, other than
in the ordinary course of business.
"IRC" - the Internal Revenue Code of 1986, as amended from time to time
and including all regulations promulgated thereunder.
"Lien" - any mortgage, deed of trust, pledge, hypothecation, assignment,
deposit arrangement, encumbrance (including, without limitation, any easement,
right-of-way, zoning or similar restriction or title defect), lien (statutory
or other) or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any conditional sale or other title retention agreement, any financing lease
having substantially the same economic effect as any of the foregoing and the
filing of any financing statement under the UCC or comparable law of any
jurisdiction).
"Loans" - the PCD Revolving Credit Loan and the CTi Revolving Credit
Loan;
"Loan Documents" - this Agreement, the PCD Revolving Credit Note, the CTi
Revolving Credit Note, and all other instruments and documents executed in
connection with the indebtedness covered hereby and thereby.
"Material Adverse Change" means a material adverse change, as reasonably
determined by the Lender, in the property, business (including its prospects),
operations, financial conditions, liabilities or capitalization of Borrower
and its Subsidiaries (taken as a whole).
"Material Adverse Effect" - means a material adverse effect, as
reasonably determined by the Lender, on (a) the property, business (including
its prospects), operations, financial conditions, liabilities or
capitalization of Borrower and its Subsidiaries (taken as a whole); or (b) the
validity or enforceability of any of the Loan Documents.
"Multiemployer Plan" - a Plan which is a multiemployer plan as defined in
Section 3(37)(A) of ERISA or Section 414(f) of the IRC.
"Notes" - the PCD Revolving Credit Note and the CTi Revolving Credit
Note.
"Obligations" means all loans, advances, interest, fees, debts,
guaranties, liabilities, obligations (including without limitation the Loans
and contingent obligations under guarantees), agreements, undertakings,
covenants and duties owing or to be performed or observed by Borrowers to or
in favor of Lender, of every kind and description (whether or not evidenced by
any note or other instrument; for the payment of money;
-27-
arising out of the Loans, this Agreement or any other agreement between Lender
and Borrowers or any other instrument of Borrowers in favor of Lender; arising
out of or relating or similar to transactions described herein; or
contemplated as of the Closing Date), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, including
without limitation all interest, fees, charges, and amounts chargeable to
Borrowers under this Agreement.
"PBGC" - the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA.
"PCD Revolving Credit Commitment" - the commitment by the Lender to make
PCD Revolving Credit Loans pursuant to Section 2.1.
"PCD Revolving Credit Limit" - Five Million Dollars ($5,000,000).
"PCD Revolving Credit Loan" - any loan made pursuant to Section 2.1.
"PCD Revolving Credit Note" - a promissory note of Borrower made to
evidence the PCD Revolving Credit Loans, in the form of Exhibit A, as it may
be amended, supplemented or otherwise modified, from time to time.
"PCD Termination Date" - the earlier of (a) June 30, 1997 and (b) the
date the Lender's commitment to make PCD Loans is terminated pursuant to
Section 7.2 of Article 7.
"Person" - an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"Plan" - any pension plan, as defined in Section 3(2) of ERISA and any
welfare plan, as defined in Section 3(1) of ERISA, which is sponsored,
maintained or contributed to by Borrower or any Commonly Controlled Entity, or
in respect of which Borrower
or a Commonly Controlled Entity is an "employer" as defined in Section 3(5) of
ERISA.
"Base Rate" - for any day the rate on such day announced by Lender as its
Base Rate. The Base Rate is a reference rate and does not necessarily
represent the lowest or best rate charged to any customer.
"Reportable Event" - any of the events set forth in Section 4043(b) of
ERISA.
"Revolving Credit Commitment" - the commitment by Lender to make the PCD
Credit Loan and the CTi Credit Loan.
"Revolving Credit Loans" - any loan made pursuant to Section 2.1 and
2.13.
"Solvent" - as to any Person, such Person (i) owns Property the fair
market value of which is greater than the amount required to pay all
Indebtedness, (ii) owns Property the present fair salable value of which is
greater than the amount that will be required to pay the probable liability of
such Person on its existing Indebtedness as such becomes absolute and matured,
(iii) is able to pay all its Indebtedness as such Indebtedness matures and
(iv) has capital sufficient to carry on its business and
-28-
transactions and all business and transactions in which it is about to engage.
"Subordinated Debt" - any indebtedness that is subordinated as to payment
and as to Lien (if any) to the prior payment in full of the obligations of
Borrower to Lender and to the Liens granted by Borrower to Lender.
"Subsidiary" - with respect to any Person, any corporation, partnership,
trust or other organization, whether or not incorporated, the majority of the
voting stock or voting rights of which is owned or controlled, directly or
indirectly, by such Person.
"Termination Date" - the earlier of (a) June 30, 1997, and (b) the date
the Lender's commitment to make Loans is terminated pursuant to Section 7.2 of
Article 7.
"UCC" - the Uniform Commercial Code as it may from time to time be in
effect in the Commonwealth of Massachusetts.
-29-
PCD Inc.
Borrower's Documents
Schedule 3.2 - List of states where Borrower is qualified as a foreign
corporation.
Massachusetts
Arizona
PCD Inc.
Borrower's Documents
Schedule 3.3 - List of subsidiaries
PCD Inc.
CTi Technologies, Inc.
PCD Securities Corp.
PCD Inc.
Borrower's Documents
Schedule 3.8 - Schedule of Litigation
On August 21, 1995, the Company's wholly-owned subsidiary, CTi
Technologies, Inc. ("CTi"), filed an action in the United States District
Court for the District of Arizona seeking a declaratory judgement against
Wayne K. Pfaff, an individual resident in Texas ("Pfaff"), and Plastronics
Socket Company, Inc., a corporation affiliated with Pfaff, alleging and
seeking a declaratory judgement that two United State patents issued to Pfaff
and relating to certain burn-in sockets for "leadless" IC packages (the "Pfaff
Leadless Patent") and ball grid array ("BGA") IC packages (the "Pfaff BGA
Patent")(collectively, the "Pfaff Patents") are invalid and are not infringed
by CTi, the products of which include burn-in sockets for certain "leaded"
packages (including Quad Flat Paks)(the "CTi Products") and BGA packages (the
"CTi BGA Products")(collectively, the "CTi Products). Pfaff has filed a
counterclaim alleging that CTi infringes the "Pfaff Leadless Patent" and has
requested an award of damages; the counterclaim does not allege infringement
of the Pfaff BGA Patent. Pfaff has also sought a permanent injunction against
further infringement by CTi of the Pfaff Leadless Patent.
The Company understands that Pfaff has been issued patents for the
inventions covered by the Pfaff Leadless Patents in Germany, France, Great
Britain, Japan and Malaysia (together with the United Sates, the
"Territory"). Revenue from sales of CTi Leaded Products in the Territory in
1995 was approximately $5.8 million, which represented approximately 23% of
the Company's net sales in 1995. Due to a shift in customer base, the Company
expects that net sales of CTi Leaded Products in the Territory, both in
percentage terms and absolute amount, will decline significantly in 1996 and
beyond. The CTi BGA Products are not expected to make a significant
contribution to revenues of the Company until years subsequent to 1996.
The Pfaff Leadless Patent has been the subject of earlier litigation
initiated by Pfaff against a burn-in connector manufacturer unrelated to the
Company, Wells Electronics, Inc. ("Wells"), in which Pfaff alleged that the
manufacture and sale of a wide range of Wells products infringed the Pfaff
Leadless Patent. Included among the Wells products covered by the Pfaff
litigation was a group of burn-in sockets produced by Wells for certain leaded
packages (the "Wells Leaded Products"). The Wells Leaded Products compete
directly with CTi Leaded Products and accept similar IC packages. The Company
believes that Pfaff may assert in CTi's litigation with Pfaff that Wells
Leaded Products are similar in design to CTi Leaded Products. In October
1995, the United States District Court for the Northern District of Texas (the
"Texas Court") found certain claims in the Pfaff Leadless Patent to be
invalid, but found other claims in the patent not to be invalid and to be
infringed by certain Wells products, including the Wells Leaded Products. On
December 19, 1995, the Texas Court issued a permanent injunction against the
manufacture and sale by Wells of the products found to be infringing. In
January 1996, the United States Court of Appeals (Federal Circuit) stayed the
injunction, pending appeal, based on its finding that Wells had demonstrated
that it is likely to succeed in its contention that the Pfaff Leadless Patent
is invalid.
The Pfaff BGA Patent was not involved in the Pfaff/Wells litigation.
The company, believes, based on the advice of counsel, that CTi has
meritorious defenses against any claim that CTi Products infringe the Pfaff
Patents, and CTI intends to prosecute and defend vigorously its position in
its declaratory judgment action and any related or subsequent litigation.
Although Wells invoked similar defenses on the Pfaff Leadless Patent in its
lawsuit with Pfaff, the Company believes that CTI will prevail in pending or
any future litigation with Pfaff, and an adverse outcome could have a material
adverse effect on the financial condition, results of operations and business
of the Company. Such adverse effect could include, without limitation, the
requirement that CTi pay substantial damages for past infringement and an
injunction against the manufacture or sale in the United States of such
products as are found to be infringing.
PCD Inc.
Borrower's Documents
Schedule 5.1 - Disclosed Existing Indebtedness
At this time, the Company has no existing indebtedness
PCD Inc.
Borrower's Documents
Schedule 5.1 - Disclosed Liens
At this time, the Company knows of no Liens.
EXHIBIT 10.8
THIRD AMENDMENT TO LEASE AGREEMENT
DATED JUNE 25, 1996
This Third Amendment made as of the 25th day of June, 1996 by and between
CENTENNIAL PARK ASSOCIATES LIMITED PARTNERSHIP III, a Massachusetts limited
partnership, as Landlord, and PCD INC. (formerly Precision Connector Designs,
Inc.), a Massachusetts corporation, as Tenant.
Reference is made to a Lease between the Trustees of Centennial Park
Associates Realty Trust II, Landlord's predecessor in title to the subject
property, and Tenant dated June 29, 1987 (the "Original Lease"), as amended by
a First Amendment between said Trustees and Tenant dated August 22, 1989 (the
"First Amendment"), and by a Second Amendment between Landlord and Tenant
dated July 15, 1993 (the "Second Amendment", and the Original Lease as amended
by the First Amendment and the Second Amendment, the "Lease") for
approximately 50,263 square feet of space (the "Demised Premises") in
thebuilding commonly known as and numbered Two Technology Drive, Peabody,
Massachusetts (the "Building"), all as more particularly described in the
Lease. A Notice of the Lease is recorded with Essex South Registry of Deeds
in Book 10624, Page 38. A Notice of Amended Lease taking account of the First
Amendment and the Second Amendment is recorded with said Registry in Book
12045, Page 141. The Term of the Lease is currently scheduled to expire on
August 31, 1998. All capitalized terms used in this Amendment which are not
defined herein and which are not otherwise proper nouns shall be defined as
set forth in the Lease.
WHEREAS, the Demised Premises under the Lease originally consisted of
40,000 square feet in the Building;
WHEREAS, the Second Amendment added Additional Space A containing 4,994
square feet and Additional Space B containing 5,269 square feet to the Demised
Premises, increasing the size of the Demised Premises to the current 50,263
square feet;
WHEREAS, the area in the Building shown as Additional Space C on Exhibit AA
attached hereto, containing approximately 10,000 square feet and being the
balance of the Building not presently included in the Demised Premises
("Additional Space C"), is expected to become available on December 1, 1997
upon the expiration of the current lease of such space between Landlord and
Analogic Corporation;
WHEREAS, Landlord and Tenant wish to add Additional Space C to the Demised
Premises when it becomes available;
WHEREAS, Landlord and Tenant further wish to extend the Term of the Lease
for five (5) years beyond the current expiration date;
PAGE 1 OF 6
WHEREAS, Landlord and Tenant have agreed to modify the Basic Annual Rent
under the Lease for the period from July 1, 1996 through August 31, 1998 (the
currently scheduled Term expiration date);
WHEREAS, Landlord and Tenant have further agreed upon the Basic Annual Rent
to apply during the additional five years being added to the Term by this
Amendment;
WHEREAS, after Additional Space C becomes a part of the Demised Premises
Tenant intends to make certain additions to the HVAC equipment (as
distinguished from HVAC distribution) to service 10,000 square feet of the
Demised Premises, and Landlord has agreed to provide Tenant with a reduction
of Basic Annual Rent for the cost to Tenant of said improvements; and
WHEREAS, Centennial Park Associates, Inc. has succeeded Stanton L. Black as
General Partner of Centennial Park Associates Limited Partnership III and is
accordingly executing this Amendment on behalf of said limited partnership in
place of said Black, who executed the aforesaid Second Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, and also in consideration of the mutual covenants and
conditions set forth below, Landlord and Tenant now hereby further amend the
Lease as follows:
1. CLARIFICATION OF DEFINITION OF "BUILDING". The Original Lease made a
distinction between a 40,000 square foot structure defined as the "Building"
and an attached but distinct 20,000 square foot structure defined as the
"Expansion Space", all constructed by Landlord. The original Demised Premises
comprised the Building. What later became Additional Space A and Additional
Space B under the Second Amendment and what has now become Additional Space C
under this Amendment are located in and together comprise the entire Expansion
Space. The distinction between the Building and the Expansion Space was
previously relevant because the original Demised Premises was limited to the
Building. However, since the Second Amendment added portions of the Expansion
Space to the Demised Premises and since this Amendment is adding the balance
of such space, the term "Building" as used in the Lease shall henceforth mean
both the Building and the Expansion Space together, i.e. the entire 60,000
square foot structure currently on the Lot.
2. EXPANSION OF DEMISED PREMISES. Effective December 1, 1997, the Demised
Premises shall be expanded to include Additional Space C. Accordingly,
beginning on said date and continuing through the end of the Lease Term (as
extended hereby), the Demised Premises shall contain 60,000 square feet (the
50,263 square feet currently in the Demised Premises plus the approximately
10,000 square feet in Additional Space C, Landlord and Tenant hereby agreeing
to round off the area of the Demised Premises at 60,000 square feet and to use
such figure for all relevant calculations) and comprise all of the rentable
space currently in the Building. All of the terms and conditions of the Lease
(as amended hereby) shall apply to Additional Space C,
PAGE 2 OF 6
just as they apply to the rest of the Demised Premises. The Demised Premises
shall at all times include the rights with respect to the Lot set forth in the
Lease.
3. EXTENSION OF TERM. The Term of the Lease is hereby extended for five
(5) years past the currently scheduled expiration date of August 31, 1998, so
that it shall now instead expire on August 31, 2003.
4. ADJUSTMENT OF BASIC ANNUAL RENT. The amounts payable as Basic Annual
Rent under the Lease for the period July 1, 1996 through the end of the Term
(as extended hereby) shall be as set forth in the rent schedule attached
hereto as Exhibit BB. The Basic Annual Rent set forth in said Exhibit BB
shall supersede and replace the Basic Annual Rent presently set forth in the
Lease for such period. There shall be no increases to the Basic Annual Rent
for any changes in the Cost of Living or the Consumer Price Index.
5. ADJUSTMENT OF PRO RATE SHARES. Beginning December 1, 1997 and
continuing for the balance of the Term (as extended hereby), Tenant's pro rata
share with respect to the items below shall be as follows:
(a) REAL ESTATE TAXES: Tenant's pro rata share of real estate taxes on
the Building and Lot payable by Tenant under to Sections 5.1 and 13.2 of the
Lease shall be 100%.
(b) CERTAIN REIMBURSABLE EXPENSES: In the event that Tenant should be
obligated to reimburse Landlord for any services or work, such as snowplowing,
pursuant to Section 5.2(a) of the Lease, then in determining the fraction
allocable to Tenant in accordance with said Section (i) the numerator shall be
60,000 square feet and (ii) the denominator shall be the total rentable floor
area of all buildings having the benefit of such services.
6. DELIVERY OF ADDITIONAL SPACE C. Landlord shall deliver Additional Space
C to Tenant free and clear of all other tenants and occupants, with all of any
previous tenant's or occupant's property removed and otherwise in the same
condition as such space is on the date hereof, reasonable wear and tear
excepted, by December 1, 1997. If for any reason Landlord shall fail to do
so, then (a) Landlord shall make best efforts to remove any prior tenant or
occupant from Additional Space C, to put such space in the required condition
and to deliver such space to Tenant as soon as after said date as possible,
(b) the Basic Annual Rent set forth in Section 4 and Exhibit BB hereof,
Tenant's pro rata cost shares set forth in Section 5 hereof and any other
charges due from Tenant under the Lease shall be reduced by the proportionate
amount allocable to Additional Space C for the period from December 1, 1997
until Landlord so delivers such space, (c) Tenant shall not have any other
obligations with respect to Additional Space C until Landlord so delivers such
space and (d) Tenant shall have the right to enforce Landlord's obligation so
to deliver Additional Space C by appropriate action or actions against
Landlord in equity. Tenant shall not under any circumstances have any
obligations with respect to Additional
PAGE 3 OF 6
Space C until such time as such space is delivered by Landlord and added to
the Demised Premises as provided herein. Notwithstanding that Landlord is to
deliver Additional Space C "in the same condition as such space is in on the
date hereof", Landlord shall still perform the same ongoing maintenance,
repairs, work and obligations with respect to such space as Landlord is
required to perform with respect to the rest of the Building under the terms
of the Lease.
7. REDUCTION IN BASIC ANNUAL RENT. If Tenant installs additional HVAC
equipment to serve Additional Space C or any other 10,000 square foot area of
the Demised Premises, then provided that said improvements are completed and
reasonable evidence of the completion and cost of the improvements is
submitted to Landlord by the later of (a) December 1, 1998 or (b) one year
after the date that Landlord delivers Additional Space C to Tenant, the Basic
Annual Rent otherwise due from Tenant shall be reduced, beginning with the
first monthly payment due after such improvements have been substantially
completed and continuing for the balance of the Term (as extended hereby), by
an amount per month equal to (x) the cost of such improvements up to a maximum
of $60,000, divided by (y) the number of months remaining in the Term at the
time such reduction commences. Such reduction shall be in addition to the
adjustments to Basic Annual Rent effected by Section 4 and Exhibit BB hereto.
8. HAZARDOUS MATERIALS. Tenant shall not in any manner be liable for,
required to clean up, responsible for compliance with applicable laws and
regulations regarding, obligated to pay or bear any costs or expenses with
respect to, nor in any other manner be responsible for any hazardous materials
(as defined in Section 9.2(b) of the Lease and further including oil,
petroleum products, asbestos, urea formaldehyde foam insulation, materials
containing lead, radon and flammable, combustible or explosive materials)
left, abandoned, brought, generated, stored, used, located, installed,
disposed of, spilled, released, emitted or discharged on, in or from
Additional Space C by any prior tenant or occupant, Landlord or anyone besides
Tenant or Tenant's employees, servants, agents, contractors, licensees,
customers and invitees (each a "Tenant Party" and collectively the "Tenant
Parties"). Without limiting the foregoing, Tenant may at the time Landlord
delivers Additional Space C have such space and the Building and Lot inspected
and tested by a qualified environmental firm. If such inspection and testing
reveals the presence of any hazardous materials (other than hazardous
materials released or discharged by Tenant or a Tenant Party), then Tenant may
by written notice to Landlord refuse to accept delivery of Additional Space C,
in which event (a) such space shall not be added to the Demised Premises, (b)
the Basic Annual Rent set forth in Section 4 and Exhibit BB hereof, Tenant's
pro-rata cost shares set forth in Section 5 hereof and any other charges due
from Tenant under Lease shall be reduced by the proportionate amount allocable
to Additional Space C for the balance of the Term (as extended hereby) and
(c)Tenant shall not have any obligations with respect to Additional Space C.
Nothing in this Section 8 shall be deemed to limit Paragraph 10 of the Second
Amendment.
PAGE 4 OF 6
9. LANDLORD'S CONSENT TO INSTALLMENTS, ALTERATIONS AND ADDITIONS. Should
Landlord's consent be required under Section 9.2(c) of the Lease for any
installations, alterations or additions which Tenant may propose to make to
Additional Space C, Landlord shall not unreasonably withhold or delay such
consent.
10. NOTICE OF AMENDED LEASE. At the request of either party, Landlord and
Tenant shall mutually execute and deliver a further Notice of Amended Lease
pursuant to Massachusetts General Laws Chapter 183, Section 4 with respect to
this Amendment, and shall record such notice in Essex South Registry of
Deeds. In all other respects, the Lease is hereby ratified, confirmed and,
approved and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed these presents as a
sealed instrument as of the day and year first above written.
LANDLORD:
CENTENNIAL PARK ASSOCIATES
LIMITED PARTNERSHIP III
By its General Partner:
CENTENNIAL PARK ASSOCIATES, INC.,
By: /s/ Morton E. Ruderman
-----------------------------
Morton E. Ruderman, President
TENANT:
PCD INC.
By: /s/ John L. Dwight
-----------------------------
John L. Dwight, President
PAGE 5 OF 6
EXHIBIT BB
To Lease between Centennial Park
Associates Limited Partnership III and
PCD Inc.
Basic Annual Rent
-----------------
July 1, 1996 - August 31, 2003
------------------------------
Annual Annual
Square Footage Rate Per Rental Monthly
Period In Premises Square Foot Rate Rent
- --------------- -------------- ----------- ----------- ---------
7/1/96-8/31/96 50,263 $7.10 $356,867.30 $29,738.94
9/1/96-8/31/97 50,263 $7.20 $361,893.60 $30,157.80
9/1/97-11/30/97 50,263 $7.30 $366,919.90 $30,576.66
12/1/97-8/31/98 60,000 $7.30 $438,000.00 $36,500.00
9/1/98-8/31/99 60,000 $7.40 $444,000.00 $37,000.00
9/1/99-8/31/00 60,000 $7.50 $450,000.00 $37,500.00
9/1/00-8/31/01 60,000 $7.60 $456,000.00 $38,000.00
9/1/01-8/31/02 60,000 $7.70 $462,000.00 $38,500.00
9/1/02-8/31/03 60,000 $7.80 $468,000.00 $39,000.00
PAGE 6 OF 6
EXHIBIT 10.9
______________________________
Name of Optionee
PCD INC.
INCENTIVE STOCK OPTION AGREEMENT
(PCD 1996 Stock Plan)
THIS AGREEMENT is entered into by and between PCD Inc., a Massachusetts
corporation with its principal office at Two Technology Drive, Centennial
Park, Peabody, Massachusetts 01960-7977 (hereinafter the "Company"), and the
undersigned employee of the Company (hereinafter the "Optionee").
WHEREAS, the Optionee renders important services to the Company, and
the Company desires to grant an incentive stock option to the Optionee;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto hereby agree as follows:
1. GRANT, EXERCISABILITY AND TERM OF OPTION.
(a) The Company hereby grants to the Optionee pursuant to the PCD 1996
Stock Plan (the "Plan") the option to purchase from the Company upon the terms
and conditions hereinafter set forth the number of shares ("Shares") of the
$0.01 par value common stock ("Common Stock") of the Company set forth on the
signature page below at the purchase price per Share so set forth (the "Option
Price"). The date of grant of this option is the date set forth at the
execution page of this Agreement as the "Option Date."
(b) Subject to the provisions of Section 5 hereof, this option is
exercisable in full or in part and shall remain exercisable until it expires
on the tenth anniversary of the Option Date, unless the option is sooner
terminated as hereinafter specified. Only whole Shares may be purchased
pursuant to this option.
2. CONDITIONS AND LIMITATIONS.
(a) The option is granted on the condition that the purchase of shares
hereunder shall be for investment purposes and not with a view to resale or
distribution, except that such condition shall be inoperative if the offering
of Shares subject to the
1
option is registered under the Securities Act of 1933, as amended, or if in
the opinion of counsel for the Company such Shares may be resold without
registration. At the time of the exercise of the option or any installment
thereof, the Optionee will execute such further agreements as the Company may
require to implement the foregoing condition and to acknowledge the Optionee's
familiarity with restrictions on the resale of the Shares under applicable
securities laws, and the Company may stamp such legend on the certificate
representing the Shares as may be necessary or appropriate in light of the
foregoing condition.
(b) The Company will furnish upon request of the Optionee copies of the
articles of organization of the Company, as amended, and by-laws of the
Company, as amended, and such publicly available financial and other
information concerning the Company and its business and prospects as may be
reasonably requested by the Optionee in connection with exercise of this
option.
(c) The option shall not be transferable otherwise than by will or by the
laws of descent and distribution, and except as provided in Section 4 the
option shall be exercisable during the lifetime of the Optionee by the
Optionee only. Notwithstanding the foregoing, however, if the Optionee is
determined to be mentally incompetent and a guardian or conservator (or other
similar person) is appointed by a court of competent jurisdiction to manage
the Optionee's affairs, the guardian or conservator (or other similar person)
may exercise the option on behalf of the Optionee, provided that such exercise
is made within the time limits prescribed herein.
(d) The option granted in this Agreement is subject to the terms,
conditions and definitions of the Plan, a copy of which is attached hereto.
To the extent that the terms, conditions and definitions of this Agreement are
inconsistent with those of the Plan, those of this Agreement shall govern.
The Optionee hereby accepts this option subject to all such provisions of the
Plan and agrees that all decisions under, and interpretations of, such
provisions of the Plan by the Board of Directors of the Company (the "Board")
or the Committee, as defined in the Plan, shall be final, binding and
conclusive upon the Optionee and his or her heirs.
(e) In the event that the Company, upon the advice of counsel, deems it
necessary to list upon official notice of issuance any shares to be issued
pursuant to the Plan on a national securities exchange or to register under
the Securities Act of 1933 or other applicable federal or state statute any
shares to be issued pursuant to the Plan, or to qualify any such shares for
exemption from the registration requirements of the
2
Securities Act of 1933 under the rules and regulations of the Securities and
Exchange Commission or for similar exemption under state law, then the Company
shall notify the Optionee to that effect and no Shares shall be issued until
such registration, listing or exemption has been obtained. The Company shall
make prompt application for any such registration, listing or exemption
pursuant to federal or state law or rules of such securities exchange which it
deems necessary and shall make reasonable efforts to cause such registration,
listing, or exemption to become and remain effective.
3. EXERCISE OF OPTION; WITHHOLDING TAXES.
(a) Written notice of the exercise of the option or any installment
thereof shall be given to the Company specifying the number of shares for
which the option is exercised and accompanied by payment in full of the Option
Price. Payment shall be made (a) in cash, (b) by check, (c) by Immediate
Sales Proceeds, as defined below, (d) by delivery and assignment to the
Company of shares of Company stock (provided that such shares have been held
by the Optionee for at least 6 months before such delivery) owned by the
Optionee (which shares have a Market Price not less than the Option Price), or
(e) by any combination of the foregoing. As used herein, "Market Price" shall
mean the closing price of the Common Stock as reported on the Nasdaq National
Market for the relevant date (or, if such date is not a trading date or if no
trades took place on such date, then such closing price for the last previous
trading date or the last previous date on which a trade occurred, as the case
may be); provided that if the Common Stock is no longer traded on the Nasdaq
National Market on the relevant date, then the Market Price as of such date
shall be determined by the Committee. Notwithstanding the foregoing, this
option may not be exercised by delivery and assignment to the Company of
shares of Company stock to the extent that such delivery and assignment would
constitute a violation of the provisions of any law, or related regulation or
rule, or any agreement or Company policy, restricting the transfer or
redemption of the Company's stock. As used herein, the term "Immediate Sales
Proceeds" shall mean the assignment in form acceptable to the Company of the
proceeds of a sale of the Shares acquired on the exercise of this option
pursuant to a procedure approved by the Company. The Company reserves the
right to decline to approve any such procedure in the Company's sole and absolut
e discretion.
(b) The Company's obligation to deliver Shares upon exercise of an option
shall be subject to the Optionee's satisfaction of all applicable federal,
state and local income and employment tax withholding obligations. Without
limiting the generality of the foregoing, the Company shall have the right to
deduct from
3
payments of any kind otherwise due to the Optionee any federal, state or local
taxes of any kind required by law to be withheld with respect to any Shares
issued upon exercise of the option.
4. TERMINATION OF OPTION.
In the event that the Optionee ceases to be employed by the Company or any
parent or subsidiary of the Company (collectively, the "Company Group") at any
time prior to the exercise of this option in full, this option shall terminate
according to the following provisions:
(a) if the Optionee ceases to be employed for any reason other than death
or disability (as defined in Section 22(e)(3) of the Internal Revenue Code of
1986, as amended (the "Code")), the Optionee may at any time within a period
of one (1) month after the date of such cessation of employment exercise the
option to the extent that the option was exercisable on the date of such
cessation;
(b) if the Optionee ceases to be employed because of disability (as defined
in Section 22(e)(3) of the Code), the Optionee may at any time within a period
of six months after the date of such cessation of employment exercise the
option to the extent that the option was exercisable on the date of such
cessation; and
(c) if the Optionee ceases to be employed because of death, the option, to
the extent that the Optionee was entitled to exercise it on the date of death,
may be exercised within a period of six months after the Optionee's death by
the person or persons to whom the Optionee's rights under the option shall
pass by will or by the laws of descent and distribution; provided, however,
that this option may not be exercised to any extent by anyone after the date
of its expiration.
5. EXERCISABILITY OF OPTION.
So long as Optionee remains an employee of the Company, this Option may be
exercised only as follows:
[to be completed]
less the number of Shares as to which this Option has been exercised.
4
6. "MARKET STAND OFF" AGREEMENT.
(a) The Optionee, if requested by the Company or any managing underwriter
of the Company's securities, shall agree not to sell or otherwise transfer or
dispose of any Shares of the Company held by the Optionee during the period up
to 180 days, as requested by the Company or such underwriter, following the
effective date of a registration statement of the Company filed under the
Securities Act of 1933 (except for any Company securities held by the Optionee
sold pursuant to such registration statement). Such agreement shall be in
writing in form satisfactory to the Company or such underwriter. The Company
may impose stop-transfer instructions with respect to the Shares subject to
the foregoing restriction until the end of such period.
(b) The provisions contained in this Section 6 shall not apply to any
transfer of Shares to or in trust for the sole benefit of the Optionee, or any
member of the immediate family of the Optionee, including for this purpose the
undersigned's spouse, parents, parents-in-law, issue, nephews, nieces,
brothers, brothers-in-law, sisters, sisters-in-law, children-in-law and
grandchildren-in-law, provided that such transferee agrees in writing to be
subject to the terms of Section 6.
7. NOTICE OF DISPOSITION OF SHARES.
The Optionee hereby agrees to notify the Company promptly if the Optionee
disposes of any Shares within one (1) year after the date the Optionee
exercises all or part of this option or within two (2) years after the Option
Date. At any time during the one or two year periods set forth above, the
Company may place a legend on any certificate representing Shares requesting
the transfer agent for the Company's stock to notify the Company of any such
transfer, and the Optionee hereby authorizes such transfer agent so to notify
the Company (whether or not such Optionee's stock certificates have been so
legended). The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence. Optionees are urged to review
the description of the Plan provided by the Company for a more detailed
discussion of the Federal tax consequences of such a disposition under current
law. Additionally, if the Optionee is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the rules and regulations
promulgated thereunder, any disposition by the Optionee of the Optioned Shares
purchased under the Option within six months of the date of grant may deprive
the Optionee of the protection from 16(b) liability which the provisions of
the Plan seek to provide.
5
8. $100,000 LIMITATION.
Under Section 422 of the Code, the aggregate Market Price of the shares
with respect to which incentive stock options granted by any member of the
Company Group first become exercisable by an employee during any calendar year
cannot exceed $100,000 (the "$100,000 limitation"). To the extent, if any,
that the $100,000 limitation is exceeded by reason of the grant of this
option, this option shall be deemed, to the maximum extent possible, if any,
to be an incentive stock option, and the portion of this option that is
exercisable for shares in excess of the $100,000 limitation shall be treated
as a non-qualified option pursuant to Section 422(d) of the Code.
9. NOTICES.
All notices or demands given pursuant to this Agreement shall be in writing
and shall be deemed to have been sufficiently given if delivered by hand or
sent by certified or registered mail, postage prepaid, addressed to the
Company at its principal office or to the Optionee (or the Optionee's legal
representatives) at the address stated in the Optionee's (or their) notice or
at the Optionee's address appearing on the books of the Company.
10. NO EMPLOYMENT COMMITMENT; TAX TREATMENT.
Nothing herein contained shall be deemed to be or constitute an agreement
or commitment by the Company or any other member of the Company Group to
continue the Optionee in its employ. Although the option granted hereunder is
intended to qualify as an incentive stock option under Section 422 of the
Code, the Company makes no representation about the tax treatment to the
Optionee with respect to receipt or exercise of the option or acquiring,
holding or disposing of the Shares, and the Optionee represents that the
Optionee has had the opportunity to discuss such treatment (including the
possible application of Section 83 of the Code) with the Optionee's tax
adviser. The Optionee shall have no rights as a stockholder with respect to
the shares subject to the option until the exercise of the option and the
issuance of a stock certificate for the Shares with respect to which the
option shall have been exercised.
11. ADJUSTMENTS.
Upon the occurrence of any of the following events, after the Option Date,
a Optionee's rights with respect to this Option shall be adjusted as
hereinafter provided:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller
6
number of shares or if the Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of this Option shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall be
made in the purchase price per share to reflect such subdivision, combination
or stock dividend.
(b) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity in a merger or other reorganization in which the
holders of the outstanding voting stock of the Company immediately preceding
the consummation of such event, shall, immediately following such event, hold,
as a group, less than a majority of the voting securities of the surviving or
successor entity, or in the event of a sale of all or substantially all of the
Company's assets or otherwise (each, an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to this Option, if still
outstanding, either (i) make appropriate provision for the continuation of
this Option by substituting on an equitable basis for the shares then subject
to this Option either (a) the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition, (b)
shares of stock of the surviving or successor corporation or (c) such other
securities as the Successor Board deems appropriate, the fair market value of
which shall not materially exceed the fair market value of the shares of
Common Stock subject to this Option immediately preceding the Acquisition; or
(ii) upon written notice to the Optionee, provide that this Option must be
exercised, to the extent then exercisable or to be exercisable as a result of
the Acquisition, within a specified number of days of the date of such notice,
at the end of which period this Option shall terminate; or (iii) terminate
this Option in exchange for a cash payment equal to the excess of the fair
market value of the shares subject to this Option (to the extent then exercisabl
e or to be exercisable as a result of the Acquisition) over the exercise price
thereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
subparagraph (b) above) pursuant to which securities of the Company or of
another corporation are issued with respect to the outstanding shares of
Common Stock, the Optionee upon exercising this Option shall be entitled to
receive for the purchase price paid upon such exercise the securities he or
she would have received if he or she had exercised such this Option prior to
such recapitalization or reorganization.
7
(d) MODIFICATION OF INCENTIVE STOCK OPTIONS. Notwithstanding the
foregoing, any adjustments made pursuant to subparagraphs (a), (b) or (c) with
respect to this Option shall be made only after the Committee, after
consulting with counsel for the Company, determines whether such adjustments
would constitute a "modification" (as that term in defined in Section 424 of
the Code) of such this Option or would cause any adverse tax consequences for
the Optionee. If the Committee determines that such adjustments made with
respect to this Option would constitute a modification of this Option or would
cause adverse tax consequences to the holders, it may refrain from making such
adjustments.
(e) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, this Option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
12. MISCELLANEOUS.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts. This
Agreement shall be binding upon and inure to the benefit of the heirs and
legal representatives of the Optionee and the successors and assigns of the
Company, but shall not be assigned by the Optionee at any time without the
prior written permission of the Company, and any such attempted assignment
shall be void.
IN WITNESS WHEREOF the parties have executed this Stock Option Agreement as
of the Option Date.
_____________________________
Signature of Optionee
_____________________________
Print Name of Optionee
________________________________________________________________
Address
_____________________________
Option Date
8
_____________________________
Vesting Commencement Date
_____________________________
No. of Shares
_____________________________
Option Price
Accepted, as the issuer of the Shares, in accordance with the terms of the
foregoing Option Agreement as of the foregoing Option Date.
PCD INC.
By: ______________________________
President
9
______________________________
Name of Optionee
PCD INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
(PCD 1996 Stock Plan)
THIS AGREEMENT is entered into by and between PCD Inc., a Massachusetts
corporation with its principal office at Two Technology Drive, Centennial
Park, Peabody, Massachusetts 01960-7977 (hereinafter the "Company"), and the
undersigned consultant of the Company (hereinafter the "Optionee").
WHEREAS, the Optionee renders important services to the Company (such
services to be collectively herein referred to as "Service"), and the Company
desires to grant a non-qualified stock option to the Optionee;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
herein contained, the parties hereto hereby agree as follows:
1. GRANT, EXERCISABILITY AND TERM OF OPTION.
(a) The Company hereby grants to the Optionee pursuant to the PCD 1996
Stock Plan (the "Plan") the option to purchase from the Company upon the terms
and conditions hereinafter set forth the number of shares ("Shares") of the
$0.01 par value common stock ("Common Stock") of the Company set forth on the
signature page below at the purchase price per Share so set forth (the "Option
Price"). The date of grant of this option is the date set forth at the
execution page of this Agreement as the "Option Date."
(b) Subject to the provisions of Section 5 hereof, this option is
exercisable in full or in part and shall remain exercisable until it expires
on the tenth anniversary of the Option Date, unless the option is sooner
terminated as hereinafter specified. Only whole Shares may be purchased
pursuant to this option.
2. CONDITIONS AND LIMITATIONS.
1
(a) The option is granted on the condition that the purchase of shares
hereunder shall be for investment purposes and not with a view to resale or
distribution, except that such condition shall be inoperative if the offering
of Shares subject to the option is registered under the Securities Act of
1933, as amended, or if in the opinion of counsel for the Company such Shares
may be resold without registration. At the time of the exercise of the option
or any installment thereof, the Optionee will execute such further agreements
as the Company may require to implement the foregoing condition and to
acknowledge the Optionee's familiarity with restrictions on the resale of the
Shares under applicable securities laws, and the Company may stamp such legend
on the certificate representing the Shares as may be necessary or appropriate
in light of the foregoing condition.
(b) The Company will furnish upon request of the Optionee copies of the
articles of organization of the Company, as amended, and by-laws of the
Company, as amended, and such publicly available financial and other
information concerning the Company and its business and prospects as may be
reasonably requested by the Optionee in connection with exercise of this
option.
(c) The option shall not be transferable otherwise than by will or by the
laws of descent and distribution, and except as provided in Section 4 the
option shall be exercisable during the lifetime of the Optionee by the
Optionee only. Notwithstanding the foregoing, however, if the Optionee is
determined to be mentally incompetent and a guardian or conservator (or other
similar person) is appointed by a court of competent jurisdiction to manage
the Optionee's affairs, the guardian or conservator (or other similar person)
may exercise the option on behalf of the Optionee, provided that such exercise
is made within the time limits prescribed herein.
(d) The option granted in this Agreement is subject to the terms,
conditions and definitions of the Plan, a copy of which is attached hereto.
To the extent that the terms, conditions and definitions of this Agreement are
inconsistent with those of the Plan, those of this Agreement shall govern.
The Optionee hereby accepts this option subject to all such provisions of the
Plan and agrees that all decisions under, and interpretations of, such
provisions of the Plan by the Board of Directors of the Company (the "Board")
or the Committee, as defined in the Plan, shall be final, binding and
conclusive upon the Optionee and his or her heirs.
(e) In the event that the Company, upon the advice of counsel, deems it
necessary to list upon official notice of issuance any shares to be issued
pursuant to the Plan on a
2
national securities exchange or to register under the Securities Act of 1933
or other applicable federal or state statute any shares to be issued pursuant
to the Plan, or to qualify any such shares for exemption from the registration
requirements of the Securities Act of 1933 under the rules and regulations of
the Securities and Exchange Commission or for similar exemption under state
law, then the Company shall notify the Optionee to that effect and no Shares
shall be issued until such registration, listing or exemption has been
obtained. The Company shall make prompt application for any such
registration, listing or exemption pursuant to federal or state law or rules
of such securities exchange which it deems necessary and shall make reasonable
efforts to cause such registration, listing, or exemption to become and remain
effective.
3. EXERCISE OF OPTION; WITHHOLDING TAXES.
(a) Written notice of the exercise of the option or any installment
thereof shall be given to the Company specifying the number of shares for
which the option is exercised and accompanied by payment in full of the Option
Price. Payment shall be made (a) in cash, (b) by check, (c) by Immediate
Sales Proceeds, as defined below, (d) by delivery and assignment to the
Company of shares of Company stock (provided that such shares have been held
by the Optionee for at least 6 months before such delivery) owned by the
Optionee (which shares have a Market Price not less than the Option Price), or
(e) by any combination of the foregoing. As used herein, "Market Price" shall
mean the closing price of the Common Stock as reported on the Nasdaq National
Market for the relevant date (or, if such date is not a trading date or if no
trades took place on such date, then such closing price for the last previous
trading date or the last previous date on which a trade occurred, as the case
may be); provided that if the Common Stock is no longer traded on the Nasdaq
National Market on the relevant date, then the Market Price as of such date
shall be determined by the Committee. Notwithstanding the foregoing, this
option may not be exercised by delivery and assignment to the Company of
shares of Company stock to the extent that such delivery and assignment would
constitute a violation of the provisions of any law, or related regulation or
rule, or any agreement or Company policy, restricting the transfer or
redemption of the Company's stock. As used herein, the term "Immediate Sales
Proceeds" shall mean the assignment in form acceptable to the Company of the
proceeds of a sale of the Shares acquired on the exercise of this option
pursuant to a procedure approved by the Company. The Company reserves the
right to decline to approve any such procedure in the Company's sole and
absolute discretion.
(b) The Company's obligation to deliver Shares upon exercise
3
of an option shall be subject to the Optionee's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations.
Without limiting the generality of the foregoing, the Company shall have the
right to deduct from payments of any kind otherwise due to the Optionee any
federal, state or local taxes of any kind required by law to be withheld with
respect to any Shares issued upon exercise of the option.
4. TERMINATION OF OPTION.
In the event that the Optionee ceases to perform Service at any time prior
to the exercise of this option in full, this option shall terminate according
to the following provisions:
(a) If the Optionee ceases to perform Service for any reason other than
death or disability (as defined in Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended (the "Code")), the Optionee may at any time within a
period of one (1) month after the date of such cessation of employment
exercise the option to the extent that the option was exercisable on the date
of such cessation;
(b) If the Optionee ceases to perform Service because of disability (as
defined in Section 22(e)(3) of the Code), the Optionee may at any time within
a period of six months after the date of such cessation of employment exercise
the option to the extent that the option was exercisable on the date of such
cessation; and
(c) If the Optionee ceases to perform Service because of death, the
option, to the extent that the Optionee was entitled to exercise it on the
date of death, may be exercised within a period of six months after the
Optionee's death by the person or persons to whom the Optionee's rights under
the option shall pass by will or by the laws of descent and distribution;
provided, however, that this option may not be exercised to any extent by
anyone after the date of its expiration.
5. EXERCISABILITY OF OPTION.
So long as Optionee performs Service, this Option may be exercised only as
follows:
[to be completed]
less the number of Shares as to which this Option has been exercised.
4
6. "MARKET STAND OFF" AGREEMENT.
(a) The Optionee, if requested by the Company or any managing underwriter
of the Company's securities, shall agree not to sell or otherwise transfer or
dispose of any Shares of the Company held by the Optionee during the period up
to 180 days, as requested by the Company or such underwriter, following the
effective date of a registration statement of the Company filed under the
Securities Act of 1933 (except for any Company securities held by the Optionee
sold pursuant to such registration statement). Such agreement shall be in
writing in form satisfactory to the Company or such underwriter. The Company
may impose stop-transfer instructions with respect to the Shares subject to
the foregoing restriction until the end of such period.
(b) The provisions contained in this Section 6 shall not apply to any
transfer of Shares to or in trust for the sole benefit of the Optionee, or any
member of the immediate family of the Optionee, including for this purpose the
undersigned's spouse, parents, parents-in-law, issue, nephews, nieces,
brothers, brothers-in-law, sisters, sisters-in-law, children-in-law and
grandchildren-in-law, provided that such transferee agrees in writing to be
subject to the terms of this Section 6.
7. NOTICES.
All notices or demands given pursuant to this Agreement shall be in writing
and shall be deemed to have been sufficiently given if delivered by hand or
sent by certified or registered mail, postage prepaid, addressed to the
Company at its principal office or to the Optionee (or the Optionee's legal
representatives) at the address stated in the Optionee's (or their) notice or
at the Optionee's address appearing on the books of the Company.
8. NO SERVICE COMMITMENT; TAX TREATMENT.
Nothing herein contained shall be deemed to be or constitute an agreement
or commitment by the Company or any other member of the Company Group to
continue the Optionee in Service. The option granted hereunder is not intended
to qualify as an incentive stock option under Section 422 of the Code, and the
Company makes no representation about the tax treatment to the Optionee with
respect to receipt or exercise of the option or acquiring, holding or
disposing of the Shares. The Optionee represents that the Optionee has had
the opportunity to discuss such treatment with the Optionee's tax adviser.
The Optionee shall have no rights as a stockholder with respect to the shares
subject to the option until the exercise of the option and the issuance of a
5
stock certificate for the Shares with respect to which the option shall have
been exercised.
9. ADJUSTMENTS.
Upon the occurrence of any of the following events, after the Option Date,
a Optionee's rights with respect to this Option shall be adjusted as
hereinafter provided:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or
if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of this Option shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase
price per share to reflect such subdivision, combination or stock dividend.
(b) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity in a merger or other reorganization in which the
holders of the outstanding voting stock of the Company immediately preceding
the consummation of such event, shall, immediately following such event, hold,
as a group, less than a majority of the voting securities of the surviving or
successor entity, or in the event of a sale of all or substantially all of the
Company's assets or otherwise (each, an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to this Option, if still
outstanding, either (i) make appropriate provision for the continuation of
this Option by substituting on an equitable basis for the shares then subject
to this Option either (a) the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition, (b)
shares of stock of the surviving or successor corporation or (c) such other
securities as the Successor Board deems appropriate, the fair market value of
which shall not materially exceed the fair market value of the shares of
Common Stock subject to this Option immediately preceding the Acquisition; or
(ii) upon written notice to the Optionee, provide that this Option must be
exercised, to the extent then exercisable or to be exercisable as a result of
the Acquisition, within a specified number of days of the date of such notice,
at the end of which period this Option shall terminate; or (iii) terminate
this Option in exchange for a cash payment equal to the excess of the fair
market value of the shares subject to this Option (to the extent then
exercisable or to be exercisable as a result of the Acquisition) over the
exercise price thereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a
6
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pursuant to which securities of the
Company or of another corporation are issued with respect to the outstanding
shares of Common Stock, the Optionee upon exercising this Option shall be
entitled to receive for the purchase price paid upon such exercise the
securities he or she would have received if he or she had exercised such this
Option prior to such recapitalization or reorganization.
(d) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, this Option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
10. MISCELLANEOUS.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts. This
Agreement shall be binding upon and inure to the benefit of the heirs and
legal representatives of the Optionee and the successors and assigns of the
Company, but shall not be assigned by the Optionee at any time without the
prior written permission of the Company, and any such attempted assignment
shall be void.
IN WITNESS WHEREOF the parties have executed this Stock Option Agreement as
of the Option Date.
______________________________
Signature of Optionee
______________________________
Print Name of Optionee
_______________________________________________________________
Address
______________________________
Option Date
______________________________
Vesting Commencement
7
______________________________
Date
______________________________
No. of Shares
______________________________
Option Price
Accepted, as the issuer of the Shares, in accordance with the terms of the
foregoing Option Agreement as of the foregoing Option Date.
PCD INC.
By: ______________________________
President
8
EXHIBIT 10.10
______________________________
Name of Optionee
PCD INC.
ELIGIBLE DIRECTOR OPTION AGREEMENT
THIS AGREEMENT is entered into by and between PCD Inc., a Massachusetts
corporation with its principal office at Two Technology Drive, Centennial
Park, Peabody, Massachusetts 01960-7977 (hereinafter the "Company"), and the
undersigned non-employee director of the Company (hereinafter the "Optionee").
WHEREAS, the Optionee renders important services to the Company (such
services to be collectively herein referred to as "Service"), and the Company
desires to grant a non-qualified stock option to the Optionee;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
herein contained, the parties hereto hereby agree as follows:
1. GRANT, EXERCISABILITY AND TERM OF OPTION.
(a) The Company hereby grants to the Optionee pursuant to the PCD 1996
Eligible Directors Stock Plan (the "Plan") the option to purchase from the
Company upon the terms and conditions hereinafter set forth the number of
shares ("Shares") of the $0.01 par value common stock ("Common Stock") of the
Company set forth on the signature page below at the purchase price per Share
so set forth (the "Option Price"). The date of grant of this option is the
date set forth at the execution page of this Agreement as the "Option Date."
(b) Subject to the provisions of Section 5 hereof, this option is
exercisable in full or in part and shall remain exercisable until it expires
on the tenth anniversary of the Option Date, unless the option is sooner
terminated as hereinafter specified. Only whole Shares may be purchased
pursuant to this option.
2. CONDITIONS AND LIMITATIONS.
(a) The option is granted on the condition that the purchase of shares
hereunder shall be for investment purposes and not with
1
a view to resale or distribution, except that such condition shall be
inoperative if the offering of Shares subject to the option is registered
under the Securities Act of 1933, as amended, or if in the opinion of counsel
for the Company such Shares may be resold without registration. At the time
of the exercise of the option or any installment thereof, the Optionee will
execute such further agreements as the Company may require to implement the
foregoing condition and to acknowledge the Optionee's familiarity with
restrictions on the resale of the Shares under applicable securities laws, and
the Company may stamp such legend on the certificate representing the Shares
as may be necessary or appropriate in light of the foregoing condition.
(b) The Company will furnish upon request of the Optionee copies of the
articles of organization of the Company, as amended, and by-laws of the
Company, as amended, and such publicly available financial and other
information concerning the Company and its business and prospects as may be
reasonably requested by the Optionee in connection with exercise of this
option.
(c) The option shall not be transferable otherwise than by will or by the
laws of descent and distribution, and except as provided in Section 4 the
option shall be exercisable during the lifetime of the Optionee by the
Optionee only. Notwithstanding the foregoing, however, if the Optionee is
determined to be mentally incompetent and a guardian or conservator (or other
similar person) is appointed by a court of competent jurisdiction to manage
the Optionee's affairs, the guardian or conservator (or other similar person)
may exercise the option on behalf of the Optionee, provided that such exercise
is made within the time limits prescribed herein.
(d) The option granted in this Agreement is subject to the terms,
conditions and definitions of the Plan, a copy of which is attached hereto.
To the extent that the terms, conditions and definitions of this Agreement are
inconsistent with those of the Plan, those of this Agreement shall govern.
The Optionee hereby accepts this option subject to all such provisions of the
Plan and agrees that all decisions under, and interpretations of, such
provisions of the Plan by the Board of Directors of the Company (the "Board")
or the Committee, as defined in the Plan, shall be final, binding and
conclusive upon the Optionee and his or her heirs.
(e) In the event that the Company, upon the advice of counsel, deems it
necessary to list upon official notice of issuance any shares to be issued
pursuant to the Plan on a national securities exchange or to register under
the Securities Act of 1933 or other applicable federal or state statute
any
2
shares to be issued pursuant to the Plan, or to qualify any such shares for
exemption from the registration requirements of the Securities Act of 1933
under the rules and regulations of the Securities and Exchange Commission or
for similar exemption under state law, then the Company shall notify the
Optionee to that effect and no Shares shall be issued until such registration,
listing or exemption has been obtained. The Company shall make prompt
application for any such registration, listing or exemption pursuant to
federal or state law or rules of such securities exchange which it deems
necessary and shall make reasonable efforts to cause such registration,
listing, or exemption to become and remain effective.
3. EXERCISE OF OPTION; WITHHOLDING TAXES.
(a) Written notice of the exercise of the option or any installment
thereof shall be given to the Company specifying the number of shares for
which the option is exercised and accompanied by payment in full of the Option
Price. Payment shall be made (a) in cash, (b) by check, (c) by Immediate
Sales Proceeds, as defined below, (d) by delivery and assignment to the
Company of shares of Company stock (provided that such shares have been held
by the Optionee for at least 6 months before such delivery) owned by the
Optionee (which shares have a Market Price not less than the Option Price), or
(e) by any combination of the foregoing. As used herein, "Market Price" shall
mean the closing price of the Common Stock as reported on the Nasdaq National
Market for the relevant date (or, if such date is not a trading date or if no
trades took place on such date, then such closing price for the last previous
trading date or the last previous date on which a trade occurred, as the case
may be); provided that if the Common Stock is no longer traded on the Nasdaq
National Market on the relevant date, then the Market Price as of such date
shall be determined by the Committee. Notwithstanding the foregoing, this
option may not be exercised by delivery and assignment to the Company of
shares of Company stock to the extent that such delivery and assignment would
constitute a violation of the provisions of any law, or related regulation or
rule, or any agreement or Company policy, restricting the transfer or
redemption of the Company's stock. As used herein, the term "Immediate Sales
Proceeds" shall mean the assignment in form acceptable to the Company of the
proceeds of a sale of the Shares acquired on the exercise of this option
pursuant to a procedure approved by the Company. The Company reserves the
right to decline to approve any such procedure in the Company's sole and
absolute discretion.
(b) The Company's obligation to deliver Shares upon exercise of an option
shall be subject to the Optionee's satisfaction of all applicable federal,
state and local income and employment tax
3
withholding obligations. Without limiting the generality of the foregoing,
the Company shall have the right to deduct from payments of any kind otherwise
due to the Optionee any federal, state or local taxes of any kind required by
law to be withheld with respect to any Shares issued upon exercise of the
option.
4. TERMINATION OF OPTION.
In the event that the Optionee ceases to be a director at any time prior to
the exercise of this option in full, this option shall terminate according to
the following provisions:
(a) If the Optionee ceases be a director for any reason other than death
or disability (as defined in Section 22(e)(3) of the Internal Revenue Code of
1986, as amended (the "Code")), the Optionee may at any time within a period
of twelve months after the date of such cessation of service as a director
exercise the option to the extent that the option was exercisable on the date
of such cessation;
(b) If the Optionee ceases to be a director because of disability (as
defined in Section 22(e)(3) of the Code), the Optionee may at any time within
a period of twelve months after the date of such cessation of service as a
director exercise the option to the extent that the option was exercisable on
the date of such cessation; and
(c) If the Optionee ceases to be a director because of death, the option,
to the extent that the Optionee was entitled to exercise it on the date of
death, may be exercised within a period of twelve months after the Optionee's
death by the person or persons to whom the Optionee's rights under the option
shall pass by will or by the laws of descent and distribution; provided,
however, that this option may not be exercised to any extent by anyone after
the date of its expiration.
5. EXERCISABILITY OF OPTION.
So long as Optionee is an Eligible Director, this Option may be exercised
only as follows:
[to be completed]
less the number of Shares as to which this Option has been exercised.
4
6. "MARKET STAND OFF" AGREEMENT.
(a) The Optionee, if requested by the Company or any managing underwriter
of the Company's securities, shall agree not to sell or otherwise transfer or
dispose of any Shares of the Company held by the Optionee during the period up
to 180 days, as requested by the Company or such underwriter, following the
effective date of a registration statement of the Company filed under the
Securities Act of 1933 (except for any Company securities held by the Optionee
sold pursuant to such registration statement). Such agreement shall be in
writing in form satisfactory to the Company or such underwriter. The Company
may impose stop-transfer instructions with respect to the Shares subject to
the foregoing restriction until the end of such period.
(b) The provisions contained in this Section 6 shall not apply to any
transfer of Shares to or in trust for the sole benefit of the Optionee, or any
member of the immediate family of the Optionee, including for this purpose the
undersigned's spouse, parents, parents-in-law, issue, nephews, nieces,
brothers, brothers-in-law, sisters, sisters-in-law, children-in-law and
grandchildren-in-law, provided that such transferee agrees in writing to be
subject to the terms of this Section 6.
7. NOTICES.
All notices or demands given pursuant to this Agreement shall be in writing
and shall be deemed to have been sufficiently given if delivered by hand or
sent by certified or registered mail, postage prepaid, addressed to the
Company at its principal office or to the Optionee (or the Optionee's legal
representatives) at the address stated in the Optionee's (or their) notice or
at the Optionee's address appearing on the books of the Company.
8. NO SERVICE COMMITMENT; TAX TREATMENT.
Nothing herein contained shall entitle the Optionee to remain a director of
PCD or an Eligible Director under the plan. The option granted hereunder is
not intended to qualify as an incentive stock option under Section 422 of the
Code, and the Company makes no representation about the tax treatment to the
Optionee with respect to receipt or exercise of the option or acquiring,
holding or disposing of the Shares. The Optionee represents that the Optionee
has had the opportunity to discuss such treatment with the Optionee's tax
adviser. The Optionee shall have no rights as a stockholder with respect to
the shares subject to the option until the exercise of the option and the
issuance of a stock certificate for the Shares with respect to which the
option shall have been exercised.
5
9. ADJUSTMENTS.
Upon the occurrence of any of the following events, after the Option Date,
a Eligible Director's rights with respect to this Option shall be adjusted as
hereinafter provided:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of this Option shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase
price per share to reflect such subdivision, combination or stock dividend.
(b) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity in a merger or other reorganization in which the
holders of the outstanding voting stock of the Company immediately preceding
the consummation of such event, shall, immediately following such event, hold,
as a group, less than a majority of the voting securities of the surviving or
successor entity, or in the event of a sale of all or substantially all of the
Company's assets or otherwise (each, an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to this Option, if still
outstanding, either (i) make appropriate provision for the continuation of
this Option by substituting on an equitable basis for the shares then subject
to this Option either (a) the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition, (b)
shares of stock of the surviving or successor corporation or (c) such other
securities as the Successor Board deems appropriate, the fair market value of
which shall not materially exceed the fair market value of the shares of
Common Stock subject to this Option immediately preceding the Acquisition; or
(ii) upon written notice to the Optionee, provide that this Option must be
exercised, to the extent then exercisable or to be exercisable as a result of
the Acquisition, within a specified number of days of the date of such notice,
at the end of which period this Option shall terminate; or (iii) terminate
this Option in exchange for a cash payment equal to the excess of the fair
market value of the shares subject to this Option (to the extent then
exercisable or to be exercisable as a result of the Acquisition) over the
exercise price thereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
subparagraph (b) above) pursuant to which securities of the Company or of
another corporation are issued with respect to the outstanding shares of
Common Stock,
6
the Optionee upon exercising this Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he or she would have
received if he or she had exercised such this Option prior to such
recapitalization or reorganization.
(d) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, this Option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
10. MISCELLANEOUS.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts. This
Agreement shall be binding upon and inure to the benefit of the heirs and
legal representatives of the Optionee and the successors and assigns of the
Company, but shall not be assigned by the Optionee at any time without the
prior written permission of the Company, and any such attempted assignment
shall be void.
IN WITNESS WHEREOF the parties have executed this Stock Option Agreement as
of the Option Date.
______________________________
Signature of Optionee
______________________________
Print Name of Optionee
_______________________________________________________________
Address
______________________________
Option Date
______________________________
Vesting Commencement
______________________________
Date
7
_____________________________
No. of Shares
_____________________________
Option Price
Accepted, as the issuer of the Shares, in accordance with the terms of the
foregoing Option Agreement as of the foregoing Option Date.
PCD INC.
By: _________________________
President
8
EXHIBIT 10.11
POWER OF ATTORNEY
Securities Act and Securities Exchange Act Filings
Know all by these presents, that the undersigned (in his capacity as
director) hereby constitutes and appoints C. Russel Hansen, Jr. signing
singly, his true and lawful attorney-in-fact to:
(1) execute for and on behalf of the undersigned (i) Forms 3,
4, 5, 13-D and/or 13-G and Annual Reports on Form 10-K and
Amendments thereto in accordance with the Securities
Exchange Act of 1934 and (ii) Registration Statements on
Form S-8 under the Securities Act of 1933 and the rules
thereunder;
(2) do and perform any and all acts for and on behalf of the
undersigned which may be necessary or desirable to complete
the execution of any such Form 3, 4, 5, 13-D, 13-G, 10-K or
S-8 and the timely filing of such form with the United
States Securities and Exchange Commission and any other
authority; and
(3) take any other action of any type whatsoever in connection
with the foregoing which, in the opinion of such attorney-
in-fact, may be of benefit to, in the best interest of, or
legally required by, the undersigned, it being understood
that the documents executed by such attorney-in-fact on
behalf of the undersigned pursuant to this Power of
Attorney shall be in such form and shall contain such terms
and condition as such attorney-in-fact may approve in his
discretion.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary and proper to be done in the exercise of any of the rights and
powers herein granted, as fully to all intents and purposes as such
attorney-in-fact might or could do if personally present, with full power of
substitution or revocation, hereby ratifying and confirming all that such
attorney-in-fact, or his substitute or substitutes, shall lawfully do or cause
to be done by virtue of this power of attorney and the rights and powers
herein granted. The undersigned acknowledges that the foregoing
attorney-in-fact, in serving in such capacity at the request of the
undersigned, is not assuming any of the undersigned's responsibilities to
comply with the Securities Act of 1933 or the Securities Exchange Act of 1934.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to
be executed as of this 24th day of March, 1997.
/s/ C. Wayne Griffith
----------------------
C. WAYNE GRIFFITH
POWER OF ATTORNEY
Securities Act and Securities Exchange Act Filings
Know all by these presents, that the undersigned (in his capacity as
director) hereby constitutes and appoints C. Russel Hansen, Jr. signing
singly, his true and lawful attorney-in-fact to:
(1) execute for and on behalf of the undersigned (i) Forms 3,
4, 5, 13-D and/or 13-G and Annual Reports on Form 10-K and
Amendments thereto in accordance with the Securities
Exchange Act of 1934 and (ii) Registration Statements on
Form S-8 under the Securities Act of 1933 and the rules
thereunder;
(2) do and perform any and all acts for and on behalf of the
undersigned which may be necessary or desirable to complete
the execution of any such Form 3, 4, 5, 13-D, 13-G, 10-K or
S-8 and the timely filing of such form with the United
States Securities and Exchange Commission and any other
authority; and
(3) take any other action of any type whatsoever in connection
with the foregoing which, in the opinion of such attorney-
in-fact, may be of benefit to, in the best interest of, or
legally required by, the undersigned, it being understood
that the documents executed by such attorney-in-fact on
behalf of the undersigned pursuant to this Power of
Attorney shall be in such form and shall contain such terms
and condition as such attorney-in-fact may approve in his
discretion.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary and proper to be done in the exercise of any of the rights and
powers herein granted, as fully to all intents and purposes as such
attorney-in-fact might or could do if personally present, with full power of
substitution or revocation, hereby ratifying and confirming all that such
attorney-in-fact, or his substitute or substitutes, shall lawfully do or cause
to be done by virtue of this power of attorney and the rights and powers
herein granted. The undersigned acknowledges that the foregoing
attorney-in-fact, in serving in such capacity at the request of the
undersigned, is not assuming any of the undersigned's responsibilities to
comply with the Securities Act of 1933 or the Securities Exchange Act of 1934.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to
be executed as of this 14th day of March, 1997.
/s/ Bruce E. Elmblad
----------------------
BRUCE E. ELMBLAD
POWER OF ATTORNEY
Securities Act and Securities Exchange Act Filings
Know all by these presents, that the undersigned (in his capacity as
director) hereby constitutes and appoints C. Russel Hansen, Jr. signing
singly, his true and lawful attorney-in-fact to:
(1) execute for and on behalf of the undersigned (i) Forms 3,
4, 5, 13-D and/or 13-G and Annual Reports on Form 10-K and
Amendments thereto in accordance with the Securities
Exchange Act of 1934 and (ii) Registration Statements on
Form S-8 under the Securities Act of 1933 and the rules
thereunder;
(2) do and perform any and all acts for and on behalf of the
undersigned which may be necessary or desirable to complete
the execution of any such Form 3, 4, 5, 13-D, 13-G, 10-K or
S-8 and the timely filing of such form with the United
States Securities and Exchange Commission and any other
authority; and
(3) take any other action of any type whatsoever in connection
with the foregoing which, in the opinion of such attorney-
in-fact, may be of benefit to, in the best interest of, or
legally required by, the undersigned, it being understood
that the documents executed by such attorney-in-fact on
behalf of the undersigned pursuant to this Power of
Attorney shall be in such form and shall contain such terms
and condition as such attorney-in-fact may approve in his
discretion.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary and proper to be done in the exercise of any of the rights and
powers herein granted, as fully to all intents and purposes as such
attorney-in-fact might or could do if personally present, with full power of
substitution or revocation, hereby ratifying and confirming all that such
attorney-in-fact, or his substitute or substitutes, shall lawfully do or cause
to be done by virtue of this power of attorney and the rights and powers
herein granted. The undersigned acknowledges that the foregoing
attorney-in-fact, in serving in such capacity at the request of the
undersigned, is not assuming any of the undersigned's responsibilities to
comply with the Securities Act of 1933 or the Securities Exchange Act of 1934.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to
be executed as of this 13th day of March, 1997.
/s/ Harold F. Faught
----------------------
Harold F. Faught
POWER OF ATTORNEY
Securities Act and Securities Exchange Act Filings
Know all by these presents, that the undersigned (in his capacity as
director) hereby constitutes and appoints C. Russel Hansen, Jr. signing
singly, his true and lawful attorney-in-fact to:
(1) execute for and on behalf of the undersigned (i) Forms 3,
4, 5, 13-D and/or 13-G and Annual Reports on Form 10-K and
Amendments thereto in accordance with the Securities
Exchange Act of 1934 and (ii) Registration Statements on
Form S-8 under the Securities Act of 1933 and the rules
thereunder;
(2) do and perform any and all acts for and on behalf of the
undersigned which may be necessary or desirable to complete
the execution of any such Form 3, 4, 5, 13-D, 13-G, 10-K or
S-8 and the timely filing of such form with the United
States Securities and Exchange Commission and any other
authority; and
(3) take any other action of any type whatsoever in connection
with the foregoing which, in the opinion of such attorney-
in-fact, may be of benefit to, in the best interest of, or
legally required by, the undersigned, it being understood
that the documents executed by such attorney-in-fact on
behalf of the undersigned pursuant to this Power of
Attorney shall be in such form and shall contain such terms
and condition as such attorney-in-fact may approve in his
discretion.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary and proper to be done in the exercise of any of the rights and
powers herein granted, as fully to all intents and purposes as such
attorney-in-fact might or could do if personally present, with full power of
substitution or revocation, hereby ratifying and confirming all that such
attorney-in-fact, or his substitute or substitutes, shall lawfully do or cause
to be done by virtue of this power of attorney and the rights and powers
herein granted. The undersigned acknowledges that the foregoing
attorney-in-fact, in serving in such capacity at the request of the
undersigned, is not assuming any of the undersigned's responsibilities to
comply with the Securities Act of 1933 or the Securities Exchange Act of 1934.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to
be executed as of this 13th day of March, 1997.
/s/ Theodore C. York
----------------------
Theodore C. York
EXHIBIT 11.1
PCD Inc.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (1)
Primary Fully
Shares Diluted
--------- ---------
For the year ended December 31, 1996
Common stock outstanding,
beginning of the period.................. 4,597,032 4,597,032
Weighted average common stock issued
during the period........................ 883,713 883,713
Dilutive effect of common stock equivalents 776,107 776,107
--------- ---------
Weighted average number of common and
common equivalent shares outstanding..... 6,256,852 6,256,852
========= =========
Net income per share....................... $ 0.76 $ 0.76
========= =========
For the year ended December 31, 1995
Common stock outstanding,
beginning of the period.................. 4,561,032 4,561,032
Cheap stock outstanding during the period(2) 70,364 70,364
Weighted average common stock issued
during the period........................ 9,000 9,000
Dilutive effect of common stock equivalents 560,728 560,728
--------- ---------
Weighted average number of common and
common equivalent shares outstanding..... 5,201,124 5,201,124
========= =========
Net income per share....................... $ 0.74 $ 0.74
========= =========
For the year ended December 31, 1994
Common stock outstanding,
beginning of the period.................. 4,561,032 4,561,032
Cheap stock outstanding during the period(2) 70,364 70,364
Weighted average common stock issued
during the period........................ - -
Dilutive effect of common stock equivalents - -
--------- ---------
Weighted average number of common and
common equivalent shares outstanding..... 4,631,396 4,631,396
========= =========
Net income per share....................... $ 0.28 $ 0.28
========= =========
- --------------
(1) All common and common equivalent shares have been restated to reflect a
12-for-1 stock split of the Company's common stock effected in February 1996.
(2) In accordance with the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, issuance of common stock and common stock equivalents during
the twelve month period preceding the date of the initial filing on February
12, 1996, of the registration statement relating to the Company's initial
public offering have been included in the calculation using the treasury stock
method at the public offering price ($11 per share), as if they were
outstanding for all periods prior to January 1, 1996.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
PCD Inc.
CTi Technologies, Inc.
PCD Securities Corp.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of PCD Inc. on Form S-8 (File Nos. 333-07393, 333-07403 and
333-07405) of our report dated January 27, 1997, on our audits of the
consolidated financial statements as of December 31, 1996 and 1995 and for the
years ended December 31, 1996, 1995 and 1994 which report is included in this
Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
March 24, 1997