U. S. Securities and Exchange Commission
Washington, D. C. 20549
First Amended
Form 10-KSB/A
Dated August 22, 2005
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 (Fee Required)
For the fiscal year ended November 30, 2004
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required)
For the transition period from ________ to ________
Commission file number 0-5109
MICROPAC INDUSTRIES, INC.
DELAWARE 75-1225149
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
905 E. WALNUT STREET 75040
GARLAND, TEXAS (Zip Code)
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Issuer's telephone number (972) 272-3571
Securities to be registered under Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered -------------------------- -------------------------- -------------------------- -------------------------- |
Securities to be registered under Section 12 (g) of the Act:
COMMON STOCK $.10 par value
Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in any definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Revenues for its most recent fiscal year: $15,356,000
Based on approximately 22,544 shares publicly traded during November 2004, the aggregate market value of the common stock held by non-affiliates of the registrant (based on the average of the bid and asked prices reported on the Over-the-Counter ("OTC") Bulletin Board system on November 30, 2004 was approximately $2,660,000. Due to the low reported trading volume of the Company shares, the Company disclaims any representation that this amount represents the market value of the Company's common stock. For purposes of such calculation, shares of Common Stock held by each executive officer and director and by each person who owns more than 5% of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date was 2,578,315 as of November 30, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement dated January 28, 2005 for the Annual Meeting of Shareholders to be held on March 4, 2005 (the "Proxy Statement") are incorporated by reference into Part III of this Form 10-KSB.
EXPLANATORY NOTE
Micropac Industries, Inc. (the "Company") is filing this Amendment No. 1 to its Annual Report on Form 10-KSB for the year ended November 30, 2004 (which was filed with the Securities and Exchange Commission on January 31, 2005) to expand disclosures, add items that were incorporated by reference, and add exhibits. No changes have been made to the Company's consolidated balance sheets and statements of operations, stockholders' equity and cash flows.
For convenience and ease of reference, we are filing the amended 2004 Annual Report in its entirety. This Amendment No. 1 does not reflect events occurring after the original filing of the 2004 Annual Report.
PART I
Micropac Industries, Inc. (the "Company"), a Delaware corporation, manufactures and distributes various types of hybrid microelectronic circuits, solid state relays, power operational amplifiers, and optoelectronic components and assemblies. The Company's products are used as components in a broad range of military, space and industrial systems, including aircraft instrumentation and navigation systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200o C) products.
The Company's facilities are certified and qualified by Defense Supply Center Columbus (DSCC) to MIL-PRF-38534 (class K-space level); MIL-PRF-19500 JANS (space level), MIL-PRF-28750 (class K space level) and is certified to ISO 9001-2002. Micropac is a NASA core supplier, and is certified to AS9100-Aerospace Industry standard for supplier certification.
The business was started in 1963 as a sole proprietorship. On March 3, 1969, the Company was incorporated under the name of "Micropac Industries, Inc." in the state of Delaware. The stock was publicly held by 559 shareholders on November 30, 2004.
PRODUCTS AND TECHNOLOGIES
The Company's products are either custom (being application specific circuits designed and manufactured to meet the particular requirements of a single customer) or standard, proprietary components such as catalog items. Custom-designed components are estimated to account for approximately 50% of the Company's sales for the fiscal year ended November 30, 2004, and 52% in fiscal 2003; standard components are estimated to account for approximately 50% of the Company's sales for the fiscal year ended November 30, 2004, and 48% for fiscal 2003.
Micropac Industries, Inc. provides microelectronic and optoelectronic components and assemblies along with contract electronic manufacturing services and offers a wide range of products sold to the industrial, medical, military, aerospace and space markets.
The Company's core technology is the packaging and interconnect of miniature
electronic components, utilizing thick film and thin film substrates, forming
microelectronics circuits. Other technologies include light emitting and light
sensitive materials and products, including light emitting diodes and silicon
phototransistors used in the Company's optoelectronic components, and
assemblies. The Company's basic products and technologies include:
Custom design hybrid microelectronic circuits
Solid state relays and power controllers
Custom optoelectronic assemblies and components
Optocouplers
Light-emitting diodes
Hall-Effect devices
Displays
Power operational amplifiers
Fiber optic components and assemblies
High temperature (200(0) C) products
Micropac's products are primarily sold to original equipment manufacturer's (OEM) who serve the following major markets:
Military/Aerospace - aircraft instrumentation, guidance and navigations systems, control circuitry, power supplies, laser positioning Space - control circuitry, power monitoring and sensing Industrial - power control equipment, robotics
Medical
The Company has no patents, licenses, franchises, concessions, royalty agreements or labor contracts. The Company's trademark "MII" is registered with the U.S. Patent and Trademark Office.
Sales of our products internationally are subject to government regulations, including export control regulations of the U.S. Department of State and Department of Commerce. Violation of these regulations by the company could result in monetary penalties and denial of export privileges. We are not aware of any violations of export control regulations.
The Company is not currently impacted by export restrictions on sensitive technology. Five (5) of the Company's principal product families require government approval. Further, a significant portion of our business is military and is dependent on maintaining our facility certifications to MIL-PRF-38534, MIL-PRF-19500 and MIL-PRF-28750. We expect to maintain these certifications and qualifications; however, the loss of any of these ceritifications would have a significant impact on our business.
Government regulations impose certain controls on chemicals used in electronics and semiconductor manufacturing. Micropac has obtained all the necessary environmental permits, and routinely monitors and reports the wastewater stream results to the local governing agency. Micropac is classified as a small generator of hazardous waste, and the annual cost of complying with the regulations is minimal.
In 2004, the Company's investment in technology through research and development, which was expensed, totaled approximately $438,000 ($303,000 in 2003). The Company's research and development expenditures were directed primarily toward long-term specific customer requirements, some of which have future potential as Micropac proprietary products, and product development and improvement associated with the Company's space level and other high reliability programs.
The Company introduced new Solid State Power controllers as the next generation of solid state relays with enhanced ruggedness and voltage and current carrying capabilities. Micropac's SSPCs feature both an instantaneous over current trip as well as I^2T which compares power used over time. These devices range from 28VDC to 400VDC and from 5A to 40Amps. The SSPC Product Family is fully capable of being Class K screened per MIL-PRF 38534 and come in a Rad Tolerant version. Micropac strives to provide the greatest power density per package volume and strives to meet the stringent efficiency requirements of customers in today's market.
In addition to the Company's investment in research and development, various customers paid the Company approximately $1,500,000 in non-recurring engineering costs associated with the development of custom products for specific applications.
The Company provides a one year warranty from the date of shipment to the original purchaser. The Company is obligated under this warranty to either replace or repair defective goods or refund the purchase price paid by the buyer.
The Company's products are marketed throughout the United States and in Western Europe, through a direct technical sales staff, independent representatives and independent stocking distributors. Approximately 25% of the sales for fiscal year 2004 (17% in 2003) were to international customers. Sales to Western European customers are made by independent representatives under the coordination of the Company's office in Bremen, Germany. One major industrial customer has opened an operation in China and during 2004 moved a major part of their domestic operations to China. This customer, Advanced Energy Industries, Inc., accounted for 22% of international sales, and their contract manufacturer in China, Celestica, accounted for 41% of international sales. During 2004, these two customers accounted for 9% and 10% of the Company's total sales compared to 12% and 7% for the year ended November 30, 2003. Advanced Energy has been a major customer since 1996 and averaged 18% of the Company's sales during this 10 year period from a high of 20% to a low of 14%. The Company has a document of understanding with Advanced Energy which is reviewed on an annual basis unless terminated by either party per the terms of the agreement. The Company is required to maintain a formal cost reduction program and any material or labor cost savings shall be shared equally between the Company and Advanced Energy. The cost savings are reflected in pricing reductions to the customer.
The Company's major customers include contractors to the United States government with fixed price contracts. Sales to these customers for Department of Defense (DOD) and National Aeronautics and Space Administration (NASA) contracts accounted for approximately 64% of the Company's fiscal net sales in 2004 compared to 62% in 2003.
The Company's major customers are Lockheed Martin, Northrop Grumman, Boeing, Raytheon, BAE, Honeywell, Rockwell Int'l, Newport, Advanced Energy, and St. Jude.
At November 30, 2004, the Company had a backlog of unfilled orders totaling approximately $9,292,000 compared to approximately $3,799,000 at November 30, 2003. The Company expects to complete and ship most of its November 30, 2004 backlog during fiscal 2005.
At November 30, 2004, the Company had 121 full-time employees (compared to 112 at November 30, 2003), of which 28 were executive and managerial employees, 24 were engineers and quality-control personnel, 20 were clerical and administrative employees, and 49 were production personnel. None of the Company's employees were covered by collective bargaining agreements.
The Company is an Equal Opportunity Employer. It is the Company's policy to recruit, hire, train and promote personnel in all job classifications, without regard to race, religion, color, national origin, sex or age. Above and beyond non-discrimination, we are committed to an Affirmative Action Program, dedicated to the hiring, training, and advancement within the Company of minority group members, women and handicapped individuals.
The Company competes with two or more companies with respect to each of its major products, including custom hybrid microcircuits, solid state relays and power controllers, optocouplers, light-emitting diodes, light sensitive silicon phototransistors and diodes, hall-effect devices, displays, power operational amplifier, custom optoelectronic components and assemblies. These products and technologies are sold into various markets, including military/aerospace, space, industrial and medical. Some of these competitors are larger and have greater capital resources than the Company. Management believes the Company's competitive position is favorable with regard to our product reliability and integrity, past performance, customer service and responsiveness, timely delivery and pricing; however, no assurance can be given that the Company can compete successfully in the future.
The hybrid microcircuits product line, including custom microcircuits, solid state relays, power operational amplifiers and regulators accounted for 53% of the Company's business in 2004, and the Optoelectronics product line accounted for 47% of the Company's business in 2004.
There are approximately 46 independent hybrid microcircuit manufacturing companies who are certified to supply microcircuits to MIL-PRF-38534, in addition to OEM's, who manufacture hybrid microcircuits for their internal needs. Micropac may compete with all of these for hybrid microcircuit business. Some of the Company's primary competitors are Teledyne Industries, Inc., M.S. Kennedy, Aeroflex, Agilent, and Optek.
The parts and raw materials for the Company's products are generally available from more than one source. Except for certain optoelectronic products, the Company does not manufacture the basic parts or materials used in production of its products. From time to time, the Company has experienced difficulty in obtaining certain materials when needed. The Company's inability to secure materials for any reason could have adverse effects on the Company's ability to deliver products on a timely basis. The Company uses capacitors, active semiconductor devices (primarily in chip form), hermetic packages, ceramic substrates, resistor inks, conductor pastes, precious metals and other materials in its manufacturing operations. However, the Company has not been materially affected by such shortages. The Company's delivery commitments to customers allow for adequate lead times for production of the products including lead time for order and receipt from the supply chain.
Some of the Company's primary suppliers are International Rectifier, Sussex Semiconductors, Semi-Dice, Accumet Eng. Corp, NTK Technologies, Electrovac, and Aborn Electronics.
This Form 10-KSB contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially. Investors are warned that forward-looking statements involve risks and unknown factors including, but not limited to, customer cancellation or rescheduling of orders, problems affecting delivery of vendor-supplied raw materials and components, unanticipated manufacturing problems and availability of direct labor resources.
Such risks and uncertainties include, but are not limited to historical volatility and cyclicality of the semiconductor and semiconductor capital equipment markets that are subject to significant and often rapid increases and decreases in demand. In addition, the Company produces silicon phototransistors and light emitting diode die for use in certain military, standard and custom products. Fabrication efforts sometimes may not result in successful results, limiting the availability of these components. Competitors offer commercial level alternatives and our customers may purchase our competitors' products if the Company is not able to manufacture the products using these technologies to meet the customer demands.
The Company disclaims any responsibility to update the forward-looking statements contained herein, except as may be required by law.
Majority shareholder ability to control the election of the Board of Directors
The majority shareholder has the ability to control the election of the Company's Board of Directors and elect individuals who may be more sympathetic to such majority shareholders' desires and not necessarily sympathetic to the desires of minority shareholders as to the policies and directions of the Company. However, the ability to control the election of the Board of Directors does not modify the fiduciary duties of the Board of Directors to represent the interests of all shareholders
Pricing pressures from customers for reduction in selling prices
The Company continues to experience pricing pressures from some of its original equipment manufacturer (OEM) customers. In some cases, the Company's customers request the review of pricing for possible reduction in selling price on future orders. This requires the Company to improve its productivity and to request similar price reductions from its supplier chain. If one or both of the approaches by the Company does not succeed, the Company could be required to reduce the selling price on future orders reducing the product gross margins and affecting the Company's net earnings in order to receive future orders from the customer. However, the Company has no agreement that requires a reduction in the selling price on any current customer order. All contracts are firm fixed pricing.
Insurance coverage and exposure to substantial claims or liabilities
The Company operates manufacturing facilities in Garland, Texas and subcontracts some manufacturing to a contract manufacturer in Juarez, Mexico. These facilities use industrial machines and chemicals that could provide risks of personal injury and/or property damage. There is no assurance that accidents will not occur. If accidents do occur, the Company could be exposed to substantial liability. The Company has no liability for the Mexico operations. The Company maintains worker's compensation insurance and general liability insurance for protection of its employees and for protection of the Company's assets in Garland, Texas. In addition to the basic policies mentioned, the Company maintains an umbrella policy. The Company reviews all insurance coverage on an annual basis, and makes any necessary adjustments based on risk assessment and changes in its business. In the opinion of the Company's management, and its' insurance advisors, the Company is adequately insured; however, the Company's financial position could be materially affected by claims not covered or exceeding coverage currently carried by the Company.
The Company is subject to numerous environmental regulations or changes in government Policy
The Company is subject to governmental regulations pertaining to the use, storage, handling and disposal of hazardous substances used in connection with its manufacturing activities. Failure of the Company to control all activities dealing with hazardous chemicals could subject the Company to significant liabilities or could cause the Company to cease its manufacturing activities.
The Company could be adversely affected by changes in laws and regulations made by U.S. and non U.S. governments and agencies dealing with foreign shipments. Changes by regulatory agencies dealing with environmental issues could affect the cost of the Company's products and make it hard for a small company to be competitive with larger companies.
Product liability claims
The use of the Company's products in commercial or government applications may subject the Company to product liability claims. Although the Company has not experienced any product liability claims, the sale of any product may provide risk of such claims. Product liability claims brought against the Company could have a material adverse effect on the Company's operating results and financial condition.
Component shortages or obsolescence from suppliers could affect ability to manufacture or delay shipments of products
The Company relies on suppliers to deliver quality raw materials in a timely and cost effective manner. Most of the materials and components are generally available from multiple sources; however, from time to time vendors do not deliver the product as needed due to manufacturing problems or possibly a decision not to furnish that product in the future. Such interruption of supply or price increases could have a material adverse effect on the Company's operation; however, the Company is not currently materially impacted by materials shortages.
The ability to develop new products and technologies used in the military, space or aerospace markets
The Company's base products and technologies generally have long life cycles. The Company's products are primarily used in military, space or aerospace applications, which also have long life cycles. There can be no assurance that the Company will be able to define, develop and market new products and technologies on a timely and cost effective basis. Failure to respond to customer's requirements and to competitors' progress in technological changes could have a material adverse effect on the Company's business.
The Company occupies approximately 36,000 square feet of manufacturing, engineering and office space in Garland, Texas. The Company owns 31,200 square feet of that space and leases an additional 4,800 square feet. The Company considers its facilities adequate for its current level of operations.
The Company also subcontracts some manufacturing to Inmobiliaria San Jose De Ciuddad Juarez S.A. DE C.V, a maquila contract manufacturer in Juarez, Mexico. The Company owns all equipment and inventory with temporary importation into Mexico under the maquila rules of Mexico. The Company does not lease or own any real property in Mexico.
The Company employs an International Sales Manager in Bremen, Germany who coordinates sales to Western European customers made by independent representatives. The sales manager maintains an office in her private residence. The Company does not lease or own any real property in Germany, or any other foreign country.
The Company is not involved in any material current or pending legal proceedings.
No matters were submitted to vote of the Company's security holders through the solicitation of proxies by the Company during the fourth quarter of the fiscal year ended November 30, 2004.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
On November 30, 2004, there were approximately 559 shareholders of record of the Company's common stock. The stock of the Company is closely held; and, therefore, the majority shareholder has the ability to significantly influence decisions. Our common stock is quoted on the OTC Bulletin Board under the symbol "MPAD.OB". The following sets forth the high and low bid prices for each quarter during the last two fiscal years:
High Low
Fiscal Year Ended November, 30, 2004
Fourth Quarter $4.20 $3.50
Third Quarter $4.50 $3.25
Second Quarter $3.75 $2.05
First Quarter $2.50 $1.77
Fiscal Year Ended November 30, 2003
Fourth Quarter $1.90 $1.54
Third Quarter $1.62 $1.47
Second Quarter $1.66 $1.45
First Quarter $1.90 $1.57
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During the three (3) month period ending on November 30, 2004, approximately 84,780 shares of the Company's common stock was reportedly traded in the over-the-counter market at a reported price range of $3.75 to $4.20 per share. For the two (2) year period ending November 30, 2004, approximately 727,090 shares of the Company's common stock was reportedly traded in the over-the-counter market at prices ranging from a low of $1.47 to a high of $4.50. Due to this average monthly volume of approximately 30,295 shares of common stock being publicly bought and sold during this two year period, the Company does not believe this share trading volume represents the market value of the Company's common stock held by non-affiliates.
Our stock prices quoted on the OTC Bulletin Board represent over-the-counter market quotations and reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
On December 29, 2004, the Board of Directors of Micropac Industries, Inc. approved the payment of a $.12 per share dividend to all shareholders of record on January 25, 2005. The dividend payment will be paid to shareholders on or about February 8, 2005.
On January 8, 2004, the Board of Directors of Micropac Industries, Inc. approved the payment of a special dividend of $.05 per share to all shareholders of record on January 30, 2004. The dividend payment was paid to shareholders on February 13, 2004.
On August 27, 2003, the Company purchased 548,836 shares of the Company's common stock pursuant to the terms of an agreement dated February 5, 2001, between the Company and Nicholas Nadolsky, former Chairman of the Board and Chief Executive Officer ("Agreement"). The Agreement obligated the Company to purchase any shares of the Company's common stock owned by Mr. Nadolsky at the fair market value thereof (but in no event less than the book value of such shares) in the event of his death, permanent disability or termination of employment. Mr. Nadolsky's employment terminated on May 1, 2003. By letter dated August 15, 2003, Mr. Nadolsky requested that the Company purchase the 548,836 shares of the Company's common stock he owned pursuant to the requirements of the above agreement and agreed that the fair value of each share of his common stock was $2.68. The Company paid Mr. Nadolsky a total purchase price of $1,470,880. These shares were subsequently retired.
In determining the purchase price to be offered for Mr. Nadolsky's shares, the Board of Directors considered numerous factors, including the Company's balance sheets, the small number of shares publicly bought and sold in the over-the-counter market, the number of shares owed by Mr. Nadolsky and a valuation opinion from an independent third party.
The Company currently has an existing line of credit with a Texas banking institution. The line of credit agreement provides the Company with up to $3,000,000 for normal operation of the Company. The interest rate on any borrowings against this credit agreement is equal to the prime rate less 1/4%. The line of credit requires the Company to maintain certain financial ratios, including quick ratio of at least 1:1, maintain a tangible net worth of $6,250,000 plus 75% of future net income, and maintain a total liabilities-to-tangible-net-worth of less that 1.25:1. The Company is in compliance with these covenants. The Company has not, to date, used any of the available line of credit. The Company expects to continue to generate adequate amounts of cash to meet its liquidity needs from the sale of products and services and the collection thereof.
The Company realized $908,000 net in cash flows from operations in 2004. Cash influx came primarily from the combination of net income totaling $1,408,000; recovery of depreciation totaling $222,000, increase of accrued compensation of $249,000, increase in other accrued liabilities of $272,000, increase in accounts payable of $79,000, and an increase in tax liabilities of $196,000. Cash was used to increase inventory $911,000, accounts receivables increased by $449,000, deferred tax benefit increased $139,000 and an increase in prepaid expense of $19,000. Inventories increased due to the purchase of long lead items for shipments within the first half of 2005. Day's sales in accounts receivables totaled approximately 53.0 days as of November 30, 2004, compared to 52.0 days at November 30, 2003.
The Company used $182,000 in cash for investment in additional manufacturing equipment, computers and facility improvements in 2004 compared to $181,000 in 2003.
As of November 30, 2004, the Company had $1,239,000 in cash and cash equivalents and $2,507,000 in short term investments compared to $2,337,000 in cash and cash equivalents and $812,000 in short term investments on November 30, 2003.
On December 29, 2004, the Board of Directors of Micropac Industries, Inc. approved the payment of a special dividend $.12 per share dividend to all shareholders of record on January 25, 2005. The dividend payment will be paid to shareholders on or about February 8, 2005. The Company may not continue to pay any dividends.
On January 8, 2004, the Board of Directors of Micropac Industries, Inc. approved the payment of a special dividend of $.05 per share to all shareholders of record on January 30, 2004. The dividend payment was paid to shareholders on February 13, 2004. The Company may not continue to pay any dividends.
On August 27, 2003, the Company purchased 548,836 shares of the Company's common stock pursuant to the terms of an agreement dated February 5, 2001, between the Company and Nicholas Nadolsky, former Chairman of the Board and Chief Executive Officer ("Agreement"). The Agreement obligated the Company to purchase any shares of the Company's common stock owned by Mr. Nadolsky at the fair market value thereof (but in no event less than the book value of such shares) in the event of his death, permanent disability or termination of employment. Mr. Nadolsky's employment terminated on May 1, 2003. By letter dated August 15, 2003, Mr. Nadolsky requested that the Company purchase the 548,836 shares of the Company's common stock he owned pursuant to the requirements of the above agreement and agreed that the fair value of each share of his common stock was $2.68. The Company paid Mr. Nadolsky a total purchase price of $1,470,880. These shares were subsequently retired.
Company management believes it will meet its 2005 capital requirements through the use of cash derived from operations for the year and/or usage of the Company's short-term investments. There were no significant outstanding commitments for equipment purchases or improvements at November 30, 2004.
Three Months Ended Twelve Months Ended
11/30/04 11/30/03 11/30/04 11/30/03
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 57.1% 67.6% 65.0% 69.8%
R & D 5.3% 2.4% 2.9% 2.4%
S, G, & A 18.7% 17.4% 17.6% 20.7%
Total Cost & Exp 81.1% 87.4% 85.5% 92.9%
Operating Income 18.9% 12.6% 14.5% 7.1%
Interest Income 0.3% 0.3% 0.2% 0.4%
Income Before Income Taxes 19.2% 12.3% 14.7% 7.5%
Provision for taxes 7.2% 3.8% 5.6% 2.6%
Net Income 12.0% 8.5% 9.1% 4.9%
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Sales in 2004 were approximately $15,356,000, an increase of 22.9% or $2,866,000 compared to 2003 sales. Approximately 44% of the increase in sales is primarily attributable to improved business conditions in the company's major market segments, combined with the introduction of new products, which accounted for approximately 56% of the increase.
New orders for fiscal year 2004 totaled $20,946,000 compared to $11,191,000 for fiscal 2003. The increase in new orders is attributable to increased funding on certain military programs, combined with higher demand for some of the Company's standard products sold through distribution channels, and increased penetration in the medical and industrial markets. Approximately $11,732,000 of the new orders received in 2004 was delivered to customers in 2004, along with approximately $3,624,000 of the Company's $3,799,000 ending backlog on November 30, 2003.
The Company's backlog as of November 30, 2004, was approximately $9,292,000, compared to approximately $3,799,000 on November 30, 2003. The increase in the Company's backlog is attributable to strong bookings of new orders in the last half of the year for deliveries in 2005.
Custom-designed components are estimated to account for approximately 50% of the Company's sales for the fiscal year ended November 30, 2004, and 52% in fiscal 2003; standard components are estimated to account for approximately 50% of the Company's sales for the fiscal year ended November 30, 2004, and 48% for fiscal 2003.
Approximately 25% of the sales for fiscal year 2004 (17% in 2003) were to international customers. Sales to Western European customers are made by independent representatives under the coordination of the Company's office in Bremen, Germany. One major industrial customer has opened an operation in China and during 2004 moved a major part of their domestic operations to China. This customer, Advanced Energy Industries, Inc., accounted for 22% of international sales, and their contract manufacturer in China, Celestica, accounted for 41% of international sales.
The Company's major customers include contractors to the United States government with fixed price contracts. Sales to these customers for Department of Defense (DOD) and National Aeronautics and Space Administration (NASA) contracts accounted for approximately 64% of the Company's fiscal net sales in 2004 compared to 62% in 2003.
During 2004, two customers accounted for 9% and 10% of the Company's sales compared to 12% and 7% for the year ended November 30, 2003. The customers are Advanced Energy Industries, Inc. and their contract manufacturer in China, Celestica. Advanced Energy has been a major customer since 1996 and averaged 18% of the Company's sales during this 10 year period from a high of 20% to a low of 14%.
Sales for 2004 compared to 2003 increased 16% in the commercial market, 22% in the military market, and 50% in the space market.
Cost of sales, as a percentage of net sales, was 65.0% in 2004 compared to 69.8% in 2003. The cost of goods sold decrease of 4.8% is attributable to stable operating expense on higher sales volume; changes in product mix, and yield improvements on certain products. In actual dollars cost of sales increased $1,253,000 for 2004, versus 2003. Cost of sales decreased $84,000 in the fourth quarter of 2004, compared to the same period of 2003.
Expenses for research and development totaled $438,000 in 2004 compared to $303,000 in 2003. Most of the research and development expenses were concentrated on expanding the Company's line of solid state power controllers, high-temperature couplers, detectors, hall-effect devices; and enhancing manufacturing processes to improve the Company's competitive position. Selling, general, and administrative expenses totaled 17.6% of net sales in 2004, compared to 20.7% in 2003, based on higher sales. In dollars expensed, selling, general and administrative expenses totaled $2,709,000 in 2004 compared to $2,581,000 in 2003, an increase of $128,000, attributable to higher commissions on increased sales and increased selling expense.
Interest income for fiscal 2004 totaled $32,000 compared to $50,000 for fiscal 2003. The decrease is related to lower interest rates on the Company's investments.
Income before taxes for fiscal 2004 was approximately $2,265,000 or 14.7% of net sales, compared to $933,000 or 7.5% of net sales in fiscal 2003. Net income after taxes totaled approximately $1,408,000 or $.55 per share in 2004 versus 2003 net income of $611,000 or $.21 per share. Net income after taxes in 2004 increased $797,000 compared to 2003.
None
The financial statements listed below appear on pages 16 through 25 of this Report. The Company is not required to furnish the Supplementary Data required by Item 302 of Regulation S-K.
Page No.
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16 Report of Independent Registered Public Accounting Firm
17 Balance Sheets as of November 30, 2004 and 2003
18 Statements of Income for the years ended November 30, 2004 and
2003
19 Statements of Shareholders' Equity for the years ended
November 30, 2004 and 2003
20 Statements of Cash Flows for the years ended November 30, 2004
and 2003
21-25 Notes to Financial Statements for the years ended November 30,
2004 and 2003
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None
The Chief Executive Officer and Chief Financial Officer of the Company evaluated the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) as of November 30, 2004 and, based on this evaluation, concluded that the Company's disclosure controls and procedures are functioning in an effective manner to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. There has been no change in the Company's internal control over financial reporting during the Company's fiscal year ended November 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART III
In accordance with General Instruction G(3) of Form 10-K, the information required by this Part III is incorporated by reference to Micropac Industries, Inc.'s definitive proxy statement relating to its 2005 Annual Meeting of Stockholders, as set forth below. The 2005 Proxy Statement will be filed with the Securities and Exchange Commission on or about January 15, 2005.
Item 9. Directors & Executive Officers of The Registrant
The information set forth in the 2005 Proxy Statement under the headings "Election of Directors", and "Principal Stockholders and Stockholdings of Management", is incorporated herein by reference.
Position(s) With
Name Age the Company Director Since
---- --- ----------- --------------
H. Kent Hearn 68 Director and Member of Audit
Committee February 1983
Heinz-Werner Hempel 76 Director and Member of Audit
Committee February 1997
James K. Murphey 62 Director and Member of Audit
Committee March 1990
Nicholas Nadolsky 71 Director and Member of Audit
Committee May 2004
Connie Wood 65 Director, CEO, President and
Member of Audit Committee May 2002
Patrick Cefalu 47 CFO, Vice President
Mark King 50 COO, Vice President
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Mr. Hearn is currently employed as a stockbroker by Milkie/Ferguson Investments, Inc. Mr. Hearn was formerly employed by Harris Securities, Dallas, Texas.
Mr. Hempel is the Chief Operating Officer of Hanseatische Waren-Gesellschaft MBH & Co, KG, Bremen Germany.
Mr. Murphey is an attorney and member of the law firm Glast, Phillips & Murray, P.C. in Dallas, Texas. Glast, Phillips & Murray, P.C. serves as legal counsel to the company. Prior to 2001, Mr. Murphey was a member of the law firm of Secore & Waller, L.L.P. in Dallas, Texas.
Mr. Nadolsky served as the Company's Chief Executive Officer and Chairman of the Board until his medical leave of absence beginning May 2002. Mr. Nadolsky retired from the Company in May 2003.
Ms. Wood is the Chief Executive Officer and President of the Company. Ms. Wood was elected as Chief Executive Officer in May 2002. Prior to May 2002, Ms. Wood was President and Chief Operating Officer of the Company.
Mr. Cefalu is the Chief Financial Officer and Vice President of the Company. Mr. Cefalu joined the Company in July of 2001 and was elected as Chief Financial Officer in February of 2002. Prior to July 2002, Mr. Cefalu held numerous senior financial positions at Lucent Technologies.
Mr. King is the Chief Operating Officer and Vice President of the Company. Mr. King joined the company in November of 2002 as the Chief Operating Officer. Prior to November 2002, Mr. King was President and Chief Operating Officer of Lucas Benning Power Electronics.
The Company has adopted a Code of Ethics for Principal Executive Officers and Senior Financial Officers, pursuant to the Sarbanes-Oxley Act of 2002. The Code of Ethics is published on the Company's web site, www.micropac.com on the Investor page.
The Board of Directors does not have nominating or compensation committee or committees performing similar functions. The Board of Directors formed an audit committee on May 13, 2002. The members of the Audit Committee are the members of the Board of Directors.
The Board of Directors has discussed with management and the independent auditors the quality and adequacy of the Company's internal controls. The Directors have considered and reviewed with the independent auditors their audit plans, the scope of the audit, and the identification of audit risks.
The Board of Directors has reviewed the Company's audited financial statements
for the fiscal year ended November 30, 2004, and discussed them with management
and the Company's independent auditors. Management has the responsibility for
the preparation and integrity of the Company's financial statements and the
independent auditors have the responsibility for the examination of those
statements. Based on this and discussions with management and the independent
auditors, the Board of Directors has recommended that the Company's audited
financial statements be included in its Annual Report on Form 10-KSB for the
fiscal year ended November 30, 2004, for filing with the Securities and Exchange
Commission. It is not the duty of the Directors to plan or conduct audits, to
determine that the Company's financial statements are complete and accurate and
are in accordance with accounting principles generally accepted in the United
States. Those responsibilities belong to management and the Company's
independent auditors. In giving its recommendations, the Directors considered
(a) management's representation that such financial statements have been
prepared with integrity and objectivity and in conformity with accounting
principles generally accepted in the United States, and (b) the report of the
Company's independent auditors with respect to such financial statements.
The Board of Directors has received and reviewed written disclosures and a letter from the independent accountants required by the Independence Standards Board Standard No. 1, entitled "Independence Discussions with Audit Committee," as amended to date, and has discussed with the independent accountants their independence from management.
The Board of Directors held eight (8) board meetings during the year ended November 2004. Directors receive a fee of $500.00 for each meeting. Ms. Wood, Mr. Hearn and Mr. Murphey attended all of the meetings. Mr. Hempel attended two of the meetings. Mr. Nadolsky attended five of the meetings.
The Audit Committee held four (4) meetings during the year ended November 30, 2004. Members of the Audit Committee received a fee of $500.00 for each meeting. Ms. Wood, Mr. Hearn and Mr. Murphey attended all of the meetings. Mr. Hempel and Mr. Nadolsky attended two of the meetings.
With the exception of Mr. Hearn, members of the Audit Committee are not considered as independent members under applicable United States statutes.
The Board of Directors has evaluated the credentials of Nicholas Nadolsky, and has determined that Mr. Nadolsky is an "audit committee financial expert" within the meaning of 401(e) of Regulation S-B.
The Board does not have a nominating committee due to the Company's small size. The Board does not provide a process for security holders to send communications to the Board of Directors due to the infrequent nature of such communications.
Item 10. Executive Compensation
--------------------------------
The information set forth in the 2005 Proxy Statement under the heading
"Management Remuneration and Transactions", is incorporated herein by reference.
The following table shows as of November 30, 2004, all cash compensation paid
to, or accrued and vested for the account of Ms. Connie Wood, President and
Chief Executive Officer, and Mr. Mark King, Vice President and Chief Operating
Officer. Ms. Wood and Mr. King received no non-cash compensation during 2004.
The company does not have any equity compensation plans.
Annual Compensation
Name and Annual Other All Other
Principal Position Year Salary Bonus Annual Compensation Compensation
(1) (2)
Connie Wood, 2004 $172,394.28 $10,000 $6,000 $27,194.25
President and 2003 $156,000.00 $10,000 $3,500 $18,490.51
Chief Executive 2002 $153,461.66 -0- -0- $12,839.70
Officer (3)
Mark King, 2004 $155,333.82 $2,000 -0- $10,225.38
Vice President and 2003 $150,000.00 -0- -0- $6,467.79
Chief Operating Officer (4)
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(3) Effective May 1, 2002, the Company and Connie Wood entered into a two
(2) year employment agreement at an annual salary of $156,000. The
employment agreement was amended effective May 1, 2004 to increase
Mrs. Wood's salary to $180,000 and to extend the term for a period of
three years from said date.
(4) Effective February 1, 2004, Mark King and Patrick Cefalu entered into
a two (2) year employment agreement.
Amounts included in other annual compensations relating to director and audit committee fees
The Board of Directors held eight (8) board meetings during the year ended November 2004. Directors receive a fee of $500.00 for each meeting. Ms. Wood received fees of $4,000 which amount is included in the "Other Annual Compensation" column.
The Audit Committee held four (4) meetings during the year ended November 30, 2004. Members of the Audit Committee received a fee of $500.00 for each meeting. Ms. Wood received Audit Committee fees of $2,000 which amount is included in the "Other Annual Compensation" column.
Amounts included in all other compensation relating to employee benefit plans
The Company maintains a Family Medical Reimbursement Plan for the benefit of its executive officers and their dependents. The Plan is funded through a group insurance policy issued by an independent carrier and provides for reimbursement of 100% of all bona fide medical and dental expenses that are not covered by other medical insurance plans. During the fiscal year ended November 30, 2004, Ms. Wood received $7,104.58 and Mr. King received $1,804.57, which amounts are included in the "All Other Compensation" column shown in the preceding remuneration table.
In July 1984, the Company adopted a Salary Reduction Plan pursuant to Section
401(k) of the Internal Revenue Code. The Plan's benefits are available to all
Company employees who are at least 18 years of age and have completed at least
six months of service to the Company as of the beginning of a Plan year. Plan
participants may elect to defer up to 15% of their total compensation as their
contributions, subject to the maximum allowed by the Internal Revenue code
401(k), and the Company matches their contributions up to a maximum of 6% of
their total compensation. A participant's benefits vest to the extent of 20%
after two years of eligible service and become fully vested at the end of six
years.
During the fiscal year ended November 30, 2004, the Company made contributions to the Plan for Ms. Wood in the amount of $10,772.37 and for Mr. King in the amount of $8,421.31, which amounts are included in the "All Other Compensation" column shown in the preceding remuneration table.
Ms. Wood's employment agreement provides that she may elect to carry over any unused vacation time to subsequent periods or elect to be paid for such unused vacation time. In 2004, Ms. Wood elected to be paid for all prior unused vacation time in the amount of $9,317.30, which is included in the "All Other Compensation" column shown in the preceding remuneration table.
On January 15, 2001, the Board of Directors adopted the Micropac Industries, Inc. 2001 Employee Stock Option Plan. To date, no options have been granted under the Plan.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information set forth in the 2005 Proxy Statement under the heading "Principal Stockholders and Stockholdings of Management" is incorporated herein by reference.
The following table shows the number and percentage of shares of the Company's common stock beneficially owned (a) by each person known by the Company to own 5% or more of the outstanding common stock, (b) by each director and nominee, and (c) by all present officers and directors as a group.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class(1)
Heinz-Werner Hempel (2)(3) 1,952,577 75.7%
Hanseatische Waren-Gesellschaft
MBH & Co., KG
Am Wall 127
28195 Bremen 1 Germany
H. Kent Hearn (3) 3,500 Less than .2
1409 Briar Hollow
Garland, Texas 75043
James K. Murphey (3) -0- -
2290 One Galleria Tower
13355 Noel Road, L.B.75
Dallas, Texas 75240
Nicholas Nadolsky (3) -0- -
1322 Briar Hollow
Garland, Texas 75043
Connie Wood (3) 6,000 Less than .2%
106 Cedarview
Rockwall, Texas 75087
Mark King -0- -
2905 Wyndham Lane
Richardson, Texas 75082
Patrick Cefalu -0- -
8706 Arborside
Rowlett, Texas 75089
All officers and directors 1,962,077 76.1%
as a group (7 Persons)
-----------------------
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(1) Calculated on the basis of the 2,578,315 outstanding shares. There are no options, warrants, or convertible securities outstanding.
(2) The Company and Mr. Heinz-Werner Hempel are parties to an Ancillary Agreement entered into in March 1987. The Ancillary Agreement primarily obligates the Company to register Mr. Hempel's stock and allows Mr. Hempel to participate in any sale of stock by the Company.
(3) A director of the Company. Each incumbent director has been nominated for re-election at the Annual Meeting.
The information set forth in the 2005 Proxy Statement under the heading "Management Remuneration and Transactions is incorporated herein by reference.
On August 27, 2003, the Company purchased 548,836 shares of the Company's common stock pursuant to the terms of an agreement dated January 15, 2001, between the Company and Mr. Nicholas Nadolsky, former Chairman of the Board and Chief Executive Officer ("Agreement"). The Agreement obligated the Company to purchase any shares of the Company's common stock owned by Mr. Nadolsky at the fair market value thereof (but in no event less than the book value of such shares) in the event of his death, permanent disability or termination of employment. Mr. Nadolsky's employment terminated on May 1, 2003. By letter dated August 15, 2003, Mr. Nadolsky requested that the Company purchase the 548,836 shares of the Company's common stock he owned pursuant to the requirements of the above agreement and agreed that the book value of each share of his common stock was $2.68. The Company paid Mr. Nadolsky a total purchase price of $1,470,880.48. These shares were subsequently retired. In determining the purchase price to be offered for Mr. Nadolsky's shares, the Board of Directors considered numerous factors, including the Company's balance sheets, the small number of shares publicly bought and sold in the over-the-counter market, the number of shares owed by Mr. Nadolsky and a valuation opinion from an independent third party.
Since 1980, the Company has leased a 4,800 square-foot building from Mr.
Nadolsky which is used primarily for manufacturing. The lease originally
provided for a monthly rental of $1,900 (an amount based upon a January 1984,
independent appraisal of the building's value) and was to have expired on
January 1, 1987. Since 1987, the Company has extended the term of this lease
from time to time. The last renewal of the lease was on July 1, 1999 for a five
(5) year period. The rental paid to Mr. Nadolsky pursuant to this lease was
$39,000 for the fiscal year ended November 30, 2004. In April 2004, the lease
was renewed for three (3) years at the same rental rate provided for in the
original lease subject to increase based upon increases in the Consumer Price
Index.
The information set forth in the 2005 Proxy Statement under the heading "Independent Public Accountants" and "Audit Fees" is incorporated herein by reference.
KPMG LLP was selected as the independent accountants in 2002 and has been responsible for the Company's financial audit for the fiscal years ended November 30, 2002 through November 30, 2004.
Management anticipates that a representative from KPMG LLP will be present at the Annual Meeting and will be given the opportunity to make a statement if he or she desires to do so. It is also anticipated that such representative will be available to respond to appropriate questions from stockholders.
KPMG LLP fee for professional services for the audit of the Company's financial statements for 2004 and the review of the interim financial statements included in the Quarterly Reports is $78,000.
In addition to the audit fees, KPMG LLP fee for tax advisory and 2004 tax return preparation services will be $24,500.
(a) Exhibits
10.1 Document of Understanding between Advanced Energy Industries and affiliates.
10.2 Promissory Note
10.3 Employment Agreement Of Chief Executive Officer
10.4 Employment Agreement of Chief Financial Officer
10.5 Employment Agreement of Chief Operating Officer
10.6 Code of Conduct for Officers For Principal Executive Officers and Senior Financial Officers
10.7 Shareholder Agreement
10.8 Ancillary Agreement dated March 13, 1997, by and between the Company, the Hempels and the Proxy Holders (1)
10.9 Micropac Industries, Inc. 2001 Employee Stock Option Plan (2)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2003
31.2 Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2003
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2003.
32.2 Certification of Chief Accounting Officer pursuant to U. S. C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2003.
(1) Incorporated by reference to the Registrant's Report on Form 10-KSB for the year ended November 30, 1987 (File No. 0-5109), filed February 12, 1988.
(2) Incorporated by reference to the Registrant's Form S-8 (File No. 333-67560), filed August 16, 2001.
(b) Form 8K -
On December 29, 2004, the Board of Directors of Micropac Industries, Inc. approved the payment of a $.12 per share dividend to all shareholders of record on January 25, 2005. The dividend payment will be paid to shareholders on or about February 8, 2005.
On January 8, 2004, the Board of Directors of Micropac Industries, Inc. approved the payment of a special dividend of $.05 per share to all shareholders of record on January 30, 2004. The dividend payment was paid to shareholders on February 13, 2004.
At a Board of Directors meeting held on May 11, 2004, the Board of Directors unanimously elected Mr. Nicholas Nadolsky as a Member and Chairman of the Board, to serve in such positions until the next annual meeting of shareholders or until his earlier death, resignation or removal from office. There is no employment agreement between Mr. Nadolsky and the Company. Since 1980, the Company has leased a 4800 square foot building from Mr. Nadolsky, at a current annual rental of $39,600.
The Company submitted a FORM 8-K to the United States Securities and Exchange Commission on August 27, 2003. The following disclosure was included in the FORM 8-K:
On August 27, 2003, the Company purchased 548,836 shares of the Company's common stock pursuant to the terms of an agreement dated February 5, 2001, between the Company and Mr. Nadolsky ("Agreement"). The Agreement obligated the Company to purchase
any shares of the Company's common stock owned by Mr. Nadolsky at the fair market value thereof (but in no event less than the book value of such shares) in the event of his death, permanent disability or termination of employment. Mr. Nadolsky's employment terminated on May 1, 2003.
By letter dated August 15, 2003, Mr. Nadolsky requested that the Company purchase the 548,836 shares of the Company's common stock he owned pursuant to the requirements of the above agreement and agreed that the fair value of each share of his common stock was $2.68. The Company paid Mr. Nadolsky a total purchase price of $1,470,880.48.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MICROPAC INDUSTRIES, INC.
By: /s/ Connie Wood
---------------------------------------
Connie Wood, President
and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Patrick Cefalu
---------------------------------------
Patrick Cefalu, CFO and
Principal Accounting Officer
Dated: 01/31/2005
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Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on 01/31/2005
/s/ Connie Wood /s/ H. Kent Hearn ----------------------------- ----------------------------- Connie Wood, Director H. Kent Hearn, Director /s/ James K. Murphey ----------------------------- ----------------------------- James K. Murphey, Director Heinz-Werner Hempel, Director ----------------------------- Nicholas Nadolsky, Director |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Micropac Industries, Inc.:
We have audited the accompanying balance sheets of Micropac Industries, Inc. as of November 30, 2004 and 2003, and the related statements of income, shareholders' equity, and cash flows for the years then ended. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Micropac Industries, Inc. as of November 30, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Dallas, Texas,
January 20, 2005
MICROPAC INDUSTRIES, INC.
BALANCE SHEETS
AS OF NOVEMBER 30, 2004 AND 2003
(Dollars in thousands except share data)
ASSETS 2004 2003
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 1,239 $ 2,337
Short-term investments 2,507 812
Receivables, net of allowance for doubtful accounts
of $121 for 2004 and $89 for 2003 2,326 1,877
Inventories
Raw materials and supplies 1,354 692
Work-in-process 1,346 1,097
-------- --------
Total inventories 2,700 1,789
Deferred income taxes 528 386
Prepaid expenses and other assets 90 71
-------- --------
Total current assets 9,390 7,272
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 797
Machinery and equipment 5,200 5,027
Furniture and fixtures 479 489
-------- --------
Total property, plant, and equipment 7,053 6,891
Less- accumulated depreciation (6,091) (5,889)
-------- --------
Net property, plant, and equipment 962 1,002
-------- --------
Total assets $ 10,352 $ 8,274
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 387 $ 308
Accrued compensation 488 239
Accrued professional fees 11 23
Income taxes payable 306 110
Property taxes 66 65
Commissions payable 46 48
Deferred revenue 404 115
Other accrued liabilities 17 21
-------- --------
Total current liabilities 1,725 929
DEFERRED INCOME TAXES 72 69
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, authorized 10,000,000 shares
3,078,315 issued 2,578,315 outstanding at November 30, 2004
and November 30, 2003 308 308
Paid-in capital 885 885
Treasury stock, at cost, 500,000 shares (1,250) (1,250)
Retained earnings 8,612 7,333
-------- --------
Total shareholders' equity 8,555 7,276
-------- --------
Total liabilities and shareholders' equity $ 10,352 $ 8,274
======== ========
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See accompanying notes to financial statements.
MICROPAC INDUSTRIES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30,
2004 AND 2003 (Dollars in
thousands except share data)
2004 2003
----------- -----------
NET SALES $ 15,356 $ 12,490
COSTS AND EXPENSES:
Cost of sales 9,976 8,723
Research and development 438 303
Selling, general, and administrative expenses 2,709 2,581
----------- -----------
Total costs and expenses 13,123 11,607
OPERATING INCOME BEFORE INTEREST AND INCOME TAXES 2,233 883
Interest income 32 50
----------- -----------
INCOME BEFORE INCOME TAXES 2,265 933
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 996 387
Deferred (139) (65)
----------- -----------
Total provision for current and deferred taxes 857 322
----------- -----------
NET INCOME $ 1,408 $ 611
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ .55 $ .21
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES, basic and diluted 2,578,315 2,944,206
=========== ===========
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See accompanying notes to financial statements.
MICROPAC INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2004 AND 2003
(Dollars in thousands)
Common Paid-in Treasury Retained
Stock Capital Stock Earnings Total
-------- -------- -------- -------- --------
BALANCE, November 30, 2002 $ 363 $ 885 $ (1,250) $ 8,450 $ 8,448
Common stock repurchase (55) -- -- (1,416) (1,471)
Dividend (312) (312)
Net income -- -- -- 611 611
-------- -------- -------- -------- --------
BALANCE, November 30, 2003 308 885 (1,250) 7,333 7,276
-------- -------- -------- -------- --------
Dividend -- -- -- (129) (129)
Net income -- -- -- 1,408 1,408
-------- -------- -------- -------- --------
BALANCE, November 30, 2004 $ 308 $ 885 $ (1,250) $ 8,612 $ 8,555
======== ======== ======== ======== ========
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See accompanying notes to financial statements.
MICROPAC INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 2004 AND 2003
(Dollars in thousands)
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,408 $ 611
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 222 230
Deferred tax benefit (139) (65)
Changes in certain current assets and liabilities-
Increase in receivables, net (449) (76)
(Increase) decrease in inventories (911) 511
Increase in prepaid expenses and other assets (19) (15)
Increase (decrease) in accounts payable 79 (193)
Increase (decrease) in accrued compensation 249 (17)
Increase in income taxes payable 196 1
Increase (decrease) in all other accrued liabilities 272 (10)
-------- --------
Net cash provided by operating activities 908 977
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Investments (1,695) (1,400)
Sale of Investments -- 3,428
Additions to property, plant, and equipment (182) (181)
-------- --------
Net cash (used in) provided by investing activities (1,877) 1,847
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock repurchase -- (1,471)
Dividends paid (129) (312)
-------- --------
Net cash used in financing activities (129) (1,783)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,098) 1,041
CASH AND CASH EQUIVALENTS, beginning of year 2,337 1,296
-------- --------
CASH AND CASH EQUIVALENTS, end of year $ 1,239 $ 2,337
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes, net of refunds received $ 803 $ 386
======== ========
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See accompanying notes to financial statements.
MICROPAC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2004 AND 2003
Revenues are recorded as deliveries are made based upon contract prices. Any losses anticipated on fixed price contracts are provided for currently. Sales are recorded net of sales returns, allowances and discounts.
Short-term investments include certificates of deposits with maturities greater than 90 days. These investments are reported at historical cost, which approximates fair market value as of November 30, 2004 and 2003. All highly liquid investments with maturities of 90 days or less are classified as cash equivalents. All short-term investments are securities which the Company has the ability and positive intent to hold to maturity. All held-to maturity securities mature within one year.
Inventories are stated at lower of cost or market value and include material, labor and manufacturing overhead. All inventories are valued using the FIFO (first-in, first-out) method of inventory valuation. The Company provides an allowance for obsolete and overstocked inventory.
The Company accounts for income taxes using the asset and liability method. Under this method the Company records deferred income taxes for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The resulting deferred tax liabilities and assets are adjusted to reflect changes in tax law or rates in the period that includes the enactment date.
Property, plant, and equipment are carried at cost, and depreciation is provided using the straight-line method at rates based upon the following estimated useful lives (in years) of the assets:
Buildings................................................................15 Facility improvements..................................................8-15 Machinery and equipment................................................5-10 Furniture and fixtures..................................................5-8 |
The Company assesses long-lived assets for impairment under Financial Accounting Standards board Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. When events or circumstances indicate that an asset may be impaired, an assessment is performed. The estimated future undiscounted cash flows associated with the asset are compared to the asset's net book value to determine if a write down to market value or discounted cash flow value is required. The Company adopted SFAS 144 on December 1, 2003. The adoption of SFAS 144 did not affect the Company's financial statements.
Repairs and maintenance are charged against income when incurred. Improvements, which extend the useful life of property, plant, and equipment are capitalized.
Costs for the design and development of new products are expensed as incurred.
Comprehensive income includes net income and other comprehensive income which is generally comprised of changes in the fair value of available-for-sale marketable securities, foreign currency translation adjustments and adjustments to recognise additional minimum pension liabilities. For each period presented in the accompanying statement of income, comprehensive income and net income are the same amount.
Basic and diluted earnings per share are computed based upon the weighted average number of shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential common shares. During 2004 and 2003, the Company had no dilutive potential common stock.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 Company currently has an existing line of credit with a Texas banking institution. The line of credit agreement provides the Company with up to $3,000,000 for normal operation of the Company. The interest rate on any borrowings against this credit agreement is equal to the prime rate less 1/4%. The line of credit requires the Company to maintain certain financial ratios, including quick ratio of at least 1:1, maintain a tangible net worth of $6,250,000 plus 75% of future net income, and maintain a total liabilities-to-tangible-net-worth of less that 1.25:1. The Company is in compliance with these covenants. The Company has not, to date, used any of the available line of credit. The Company expects to continue to generate adequate amounts of cash to meet its liquidity needs from the sale of products and services and the collection thereof.
The Company leases a building from the Company's Chairman of the Board. A lease was signed on July 1, 1999, for a term of five (5) years and renewed in April 2004 for three (3) years under similar terms and conditions as the prior lease. Amounts paid under the lease agreement approximated $39,000 in 2004 and 2003.
Glast, Phillips & Murray, P.C. serves as the Company's legal counsel. Mr. James K. Murphey, a director and member of the Company's audit committee, is a member of Glast, Phillips & Murray, P.C.
Effective May 13, 2003, the Company's Board of Directors approved the formation of an audit committee composed of the five (5) members of the Board. It is possible that the members of the audit committee may resign from the committee if future Securities and Exchange Commission rules establish a criteria that such individuals are not independent due to their relationships with the Company. The Board of Directors held eight (8) board meetings during the year ended November 30, 2004. Directors receive a fee of $500.00 for each meeting. The Audit Committee held four (4) meetings during the year ended November 30, 2004. Members of the Audit Committee received a fee of $500.00 for each meeting.
On August 27, 2003, the Company purchased 548,836 shares of the Company's common stock pursuant to the terms of an agreement dated February 5, 2001, between the Company and Mr. Nadolsky ("Agreement"). The Agreement obligated the Company to purchase any shares of the Company's common stock owned by Mr. Nadolsky at the fair market value thereof (but in no event less than the book value of such shares) in the event of his death, permanent disability or termination of employment. Mr. Nadolsky's employment terminated on May 1, 2003. By letter dated August 15, 2003, Mr. Nadolsky requested that the Company purchase the 548,836 shares of the Company's common stock he owned pursuant to the requirements of the above agreement and agreed that the approximate fair value of each share of his common stock was $2.68. The Company paid Mr. Nadolsky a total purchase price of $1,470,880. These shares were subsequently retired.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Currently, the only applicable item of FIN 45 relates to the impact of paragraph 14, which refers to product warranties.
Because we do not have extended warranties, our exposure is limited to product returns for defective products. In general, we warrant that the products, when delivered, will be free from defects in material workmanship under normal use and service. Our obligations are limited to replacing, repairing or giving credit for, at our option, any products that are returned within one year after the date of shipment.
The Company reserves for potential warranty expense based on historical warranty experience claims. While management considers our process to be adequate to effectively quantify its exposure to warranty claims based on historical performance, changes in warranty claims on a specific or cumulative basis may require management to adjust its reserve for potential warranty costs.
Warranty expense to repair or replace products in 2004, 2003, and 2002 was $33,600, $28,100 and $31,800 respectively.
Rent expenses for the years ended November 30, 2004 and 2003, was approximately $45,000 and $42,000 respectively per year. The Company's future minimum lease payments under non-cancellable operating leases (including the related party lease described in note 4) for office and manufacturing space with remaining terms in excess of one year are approximately:
2005 $ 40,000
2006 $ 40,000
2007 $ 20,000
---------
Total $ 100,000
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The Company sponsors an Employees' Profit Sharing Plan and Trust (the "Plan"). Pursuant to section 401(k) of the Internal Revenue Code, the Plan is available to substantially all employees of the Company. Employee contributions to the Plan are matched by the Company at amounts up to 6% of the participant's salary. Contributions made by the Company were approximately $131,000 in 2004 and $138,000 in 2003. Employees become vested in Company contributions at 20% after two years, 40% after three years, 60% after four years, 80% after five years and 100% after six years. If the employee leaves the Company prior to being fully vested, the unvested portion of the Company's contributions are forfeited and such forfeitures are used to lower future Company contributions. The Company does not offer other post retirement benefits to its employees at this time.
The income tax provision consisted of the following for the years ended November 30:
2004 2003
--------- ---------
Current Provision
Federal $ 854,000 $ 319,000
State 142,000 68,000
--------- ---------
996,000 387,000
Deferred Benefit
Federal (139,000) (65,000)
--------- ---------
Total $ 857,000 $ 322,000
========= =========
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The provision for income taxes differs from that computed at the federal statutory corporate tax rate as follows:
2004 2003
--------- ---------
Tax at 34% statutory rate $ 770,000 $ 317,000
State income taxes, net of federal benefit 82,000 45,000
Adjustment to prior year estimates 5,000 (40,000)
--------- ---------
Income tax provision $ 857,000 $ 322,000
========= =========
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The components and changes in deferred tax assets and liabilities were as
follows:
November 30, 2004 November 30, 2003
----------------- -----------------
Current Deferred Taxes -
Allowance for doubtful accounts $ 45,000 $ 33,000
Inventory 280,000 267,000
Accrued liabilities and other 203,000 86,000
----------------- -----------------
Net current deferred tax asset $ 528,000 $ 386,000
----------------- -----------------
Non-current Deferred Taxes Liability
Depreciation and other $ 72,000 $ 69,000
----------------- -----------------
Net deferred taxes $ 456,000 $ 317,000
================= =================
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The Company's primary line of business relates to the design, manufacture, and sale of hybrid microcircuits and optoelectronic components and assemblies. Sales result primarily from subcontracts with customers for ultimate production and delivery to the United States government. Sales to primary contractors for defense and space related contracts accounted for 64% of total sales in 2004 and 62% of total sales in 2003. During 2004, two customers accounted for 9% and 10% of the Company's sales compared to 12% and 7% for the year ended November 30, 2003.
On November 30, 2004, there were approximately 559 shareholders of record of the Company's common stock. The stock of the Company is closely held; and, therefore, certain shareholders/board members have the ability to significantly influence decisions.
On January 8, 2004, the Board of Directors of Micropac Industries, Inc. approved the payment of a special dividend of $0.05 per share for shareholders of record as of January 30, 2004. This dividend was paid to the Company's shareholders on February 13, 2004.
On August 27, 2003, the Company purchased 548,836 shares of the Company's common stock pursuant to the terms of an agreement dated February 5, 2001, between the Company and Mr. Nadolsky ("Agreement"). The Agreement obligated the Company to purchase any shares of the Company's common stock owned by Mr. Nadolsky at the fair market value thereof (but in no event less than the book value of such shares) in the event of his death, permanent disability or termination of employment. Mr. Nadolsky's employment terminated on May 1, 2003. By letter dated August 15, 2003, Mr. Nadolsky requested that the Company purchase the 548,836 shares of the Company's common stock he owned pursuant to the requirements of the above agreement and agreed that the fair value of each share of his common stock was $2.68. The Company paid Mr. Nadolsky a total purchase price of $1,470,880. These shares were subsequently retired.
On March 1, 2001, the Company's shareholders approved the 2001 Employee Stock Option Plan (the "Stock Plan"). As of November 30, 2004, there were 500,000 options available to be granted; however, no options had been granted at year-end.
On December 29, 2004, the Board of Directors of Micropac Industries, Inc. approved the payment of a $.12 per share dividend to all shareholders of record on January 25, 2005. The dividend payment will be paid to shareholders on or about February 8, 2005.
NICHOLAS NADOLSKY
Chairman of the Board
Micropac Industries, Inc
CONNIE WOOD
Chief Executive Officer
Micropac Industries, Inc.
HEINZ-WERNER HEMPEL
Chief Operating Officer
Hanseatishe Waren Handelsgesellschaft MBH & Co. KG, Bremen, Germany
H. KENT HEARN
Stockbroker
Milkie-Ferguson, Dallas, Tx.
JAMES K. MURPHEY
Corporate Attorney
Glast, Phillips and Murray, Dallas, Tx.
PATRICK CEFALU
Chief Financial Officer
Micropac Industries, Inc.
MARK KING
Chief Operating Officer
Micropac Industries, Inc.
LEGAL COUNSEL TRANSFER AGENT & REGISTRAR Glast, Phillips and Murray Securities Transfer Dallas, Tx Frisco, Texas |
Exhibit 10.1
Document of Understanding Between Advanced Energy Industries and Affiliates MicroPac Industries Inc. Contract Number: 1009
1. PREAMBLE
This agreement is made as of this 01st day of February 2003 by and between Advanced Energy Industries, Inc. & Affiliates (hereinafter referred to as "Buyer") and MicroPac Industries Inc. (hereinafter referred to as "Seller"), under which services shall be performed. Affiliates shall mean any person, or entity directly or indirectly controlled by, controlling or under common control with Advanced Energy Industries, Inc. This contract will be reviewed on an annual basis and unless terminated by either party, as provided for in Section 19, shall continue to be in force.
2. TERMS AND CONDITIONS
No terms and conditions other than the terms and conditions set forth in this document in conjunction with the general terms and conditions placed on http:\\www.advanced-energy.com/terms & conditions shall be binding unless specifically accepted by both the Buyer's authorized Purchasing Agent or Commodity Manager and the Seller's authorized agent. Any terms and conditions set forth in any document attached to or incorporated by reference in this contract shall be binding unless specifically accepted by both the Buyer's authorized Purchasing Agent or Commodity Manager and the Seller's Authorized agent. This contract is intended as the complete and final agreement of both parties and exclusive statement of its terms and may not be changed, altered or modified, except in writing by agreement of both parties.
3. WARRANTY
The Seller warrants the goods and materials furnished under this Contract for workmanship, material and compliance with all specifications, for a period of twelve (12) months. The Seller shall comply with all applicable Colorado State, Federal and local laws, rules and regulations. The exclusive venue for any litigation concerning this matter shall be in the Larimer County District Court in Fort Collins, Colorado.
4. LIABILITY
The Seller agrees that the relationship established by this order constitutes the Seller as an independent contractor and that, no tax assessment or legal liability of the Seller or of his agents or employees becomes, by reason of this order, an obligation of the Buyer.
5. REMEDY
Seller will not be responsible for incidental or consequential damages. Seller's entire remedy will be the value of the product sold to Buyer.
6. BUYER CHANGES
Buyer shall have the right to make changes to existing orders. Purchase order changes will be allowed only if authorized by Buyer. If such change affects delivery, quality or amount to be paid by Buyer, Seller shall notify Buyer of such changes in writing.
Document of Understanding Between Advanced Energy Industries and Affiliates MicroPac Industries Inc. Contract Number: 1009
7. ENGINEERING CHANGE ORDERS AND BUYER CHANGES
All engineering change orders will be communicated to Seller via an Engineering
Change Order (ECO). If such change affects delivery, quality or the amount to be
paid by Buyer, Seller shall notify Buyer immediately. The charges for scrap
and/or rework resulting from any change submitted via Buyer's ECO process, shall
be limited to the materials in process at the time of the change and within
Seller's manufacturing cycle, as defined in the related addendum. These charges
will be communicated in their entirety in writing, to Buyer, within fifteen (15)
working days of receipt of ECO. Buyer will not be responsible for any costs
associated with the change order which are not identified within the fifteen
(15) working day window.
8. DELIVERY
Seller is to schedule non-Kanban part shipments, as defined in the addendum, such that deliveries are received no more than 3 days earlier than the due date and zero (0) days late. The date specified in a purchase order, or required in an addendum, is the date due in house. A Kanban part, as defined in the addendum, may be delivered only after the supplier is signaled in the business system software. Kanban parts may be delivered anytime prior to the due date and zero (0) days late, where the due date is defined in the addendum. Seller is responsible for all costs associated with expedited delivery when the need to expedite is due to the Seller's inability to meet Buyer's demand. The only exception is when Buyer pulls in demand within Seller's lead-time window.
9. PACKAGING
Identification of the goods shall occur when they are placed in the hands of the Carrier. Title shall pass to Buyer upon delivery to Carrier. Seller agrees to insure that shipments are properly packaged and described in accordance with specifications and/or applicable carrier regulations. Seller is responsible for packing any shipment correctly based on the carrier/mode utilized. Seller is responsible for all shipments that are damaged in transit due to improper packaging, improper judgment, or any other act of omission of the seller. Charges for packing and crating shall be deemed part of the purchase price, and no additional charges will be made unless specifically requested by Advanced Energy. Seller agrees to ship via the carrier specified by Advanced Energy. If no carrier is specified by Advanced Energy, then the seller will ship best way. Shipments will be made at the lowest freight charges. All Kanban or PC shipments received shall have either a copy of the AE Kanban signal or PC enclosed with the packing slip or the following information listed on the outside of the box:
. AE Part Number
o # of parts in shipment
o box # of total boxes (i.e. 3 of 5)
o Indicate type KB for Kanbans of PC for Purchase Orders
o Kanban Bin Size
o Container #
Document of Understanding Between Advanced Energy Industries and Afiliates MicroPac Industries Inc. Contract Number: 1009
10. SHIPPING
The goods described herein shall be delivered FOB Garland TX. Buyer's Purchasing Agent or Commodity Manager shall authorize means of shipment. If seller chooses alternative method of shipment without Buyer's authorization, Seller is responsible for any incremental shipping charges.
11. KANBAN PULL PROCESS
Seller will participate in a Kanban pull process for specifically agreed upon part numbers, as listed in addendum. This list will be updated as parts are added to or deleted from the Kanban program, with agreement between Buyer and Seller.
Buyer's authorized Purchasing Agent or Commodity Manager and Seller shall agree on the Kanban quantity and replenishment strategy for each part number. Kanban quantities for all part numbers will be reviewed by Buyer on an as required basis and adjusted accordingly. Buyer's quantity of Finished Goods Bins is subject to change dependent upon Seller's ability to reduce manufacturing lead-time. Changing the quantity of Finished Goods Bins at the buyer's facility does not necessitate re-negotiation of this contact. Seller agrees that no shipments will be made to Buyer unless authorized by Buyer.
12. PURCHASE ORDER
Buyer will also be entitled to issue purchase orders for individual items separate from the Kanban Pull process and the Schedule Agreement Process, as quoted by Seller and agreed to in writing by Buyer.
13. SCHEDULE AGREEMENT
Schedule Agreements will be issued with agreement by Buyer and Seller for a specific time frame, by part number, negotiated price and estimate annual usage. Buyer shall provide Seller with demand information as part of the planning and forecasting process, to be updated periodically as agreed upon by Buyer and Seller. This report is for use as a planning tool only. Seller is responsible for any and all material purchased beyond the agreed upon liabilities, as stated in addendum.
14. LIMITATION OF MATERIAL LIAB1LITY
The extent and limitation of Buyer's liability for materials purchased by Seller are as defined in the addendum. On all standard or non-NCNR parts, AE will assume
No liability. When the size of a bin is reduced, the inventory liability will be a function of the old bin size minus pulls. The goal is to consume excess inventory driven by the old bin size down to the new bin size liability. At which point, this would become the contractual addendum amount AE is liable to purchase. AE's expectation is that the seller's supply chain be decreased accordingly and consistently.
Document of Understanding Between Advanced Energy Industries and Affiliates MicroPac Industries Inc. Contract Number: 1009
15. PRICING
Buyer and Seller agree to the price(s) set forth in the appropriate addendum. Any change in the contracted price must have written approval by Buyer's Commodity Manager or Purchasing Agent, prior to implementation. Seller will establish a cost reduction program, which will be reviewed on an annual basis. Cost changes will be reflected in price adjustments and a revised addendum to this document.
16. PAYMENT TERMS
Terms of payment are net 30 days for each shipment invoiced, unless otherwise expressly provided for and confirmed in writing by the Seller. Method of payment for goods receipt is electronic receipt settlement (ERS). Seller shall use standard invoicing for charges on any items that do not require a goods receipt.
17. PROPRIETARY INFORMATION
It is understood that the Buyer may provide proprietary information to the Seller, likewise, Seller may provide proprietary information to Buyer in the performance of this contract. "Proprietary Information" shall be deemed to include all information conveyed by one party to the other party orally, in writing, by demonstration or by magnetic or other media. If the disclosure is in other than written form, the information shall not be deemed Proprietary Information after thirty (30) days unless within that period the disclosing party has identified it as such in written summary communicated to the receiving party. Proprietary Information may also include, by way of example but without limitations, data, know-how, formulas, algorithms, processes, design, sketches, photographs, plans, drawings, specifications, samples, reports, customer and distributor names, pricing information, market definitions, inventions and ideas.
Proprietary Information shall not include information, which can be clearly demonstrated to be:
a) generally known or available to the public, through no act of
omission on the part of the receiving party; or
b) known to the receiving party prior to disclosure under this
agreement; or
c) provided to the receiving party by a third party without any
restriction on disclosure and without breach of any obligation of
confidentiality to a party.
Both parties to this agreement, agree to return to the forwarding party all documents containing propriety information and to retain no copies thereof. In addition, ownership and possession of all product assembly and test fixtures, tooling, test programs, Non-Recurring Engineering (NRE) tooling, test equipment and consigned equipment, shall revert to Buyer. Both parties to the agreement agree that the obligation to protect proprietary information shall be ongoing and shall riot cease upon completion or termination of this contract.
Document of Understanding Between Advanced Energy Industries and Affiliates MicroPac Industries Inc. Contract Number: 1009
18. COPY EXACT
Technical expectation for Design Confrol and Change Management
Design Changes and Resolution
o A supplier shall not make changes to a design that alters the specifications,
manufacturing process, form, fit, or function of such items. A supplier may be
allowed to submit a change request to an item using Advanced Energy's Supplier
Callback Process (FPOO16). This change cannot be implemented until the supplier
has received written approval from Advanced Energy via Supplier Callback Form
(QFOO6O).
Process Changes and Resolution
o The supplier shall obtain approval from Advanced Energy of any process or
sub-tier suppliers' changes, including without limitation any changes in the
manufacturing process of a sub-tier supplier, even when specifications are being
met The supplier must receive approval in writing from Advanced Energy before
implementing such changes. If required by Advanced Energy, the supplier must use
special process suppliers from the list of approved suppliers.
Suppliers Subcontracts
o A supplier shall not sub-contract any components and/or processes without
Advanced Energy's prior written approval.
19. SUPPLIER CERTIFICATION
The Commodity Team will grade the Seller on a Quarterly basis as part of the AE Supplier Certification Program. The Seller's performance will be graded based upon their Quality, Delivery, Cost, and Service. If the Seller meets the minimum scores in each category, the Seller will be classified as a AE Certified Supplier for a period of 1 year.
20. REVIEWS
Buyer and Seller agree to conduct Quarterly Business Reviews, at an agreed venue. Such reviews shall be conducted by the Buyer's Commodity Manager or authorized Purchasing Agent. Pricing will be reviewed annually, by the Seller and the Buyer's Commodity Manager or authorized Purchasing Agent. Supplier will establish and maintain a formal cost reduction program. Material or labor cost savings identified by the Seller shall be implemented immediately and shared equally between the Buyer and the Seller.
21. DEFECTIVE MATERIAL RETURN POLICY
The Buyer will issue a DMR to the Seller prior to returning failed product to the Seller. Seller shall acknowledge Buyer DMR with an RMA number within twenty-four (24) hours. Seller shall repair or replace failed products under warranty in 15 working days, at Seller's discretion, at Seller's expense. The Seller will pay freight on goods returned to the Buyer which are covered by warranty.
Document of Understanding Between Advanced Energy Industries and Affiliates MicroPac Industries Inc. Contract Number: 1009
22. QUALITY ASSURANCE
All sold to Advanced Energy by the seller will be built and packaged in accordance with the Advanced Energy Workmanship Manual Revision AA. All parts and/or materials may be subject to an incoming inspection criteria of AQL=1.5 C=0 to the applicable manufacturer and/or AE drawings and/or specifications. Seller, when acting as a Distributor, will ship only those parts listed on AE's Approved Vendor List (AVL). Furthermore, Seller shall meet specific qualification requirements and agree to follow all quality procedures specified in the AE material specifications. Supplier shall o Participate in the Supplier Certification Program if applicable o Allow annual Supplier Audits o Provide within 10 working days a response to all Supplier Corrective Action Requests (SCAR) o Generate any Supplier Action Plans (SAPs) as requested by SQE/CE o Utilize Supplier Call Back Procedure for any change request or issues o Ensure that when verbal instructions are given, a Supplier Callback Form is sent with 5 working days to AE to document the instructions o Comply with all first article requirements listed in First Article Procedure (FP0125)
MicroPac Quality Contact is ______________.
23. COMPLETE AGREEMENT
This contract is intended as the complete and final agreement of ~the parties and exclusive statement of its terms. This contract may not be changed, altered or modified, except in writing by the party against whom enforcement is sought. Either party with (thirty (30)) days written notice may terminate this agreement. This clause is subject to review after one year.
24. MATERIAL PIPELINE REQUIREMENTS
The Seller is responsible setting up and maintaining a pipeline of finished goods for the items listed in the addendum that will meet the following demands:
a. Be able to provide product to the Buyer in the specified quantities
and delivery times set forth in the Kanban agreements
b. Be able to meet and sustain the demands of a 50% ramp immediately
c. Be able to meet and sustain the demands of a 100% ramp in 8 weeks.
The Seller is solely responsible for managing this pipeline and ensuring their ability to meet the requirements listed above. The Buyer may at its discretion audit the Seller's material pipeline if problems arise with the On Time Delivery (OTD) or quantity of product delivered.
Document of Understanding Between Advanced Energy Industries and Affiliates MicroPac Industries Inc. Contract Number: 1009
25. SIGNATURE PAGE:
Signature attests that the parties have reviewed this agreement and concur with the parameters:
Advanced Energy Industries, Inc. MicroPac Industries
Exhibit 10.2
PROMISSORY NOTE
Principal Loan Date Maturity Loan No Cal/Coll $3,000,000.00 06-05-2004 06-01-2005 9001 500/0010
Borrower: MICROPAC INDUSTRIES, INC. (TIN: 74-1225 149)
905 E WALNUT ST
GARLAND, TX 75040
Lender: THE FROST NATIONAL BANK
ADDISON FINANCIAL CENTER
P.O. BOX 1600
SAN ANTONIO, TX 78296
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Principal Amount: $3,000,000.00 Date of Note: June 5, 2004
PROMISE TO PAY. MICROPAC INDUSTRIES, INC. ("Borrower") promises to pay to THE FROST NATIONAL BANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of Three Million & 00/100 Dollars ($3,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance or maturity, whichever occurs first.
CHOICE OF USURY CEILING AND INTEREST RATE.The interest rate on this Note has been implemented under the "Weekly Ceiling" as referred to in Sections 303.002 and 303.003 of the Texas Finance Code. The terms, including the rate, or index, formula, or provision of law used to compute the rate on the Note, will be subject to revision as to current and future balances, from time to time by notice from Lender in compliance with Section 303.103 of the Texas Finance Code.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on June 1, 2005. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning July 5, 2004, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs; then to any late charges; then to any accrued unpaid interest; and then to principal. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding, unless such calculation would result in a usurious rate, in which case interest shall be calculated on a per diem basis of a year of 365 or 366 days, as the case may be. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is Lender's Prime Rate (the "Index"). This is the rate Lender charges, or would charge, on 90-day unsecured loans to the most creditworthy corporate customers. This rate may or may not be the lowest rate available from Lender at any given time. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. The interest rate to be applied prior to maturity to the unpaid principal balance of this Note will be at a rate of 0.250 percentage points under the Index. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. For purposes of this Note, the "maximum rate allowed by applicable law" means the greater of (A)the maximum rate of interest permitted under federal or other law applicable to the indebtedness evidenced by this Note, or (B) the "Weekly Ceiling" as referred to in Sections 303.002 and 303.003 of the Texas Finance Code.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Prepayment in full shall consist of payment of the remaining unpaid principal balance together with all accrued and unpaid interest and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, and in no event will Borrower ever be required to pay any unearned interest. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: THE FROST NATIONAL BANK, P.O. BOX 1600 SAN ANTONIO, TX 78296.
LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $250.00, whichever is less.
POST MATURITY RATE. The Post Maturity Rate on this Note is the lesser of the maximum rate allowed by applicable law or 18.000% per annum. Borrower will pay interest on all sums due after final maturity, whether by acceleration or otherwise, at that rate.
DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this Note.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness, including the unpaid principal balance on this Note, all accrued unpaid interest, and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, immediately due, without notice, and then Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire an attorney to help collect this Note if Borrower does not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower also will pay Lender all other amounts Lender actually incurs as court costs, lawful fees for filing, recording, releasing to any public office any instrument securing this Note; the reasonable cost actually expended for repossessing, storing, preparing for sale, and selling any security; and fees for noting a lien on or transferring a certificate of title to any motor vehicle offered as security for this Note, or premiums or identifiable charges received in connection with the sale of authorized insurance.
GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of Texas. This Note has been accepted by Lender in the State of Texas.
CHOICE OF VENUE. If there is a lawsuit, and if the transaction evidenced by this Note occurred in BEXAR County, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of BEXAR County, State of Texas.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure. This revolving line of credit shall not be subject to Ch. 346 of the Texas Finance Code.
OTHER CREDITS AFFECTING AVAILABILITY. Any other credits made available to Borrower by Lender, such as other loans or letters of credit, may be advanced to Borrower and/or issued under this line of credit commitment, and any such advances or issuances shall, in addition to the outstanding advances on this Note, reduce the outstanding availability on the Line of Credit.
DISHONORED CHECK CHARGE. In the event a check offered in full or partial payment on this loan is returned unpaid, Lender may charge a fee for the purpose of defraying the expense incident to handling such returned check, and Borrower agrees to pay such fee. The fee shall not exceed the maximum amount permitted under applicable law.
FINANCIAL INFORMATION. Borrower agrees to promptly furnish and cause any other person who signs, guarantees or endorses this Note or any other document executed in connection with this Note, to furnish such financial information and statements, including financial statements in a format acceptable to Lender, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's or such person's financial condition and business operations as Lender may request from time to time. This provision shall not alter the obligation to deliver to Lender any other financial statements or reports pursuant to the terms of any other loan documents executed in connection with this Note.
INSURANCE. Borrower agrees to maintain insurance of such types, including public liability insurance, and in such amounts as are satisfactory to Lender and to furnish Lender upon request with a detailed list, in form and substance satisfactory to Lender, of all insurance then in effect.
FACSIMILE DOCUMENTS AND SIGNATURES. For purposes of negotiating and finalizing this document, if this document is transmitted by facsimile machine ("fax"), it shall be treated for all purposes as an original document. Additionally, the signature of any party on this document transmitted by way of a fax machine shall be considered for all purposes as an original signature. Any such faxed document shall be considered to have the same binding legal effect as an original document. Upon request of Lender, any faxed document shall be re-executed by each signatory party in an original form.
WAIVER OF RIGHT TO TRIAL BY JURY. THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT TO ENFORCE THIS AGREEMENT, TO COLLECT DAMAGES FOR THE BREACH OF THIS AGREEMENT, OR WHICH IN ANY OTHER WAY ARISE OUT OF, ARE CONNECTED TO OR ARE RELATED TO THIS AGREEMENT OR THE SUBJECT MATTER OF THIS AGREEMENT. ANY SUCH ACTION SHALL BE TRIED BY THE JUDGE WITHOUT A JURY.
RENEWAL AND EXTENSION. This Note is given in renewal and extension and not in novation of the following described indebtedness: The promissory note from Borrower to Lender dated June 6, 2003 in the original principal amount of $3,000,000.00.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum lender would be permitted to charge or collect by federal law or the law of the State of Texas (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. The right to accelerate maturity of sums due under this Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to charge or collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan evidenced by this Note until payment in full so that the rate or amount of interest on account of the loan evidenced hereby does not exceed the applicable usury ceiling. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, notice of dishonor, notice of intent to accelerate the maturity of this Note, and notice of acceleration of the maturity of this Note. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
MICROPAC INDUSTRIES, INC.
By: ________________________________________________________ CONNIE J. WOOD, President/CEO of Micropac Industries,Inc.
BUSINESS LOAN AGREEMENT
Principal Loan Date Maturity Loan No Cal/Coll
$3,000,000.00 06-06-2003 06-04-2004 9001 500/0010
Borrower: MICROPAC INDUSTRIES, INC. (TIN: 74-1225 149)
905 E WALNUT ST
GARLAND, TX 75040
Lender: THE FROST NATIONAL BANK
ADDISON FINANCIAL CENTER
P.O. BOX 1600
SAN ANTONIO, TX 78296
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THIS BUSINESS LOAN AGREEMENT dated June 6, 2003, is made and executed between MICROPAC INDUSTRIES, INC. ("Borrower") and THE FROST NATIONAL BANK ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement ("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations. warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of June 6, 2003, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of
Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel.
Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Delaware. Borrower is duly authorized to transact business in the State of Texas and all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 905 EAST WALNUT STREET, GARLAND, TX 75040. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities.
Assumed Business Names. Borrower has filed or recorded all documents or
filings required by law relating to all assumed business names used by
Borrower. Excluding the name of Borrower, the following is a complete
list of all assumed business names under which Borrower does business:
None.
Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of Borrower's articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties.
Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.
Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of Borrower's Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal. release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws, Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement. the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:
Notices of Claims and Litigation. Promptly inform Lender in writing of
(1) all material adverse changes in Borrower's financial condition, and
(2) all existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower or any
Guarantor which could materially affect the financial condition of
Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.
Financial Statements. Furnish Lender with the following:
Annual Statements. As soon as available, but in no event later than one-hundred-twenty (120) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender.
Interim Statements. As soon as available, but in no event later than 45 days after the end of each fiscal quarter, Borrower's balance sheet and profit and loss statement for the period ended, reviewed by a certified public accountant satisfactory to Lender.
All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements, as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and ratios:
Working Capital Requirements. Borrower shall comply with the following working capital ratio requirements:
Quick Ratio. Maintain a Quick Ratio in excess of 1.000 to 1.000. The term "Quick Ratio" means Borrower's Cash & Equivalent plus Borrower's net Trade Receivables divided by Borrower's total Current Liabilities.
Tangible Net Worth Requirements. Borrower shall comply with the following net worth ratio requirements:
Debt / Worth Ratio. Maintain a ratio of Debt / Worth not in excess of 1.250 to 1.000. The ratio "Debt / Worth" means Borrower's Total Liabilities divided by Borrower's Tangible Net Worth,
Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, and coverages reasonably acceptable to Lender and by insurance companies authorized to transact business in Texas. BORROWER MAY FURNISH THE INSURANCE REQUIRED BY THIS AGREEMENT WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY BORROWER OR THROUGH EQUIVALENT COVERAGE FROM ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN TEXAS. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for the following specific purposes: REVOLVING LINE OF CREDIT TO PROVIDE FINANCING FOR OPERATIONS AND ACQUISITIONS OF ASSETS FOR CORPORATE GROWTH.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits.
Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.
Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.
Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.
Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations. and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.
Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.
Compliance Certificates. Unless waived In writing by Lender, provide Lender within forty-five (45) days after the end of each fiscal quarter, with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements. assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower s failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes. liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures paid by Lender for such purposes will then beer interest at the Note rate from the date paid by Lender to the date of repayment by Borrower. To the extent permitted by applicable law, all such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; o(B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:
Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (1) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (2) cease operations, liquidate, merge, transfer. acquire or
consolidate with any other entity, change its name. dissolve or
transfer or sell Collateral out of the ordinary course of business, or
(3) pay any dividends on Borrower's stock (other than dividends payable
in its stock), provided, however that notwithstanding the foregoing,
but only so long as no Event of Default has occurred and is continuing
or would result from the payment of dividends, if Borrower is a
"Subchapter S Corporation" (as defined in the Internal Revenue Code of
1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the
shareholders to pay income taxes and make estimated income tax payments
to satisfy their liabilities under federal and state law which arise
solely from their status as Shareholders of a Subchapter S Corporation
because of their ownership of shares of Borrower's stock, or purchase
or retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
Loans. Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Borrower fails to make any payment when due under the Loan.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation. covenant or condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the Commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.
Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.
Insecurity. Lender in good faith believes itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.
TANGIBLE NET WORTH. Borrower shall maintain throughout the term of this Agreement a minimum Tangible Net Worth of not less than $6,250,000.00, plus 75% of future net income. "Tangible Net Worth" is defined as Net Worth (defined in accordance with generally accepted accounting principles) less all intangibles and inter-company receivables.
ADDITIONAL INDEBTEDNESS. Notwithstanding anything to the contrary contained in paragraph entitled "Indebtedness and Liens" under Section entitled "Negative Covenants" Borrower shall be permitted to incur additonal indebtedness for the purpose of purchase money security interests and capital leases without the consent of Lender.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement. together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including Lender's reasonable attorneys fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.
Governing Law. This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Texas. This Agreement has been accepted by Lender in the State of Texas.
Choice of Venue. If there is a lawsuit, and if the transaction evidenced by this Agreement occurred in BEXAR County, Borrower agrees upon Lender's request to submit to the jurisdiction of the Courts of BEXAR County, State of Texas.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.
Payment of Interest and Fees. Notwithstanding any other provision of this Agreement or any provision of any Related Document, Borrower does not agree or intend to pay, and Lender does not agree or intend to charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for the Loan which would in any way or event (including demand, prepayment, or acceleration) cause Lender to contract for, charge or collect more for the Loan than the maximum Lender would be permitted to charge or collect by any applicable federal or Texas state law. Any such excess interest or unauthorized fee will, instead of anything stated to the contrary, be applied first to reduce the unpaid principal balance of the Loan, and when the principal has been paid in full, be refunded to Borrower.
Severability. If a Court of Competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates.
Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.
Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents.
Borrower further agrees that regardless of any investigation made by Lender, all such representations. warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence. Time is of the essence in the performance of this Agreement.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:
Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.
Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.
Borrower. The word "Borrower" means MICROPAC INDUSTRIES, INC., and all other persons and entities signing the Note in whatever capacity.
Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, at seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.
Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan.
Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.
Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their
very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.
Lender. The word "Lender" means THE FROST NATIONAL BANK, its successors and assigns.
Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.
Note. The word "Note" means the Note executed by MICROPAC INDUSTRIES, INC. in the principal amount of $3,000,000.00 dated June 6, 2003, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.
Permitted Liens. The words "Permitted Liens" mean (1) liens and
security interests securing Indebtedness owed by Borrower to Lender;
(2) liens for taxes, assessments, or similar charges either not yet due
or being contested in good faith; (3) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (4) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens"; (5) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (6) those liens
and security interests which in the aggregate constitute an immaterial
and insignificant monetary amount with respect to the net value of
Borrower's assets.
Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages. and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.
Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien. charge, encumbrance, mortgage, deed of trust, security deed, assignment. pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total debt.
Trade Receivables.The words "Trade Receivables" mean all of Borrower's accounts from trade, net of allowance for doubtful accounts.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED JUNE 6, 2003.
BORROWER:
MICROPAC INDUSTRIES, INC.
Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), made as of the 1ST day of May 2002, is by and between Micropac Industries, Inc., a Delaware corporation (the "Company") and Connie Wood , an individual and resident of Texas (the "Employee") (the Company and the Employee herein referred to collectively as the "Parties").
WHEREAS, Employee is the President and Chief Executive Officer of the Company.
WHEREAS, the Company desires to retain the employment of the Employee and the Employee desires to continue her employment with the Company under the terms and conditions as hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee in the capacity of President and Chief Executive Officer, and the Employee hereby accepts such employment upon the terms and conditions hereinafter set forth.
2. TERM. Subject to the provisions for termination hereinafter set forth in Paragraph 13, the term of this Agreement ("Term") shall commence from the date set forth above, and shall continue until termination occurs.
3. DUTIES.
(a) During the term of this Agreement, the Company agrees to provide Employee with training and information (much, if not all, of which is confidential and/or proprietary and/or contains trade secrets of the Company) which will enable Employee to perform her job duties.
(b) The Employee agrees to perform the duties normally performed by the President and Chief Executive Officer of a Corporation and to perform such duties as are assigned to her from time to time by the Board of Directors of the Company, or any other person authorized by the Board of Directors. The Employee agrees to perform such duties faithfully and to the best of her ability and to devote a reasonable portion of her time to the conduct of the Company's business.
4. ACTIONS REQUIRING APPROVAL. The following actions by the Employee shall require the prior written approval of the Board of Directors of the Company:
(a) the acquisition, disposal, mortgage or encumbrance of real property or buildings (including any lease of such real property);
(b) the acquisition of any fixed asset at a cost exceeding $50,000.00.
(c) contracting for the performance of building or construction work at a cost exceeding $50,000.00.
(d) the establishment or closing down of branch offices of the Company;
(e) the entering into, termination of or alteration of tenancy agreements, leases or agreements to lease at costs exceeding $50,000.00 per annum.
(f) the entering into, termination of or alteration of any agreements under which the Company agrees to perform its business, whether in whole or in part, for the benefit of another person or company; beyond the normal conduct of the business;
(g) the entering into guarantees not usual in the type of business carried on by the Company from time to time.
(h) the drawing or accepting of drafts or promissory notes, excluding checks;
(i) the granting or obtaining of credit or loans which are not normal to the running of the business or which exceed the credit limits granted to the Company;
(j) the entering into, termination or alteration of contracts of employment involving Vice Presidents or Officers of the Corporation.
(k) the granting of any payment, allowance or other benefit to any employee where such grant is made upon, from or after the termination through may cause of that employee's employment with the Company; exceeding $50,000.00;
(l) the granting or withdrawal of the Company's Power of Attorney to or from any person;
(m) the making to or with any person of a promise, agreement or representation relating to participation of the person in the turnover or profits of the Company;
(n) entering into financial transactions with a shareholder or manager of the Company and establishing salaries and/or remunerations of board members;
(o) the entering into consultancy agreements or agreements of a similar nature;
(p) the purchase or disposal of shares in any company.
(q) the purchase or disposal of an enterprise, as a whole or in part.
(R)) new product development programs with budgets over $50,000.00 per year.
5. COMPENSATION AND BENEFIT PLANS. As compensation for the services to be rendered by the Employee to the Company, the Company agrees to pay Employee a base salary of $156,000 per year ("Base Salary"). Upon the request of Employee, the Board of Directors of Company shall consider increasing Employee's Base Salary by Twenty-Five Thousand Dollars ($25,000) per year.
Employee shall be entitled to participate (if Employee so elects) in any group life, disability, health or similar insurance program established for employees of Company or any retirement, pension and profit sharing plan for the benefit of employees of the Company. The Company shall pay the Employee's monthly disability insurance coverage premiums during the Term.
Employee shall be entitled each twelve (12) month period to five (5) weeks vacation and all Company holidays during which vacation and holidays her compensation shall be paid in full. If Employee does not utilize five (5) weeks vacation in any twelve (12) month period (both prior to and subsequent to the date of this Agreement), Employee may carry over any unused vacation time to subsequent periods or elect to be paid for such unused vacation time. Employee shall, if requested, notify the Company's Board of Directors in advance of the dates of vacation times designated by Employee, which times shall be at Employee's discretion.
6. REIMBURSEMENT OF EXPENSES. The Employee is authorized to incur reasonable business expenses, subject to approval by the Company, for promoting the business of the Company, including expenditures for entertainment, gifts and travel. The Company will reimburse the Employee periodically, in accordance with the policy of the Company; for all such expenses approved by the Company provided that the Employee presents to the Company such documentation as the Company may from time to time require.
7. EMPLOYEE LOYALTY. Employee shall devote her entire productive time, energy, ability and attention to the performance of the duties expected to be performed by Employee throughout the term of her employment with the Company. Employee shall not directly or indirectly render any services, or become interested in or associated with any individual, business, corporation, partnership or other entity, or any other organization which is in any manner in competition with the Company, whether for compensation or otherwise, during the term of her employment with the Company, without the prior, written consent of the management of the Company.
8. EMPLOYEE'S BEST EFFORTS REQUIRED. Employee agrees that she at all times will perform faithfully, industriously, and to the best of her ability, experience and talent, all duties that may be required of Employee pursuant to the express and implicit terms of this Agreement. Such duties may be set out in the Company's rules, regulations or instructions from time to time.
9. TRADE SECRETS. Employee acknowledges that, in the course of performing the duties described herein, she shall have access to and may be entrusted with certain information pertaining to the present and contemplated business activities of the Company. Employee acknowledges that this information is of great value and necessary for Employee to perform her services effectively, and that the disclosure of such information to any other party would be detrimental to the interests of the Company, which information includes, but may not be limited to, all files, records, documents, training and operational manuals, research, policies, plans, systems, lists, charts, names, addresses and telephone numbers of clients of the Company, compilations of information relating to the business of the Company, whether said information was generated by a third party or by the Company , and similar items relating to the business of the Company, whether prepared by Employee during the term of this Agreement or otherwise coming into her possession ("Trade Secrets"). Employee acknowledges and agrees with the Company that such Trade Secrets are the sole proprietary information of the Company and shall be treated by Employee as confidential information of the Company, and that none of said Trade Secrets or the facts contained therein shall be transmitted verbally or in writing by Employee except in the ordinary course of conducting business for the Company. Employee covenants and agrees with the Company that she will not, during the term of this Agreement, disclose such Trade Secrets to any person or entity, nor use the Trade Secrets other than as may reasonably be required in the normal course of employment under this Agreement; and that she will not, after termination of this Agreement, disclose or make use of such Trade Secrets without the prior written consent of the Company. Employee agrees that the Trade Secrets shall remain the exclusive property of the Company and shall not be copied or reproduced in any manner whatsoever without the prior written consent of the Company and shall be returned to the Company upon termination of this Agreement.
10. RESTRICTIVE COVENANTS.
a. Noncompetition by Employee. During the term of this Agreement,
Employee shall not, directly or indirectly, either as an
employee, independent contractor, consultant, agent,
principal, partner, stockholder, corporate officer, director
of any entity, or in any other individual or representative
capacity, without the prior written consent of the Company,
(1) engage, either directly or indirectly, in any business
which is in competition in any manner with that of the Company
or any Group Company or (2) attempt to influence any person or
entity not to do business with the Company or any Group
Company.
b. Solicitation of Other Employees of the Company. Employee agrees, for a period of one (l) year following the termination of this Agreement, not to directly or indirectly, or by act in concert with others, employ or attempt to employ or solicit for employment to any business which is in competition with that of the Company or any Group Company, any other employees of the Company or any of the Group Companies or their affiliates, or seek to influence any such persons to terminate their employment with the Company, any of the Group Company or their affiliates.
c. Enforcement of Covenants. Employee expressly acknowledges and
agrees that the provisions contained in Section 10 and Section
11 hereof are reasonable and necessary for the protection and
continued viability of the business of the Company and that a
breach by Employee of any of the provisions contained in
Section 10 and Section 11 hereof would cause the Company
serious loss and damage and that the business of the Company
would be irreparably harmed. If this Agreement is terminated
for any reason, and thereafter Employee violates any of the
provisions contained in Section 10 and Section 11 of this
Agreement, Employee acknowledges and agrees that the Company
shall have the right to immediately cease making payments that
may be due and owing to Employee pursuant to this Agreement,
and shall have the right to continue to withhold such payments
until such time as Employee fully complies with the terms and
conditions set forth in Section 10 and Section 11. Employee
and the Company both acknowledge and agree that exact monetary
and other damages in the event of such violations of the
Agreement are difficult of ascertainment, though great and
irreparable, and, as such, Employee further acknowledges and
agrees with the Company that in the event of a real or
threatened breach by Employee of any of the provisions
contained in Section 10 and Section 11 hereof, the Company
shall be entitled to commence proceedings in any court of
competent jurisdiction for and be entitled to obtain
preliminary or permanent injunctive relief or other
appropriate equitable remedies, which rights and remedies
shall be in addition to any other rights or remedies to which
the Company may be justly entitled at law. If any portion of
Section 10 and Section 11 shall be adjudicated to be invalid
or unenforceable, then the Sections shall be deemed amended to
make the portion comply with law or, if this is not possible,
to delete therefrom the portion thus adjudicated to be invalid
or unenforceable, but such deleted portion of this Agreement
shall remain in effect with respect to the operation of the
Sections in all jurisdictions other than the jurisdiction
which invalidates the portion deleted, without limitation.
d. Survival of Covenants. The covenants contained in Section 10 and Section 11 shall be construed as covenants and agreements independent of any other provision in this Agreement and shall continue to bind the parties to this Agreement and survive any termination of this Agreement.
13. TERM
The Term of this Agreement shall be two (2) years commencing on the effective date of this Agreement, and thereafter from year to year unless otherwise terminated as hereinafter provided.
(a) Absence from employment or inability to perform services hereunder, caused by illness or incapacity of Employee, shall not be deemed a violation by Employee of her obligations under Paragraph 1 of this Agreement, subject, however, to the following terms and conditions:
(i) If Employee is so absent or unable to perform such services by reason of illness or incapacity for a continuous period exceeding one hundred fifty (150) days, then, anything herein to the contrary notwithstanding, Company may terminate this Agreement and all obligations of Company to Employee hereunder shall cease.
(b) In the event of Employee's death during the Term of this Agreement, this Agreement shall terminate, provided, however, Company shall pay to Employee's heirs and assigns the Base Salary for six (6) months after Employee's death, such Base Salary to be paid at the times specified in Paragraph 2 herein. The amount of any salary payments paid while the Employee is disabled shall be subtracted from such six (6) months.
(c) This Agreement may be terminated by Company without liability prior to the expiration of the Term in the event:
(i) of a gross continual and intentional failure of Employee to perform any of the material terms and conditions of this Agreement; or
(ii) Employee is convicted of a felony (as defined in the Texas Penal Code) or a crime involving moral turpitude resulting in a non-appealable conviction by a court of law for such offense.
(d) This Agreement may also be terminated by either Employee or the Company at any time after the initial two (2) year term by sixty (60 days written notice. Such notice will be effective as of the end of such sixty (60) days. If Employee or Company elects to terminate this Agreement her right to compensation shall cease on the effective date of the termination.
14. NOTICE. Any notice required or permitted to be given hereunder shall be deemed given and sufficient if addressed in writing and hand delivered or mailed or faxed to:
in the case of Company:
905 E. Walnut St.
Garland, Texas 75040
in the case of Employee:
905 E. Walnut St.
Garland, Texas 75040
Each party may change its address by written notice in accordance with this paragraph.
15. AMENDMENT AND MODIFICATION. This Agreement sets out the entire agreement and the understanding of the Parties and is in substitution for any previous contracts or understandings, whether oral or in writing, of employment between the Company and the Employee, which shall be deemed to have been terminated by mutual consent. This Agreement contains all of the covenants and agreements between the Parties with respect to such employment in any manner whatsoever. This Agreement may be amended or modified at any time by a subsequent written agreement by and between the Parties hereto.
16. WAIVER. The failure of the Parties hereto to insist, in any one or more instances, upon the performance of any of the terms and conditions of this Agreement, shall not be construed as a waiver or relinquishment of any right granted hereunder or the future performance of any such term, covenant or condition.
17. SEVERABILITY. In the event that any portion of this Agreement may be held to be invalid or unenforceable for any reason, it is agreed that any invalidity or unenforceability shall not affect the remainder of this Agreement and the remaining provisions shall remain in full force and effect and any court of competent jurisdiction may so modify any invalid or unenforceable provision of this Agreement so as to render it valid, reasonable, and enforceable.
18. BENEFIT. Neither this Agreement nor the Parties' obligations hereunder are assignable. Provided, however, that in the event that all or substantially all of the assets and liabilities of the Company are transferred to any third party at any time during the term of this Agreement, any such third party shall be bound by the provisions hereof; provided, Employee may terminate this agreement at any time after such transfer without liability. In the event of a sale of a majority of the outstanding shares of the common stock, the Employee may, on the giving of six(6) months advance notice, terminate this Agreement, in which event neither party shall have any obligations hereunder at the expectation of such six (6) months.
19. GOVERNING LAW AND AGREEMENT TO ARBITRATE. This Agreement shall be governed by and construed in accordance with the law of the State of Texas, except to the extent such law would require reference to the laws of another jurisdiction. Venue shall be in Dallas, Dallas County, Texas. Any disagreement, controversy or dispute between the Company and Employee arising out of, or relating to, this Agreement or the breach thereof, or to Employee's employment with the Company or termination therefrom shall be resolved through arbitration in accordance with the rules of the American Arbitration Association, Dallas, Texas. Any arbitration award of the arbitrators appointed to hear the dispute, or of a majority of them, shall be final and binding, and a judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.
20. PAYMENT OF MONIES DUE EMPLOYEE. If Employee dies prior to the expiration of the term of this Agreement, any monies that may be due her from the Company under this Agreement as of the date of her death shall be paid to her executors, administrators, heirs, personal representatives, successors and assigns pursuant to the terms and conditions of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
22. OTHER INSTRUMENTS. Each Party shall, upon the request of the other Party, execute, acknowledge and deliver any and all instruments, documents or agreements reasonably necessary or appropriate to carry into effect the intention of the Parties as expressed in this Agreement.
23. GENDER. Whenever the contact shall so require, all words herein in any gender shall be deemed to include the male, female or neuter gender; all singular words shall include the plural, and all plural words shall include the singular.
24. SURVIVAL OF PERFORMABLE PROVISIONS. Any provision of this Agreement performable or to be performed after termination of this Agreement shall survive this Agreement and shall continue to be in effect until fully performed or consummated.
25. RULE OF CONSTRUCTION. The Parties to this Agreement acknowledge that each Party and its counsel have reviewed the Agreement and that the normal rule of construction, to the effect that any ambiguities that are to be resolved against the drafting Party, shall not be employed in the interpretation of this Agreement or any amendments to this Agreement.
Signature Page Follows
IN WITNESS WHEREOF, the Employee has hereunto set her signature, and the Company has caused this Agreement to be executed in its corporate name by its officer, duly authorized.
EMPLOYEE: EMPLOYER:
An Individual Micropac Industries, Inc. By: _________________________ By:_________________________________ Name: Connie Wood Name: ______________________________ Title: Employee Title:______________________________ |
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This first amendment ("First Amendment") is entered into between Connie Wood ("Employee") and Micropac Industries, Inc. ("Company") for the purpose of amending that certain employment agreement between Employee and Company dated May 1, 2002 (the "Employment Agreement").
1. Employee Compensation. Effective May 1, 2004, Employee's Annual Compensation shall be One Hundred Eighty Thousand Dollars ($180,000.00) to be paid weekly.
2. Cost of Living Increases. Beginning on May 1, 2005, the Employee's annual compensation for the subsequent twelve (12) month period shall be increased by the same percentage as any percentage increase in the Index ("Index") (as defined herein) for each twelve (12) month period beginning on April 31 of each year and ending on May 1 of the subsequent year. The Index shall mean the Consumer Price Index for Urban Consumers (all items) Dallas-Fort Worth, Texas area published by the United States Department of Labor, Bureau of Labor statistics for the month of April, 2004.
3. Term. The Term of the Employment Agreement is hereby extended for three
(3) years beginning on May 1, 2004, subject to early termination as
provided in the Employment Agreement. After the expiration of such
three (3) years, either the Employee or the Company may terminate the
Employment Agreement, at any time, by giving the other party hereto
ninety (90) days written notice.
Paragraph 13(a)(1) of the Employment Agreement is hereby deleted and the following new paragraph 13(a)(1) is substituted therefore:
(1) If Employee is absent or unable to perform such services by reason of illness or incapacity for a continuous period exceeding twelve (12) months, then, anything herein to the contrary notwithstanding, Company may terminate this Agreement at any time after the expiration of such twelve (12) months and all obligations of Company to Employee hereunder shall cease.
4. Entire Agreement. Except as expressly amended hereby, the remaining terms and conditions of the Employment Agreement shall remain in full force and effect.
Company:
Micropac Industries, Inc.
By:_________________________________
Name & Title:_______________________
Employee:
Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), made as of the 2nd day of February 2004, is by and between Micropac Industries, Inc., a Delaware corporation (the "Company") and Patrick S. Cefalu, an individual and resident of Texas (the "Employee") (the Company and the Employee herein referred to collectively as the "Parties").
WHEREAS, Employee is the Executive Vice-President and Chief Financial Officer of the Company.
WHEREAS, the Company desires to retain the employment of the Employee and the Employee desires to continue his employment with the Company under the terms and conditions as hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee in the capacity of Executive Vice-President and Chief Financial Officer, and the Employee hereby accepts such employment upon the terms and conditions hereinafter set forth.
2. TERM. Subject to the provisions for termination hereinafter set forth in Paragraph 10, the term of this Agreement ("Term") shall commence from the date set forth above, and shall continue until termination occurs, or until a new agreement mutually satisfactory to both parties is executed.
3. DUTIES.
(a) During the term of this Agreement, the Company agrees to provide Employee with information (much, if not all, of which is confidential and/or proprietary and/or contains trade secrets of the Company) which will enable Employee to perform his job duties.
(b) The Employee agrees to perform the duties normally performed by the Executive Vice-President and Chief Financial Officer of a Corporation, and as directed by the President and Chief Executive Officer of the Company. The Employee agrees to perform such duties faithfully and to the best of his ability and to devote all of his time during normal business hours to the conduct of the Company's business.
4. COMPENSATION AND BENEFIT PLANS. As compensation for the services to be rendered by the Employee to the Company, the Company agrees to pay Employee a base salary of Eighty Two Thousand Dollars ($82,000), paid weekly. The base salary of Employee will be reviewed each year during the term of this agreement by the Company's President and CEO. Salary may be adjusted based on Employee's performance. In no event shall the base salary be reduced. Employee will be eligible to participate in any bonus plan recommended by the CEO and approved by the Board of Directors.
Employee shall be entitled to participate (if Employee so elects) in any group life, disability, health or similar insurance program established for employees of Company or any retirement, pension and profit sharing plan for the benefit of employees of the Company. The Company shall pay the Employee's monthly health, disability and life insurance coverage premiums during the Term; and will contribute to the Employee's 401K Plan in accordance with the provisions of that Plan.
Employee shall be entitled each twelve (12) month period to paid vacation time in accordance with the Company's vacation policy. If Employee does not utilize earned vacation in any twelve (12) month period (both prior to and subsequent to the date of this Agreement), Employee may carry over any unused vacation time to subsequent periods or elect to be paid for such unused vacation time.
5. REIMBURSEMENT OF EXPENSES. The Employee is authorized to incur reasonable business expenses, subject to approval by the Company, for promoting the business of the Company, including expenditures for entertainment and travel. The Company will reimburse the Employee periodically, in accordance with the policy of the Company; for all such expenses approved by the Company provided that the Employee presents to the Company such documentation as the Company requires.
6. EMPLOYEE LOYALTY. Employee shall devote his entire productive time, energy, ability and attention to the performance of the duties expected to be performed by Employee throughout the term of his employment with the Company. Employee shall not directly or indirectly render any services, or become interested in or associated with any individual, business, corporation, partnership or other entity, or any other organization which is in any manner in competition with the Company, whether for compensation or otherwise, during the term of his employment with the Company, without the prior, written consent of the management of the Company.
7. EMPLOYEE'S BEST EFFORTS REQUIRED. Employee agrees that he at all times will perform faithfully, industriously, and to the best of his ability, experience and talent, all duties that may be required of Employee pursuant to the express and implicit terms of this Agreement. Such duties may be set out in the Company's rules, regulations or instructions from time to time. The President and Chief Executive Officer may from time to time make reasonable modifications to the Employee's duties and responsibilities so long as such modifications are not unreasonably burdensome to employee.
8. TRADE SECRETS. Employee acknowledges that, in the course of performing the duties described herein, he shall have access to and may be entrusted with certain information pertaining to the present and contemplated business activities of the Company. Employee acknowledges that this information is of great value and necessary for Employee to perform his services effectively, and that the disclosure of such information to any other party would be detrimental to the interests of the Company, which information includes, but may not be limited to, all files, records, documents, training and operational manuals, research, policies, plans, systems, lists, charts, names, addresses and telephone numbers of clients of the Company, compilations of information relating to the business of the Company, whether said information was generated by a third party or by the Company , and similar items relating to the business of the Company, whether prepared by Employee during the term of this Agreement or otherwise coming into his possession ("Trade Secrets"). Employee acknowledges and agrees with the Company that such Trade Secrets are the sole proprietary information of the Company and shall be treated by Employee as confidential information of the Company, and that none of said Trade Secrets or the facts contained therein shall be transmitted verbally or in writing by Employee except in the ordinary course of conducting business for the Company. Employee covenants and agrees with the Company that he will not, during the term of this Agreement, disclose such Trade Secrets to any person or entity, nor use the Trade Secrets other than as may reasonably be required in the normal course of employment under this Agreement; and that he will not, after termination of this Agreement, disclose or make use of such Trade Secrets without the prior written consent of the Company. Employee agrees that the Trade Secrets shall remain the exclusive property of the Company and shall not be copied or reproduced in any manner whatsoever without the prior written consent of the Company and shall be returned to the Company upon termination of this Agreement.
9. RESTRICTIVE COVENANTS.
a. Noncompetition by Employee. During the term of this Agreement, Employee shall not, directly or indirectly, either as an employee, independent contractor, consultant, agent, principal, partner, stockholder, corporate officer, director of any entity, or in any other individual or representative capacity, without the prior written consent of the Company, (1) engage, either directly or indirectly, in any business which is in competition in any manner with that of the Company or any Group Company or (2) attempt to influence any person or entity not to do business with the Company or any Group Company.
b. Solicitation of Other Employees of the Company. Employee agrees, for a period of two (2) years following the termination of this Agreement, not to directly or indirectly, or by act in concert with others, employ or attempt to employ or solicit for employment to any business which is in competition with that of the Company or any Group Company, any other employees of the Company or any of the Group Companies or their affiliates, or seek to influence any such persons to terminate their employment with the Company, any of the Group Company or their affiliates.
c. Enforcement of Covenants. Employee expressly acknowledges and agrees that the provisions contained in Section 8 and Section 9 hereof are reasonable and necessary for the protection and continued viability of the business of the Company and that a breach by Employee of any of the
provisions contained in Section 8 and Section 9 hereof would cause the
Company serious loss and damage and that the business of the Company
would be irreparably harmed. If this Agreement is terminated for any
reason, and thereafter Employee violates any of the provisions
contained in Section 8 and Section 9 of this Agreement, Employee
acknowledges and agrees that the Company shall have the right to
immediately cease making payments that may be due and owing to Employee
pursuant to this Agreement, and shall have the right to continue to
withhold such payments until such time as Employee fully complies with
the terms and conditions set forth in Section 8 and Section 9 .
Employee and the Company both acknowledge and agree that exact monetary
and other damages in the event of such violations of the Agreement are
difficult of ascertainment, though great and irreparable, and, as such,
Employee further acknowledges and agrees with the Company that in the
event of a real or threatened breach by Employee of any of the
provisions contained in Section 8 and Section 9 hereof, the Company
shall be entitled to commence proceedings in any court of competent
jurisdiction for and be entitled to obtain preliminary or permanent
injunctive relief or other appropriate equitable remedies, which rights
and remedies shall be in addition to any other rights or remedies to
which the Company may be justly entitled at law. If any portion of
Section 8 and Section 9 shall be adjudicated to be invalid or
unenforceable, then the Sections shall be deemed amended to make the
portion comply with law or, if this is not possible, to delete
therefrom the portion thus adjudicated to be invalid or unenforceable,
but such deleted portion of this Agreement shall remain in effect with
respect to the operation of the Sections in all jurisdictions other
than the jurisdiction which invalidates the portion deleted, without
limitation.
d. Survival of Covenants. The covenants contained in Section 8 and
Section 9 shall be construed as covenants and agreements independent of
any other provision in this Agreement and shall continue to bind the
parties to this Agreement and survive any termination of this
Agreement.
10. TERM
The Term of this Agreement shall be two (2) years commencing on the effective date of this Agreement, and thereafter from year to year unless otherwise terminated as hereinafter provided.
(a) Absence from employment or inability to perform services hereunder, caused by illness or incapacity of Employee, shall not be deemed a violation by Employee of his obligations under Paragraph 1 of this Agreement, subject, however, to the following terms and conditions:
(i) If Employee is so absent or unable to perform such services by reason of illness or incapacity for a continuous period exceeding one hundred fifty (150) days, then, anything herein to the contrary notwithstanding, Company may terminate this Agreement and all obligations of Company to Employee hereunder shall cease.
(b) In the event of Employee's death during the Term of this Agreement, this Agreement shall terminate, provided, however, Company shall pay to Employee's heirs and assigns the Base Salary for six (6) months after Employee's death, such Base Salary to be paid at the times specified in Paragraph 2 herein. The amount of any salary payments paid while the Employee is disabled shall be subtracted from such six (6) months.
(c) This Agreement may be terminated by Company without liability prior to the expiration of the Term in the event:
(i) of a gross continual and intentional failure of Employee to perform any of the material terms and conditions of this Agreement; or
(ii) Employee is convicted of a felony (as defined in the Texas Penal Code) or a crime involving moral turpitude resulting in a non-appealable conviction by a court of law for such offense.
(d) This Agreement may also be terminated by either Employee or the Company at any time after the initial two (2) year term by one hundred eighty (180) days written notice. Such notice will be effective as of the end of such one hundred eighty (180) days. If Employee or Company elects to terminate this Agreement his right to compensation shall cease on the effective date of the termination.
11. NOTICE. Any notice required or permitted to be given hereunder shall be deemed given and sufficient if addressed in writing and hand delivered or mailed or faxed to:
in the case of Company:
905 E. Walnut St.
Garland, Texas 75040
in the case of Employee:
905 E. Walnut St.
Garland, Texas 75040
Each party may change its address by written notice in accordance with this paragraph.
12. AMENDMENT AND MODIFICATION. This Agreement sets out the entire agreement and the understanding of the Parties and is in substitution for any previous contracts or understandings, whether oral or in writing, of employment between the Company and the Employee, which shall be deemed to have been terminated by mutual consent. This Agreement contains all of the covenants and agreements between the Parties with respect to such employment in any manner whatsoever. This Agreement may be amended or modified at any time by a subsequent written agreement by and between the Parties hereto.
13. WAIVER. The failure of the Parties hereto to insist, in any one or more instances, upon the performance of any of the terms and conditions of this Agreement, shall not be construed as a waiver or relinquishment of any right granted hereunder or the future performance of any such term, covenant or condition.
14. SEVERABILITY. In the event that any portion of this Agreement may be held to be invalid or unenforceable for any reason, it is agreed that any invalidity or unenforceability shall not affect the remainder of this Agreement and the remaining provisions shall remain in full force and effect and any court of competent jurisdiction may so modify any invalid or unenforceable provision of this Agreement so as to render it valid, reasonable, and enforceable.
15. BENEFIT. Neither this Agreement nor the Parties' obligations hereunder are assignable. Provided, however, that in the event that all or substantially all of the assets and liabilities of the Company are transferred to any third party at any time during the term of this Agreement, any such third party shall be bound by the provisions hereof; provided, Employee may terminate this agreement at any time after such transfer without liability. In the event of a sale of a majority of the outstanding shares of the common stock, the Employee may, on the giving of six (6) months advance notice, terminate this Agreement, in which event neither party shall have any obligations hereunder at the expiration of such six (6) months, except the provisions of Restrictive Covenants, Section 8 and 9 shall remain in force.
16. GOVERNING LAW AND AGREEMENT TO ARBITRATE. This Agreement shall be governed by and construed in accordance with the law of the State of Texas, except to the extent such law would require reference to the laws of another jurisdiction. Venue shall be in Dallas, Dallas County, Texas. Any disagreement, controversy or dispute between the Company and Employee arising out of, or relating to, this Agreement or the breach thereof, or to Employee's employment with the Company or termination therefrom shall be resolved through arbitration in accordance with the rules of the American Arbitration Association, Dallas, Texas. Any arbitration award of the arbitrators appointed to hear the dispute, or of a majority of them, shall be final and binding, and a judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.
17. PAYMENT OF MONIES DUE EMPLOYEE. If Employee dies prior to the expiration of the term of this Agreement, any monies that may be due him from the Company under this Agreement as of the date of his death shall be paid to his executors, administrators, heirs, personal representatives, successors and assigns pursuant to the terms and conditions of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
19. OTHER INSTRUMENTS. Each Party shall, upon the request of the other Party, execute, acknowledge and deliver any and all instruments, documents or agreements reasonably necessary or appropriate to carry into effect the intention of the Parties as expressed in this Agreement.
20. GENDER. Whenever the contact shall so require, all words herein in any gender shall be deemed to include the male, female or neuter gender; all singular words shall include the plural, and all plural words shall include the singular.
21. SURVIVAL OF PERFORMABLE PROVISIONS. Any provision of this Agreement performable or to be performed after termination of this Agreement shall survive this Agreement and shall continue to be in effect until fully performed or consummated.
22. RULE OF CONSTRUCTION. The Parties to this Agreement acknowledge that each Party and its counsel have reviewed the Agreement and that the normal rule of construction, to the effect that any ambiguities that are to be resolved against the drafting Party, shall not be employed in the interpretation of this Agreement or any amendments to this Agreement.
Signature Page Follows
IN WITNESS WHEREOF, the Employee has hereunto set his signature, and the Company has caused this Agreement to be executed in its corporate name by its officer, duly authorized.
EMPLOYEE: EMPLOYER: An Individual Micropac Industries, Inc. By: _________________________ By:________________________________ Name: Patrick S. Cefalu Name: Connie Wood Title: Employee Title: CEO & President |
Exhibit 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), made as of the 2nd day of February 2004, is by and between Micropac Industries, Inc., a Delaware corporation (the "Company") and Mark W. King, an individual and resident of Texas (the "Employee") (the Company and the Employee herein referred to collectively as the "Parties").
WHEREAS, Employee is the Executive Vice-President and Chief Operating Officer of the Company.
WHEREAS, the Company desires to retain the employment of the Employee and the Employee desires to continue his employment with the Company under the terms and conditions as hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee in the capacity of Executive Vice-President and Chief Operating Officer, and the Employee hereby accepts such employment upon the terms and conditions hereinafter set forth.
2. TERM. Subject to the provisions for termination hereinafter set forth in Paragraph 10, the term of this Agreement ("Term") shall commence from the date set forth above, and shall continue until termination occurs, or until a new agreement mutually satisfactory to both parties is executed.
3. DUTIES.
(a) During the term of this Agreement, the Company agrees to provide Employee with information (much, if not all, of which is confidential and/or proprietary and/or contains trade secrets of the Company) which will enable Employee to perform his job duties.
(b) The Employee agrees to perform the duties normally performed by the Executive Vice-President and Chief Operating Officer of a Corporation, and as directed by the President and Chief Executive Officer of the Company. The Employee agrees to perform such duties faithfully and to the best of his ability and to devote all of his time during normal business hours to the conduct of the Company's business.
4. COMPENSATION AND BENEFIT PLANS. As compensation for the services to be rendered by the Employee to the Company, the Company agrees to pay Employee a base salary of One Hundred Fifty Thousand Dollars ($150,000), paid weekly. The base salary of Employee will be reviewed each year during the term of this agreement by the Company's President and CEO. Salary may be adjusted based on Employee's performance. In no event shall the base salary be reduced. Employee will be eligible to participate in any bonus plan recommended by the CEO and approved by the Board of Directors.
Employee shall be entitled to participate (if Employee so elects) in any group life, disability, health or similar insurance program established for employees of Company or any retirement, pension and profit sharing plan for the benefit of employees of the Company. The Company shall pay the Employee's monthly health, disability and life insurance coverage premiums during the Term; and will contribute to the Employee's 401K Plan in accordance with the provisions of that Plan.
Employee shall be entitled each twelve (12) month period to paid vacation time in accordance with the Company's vacation policy. If Employee does not utilize earned vacation in any twelve (12) month period (both prior to and subsequent to the date of this Agreement), Employee may carry over any unused vacation time to subsequent periods or elect to be paid for such unused vacation time.
5. REIMBURSEMENT OF EXPENSES. The Employee is authorized to incur reasonable business expenses, subject to approval by the Company, for promoting the business of the Company, including expenditures for entertainment and travel. The Company will reimburse the Employee periodically, in accordance with the policy of the Company; for all such expenses approved by the Company provided that the Employee presents to the Company such documentation as the Company requires.
6. EMPLOYEE LOYALTY. Employee shall devote his entire productive time, energy, ability and attention to the performance of the duties expected to be performed by Employee throughout the term of his employment with the Company. Employee shall not directly or indirectly render any services, or become interested in or associated with any individual, business, corporation, partnership or other entity, or any other organization which is in any manner in competition with the Company, whether for compensation or otherwise, during the term of his employment with the Company, without the prior, written consent of the management of the Company.
7. EMPLOYEE'S BEST EFFORTS REQUIRED. Employee agrees that he at all times will perform faithfully, industriously, and to the best of his ability, experience and talent, all duties that may be required of Employee pursuant to the express and implicit terms of this Agreement. Such duties may be set out in the Company's rules, regulations or instructions from time to time. The President and Chief Executive Officer may from time to time make reasonable modifications to the Employee's duties and responsibilities so long as such modifications are not unreasonably burdensome to employee.
8. TRADE SECRETS. Employee acknowledges that, in the course of performing the duties described herein, he shall have access to and may be entrusted with certain information pertaining to the present and contemplated business activities of the Company. Employee acknowledges that this information is of great value and necessary for Employee to perform his services effectively, and that the disclosure of such information to any other party would be detrimental to the interests of the Company, which information includes, but may not be limited to, all files, records, documents, training and operational manuals, research, policies, plans, systems, lists, charts, names, addresses and telephone numbers of clients of the Company, compilations of information relating to the business of the Company, whether said information was generated by a third party or by the Company , and similar items relating to the business of the Company, whether prepared by Employee during the term of this Agreement or otherwise coming into his possession ("Trade Secrets"). Employee acknowledges and agrees with the Company that such Trade Secrets are the sole proprietary information of the Company and shall be treated by Employee as confidential information of the Company, and that none of said Trade Secrets or the facts contained therein shall be transmitted verbally or in writing by Employee except in the ordinary course of conducting business for the Company. Employee covenants and agrees with the Company that he will not, during the term of this Agreement, disclose such Trade Secrets to any person or entity, nor use the Trade Secrets other than as may reasonably be required in the normal course of employment under this Agreement; and that he will not, after termination of this Agreement, disclose or make use of such Trade Secrets without the prior written consent of the Company. Employee agrees that the Trade Secrets shall remain the exclusive property of the Company and shall not be copied or reproduced in any manner whatsoever without the prior written consent of the Company and shall be returned to the Company upon termination of this Agreement.
9. RESTRICTIVE COVENANTS.
a. Noncompetition by Employee. During the term of this Agreement, Employee shall not, directly or indirectly, either as an employee, independent contractor, consultant, agent, principal, partner, stockholder, corporate officer, director of any entity, or in any other individual or representative capacity, without the prior written consent of the Company, (1) engage, either directly or indirectly, in any business which is in competition in any manner with that of the Company or any Group Company or (2) attempt to influence any person or entity not to do business with the Company or any Group Company.
b. Solicitation of Other Employees of the Company. Employee agrees, for a period of two (2) years following the termination of this Agreement, not to directly or indirectly, or by act in concert with others, employ or attempt to employ or solicit for employment to any business which is in competition with that of the Company or any Group Company, any other employees of the Company or any of the Group Companies or their affiliates, or seek to influence any such persons to terminate their employment with the Company, any of the Group Company or their affiliates.
c. Enforcement of Covenants. Employee expressly acknowledges and agrees
that the provisions contained in Section 8 and Section 9 hereof are
reasonable and necessary for the protection and continued viability of
the business of the Company and that a breach by Employee of any of the
provisions contained in Section 8 and Section 9 hereof would cause the
Company serious loss and damage and that the business of the Company
would be irreparably harmed. If this Agreement is terminated for any
reason, and thereafter Employee violates any of the provisions
contained in Section 8 and Section 9 of this Agreement, Employee
acknowledges and agrees that the Company shall have the right to
immediately cease making payments that may be due and owing to Employee
pursuant to this Agreement, and shall have the right to continue to
withhold such payments until such time as Employee fully complies with
the terms and conditions set forth in Section 8 and Section 9 .
Employee and the Company both acknowledge and agree that exact monetary
and other damages in the event of such violations of the Agreement are
difficult of ascertainment, though great and irreparable, and, as such,
Employee further acknowledges and agrees with the Company that in the
event of a real or threatened breach by Employee of any of the
provisions contained in Section 8 and Section 9 hereof, the Company
shall be entitled to commence proceedings in any court of competent
jurisdiction for and be entitled to obtain preliminary or permanent
injunctive relief or other appropriate equitable remedies, which rights
and remedies shall be in addition to any other rights or remedies to
which the Company may be justly entitled at law. If any portion of
Section 8 and Section 9 shall be adjudicated to be invalid or
unenforceable, then the Sections shall be deemed amended to make the
portion comply with law or, if this is not possible, to delete
therefrom the portion thus adjudicated to be invalid or unenforceable,
but such deleted portion of this Agreement shall remain in effect with
respect to the operation of the Sections in all jurisdictions other
than the jurisdiction which invalidates the portion deleted, without
limitation.
d. Survival of Covenants. The covenants contained in Section 8 and
Section 9 shall be construed as covenants and agreements independent of
any other provision in this Agreement and shall continue to bind the
parties to this Agreement and survive any termination of this
Agreement.
10. TERM
The Term of this Agreement shall be two (2) years commencing on the effective date of this Agreement, and thereafter from year to year unless otherwise terminated as hereinafter provided.
(a) Absence from employment or inability to perform services hereunder, caused by illness or incapacity of Employee, shall not be deemed a violation by Employee of his obligations under Paragraph 1 of this Agreement, subject, however, to the following terms and conditions:
(i) If Employee is so absent or unable to perform such services by reason of illness or incapacity for a continuous period exceeding one hundred fifty (150) days, then, anything herein to the contrary notwithstanding, Company may terminate this Agreement and all obligations of Company to Employee hereunder shall cease.
(b) In the event of Employee's death during the Term of this Agreement, this Agreement shall terminate, provided, however, Company shall pay to Employee's heirs and assigns the Base Salary for six (6) months after Employee's death, such Base Salary to be paid at the times specified in Paragraph 2 herein. The amount of any salary payments paid while the Employee is disabled shall be subtracted from such six (6) months.
(c) This Agreement may be terminated by Company without liability prior to the expiration of the Term in the event:
(i) of a gross continual and intentional failure of Employee to perform any of the material terms and conditions of this Agreement; or
(ii) Employee is convicted of a felony (as defined in the Texas Penal Code) or a crime involving moral turpitude resulting in a non-appealable conviction by a court of law for such offense.
(d) This Agreement may also be terminated by either Employee or the Company at any time after the initial two (2) year term by one hundred eighty (180) days written notice. Such notice will be effective as of the end of such one hundred eighty (180) days. If Employee or Company elects to terminate this Agreement his right to compensation shall cease on the effective date of the termination.
11. NOTICE. Any notice required or permitted to be given hereunder shall be deemed given and sufficient if addressed in writing and hand delivered or mailed or faxed to:
in the case of Company:
905 E. Walnut St.
Garland, Texas 75040
in the case of Employee:
905 E. Walnut St.
Garland, Texas 75040
Each party may change its address by written notice in accordance with this paragraph.
12. AMENDMENT AND MODIFICATION. This Agreement sets out the entire agreement and the understanding of the Parties and is in substitution for any previous contracts or understandings, whether oral or in writing, of employment between the Company and the Employee, which shall be deemed to have been terminated by mutual consent. This Agreement contains all of the covenants and agreements between the Parties with respect to such employment in any manner whatsoever. This Agreement may be amended or modified at any time by a subsequent written agreement by and between the Parties hereto.
13. WAIVER. The failure of the Parties hereto to insist, in any one or more instances, upon the performance of any of the terms and conditions of this Agreement, shall not be construed as a waiver or relinquishment of any right granted hereunder or the future performance of any such term, covenant or condition.
14. SEVERABILITY. In the event that any portion of this Agreement may be held to be invalid or unenforceable for any reason, it is agreed that any invalidity or unenforceability shall not affect the remainder of this Agreement and the remaining provisions shall remain in full force and effect and any court of competent jurisdiction may so modify any invalid or unenforceable provision of this Agreement so as to render it valid, reasonable, and enforceable.
15. BENEFIT. Neither this Agreement nor the Parties' obligations hereunder are
assignable. Provided, however, that in the event that all or substantially all
of the assets and liabilities of the Company are transferred to any third party
at any time during the term of this Agreement, any such third party shall be
bound by the provisions hereof; provided, Employee may terminate this agreement
at any time after such transfer without liability. In the event of a sale of a
majority of the outstanding shares of the common stock, the Employee may, on the
giving of six(6) months advance notice, terminate this Agreement, in which event
neither party shall have any obligations hereunder at the expiration of such six
(6) months, except the provisions of Restrictive Covenants, Section 8 and 9
shall remain in force.
16. GOVERNING LAW AND AGREEMENT TO ARBITRATE. This Agreement shall be governed by and construed in accordance with the law of the State of Texas, except to the extent such law would require reference to the laws of another jurisdiction. Venue shall be in Dallas, Dallas County, Texas. Any disagreement, controversy or dispute between the Company and Employee arising out of, or relating to, this Agreement or the breach thereof, or to Employee's employment with the Company or termination therefrom shall be resolved through arbitration in accordance with the rules of the American Arbitration Association, Dallas, Texas. Any arbitration award of the arbitrators appointed to hear the dispute, or of a majority of them, shall be final and binding, and a judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.
17. PAYMENT OF MONIES DUE EMPLOYEE. If Employee dies prior to the expiration of the term of this Agreement, any monies that may be due him from the Company under this Agreement as of the date of his death shall be paid to his executors, administrators, heirs, personal representatives, successors and assigns pursuant to the terms and conditions of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
19. OTHER INSTRUMENTS. Each Party shall, upon the request of the other Party, execute, acknowledge and deliver any and all instruments, documents or agreements reasonably necessary or appropriate to carry into effect the intention of the Parties as expressed in this Agreement.
20. GENDER. Whenever the contact shall so require, all words herein in any gender shall be deemed to include the male, female or neuter gender; all singular words shall include the plural, and all plural words shall include the singular.
21. SURVIVAL OF PERFORMABLE PROVISIONS. Any provision of this Agreement performable or to be performed after termination of this Agreement shall survive this Agreement and shall continue to be in effect until fully performed or consummated.
22. RULE OF CONSTRUCTION. The Parties to this Agreement acknowledge that each Party and its counsel have reviewed the Agreement and that the normal rule of construction, to the effect that any ambiguities that are to be resolved against the drafting Party, shall not be employed in the interpretation of this Agreement or any amendments to this Agreement.
Signature Page Follows
IN WITNESS WHEREOF, the Employee has hereunto set his signature, and the Company has caused this Agreement to be executed in its corporate name by its officer, duly authorized.
EMPLOYEE: EMPLOYER: An Individual Micropac Industries, Inc. By: _________________________ By:_________________________________ Name: Mark W. King Name: Connie Wood Title: Employee Title: CEO & President |
Exhibit 10.6
CODE OF ETHICS
FOR PRINCIPAL EXECUTIVE OFFICERS AND SENIOR FINANCIAL OFFICERS
Micropac Industries, Inc. expects the highest possible ethical conduct from its principal executive officers and senior financial officers. Your full compliance with this Code is mandatory.
You are expected
(i) to foster a culture of transparency, integrity and honesty, and
(ii) to devote the time, skill, effort and energy to conduct and manage the business of the Company, and
(iii) to ensure that everyone in your organization also fully complies with this Code.
(iv) to promptly report any suspected unethical conduct to the Company's Boardof Directors.
In accordance with the rules of the U.S. Securities and Exchange Commission, any change to, or waiver of, this Code must be immediately publicly disclosed.
Conflicts of Interest
You must avoid any personal activity, investment or association that could
appear to interfere with good judgment concerning the Company's best interests.
You may not exploit your position or relationship with the Company for personal
gain. You should avoid even the appearance of such a conflict.
As a principal executive officer or senior financial officer, it is imperative that you avoid any investment, interest or association that interferes, might interfere, or might appear to interfere, with your independent exercise of judgment in the Company's best interests. Engaging in any conduct that represents a conflict of interest is strictly prohibited.
Accurate Periodic Reports
As you are aware, full, fair, accurate, timely and understandable disclosures in
the Company's periodic reports is legally required and is essential to the
success of its business. Please exercise the highest standard of care in
preparing such reports in accordance with the following guidelines:
All accounting records, as well as reports produced from those records, must be in accordance with the laws of each applicable jurisdiction.
All records must fairly and accurately reflect the transactions or occurrences to which they relate.
All records must fairly and accurately reflect, in reasonable detail, the company assets, liabilities, revenues and expenses.
The Company accounting records must not contain any false or intentionally misleading entries.
No transactions should be intentionally misclassified as to accounts, departments or accounting periods.
All transactions must be supported by accurate documentation in reasonable detail and recorded in the proper account and in the proper accounting period.
No information should be concealed from the internal auditors or the independent auditors.
Compliance with the Company system of internal accounting controls is required.
Compliance
You are expected to comply with both the letter and spirit of all applicable
governmental laws, rules and regulations.
If you fail to comply with this Code and/or with any applicable laws, you will be subject to disciplinary measures, up to and including immediate discharge from Micropac.
Exhibit 10.7
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (the "Agreement") is entered into effective as of February 5, 2001 between MICROPAC INDUSTRIES, INC., a Delaware corporation (the "Company"), and Nicholas Nadolsky, an individual, (referred to herein as the "Shareholder").
The Company has authorized capitalization of 3,627,151 shares of common stock, $0.10 par value, issued and outstanding. The Shareholder is the owner of five hundred forty-eight thousand eight hundred thirty-six (548,836) shares of the Company's common stock (the "Stock").
The Shareholder and the Company desire to promote their mutual interests and the interests of the Company by entering into this Agreement concerning the Stock.
ACCORDINGLY, in consideration of the foregoing premises, the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties to this Agreement agree as follows:
SECTION 1: DEFINITIONS
As used herein, the following terms shall have the respective meanings indicated:
1.1. Closing is defined in Section 4.
1.2. Event Notice is defined in Section 3.1.
1.3. Exercise Event means the occurrence of any of the following events with respect to a Shareholder:
(a) The Shareholder dies, or becomes permanently disabled (the "Shareholder's Death");
(b) The termination of the Shareholder's employment with the Company for any reason (a "Termination").
1.4. Purchase Price means, with respect to each share of stock, the total Shareholder's equity as shown on the latest quarterly or annual balance sheet of the Company, audited or unaudited, divided by the number of issued and outstanding shares of the Company's common stock. Treasury shares and shares subject to outstanding but unexercised options shall not be deemed issued and outstanding.
1.5. GAAP means generally accepted accounting principles, consistently applied with the principles customarily used by the Company in preparing its financial statements for financial reporting purposes.
1.6. Shareholder means and includes Nicholas Nadolsky or in the event of his death or disability, his executor or legal representatives.
1.7. Transfer means(a) any sale, hypothecation, transfer, pledge, encumbrance, gift, donation, assignment, or other disposition, whether voluntary or involuntary, and whether during the Shareholder's lifetime or upon or after the Shareholder's death, including, but not limited to, any transfer by operation of law, by court order, by judicial process, or by foreclosure, levy, or attachment, or (b) the act of making any of the foregoing transfers.
SECTION 2 GRANT OF PUT OPTION; ABILITY TO TRANSFER THE SHARES
2.1. Grant of Put Option. Shareholder is hereby granted an option to require the Company to purchase, for the Purchase Price and upon the terms set forth in this Agreement, any or all of the shares of Stock that Shareholder now owns if an Exercise Event occurs.
2.2. No Restrictions on Transfers. The Shareholder or the executor or legal representative of Shareholder may sell all or any part of the Stock. If all of the Stock is sold by the Shareholder, or his executors or legal representatives, this Agreement shall terminate and be null and void. If all or any part of the Stock is transferred to conveyed by gift or devise by the Shareholder or the Shareholder's executor or legal representative, this Agreement shall remain in full force and effect and may be enforced by such executor or legal representative.
SECTION 3 DELIVERY OF EVENT NOTICE
3.1. Generally. Upon the occurrence of an Exercise Event, the Shareholder or the Shareholder's executor or legal representative may give the Company notice at any time thereafter (the "Event Notice") of the occurrence of that Exercise Event and the date of that occurrence.
3.2. Contents of Event Notice. If given, the Event Notice shall specify that the Shareholder is requiring that the Company purchase all of the Stock at the Purchase Price.
SECTION 4 THE CLOSING
4.1. Closing Time and Place. Unless otherwise mutually agreed to by the Shareholder and the Company, (a) the consummation of the sale and purchase of the Stock (the "Closing") will occur on the earlier of twenty (20) business days after: (i) the parties hereto have mutually agreed in writing on the Purchase Price of the Shares; or (ii) the Appraiser has prepared and delivered to the parties hereto a written report specifying the Fair Market Value of the Stock. If prior to the Closing any offer ("Offer")is made to purchase all of the assets or outstanding shares of the Company's common stock or to merge the Company into another legal entity, the Closing may be postponed by the Shareholder or the Company to allow the Shareholder to determine whether to accept the Offer or proceed with a sale of the Stock to the Company. If the Shareholder elects to postpone the Closing, the Shareholder may accept the Offer, in which event the Company shall not be required to purchase the Stock, and (b) the Closing will be held at the offices of the Company, Garland, Dallas County, Texas.
4.2. Closing Deliveries.
(a) The Purchase Price. The Purchase Price shall be paid in cash or by certified bank or cashier's check at the Closing. If Stock is changed, reclassified, split, combined, converted, or exchanged for other securities or any securities are paid as dividends on the Stock after the date as of which the Purchase Price is determined and before the Closing of the sale of the Optioned Shares, appropriate adjustment shall be made to the Exercise Price to give effect to such change, reclassification, split, combination, conversion, exchange, or dividend.
(b) The Stock. At the Closing, the Shareholder shall deliver to the Company the certificates representing the Stock being purchased, duly endorsed for transfer or accompanied by a duly executed stock power. The Shareholder shall covenant that the Stock sold are free and clear of all liens, claims, and encumbrances of any nature whatsoever.
(c) Other. All other action shall be taken at the Closing as the Shareholder and Company shall reasonably request to effect the purchase and sale of the Stock.
SECTION 5 MISCELLANEOUS PROVISIONS
5.1. Specific Performance. Each party declares that it is impossible to measure in money the damages that will accrue to the other parties hereto by reason of a failure to perform or a breach in the performance of any of its obligations under this Agreement, and each party (a) agrees that the other parties to this Agreement shall be entitled to specific performance of the terms of this Agreement and injunctive and other equitable relief in case of any failure, breach or attempted breach and (b) waives any reimbursement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. If any party to this Agreement institutes any action or proceeding to specifically enforce the provisions hereof (a "plaintiff"), any party against whom that action or proceeding is brought (a "defendant") waives the claim or defense that the plaintiff has an adequate remedy at law, and the defendant will not urge in any such action or proceeding the claim or defense that such remedy at law exists.
5.2 . Notices. Whenever any notice is required or permitted hereunder, that notice must be in writing. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered, given and received on the date it is personally received by (and receipt acknowledged in writing by) the Person who is to receive it or, if mailed, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered mail, return receipt requested, postage prepaid, addressed to the Person who is to receive it at the address that such Person has theretofore specified by written notice delivered in accordance herewith. Any Person entitled to receive notice hereunder may change, at any time and from time to time, by written notice to the other parties, the address that such party had theretofore specified for receiving notices. Until changed in accordance herewith, each party hereby specifies as such party's address for receiving notices the address adjacent to such party's name on the signature page hereof. In the event more than one Person is to receive notice hereunder, notice shall not be deemed delivered or received until delivery is deemed to be made to the last Person who is to receive that notice (provided that any such Person may agree that notice shall be deemed to be delivered or received by that Person as of any earlier date).
5.3. Further Assurances. Each of the parties hereto agrees to take, at its own expense, such further action as may be reasonably requested by any other party hereto necessary or desirable to accomplish or effect the purposes of this Agreement and the transactions contemplated hereby.
5.4. Multiple Counterparts. This Agreement may be executed in a number of identical counterparts and it shall not be necessary for each party to execute each of such counterparts, but when all of the parties have executed and delivered one or more of such counterparts, the several parts, when taken together, shall be deemed to constitute one and the same instrument, enforceable against each party in accordance with its terms. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart executed by the Person against whom enforcement of this Agreement is sought.
5.5. Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties, or undertakings, other than those set forth or referred to herein, with respect to the right of Company or the Shareholder to sell Stock now or hereafter held by that Person. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
5.6. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable.
5.7. Termination. This Agreement shall terminate (a) upon the execution of a termination agreement signed by all Persons who are parties to this Agreement, (b) automatically upon the sale of the Stock as provided herein.
5.8. Amendments. This Agreement may be amended at any time and from time to time, in whole or in part, by an instrument in writing setting forth the particulars of such amendment duly executed by the Person against whom enforcement of that amendment is sought.
5.9. Successors and Assigns. Except as otherwise expressly stated to the contrary herein, this Agreement shall be binding upon and inure to the benefit of each party hereto and shall be binding upon their respective heirs, successors, executors, representatives, and assigns.
5.10. References. Whenever herein the singular number is used, the same shall include the plural where appropriate, and vice versa; and words of any gender shall include each other gender where appropriate.
5.11. Captions. The captions, headings, and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify, or modify the terms and provisions hereof.
5.12. Governing Law. The laws of the state of Texas and of the United States of America shall govern the validity, construction, enforcement, and interpretation of this agreement, without reference to conflicts of law.
5.13. After-Acquired Shares. Whenever the Shareholder (or its spouse) shall hereafter acquire any shares of Stock of the Company, the shares so acquired shall be held subject to all the terms and conditions of this Agreement.
5.15. Arbitration. In the event of any dispute, interpretation or disagreement concerning this Agreement (the "Dispute"), such Dispute shall be settled by binding arbitration to be held in Dallas, Dallas County, Texas.
ARBITRATION OF DISPUTES. WITH RESPECT TO THE ARBITRATION OF ANY
DISPUTE, THE PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT:
1. ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
2. THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THEIR RIGHT TO JURY TRIAL;
3. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED AND DIFFERENT FROM COURT PROCEEDINGS;
4. THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING AND ANY PARTNER'S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF FILINGS BY THE ARBITRATORS IS STRICTLY LIMITED; AND
IN THE EVENT THAT A DISPUTE ARISES BETWEEN ANY PARTY HERETO, SAID DISPUTE ARISING OUT OF, IN CONNECTION WITH OR AS A RESULT OF THIS AGREEMENT OR THE ACTION OF ANY PARTY, THE PARTIES HEREBY EXPRESSLY AGREES THAT SAID DISPUTE SHALL BE RESOLVED THROUGH ARBITRATION RATHER THAN LITIGATION. EACH PARTY HEREBY AGREES TO SUBMIT THE DISPUTE FOR RESOLUTION TO THE AMERICAN ARBITRATION ASSOCIATION, WITHIN FIVE (5) DAYS AFTER RECEIVING A WRITTEN REQUEST TO DO SO FROM ANY OF THE PARTIES. IF A PARTY FAILS TO SUBMIT THE DISPUTE TO ARBITRATION AS REQUESTED, THEN THE OTHER PARTY MAY COMMENCE AN ARBITRATION PROCEEDING. EACH PARTY AGREES THAT ANY HEARING SCHEDULED BY THE AAA SHALL TAKE PLACE IN DALLAS, TEXAS, AND THAT THE TEXAS ARBITRATION ACT SHALL GOVERN THE PROCEEDINGS AND ALL ISSUES RAISED UNDER THIS AGREEMENT TO ARBITRATE. IF ANY PARTY SHALL INSTITUTE ANY COURT PROCEEDING IN AN EFFORT TO RESIST ARBITRATION AND BE UNSUCCESSFUL IN RESISTING, THE PREVAILING PARTY SHALL BE ENTITLED TO RECOVER FROM THE LOSING PARTY ITS LEGAL FEES AND ALL EXPENSES INCURRED IN CONNECTION WITH THE DEFENSE OF SUCH LEGAL PROCEEDING OR ITS EFFORTS TO ENFORCE ITS RIGHTS TO ARBITRATION AS PROVIDED HEREIN.
SECTION 6 COMPANY CAPITAL
The Company shall not be obligated to purchase the Stock if at the time of such purchase the capital of the Company would be impaired under applicable laws. If the Company's capital would be impaired by the purchase of the Stock, the Closing shall be delayed until such time as the capital of the Company is not impaired. The Company agrees to take such reasonable actions as the Company's board of directors believe are reasonable to permit the Company to purchase the Stock without impairing the capital of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement or a Spousal Consent on the dates set forth below, to be effective as of the date first written above.
Address: MICROPAC INDUSTRIES, INC.
905 East Walnut
Garland, Texas 75040
By:_______________________________
Name:_____________________________
Title:____________________________
Date:_____________________________
SHAREHOLDER
Address:
______________________________ __________________________________
Nicholas Nadolsky
Date: ____________________________
|
Exhibit 10.8
ANCILLARY AGREEMENT
TO
PROXY AGREEMENTS
WITH RESPECT TO CAPITAL STOCK
OF
MICROPAC INDUSTRIES, INC.
THIS ANCILLARY AGREEMENT, is entered into to be effective as of the 19th day of February, 1987, by and among MICROPAC INDUSTRIES, INC. a Delaware corporation ("Micropac"), H. Kent Hearn, William Joseph Holt, Woodrow O. Brownlee and their successors appointed as in this Agreement provided (hereinafter collectively referred to as the "Proxy Holders"), and Heinz-Werner Hempel and Friedrich-Wilhelm Hempel, citizens of the Federal Republic of Germany (hereinafter called the "Hempels").
WHEREAS, Micropac, certain Voting Trustees and the Hempels entered into a Voting Trust Agreement With Respect to Capital Stock of Micropac Industries, Inc. dated as of the 18th day of January, 1977, amended the 28th day of August, 1980, and further amended the 7th day of September, 1982 (the "Voting Trust Agreement"); and
WHEREAS, the Voting Trust Agreement expired on the 19th day of January, 1987; and
WHEREAS, Micropac desires, in order to maintain its facility security clearance issued under the United States Department of Defense Industrial Security Regulation (the "Regulation"), that each of the Hempels separately enter into a Proxy Agreement With Respect to Capital Stock of Micropac Industries, Inc. with Micropac and the Proxy Holders dated and effective as of this 19th day of February, 1987 (the "Proxy Agreements"); and
WHEREAS, Micropac and the Proxy Holders have agreed as an inducement for the Hempels' execution and delivery of the Proxy Agreements to make additional covenants for the benefit of the Hempels in connection with the execution and delivery of the Proxy Agreements.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Proxy Agreements Subject to this Ancillary Agreement. This Ancillary Agreement is an inducement to the execution and delivery of the Proxy Agreements. As such, both Proxy Agreements are subject to, and will only become effective and binding on the parties thereto and hereto, upon the execution, delivery and effectiveness of this Ancillary Agreement.
2. Registration of Micropac Stock of the Hempels by Micropac.
a. The Hempels' Right to Require Registration. At any time after the effective date of this Ancillary Agreement, the Hempels shall be entitled by notice to Micropac to require Micropac to file a registration statement with the Securities and Exchange Commission (the "Commission") with respect to and to expend best efforts to effect registration of any number of shares or other units of Micropac Stock owned by the Hempels in the manner of disposition set forth in such notice. No such notice shall be effective and Micropac shall not be required so to file a registration statement unless each of the following conditions is met:
(i) Micropac shall not have effected any registration under the Securities Act of 1933, as amended, (the "Securities Act") as the result of any prior notice by the Hempels pursuant to this subparagraph (a) of this Paragraph 2, it being intended that the Hempels may only require one registration of its Micropac Stock pursuant to this subparagraph (a);
(ii) The minimum number of shares or other units of Micropac Stock specified in or covered by the notice shall be 400,000 shares of Micropac Stock; and
(iii) There shall not have been a registration statement
covering Micropac Stock in effect and available to the Hempels
and covering its shares of Micropac Stock, during the ninety
(90) days preceding the date of the Hempels' notice hereunder.
b. The Hempels' Right to Participation in Registration. If at any time following the effective date of this Ancillary Agreement, while the Hempels shall own any Micropac Stock, Micropac proposes at any time and from time to time to register any Micropac Stock under the Securities Act, Micropac shall, at each such time, give notice of such proposal to the Hempels. The Hempels may, by notice to Micropac, require the inclusion of all or any portion of the Micropac Stock they then own, up to 30% of the total of all shares to be registered, in the registration statement which Micropac has proposed to file, but no such notice shall be effective unless given no later than thirty (30) days after the date upon which notice of a proposed registration is given by Micropac and any such notice shall include the number of shares or units which the Hempels desire to have included. Micropac shall proceed, pursuant to the provisions of this Paragraph 2 to effect the registration of any Micropac Stock specified in an effective notice. Notwithstanding the
foregoing, Micropac may abandon any registration, provided such abandonment occurs with respect to all securities being registered by Micropac and further provided that such abandonment shall be without prejudice to any right of the Hempels to require registration of the shares of Micropac Stock they own pursuant to subparagraph (a) above.
c. Registration by Micropac; Cost and Expenses. If Micropac is required, as the result of notice by the Hempels pursuant to subparagraph (a) or (b) of this Paragraph 2, to effect the registration of any Micropac Stock, Micropac shall expeditiously:
(i) Prepare and file with the Commission a registration statement on appropriate form with respect to the Micropac Stock specified in the applicable notice and, subject to necessary Commission approval, to expend best efforts to cause such registration statement to become and remain effective for disposition of the Micropac Stock in accordance with the intended method of disposition described in the Hempels' notice.
(ii) Furnish to the Hempels such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act and such other documents as the Hempels may reasonably request in order to facilitate their disposition of Micropac Stock owned by them and covered by such registration statement; and
(iii) Subject to necessary governmental approvals, register or qualify the Micropac Stock owned by the Hempels and covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States as the Hempels may reasonably request, to enable the Hempels to consummate the disposition in such jurisdictions of the Micropac Stock owned by the Hempels and covered by such registration statement.
The rights created by subparagraphs (a) and (b) of this Paragraph 2 shall be cumulative, not exclusive. With respect to any registration of Micropac Stock under subparagraph (a) of this Paragraph 2, the Hempels shall pay underwriting discounts and commissions, registration and filing fees, fees of any special legal counsel to the Hempels and expenses of special audits incident to or required by any such registration, provided however, Micropac shall pay and shall hold the Hempels harmless against (i) any such accounting costs if such demand for registration is coordinated with the regular preparation of financial reports by Micropac and (ii) any costs of counsel or other experts for Micropac; and further provided, that in the event Micropac or any other holder of Micropac Stock includes any additional Micropac securities in the registration statement which the Hempels have required to be filed, then any such expenses to be borne by the Hempels shall be proportionately allocated among all participants in said registration. With respect to any registration of Micropac Stock under subparagraph (b) of this Paragraph 2, Micropac shall pay all expenses
of such registration including expenses incurred by the Hempels other than fees and disbursements of any special legal counsel for the Hempels and excluding any underwriter's commissions on the Micropac Stock sold by the Hempels. It shall be a condition precedent to the obligation of Micropac to take any action pursuant to this Paragraph 2 that the Hempels shall furnish to Micropac such information regarding Micropac Stock held by the Hempels and the intended method of disposition thereof, and other relevant information, as Micropac shall reasonably request and as shall be required in connection with the actions to be taken by Micropac.
d. The rights granted in this Paragraph 2 shall expire and be of no
further force and effect on the earlier to occur of (i) the tenth
(10th) anniversary hereof, (ii) the date on which the Micropac Stock is
listed on the New York Stock Exchange or (iii) the date on which the
public float of the Micropac Stock is at least 250,000 shares.
3. Cooperation in Private Placements. If at any time the Hempels shall desire to offer for sale or sell any Micropac Stock in a transaction which is either exempt from the registration provision of the Securities Act or not subject to the jurisdiction thereof, Micropac shall, as promptly as practicable after notice to such effect from the Hempels, furnish in writing such information concerning Micropac and its affairs as the Hempels may request for inclusion in any placement memorandum or other offering document including information of the character described and referred to in the Commission's Regulation D or other rules regarding unregistered sales of securities as may be applicable under the Securities Act and a reasonable number of copies of the documents referenced therein. Micropac shall promptly notify the Hempels of any material developments not disclosed in the information furnished or of the occurrence of any event as a result of which the information furnished contains an untrue statement of a material fact or omits to state a material fact required to be stated therein under such rules necessary to make the statements therein not misleading under the then-existing circumstances. Micropac will also provide access to its books and records and afford the Hempels, the offeree(s) and their representatives, the opportunity to consult with the executive officers of Micropac in order to obtain information necessary to verify facts and statements; and Micropac will otherwise cooperate fully with the Hempels in placing such Micropac Stock, including executing and delivering such reasonable certificates and assurances as customarily are required in institutional private placements. The foregoing shall not be construed to require the Board of Directors or management of Micropac to violate their fiduciary duty under the Delaware General Corporation Law ("GCL").
4. Indemnification. Micropac shall, upon the written request of the Hempels, indemnify the Hempels and each other person, if any, who controls the Hempels within the meaning of the Securities Act, and each underwriter who participated in the offering of such securities, against any losses, claims, expenses (including the reasonable costs of investigating and defending against any claim therefor and related counsel fees and settlement costs), damages or liabilities, joint or several, to which the Hempels or such controlling person or underwriter may become subject under the Securities Act, the Securities Exchange Act of 1934, as amended, (the "Exchange Act") or otherwise as the result of failure to comply with the
Securities Act or the Exchange Act by reason of any omission of any material fact required to be stated or necessary to make statements made not misleading, or by reason of the fact that such statements made contain any untrue statement of a material fact, or by reason of any omission from any prospectus or offering materials or filing furnished to such holder of any material fact necessary to be stated therein in order to make statements therein in the light of the circumstances under which they were made not misleading, or by reason of the fact that such prospectus, offering materials or filing contained any untrue statements of a material fact, unless such statement or omission was made in reliance upon and in conformity with written information furnished to Micropac by the Hempels. Micropac's indemnity obligation shall be limited accordingly in the event and to the extent that the Hempels shall have been determined to have been guilty of wrongdoing in connection with any transaction under Paragraphs 2 and 3. The Hempels, as a condition precedent of Micropac's obligations under Paragraphs 2 and 3, hereby agree that they will, upon the written request of Micropac, indemnify Micropac to the same extent as the foregoing indemnity from Micropac to them but only with respect to information furnished in writing by the Hempels for use in any registration statement or prospectus, offering materials or filing.
5. Presentation of Proposals. Micropac shall promptly forward to the Hempels any proposal for any type of business combination transaction delivered to Micropac or any member of its Board of Directors or management. The Hempels and their representatives and financial advisors shall have the right to participate fully in all meetings regarding and all negotiations regarding such proposals. Any financial advisor or investment banker engaged by Micropac will be subject to approval by the Hempels.
6. Pursuit of Proposals. Micropac, its Board of Directors and management, consistent with their fiduciary duties to Micropac stockholders (including the Hempels), shall cooperate fully with the Hempels in the good faith pursuit of any proposals, or negotiations regarding any proposals, for business combinations, such as described under Paragraph 5, including the recommendation of any such proposals or negotiations leading to a proposed business combination which would benefit all stockholders. The foregoing shall not be construed to require the Board of Directors or management of Micropac to violate their fiduciary duty under the GCL.
7. Cost of the Agreements. All costs and expenses incurred by Micropac or the Hempels in the establishment, execution and delivery, maintenance and administration of the Proxy Agreements or this Ancillary Agreement shall be borne by Micropac.
Micropac shall, upon the written request of the Hempels, indemnify the Hempels for any losses, claims or expenses which they may incur pursuant to this Ancillary Agreement.
8. Most Favored Rights of the Hempels. If at any time Micropac shall grant any registration rights more favorable to the holder than the rights granted herein to the Hempels, the Hempels rights should be automatically included with such rights subsequently granted therein.
9. Notices. All notices to be given to the Hempels shall be given by mailing the same in a sealed postpaid envelope, addressed to the address as shown on the books of the Proxy Holders, and any notice whatsoever when mailed by or on behalf of the Proxy Holder as herein provided shall have the same effect as though personally served. All notices to be given to the Proxy Holders shall be given by serving a copy thereof upon the Proxy Holders personally or by mailing the same in a sealed postpaid envelope addressed to them at their office in the Town of Garland, Texas with a copy to the last known residence address of each Proxy Holder.
10. Entire Agreement. This Ancillary Agreement, in conjunction with the Proxy Agreement, constitutes the entire agreement among the parties hereto, and any other prior understandings or agreements regarding the subject matter hereof are expressly superseded by this Ancillary Agreement and the Proxy Agreement.
11. Binding Effect. This Ancillary Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and assigns; provided however that the rights of the Hempels and the obligations of Micropac hereunder shall (i) as to the provision of Paragraph 2 be freely assignable in any transaction not involving a public offering; (ii) as to the other provisions hereof, shall be transferable by the Hempels only by devise or the laws of intestate succession, or to each other.
12. Headings. The Paragraph headings in this Ancillary Agreement are for convenience of reference only, and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
13. Construction. This Ancillary Agreement shall be constued in accordance with and governed by the laws of the State of Texas.
14. Counterparts. This Ancillary Agreement may be executed in one or more counterparts each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, this Ancillary Agreement has been duly executed and delivered to be effective as of the date first above written.
MICROPAC INDUSTRIES, INC.
By: _________________________
Nicholas Nadolsky
President and
Chairman of the Board
_________________________ _________________________
Witness Proxy Holder
_________________________ _________________________
Witness Proxy Holder
_________________________ _________________________
Witness Proxy Holder
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I, Connie Wood, certify that:
1. I have reviewed this 10KSB of Micropac Industries, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in
the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small
business issuer's internal control over financial reporting.
Date: August 22, 2005 /s/ Connie Wood
-----------------------
Connie Wood,
Chief Executive Officer
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Exhibit 31.2
I, Patrick S. Cefalu, certify that:
1. I have reviewed this 10KSB of Micropac Industries, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in
the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small
business issuer's internal control over financial reporting.
Date: August 22, 2005 /s/ Patrick S. Cefalu
-----------------------
Patrick S. Cefalu,
Chief Financial Officer
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Exhibit 32.1
MICROPAC INDUSTRIES, INC.
CERTICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Micropac Industries, Inc. (the "Company") on Form 10-KSB for the period ending November 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Connie Wood, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Connie Wood ------------------------------ Connie Wood, President and CEO (Principal Executive Officer) |
Exhibit 32.2
MICROPAC INDUSTRIES, INC.
CERTICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Micropac Industries, Inc. (the "Company") on Form 10-KSB for the period ending Novemeber 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick Cefalu, CFO of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Patrick Cefalu ----------------------------- Patrick Cefalu, CFO (Principal Financial Officer) |