-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F+1wwKb4ohEJIeJoQ4HKGNJrR8+mpXC9fNyxnAWqP2LVHWuuBu+/aQ5MLrbaRqbr fgLRqcJ5j+yV+YRZMPaAJQ== 0000950130-96-002651.txt : 19960723 0000950130-96-002651.hdr.sgml : 19960723 ACCESSION NUMBER: 0000950130-96-002651 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19960718 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CII TECHNOLOGIES INC CENTRAL INDEX KEY: 0001018090 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-08397 FILM NUMBER: 96596491 BUSINESS ADDRESS: STREET 1: 1396 STREET 2: 1396 CHARLOTTE HIGHWAY CITY: FAIRVIEW STATE: NC ZIP: 28730 BUSINESS PHONE: 7046281711 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- CII TECHNOLOGIES INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3625 56-1828272 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) ---------------- 1396 CHARLOTTE HIGHWAY FAIRVIEW, NORTH CAROLINA 28730 (704) 628-1711 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- RAMZI A. DABBAGH CHIEF EXECUTIVE OFFICER CII TECHNOLOGIES INC. 1396 CHARLOTTE HIGHWAY FAIRVIEW, NORTH CAROLINA 28730 (704) 628-1711 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES TO: WILSON S. NEELY, ESQ. GLENN W. REED, ESQ. SIMPSON THACHER & BARTLETT GARDNER, CARTON & DOUGLAS 425 LEXINGTON AVENUE 321 NORTH CLARK STREET NEW YORK, NEW YORK 10017 CHICAGO, ILLINOIS (212) 455-2000 ---------------- (312) 245-8446 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF SCURITIES TO BE REGISTEREDE AMOUNT TO BE REGISTERED(1) OFFERING PRICE PER SHARE(2) AGGREGATE OFFERING PRICE(2) REGISTRATION FEE -------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share..... 4,025,000 shares $11.00 $44,275,000 $15,267.24
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 525,000 shares of Common Stock to be issued if the Underwriters exercise their over-allotment option in full. (2) Estimated solely for the purposes of calculating the amount of the registration fee pursuant to Rule 457 under the Securities Act based upon the high point of the range of estimated initial public offering prices as specified in the Preliminary Prospectus contained herein. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CII TECHNOLOGIES INC. CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION OR LOCATION - --------------------------------------- ------------------------------ 1.Forepart of Registration Statement and Outside Front Cover Page of Prospectus....... Outside Front Cover Page of Prospectus 2.Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front and Outside Back Cover Pages of Prospectus 3.Summary Information, Risk Factors and Ratio of Earnings to Fixed Prospectus Summary; Risk Factors; The Charges........................ Company; Selected Consolidated Financial Information; Pro Forma Condensed Consolidated Financial Information (Ratio of Earnings to Fixed Charges Not Applicable) 4.Use of Proceeds.................. Use of Proceeds 5.Determination of Offering Price.. Outside Front Cover Page of Prospectus; Underwriting 6.Dilution......................... Dilution 7.Selling Security Holders......... Not Applicable 8.Plan of Distribution............. Outside Front Cover Page of Prospectus; Underwriting 9.Description of Securities to be Registered..................... Description of Capital Stock 10.Interests of Named Experts and Counsel........................ Legal Matters; Experts 11.Information with Respect to the Outside Front Cover Page of Prospectus; Registrant..................... Prospectus Summary; The Company; Risk Factors; Use of Proceeds; Dividend Policy; Capitalization; Selected Consolidated Financial Information; Pro Forma Condensed Consolidated Financial Information; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Ownership of Common Stock; Certain Relationships and Related Transactions; Description of Capital Stock; Shares Eligible for Future Sale; Financial Statements 12.Disclosure of Commission Position on Indemnification for Securities Act Liabilities..... Not Applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JULY 18, 1996. PROSPECTUS 3,500,000 SHARES [LOGO] CII TECHNOLOGIES (TM) COMMON STOCK All of the shares of Common Stock offered hereby (the "Offering") are being issued and sold by CII Technologies Inc. (the "Company"). Prior to the Offering, there has been no public market for the Common Stock. It is currently anticipated that the initial public offering price will be between $9.00 and $11.00 per share. See "Underwriting" for information relating to the determination of the initial offering price. Application is being made to include the Common Stock in the Nasdaq National Market under the symbol "CIIT." SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK OFFERED HEREBY. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) - ------------------------------------------------------------------------------------- Per Share...................... $ $ $ Total(3)....................... $ $ $ - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated to be $ . (3) The Company has granted to the Underwriters a 30-day option to purchase up to 525,000 additional shares of Common Stock solely to cover over- allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The Common Stock is being offered by the several Underwriters when, as and if delivered to and accepted by them and subject to their right to reject orders in whole or in part. It is expected that delivery of certificates for the shares of Common Stock will be made on or about , 1996. WILLIAM BLAIR & COMPANY FURMAN SELZ The date of this Prospectus is , 1996 IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the detailed information and financial statements, including the notes thereto, contained elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus (i) gives effect to a 2.5-for-1 stock split of each share of the Company's Common Stock to be effected prior to consummation of the Offering; (ii) assumes the Kilovac Share Exchange (as described under "Certain Relationships and Related Transactions--Kilovac Acquisition") has been completed; and (iii) assumes the Underwriters' over-allotment option is not exercised. See "Underwriting." Unless otherwise indicated, all amounts and statistical information presented herein for fiscal 1995, other than financial statement information and information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations," is presented on a pro forma basis after giving effect to the acquisitions of Kilovac Corporation and the Hartman Electrical Manufacturing Division (the "Hartman Division" or "Hartman") of Figgie International, Inc. ("Figgie"). Unless the context otherwise specifically requires, references to the "Company" include CII Technologies Inc. and its consolidated operating subsidiaries, together with the historical business and operations undertaken by Communications Instruments, Inc. (the "Predecessor"). THE COMPANY The Company is a leading designer, manufacturer and marketer of a broad line of high performance electromechanical and solid state relays and solenoids for customers in the commercial/industrial equipment, commercial airframe, defense/aerospace, communications, automatic test equipment and automotive industries. The Company's relays are used to control current or signals in electrical and electronic circuits and are technological building blocks for a wide range of products. While the Company is a broad-based supplier of general and special purpose relays and solenoids, it has focused on manufacturing high performance relay products and targeting customized applications of these products to meet the needs of the markets it serves. The Company's high performance relays are sophisticated, complex devices that have been engineered for highly reliable performance over substantial periods of time, often in adverse operating environments. The Company sells its products to more than 2,100 customers, including Boeing, AT&T, Rockwell, Hewlett Packard, McDonnell Douglas and General Motors. To further penetrate and expand the size and number of markets that it serves, the Company seeks to leverage its broad product offering, its reputation for quality, innovation and technological leadership, its diverse and efficient manufacturing capabilities and its wide and diversified customer base. In addition, the Company's successful implementation of its acquisition strategy and integration of acquired companies and product lines into its operations have produced significant growth in the Company's revenues. Since its inception in 1980, the Company has completed 13 acquisitions for an aggregate consideration of approximately $36.0 million. In October 1995 the Company acquired (the "Kilovac Acquisition") Kilovac Corporation ("Kilovac") and in July 1996 the Company completed the acquisition of the Hartman Division (the "Hartman Acquisition"). Net sales of Kilovac and Hartman for 1995 represented 21.5% and 25.5%, respectively, of the Company's pro forma net sales for 1995. The Company believes that these acquisitions have enabled it to become one of the five largest relay manufacturers in North America. The Company plans to enhance its growth by strategically acquiring product lines and manufacturing operations to obtain new product capabilities and technologies, to further increase market penetration with both existing and new customers, and to expand manufacturing and assembly capabilities. Electromechanical and solid state relays (which are used to direct and control electrical currents and signal transmissions) and solenoids (which are used to convert electrical energy into mechanical motion) have a myriad of commercial and industrial applications. The Company currently manufactures and assembles more than 750 types of relays and solenoids and believes that it has one of the largest and most diverse product portfolios of any manufacturer in its industry. The Company believes that its sales as a sole source supplier of high performance relays and solenoids represented approximately 53% of its net sales for 1995. 3 The Company currently manufactures high performance relays at its four facilities in the United States and general purpose relays at its facility in Mexico. The Company also maintains several subcontracting relationships with manufacturers in the People's Republic of China, and the Company has entered into a joint venture in India which has recently commenced construction of a manufacturing facility. The Company believes that its domestic and international manufacturing capabilities allow it to provide to its customers high quality products at globally competitive prices. THE OFFERING Common Stock Offered by the Company............ 3,500,000 shares Common Stock to be Outstanding After the Offering............... 6,500,000 shares (1) Use of Proceeds......... Repayment of indebtedness and redemption of preferred stock. See "Use of Proceeds." Proposed Nasdaq National Market Symbol.......... CIIT
- -------- (1) Includes 450,000 shares anticipated to be issued upon the completion of this Offering as part of the Kilovac Share Exchange, assuming an initial public offering price of $10.00 per share. The actual number of shares issuable in the Kilovac Share Exchange will be calculated by dividing $4.5 million by the initial public offering price per share in the Offering. See "Certain Relationships and Related Transactions--Kilovac Acquisition." 4 SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEARS ENDED DECEMBER 31, THREE MONTHS ENDED -------------------------------------- ------------------------------ PRO PRO FORMA PRO FORMA AS ADJUSTED FORMA AS ADJUSTED APRIL 2, MARCH 31, MARCH 31, 1993(1) 1994 1995 1995(2) 1995 1996 1996(3) -------- ------- ------- ----------- -------- --------- ----------- STATEMENT OF OPERATIONS DATA: Net sales.............. $25,473 $31,523 $39,918 $68,408 $9,216 $13,119 $18,214 Cost of sales.......... 21,776 24,330 28,687 46,598 6,839 9,193 12,919 ------- ------- ------- ------- ------ ------- ------- Gross profit........... 3,697 7,193 11,231 21,810 2,377 3,926 5,295 Selling expenses....... 2,057 2,382 3,229 4,961 656 1,148 1,221 General and administrative expenses.............. 1,736 2,248 3,334 5,749 656 1,187 1,478 Research and develop- ment.................. 62 103 301 1,463 39 265 265 Amortization of goodwill and other intangible assets..... 173 177 251 808 52 122 194 Special compensation charge(4)............. -- -- 1,300 -- -- -- -- Environmental expenses(5)........... -- -- 951 -- -- -- -- Special acquisition expenses(6)........... 419 -- 2,064 -- 568 -- -- ------- ------- ------- ------- ------ ------- ------- Operating income (loss)................ (750) 2,283 (199) 8,829 406 1,204 2,137 Interest expense....... 1,760 1,833 2,997 1,501 555 874 375 ------- ------- ------- ------- ------ ------- ------- Income (loss) before taxes and minority interest.............. (2,468) 450 (3,194) 7,247 (147) 330 1,763 Income tax expense (benefit)............. (908) 178 (1,076) 2,948 (59) 142 712 ------- ------- ------- ------- ------ ------- ------- Net income (loss)...... (1,560) 272 (2,153) 4,299 (88) 172 1,051 Preferred stock dividend.............. 185 185 210 -- 46 93 -- ------- ------- ------- ------- ------ ------- ------- Net income (loss) available for common stock................. $(1,745) $ 87 $(2,363) $ 4,299 $ (134) $ 79 $ 1,051 ======= ======= ======= ======= ====== ======= ======= Net income (loss) per common share.......... $ (.93) $ .66 $ (.05) $ .03 $ .16 ======= ======= ====== ======= ======= Average shares outstanding........... 2,536 6,486 2,520 2,550 6,500
MARCH 31, 1996 ----------------------- PRO FORMA ACTUAL AS ADJUSTED(3) ------- -------------- BALANCE SHEET DATA: Working capital........................................ $ 9,825 $19,851 Total assets........................................... 48,359 69,924 Total debt............................................. 30,004 18,319 Cumulative redeemable preferred stock.................. 4,590 -- Total stockholders' equity (deficit)................... (2,426) 32,185
- -------- (1) Pro forma statement of operations data for the year ended December 31, 1993 represent the results of the Predecessor for the portion of the year ended May 11, 1993 and the results of the Company for the portion of the year beginning after May 11, 1993, together with pro forma adjustments (which adjustments include additional depreciation ($644,000), amortization of goodwill ($11,000) and interest expense ($597,000)), as if the CII Acquisition (which was completed on May 11, 1993) had occurred on January 1, 1993. In allocating the purchase price in connection with the CII Acquisition, the Company recorded an increase in inventory to estimated fair market value of $986,000 which was reflected in cost of sales. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General" and "Selected Consolidated Financial Information." (2) Gives effect to (i) the Hartman Acquisition and the Kilovac Acquisition, (ii) the Kilovac Share Exchange, (iii) the sale by the Company of 3,500,000 shares of Common Stock in the Offering at an assumed initial public offering price of $10.00 per share and the application of the proceeds therefrom as described in "Use of Proceeds", including, without limitation, the repayment of debt and the redemption of outstanding cumulative redeemable preferred stock and the elimination of accrued and unpaid dividends in connection therewith, and (iv) the elimination of a $1.3 million special compensation charge (as described in footnote 4), the elimination of $951,000 of environmental expenses (as described in footnote 5) and the elimination of special acquisition expenses (as described in footnote 6), in each case as adjusted to reflect the corresponding tax expenses/benefits associated with such adjustments and as if such transactions (in the case of the events described in clauses (i), (ii) and (iii)) had occurred on January 1, 1995. See "Use of Proceeds," "Capitalization," "Pro Forma Condensed Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and 5 Results of Operations," "Certain Relationships and Related Transactions-- Kilovac Acquisition" and the Company's Consolidated Financial Statements and the Notes thereto. (3) Gives effect to (i) the Hartman Acquisition, (ii) the Kilovac Share Exchange and (iii) the sale by the Company of 3,500,000 shares of Common Stock in the Offering at an assumed initial public offering price of $10.00 per share and the application of the proceeds therefrom as described in "Use of Proceeds," including, without limitation, the repayment of debt and the redemption of outstanding cumulative redeemable preferred stock and the elimination of accrued and unpaid dividends in connection therewith, in each case as adjusted to reflect the corresponding tax expenses/benefits associated with such adjustments and as if such transactions had occurred on January 1, 1995 in the case of the statement of operations data and at March 31, 1996 in the case of balance sheet data. (4) Reflects a special compensation charge of $1.3 million which represents (i) the difference between the purchase price of Common Stock issued to seven employees on December 1, 1995 and the estimated fair market value of such shares (based upon the appraised value on December 1, 1995) and (ii) a related special cash bonus granted by the Company to the same seven employees to pay taxes associated with such stock issuances. (5) Reflects a non-recurring charge of $951,000 which represents primarily the costs incurred to date and the present value of the estimated future costs payable by the Company over the next 30 years for groundwater remediation at the Fairview facility. See "Business--Environmental Matters." (6) Special acquisition expenses in 1993 consist primarily of costs related to the relocation of a facility following the acquisition of Midtex Relays and costs associated with relocating the operations acquired from West Coast Electrical Manufacturing Co. and CP Clare. Such expenses in 1995 include costs primarily related to (i) the relocation of certain assets acquired from HiG Relays and Deutsch Relays, and (ii) the write- off of an agreement with a business development consultant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." 6 THE COMPANY OVERVIEW The Company is a leading designer, manufacturer and marketer of a broad line of high performance electromechanical and solid state relays and solenoids for customers in the commercial/industrial equipment, commercial airframe, defense/aerospace, communications, automatic test equipment and automotive industries. The Company's relays are used to control current or signals in electrical and electronic circuits, and are technological building blocks for a wide range of products. While the Company is a broad-based supplier of general and special purpose relays and solenoids, it has focused on manufacturing high performance relay products and targeting customized applications of these products to meet the needs of the markets it serves. The Company's high performance relays are sophisticated, complex devices that have been engineered for highly reliable performance over substantial periods of time, often in adverse operating environments. The Company sells its products to more than 2,100 customers including Boeing, AT&T, Rockwell, Hewlett Packard, McDonnell Douglas and General Motors. Relays are electrically operated switches which are used to control current or signals in electrical or electronic circuits. Solenoids are electromechanical devices which convert electric power into mechanical motion. Because relays and solenoids are used to perform a basic function, they are found in thousands of electrical and electronic devices. The Company's business strategy has been to focus on providing high performance, highly reliable products with sophisticated and customized applications. The operations of the Company are conducted through its CII division, which manufactures high performance signal level relays and solenoids (the "CII Division"); the Midtex division, which manufactures general purpose relays (the "Midtex Division"); the Kilovac division, which manufactures high performance high voltage relays (the "Kilovac Division"); and the Hartman Division, which manufactures high performance high current relays. Communications Instruments, Inc. (the "Predecessor") was initially formed in 1980 by Ramzi Dabbagh (the Chairman, President and Chief Executive Officer of the Company) and a group of private investors. The Company made its initial acquisition of several relay and switch products from the CP Clare division of General Instruments in 1980, and, since that initial acquisition, Mr. Dabbagh and his management team have pursued a growth strategy of acquiring manufacturers of relay products and related components, consolidating the acquired companies and/or their product lines into the Company's manufacturing facilities, and eliminating significant overhead. The Company has completed 13 acquisitions since 1980 for an aggregate consideration of approximately $36.0 million, including the purchase of stand-alone companies, divisions of larger companies and individual product lines. The Company believes that these acquisitions have enabled it to become one of the five largest relay manufacturers in North America. In order to provide liquidity for the original shareholder group and position the Company for future growth, Stonebridge Partners, together with the management team, acquired the Predecessor in May 1993 (the "CII Acquisition"). Since the CII Acquisition, the Company has acquired a high performance relay product line of Deutsch Relays Inc. (the "Deutsch Acquisition"), purchased certain assets of HiG Relays Inc. (the "HiG Acquisition") and purchased in October 1995 an 80% interest in Kilovac, a California-based relay manufacturer. Kilovac is a leading global supplier of high voltage and direct current relays. See "Certain Relationships and Related Transactions--Kilovac Acquisition." In July 1996 the Company purchased from Figgie the assets of its Hartman Division. Hartman is a leading manufacturer of high performance power relays with high current switching capability. These high performance power relays have applications in the primary and secondary power distribution circuits used in the commercial and military airframe, aerospace and rail transportation industries. A significant portion of Hartman's products are custom designed to meet customer requirements and specifications. The Company believes that Hartman derived approximately 75% of its 1995 revenues from sales as a sole source supplier. The Company also recently acquired a 25% interest in a joint venture, CII Guardian International 7 Limited, to be operated in India with Guardian Controls Ltd., a company with which the Company has had a longstanding business relationship (the "Indian Joint Venture"). The Indian Joint Venture facility is expected to commence production of relays for the Company's global markets in the third quarter of 1996 and thereafter expand into manufacturing of sub-assemblies and solenoids. The Company has also developed manufacturing capability in The People's Republic of China ("China") through subcontracting arrangements with five manufacturers, which provide general purpose relays, sub-assemblies and solenoids to the Company. The Company's executive offices are located at 1396 Charlotte Highway, Fairview, North Carolina, 28730, and its telephone number is (704) 628-1711. 8 RISK FACTORS This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange Act. Actual results could differ materially from those projected in the forward-looking statements as a result of certain of the risk factors set forth below and elsewhere in this Prospectus. Prospective purchasers of the Common Stock should consider carefully the following specific information, together with the other information set forth in this Prospectus, before purchasing any shares of Common Stock offered hereby. EXPANSION THROUGH ACQUISITIONS The overall relay and solenoid markets are relatively mature and stable. Accordingly, the Company has and will continue to pursue a business strategy of growing its business and product lines through strategic acquisitions in order to grow at a faster rate than the markets it serves. The Company's ability to continue to expand through acquisitions, however, will depend upon the availability of suitable acquisition candidates, the Company's ability to consummate such transactions and, in certain circumstances, the availability of financing on terms acceptable to the Company. There can be no assurance that the Company will be effective in making acquisitions. Such transactions involve numerous risks, including possible adverse short-term effects on the Company's operating results and the market price of the Company's Common Stock. While the Company regularly evaluates potential acquisition candidates in the ordinary course of its business, as of the date of this Prospectus there are no commitments or agreements with respect to any acquisition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Acquisition Strategy." INTEGRATION OF ACQUIRED BUSINESSES The Company seeks to effectively consolidate acquired product lines and assets into its business and, through eliminating overhead and benefiting from synergies with the Company's existing manufacturing techniques and sales force, increase the profit margins of the acquired assets. The success of any acquisition will depend in large part on the Company's ability to effectively integrate the acquired assets into its existing business. Integrating acquired businesses may, for example, result in a loss of customers of the acquired businesses and, if the acquired company has significant losses when purchased, may have a short-term dilutive effect on the Company's results of operations. The process of consolidating acquired businesses requires significant management attention, may place significant demands on the Company's operations, information systems and financial resources, and may also result in costs that may adversely affect the Company's results of operations. The failure to effectively integrate acquired businesses with the Company's operations could adversely affect the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business-- Acquisition Strategy," and "--Sales and Distribution." RISKS RELATED TO THE HARTMAN ACQUISITION The Company has assumed certain risks in connection with its recently completed Hartman Acquisition. Approximately 75% of Hartman's employees are represented by the International Union of Electronics, Electrical, Salaried, Machine and Furniture Workers AFL, CIO. As a result of the Hartman Acquisition, these employees are working under temporary terms of employment while the Company and the union negotiate a new collective bargaining agreement. If the Company and the union cannot agree as to the terms of a new collective bargaining agreement, or if the terms of that agreement are not favorable to the Company, the Company's results of operations could be materially and adversely affected. The Company has also assumed a contractual obligation to produce and sell relay components of electrical load management systems. This contract accounted for $1.4 million, or 8.0%, of Hartman's revenues for fiscal 1995 and, for the first three months of 1996, $1.3 million, or 22.2%, of Hartman's revenues (7.2% of the Company's pro forma net sales for the first three months of 1996). This contract is unprofitable, and, in connection with the Hartman Acquisition, the Company has assumed a reserve previously established by 9 Hartman of approximately $2.6 million in anticipation of losses that the Company expects to incur as this contract is fulfilled over the next two years. To the extent that actual losses attributable to this contract exceed the amount reserved therefor, the Company's results of operations may be adversely affected. If purchases under this contract are reduced or the contract is not renewed, future revenues would decline, and, in the absence of offsetting new sales, the Company's gross profit would be adversely affected. Due to the nature of the industry that Hartman serves, its customer base is highly concentrated. Approximately 86% and 91% of net sales in 1994 and 1995, respectively, were to Hartman's ten largest customers. Four customers in 1994 and three customers in 1995 exceeded 10% of Hartman's net sales. Sales to these customers accounted for 47.9% of net sales in 1994 and 47.0% of net sales in 1995. The loss of one or more of these customers could have a material adverse effect on the Company's result of operations. INTERNATIONAL OPERATIONS AND FOREIGN INSTABILITY General. In fiscal 1995, approximately 21.6% of the Company's cost of sales was attributable to operations located outside the United States, consisting primarily of the operations of the Company's Midtex Division located in Juarez, Mexico and the operations of several Asian-based subcontractors which supply the Company with finished goods, sub-assemblies and raw materials. Foreign manufacturing is subject to various risks, including exposure to currency fluctuations, political and economic instability, the imposition of foreign tariffs and other trade barriers, and changes in governmental policies. While the Company has not historically experienced material adverse effects due to its foreign operations, the Company's foreign operations may incur increased costs and experience delays or disruptions in product deliveries that could cause loss of revenue and damage to customer relationships. A portion of the Company's cost of sales and net sales is derived from international operations which are conducted in foreign currencies. Changes in the value of these foreign currencies relative to the U.S. dollar in the past have affected, and in the future may affect, the Company's results of operations and financial position. In fiscal 1995, the devaluation of the Mexican peso relative to the U.S. dollar had a favorable impact on the Company's results of operations. An increase in the value of the peso relative to the U.S. dollar in the future may have an adverse effect on the Company's results of operations. The Company has not engaged in currency hedging transactions in the past, though it may undertake currency hedging in the future. A significant portion of the Company's manufacturing, testing, and assembly operations are performed in Mexico and by subcontractors located in China, India, Taiwan, and Japan. In certain of these locations, there is a limited pool of skilled workers. There can be no assurance that the Company or its subcontractors will be able to continue to hire and train sufficiently skilled personnel as the Company expands its international manufacturing operations. Mexico. Mexico has recently experienced economic, political and civil instability that have contributed to the devaluation of the peso, as well as other adverse economic and social effects. In fiscal 1995, approximately 13.1% of the Company's products were manufactured or assembled in its facility in Juarez, Mexico, where approximately one-fourth of the Company's total labor force is located. While the Company believes that it has adequate access to and from Mexico to transport partially finished and fully assembled goods, any disruption in the political or economic stability of that country could substantially and adversely affect the Company's operations. While the Company believes that its relations with its Mexican work force is good, economic instability and the devaluation of the peso may have a destabilizing effect on the workforce which could have a material adverse effect on the Company. China. A portion of the Company's general purpose relays, solenoids and sub- assemblies are produced in subcontract facilities in China. Since 1980, China has enjoyed "most favored nation" ("MFN") status under United States tariff laws, which provides the most favorable category of United States import duties. China's MFN status is annually reviewed by Congress. The loss of MFN status for China would result in a substantial increase in the duty for products manufactured in China and imported into the United States. The Company retains a business agent in China to assist the Company in developing subcontracting arrangements. The 10 Company believes that the loss of China's MFN status or the services of the Company's agent in China is not likely to have a long-term adverse effect on the Company's business because the Company is prepared to shift its manufacturing to other countries or develop relationships with new business agents. However, such a loss in either case could have a short-term adverse effect until alternative manufacturing or business arrangements could be made. India. The Company expects the Indian Joint Venture to commence production of relays in the third quarter of 1996. The Company trained the employees of the Indian Joint Venture in its North Carolina facilities and is currently transferring the assembly equipment for certain of its product lines to the Indian Joint Venture's facility. India has from time to time experienced social and civil unrest relating to ethnic, religious and political differences among India's population. This unrest has occasionally caused significant economic disruptions within India. Future changes in government policies, and social, political, economic or other future developments in or affecting India may adversely affect the operations of, and the Company's economic interest in, the Indian Joint Venture. The Company does not have a controlling interest in the Indian Joint Venture. In addition, there can be no assurance that the operations of the Indian Joint Venture will support the manufacturing capability and international sales objectives of the Company. See "Business--Facilities--Indian Joint Venture." DEPENDENCE ON INDEPENDENT SALES REPRESENTATIVES AND DISTRIBUTORS The Company conducts virtually all of its sales through independent sales representatives and distributors. The Company's distributors are not subject to minimum purchase requirements and certain of these distributors sell competing products. The sales representatives and distributors can discontinue marketing the Company's products with minimal notice. The loss of, or a significant reduction in sales volume through, one or more of the Company's independent sales representatives or distributors could have a material adverse effect on the Company's operating results. See "Business--Sales and Distribution." DEPENDENCE ON SENIOR MANAGEMENT The Company's future performance will depend, in part, upon the efforts and abilities of the Company's senior management employees. The loss of service of one or more of these persons could have an adverse effect on the Company's business and development. The Company has entered into employment agreements with Ramzi A. Dabbagh (the Company's Chairman, President and Chief Executive Officer) and G. Daniel Taylor (the Company's Executive Vice President of Business Development), each of which agreements terminates in May 1998, and the Company maintains key-man life insurance on Messrs. Dabbagh and Taylor. The Company has also entered into employment agreements with Michael A. Steinback (President of the CII Division) and David Henning (Chief Financial Officer of the Company), which agreements expire in April 1997 and December 1996, respectively, and are automatically renewed each year. The success of certain recent and future acquisitions completed by the Company may also depend, in part, on the Company's ability to retain key management of the acquired businesses. The President of the Kilovac Division, Douglas Campbell, is expected to leave his position upon the expiration of his employment agreement in December 1996. The Company has selected a senior member of the management team of the Kilovac Division to replace Mr. Campbell and has entered into employment agreements with four key executives of the Kilovac Division, each of which expires on October 31, 1998. See "Management-- Employment Agreements." COMPETITION The markets in which the Company operates are highly competitive. Several of the Company's competitors have greater financial, marketing, manufacturing and distribution resources than those of the Company. There can be no assurance that the Company will be able to compete successfully in the future against its existing competitors or that the Company will not experience increased price competition, which could adversely affect the Company's results of operations. The Company also faces competition for acquisition opportunities from its large competitors. Barriers to entry exist in the high performance relay markets in the form of stringent commercial and military qualifications required to sell products to certain customers or for certain applications. 11 The Company holds military qualifications (QPL) for 29 of its product types. Obtaining and maintaining these qualifications is contingent upon successful completion of rigorous facility and product testing on a regular basis and at significant cost. The elimination by the military or certain commercial customers of such qualification requirements would lower these barriers to entry and enable other relay manufacturers to sell products to such customers. See "Business--Competition." COMPLIANCE WITH MILITARY QUALIFICATIONS During 1995, approximately $9.7 million (14.2%) of the Company's total revenue was derived from the sale of military qualified products. Maintaining military qualifications is dependent upon successful completion of rigorous environmental and life testing of the Company's qualified products on a regular basis. From time to time, test failures occur in specific lots of relays which exceed a predetermined statistical limit. When that occurs the Company interrupts the production and shipping of the individual family of products involved while the cause of the failures is investigated and corrected. The Company does not resume production and shipment until the report of the incident and a corrective action plan has been approved by the governmental authority responsible for product qualifications. Historically, such problems have occurred infrequently and production delays have been brief. If a testing problem occurs in the future which cannot be resolved quickly or if a proposed corrective action is not acceptable to the government, production and shipping delays could be extended and the operations of the Company could be adversely affected. DEPENDENCE ON RAW MATERIALS AND LIMITED OR SOLE SOURCE SUPPLIERS The Company's business is dependent upon maintaining access to adequate supplies of certain raw materials, such as copper, silver, gold, palladium, tin, iron, nickel, magnesium, cobalt and/or alloys of those raw materials. The Company also requires specific types of plastic and ceramic materials and glass for the manufacture of its products. Certain grades of these materials are obtained from limited or single source suppliers. The Company does not have long-term guaranteed supply agreements with its suppliers. While the Company has not previously experienced significant interruptions in raw material supplies, there can be no assurance that in the future significant disruption or termination of the supply of these materials or a significant increase in cost of these materials will not occur, which could result in a material adverse effect on the Company's operations. UNCERTAINTY OF INTELLECTUAL PROPERTY PROTECTION AND POSITION The Company holds seven patents and has a number of applications for patents pending. There can be no assurance that the Company's patents will prove to be enforceable, that any patents will be issued with respect to those for which applications have been made, or that competitors will not develop functionally similar devices outside the protection of any patents the Company has or may obtain. The Company has from time to time received, and may in the future receive, communications from third parties alleging that certain of the Company's products or technologies infringe the proprietary rights of such third parties. There can be no assurance that the Company is not infringing the proprietary rights of any third party. In addition, there can be no assurance that, if the Company is so infringing the property rights of any third party, a license to such rights would be available on commercially reasonable terms, if at all. In the event of any such infringement, the Company's results of operations could be materially and adversely affected. See "Business--Proprietary Rights." TECHNICAL OBSOLESCENCE The markets for the Company's products are characterized by technological change and new product introductions. To remain competitive, the Company must continue to develop new process and manufacturing capabilities to meet customers' needs and new product requirements, continue to enhance existing products and introduce new products that reduce size, increase performance and reliability and allow for improved manufacturing efficiency. If the Company is unable to develop such new capabilities, or is unable to design, develop and introduce competitive new products on a timely basis, its future operating results may be materially and adversely affected. 12 ENVIRONMENTAL MATTERS The Company is subject to various foreign, federal, state and local environmental laws and regulations. The Company believes its operations are in material compliance with such laws and regulations. However, there can be no assurance that violations will not occur or be identified, or that environmental laws and regulations will not change in the future, in a manner that could materially and adversely affect the Company. Under certain circumstances, such environmental laws and regulations may also impose joint and several liability for investigation and remediation of contamination at locations owned or operated by the Company or its predecessors, or at locations at which wastes or other contamination attributable to the Company or its predecessors have come to be located. The Company can give no assurance that such liability at facilities the Company currently owns or operates, or at other locations, will not arise or be asserted against the Company or entities for which it may be responsible. Such other locations could include, for example, facilities formerly owned or operated by the Company (or an entity or business that the Company has acquired), or locations to which wastes generated by the Company (or an entity or business that the Company has acquired) have been sent. The Company has been identified as a potentially responsible party under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), for investigation and remediation costs at two sites neither owned nor operated by the Company. In addition, soil and groundwater contamination has been identified at and about the Company's Fairview, North Carolina facility, and that site has been included in the North Carolina Department of Environmental, Health, & Natural Resources' Inactive Hazardous Waste Sites Priority List. The Mansfield, Ohio property, at which the Company recently has acquired operations in connection with the Hartman Acquisition, may contain contamination at levels that will require further investigation and may require soil and/or groundwater remediation. At each of these locations, the Company could become subject to liability that, except under certain circumstances, is joint and several for the total cost of investigating and remediating the site. Such liability, or liability at locations yet to be identified, could under certain circumstances materially and adversely affect the Company. See "Business--Environmental Matters." CONTROL BY PRINCIPAL STOCKHOLDERS Upon completion of the Offering, CII Associates, L.P. (the "Partnership") will own in the aggregate approximately 33.1% of the outstanding Common Stock of the Company (and 30.6% of the outstanding Common Stock if the Underwriters exercise their over-allotment option in full). Consequently, the Partnership, through its Common Stock holdings and its representation on the current Board of Directors, which includes three nominees designated by it, may exercise significant influence over the policies and direction of the Company. See "Ownership of Common Stock." USE OF PROCEEDS TO REPAY DEBT OWING TO EXISTING STOCKHOLDERS After the application of approximately $17.3 million of the net proceeds to repay a portion of amounts owing to its senior lenders, $1.45 million of the net proceeds will be used to repay promissory notes held by Mr. Dabbagh and three other original stockholders of the Predecessor. In addition, $7.3 million of the net proceeds will be used to repay amounts owing under the Company's subordinated promissory notes held by CII Associates, L.P. (the "Partnership"), which is controlled by Stonebridge Partners and is the Company's principal stockholder, and $4.6 million of the net proceeds will be used to redeem all of the Company's outstanding Preferred Stock, including accrued and unpaid dividends, held by the Partnership. See "Use of Proceeds" and "Ownership of Common Stock." ANTI-TAKEOVER PROVISIONS The Certificate of Incorporation and Bylaws of the Company, as expected to be amended prior to consummation of the Offering, will contain special notice and other provisions the effect of which could be to discourage non-negotiated takeover attempts, which some stockholders might otherwise deem to be in their 13 interests. As a Delaware corporation, the Company is also subject to certain provisions of Delaware corporation law which may also discourage or make more difficult a takeover attempt. See "Description of Capital Stock--Certain Certificate of Incorporation, Bylaw and Statutory Provisions Affecting Stockholders." SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICES Upon completion of the Offering, the Company will have 6,500,000 shares of Common Stock outstanding (7,025,000 if the Underwriters' over-allotment option is exercised in full). The 3,500,000 shares of Common Stock offered hereby (plus an additional 525,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradeable without restriction or registration under the Securities Act, by persons other than "affiliates" (as defined under the Securities Act) of the Company. All the remaining 3,000,000 shares of Common Stock are "restricted securities," as that term is defined under Rule 144 ("Rule 144") promulgated under the Securities Act, and must be sold pursuant to Rule 144 or another exemption from registration under the Securities Act. Substantially all of such restricted securities will be subject to "lock-up" agreements under which the holders of such shares will agree not to sell or otherwise dispose of any shares of Common Stock for a period of 365 days without the prior written consent of the Representatives of the Underwriters. In addition, the 3,000,000 shares of Common Stock held by the Company's current stockholders and the participants in the Kilovac Share Exchange have certain rights with respect to the registration of their restricted securities under the Securities Act. See "Certain Relationships and Related Transactions--Registration Rights" and "Underwriting." No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock, or the perception that such sales could occur, may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of additional equity securities. See "Shares Eligible for Future Sale." DILUTION The estimated initial public offering price is higher than the pro forma net tangible book value per share of Common Stock. Investors purchasing shares of Common Stock in the Offering will therefore incur immediate dilution in net tangible book value per share of Common Stock of approximately $ 7.90. See "Dilution." NO PRIOR PUBLIC MARKET Prior to the Offering, there has been no public market for the Common Stock. There can be no assurance that an active public market will develop for the Common Stock after the Offering. The initial public offering price will be determined through negotiations among the Company and the Representatives of the Underwriters and may not be indicative of the market price for the Common Stock after the Offering. See "Underwriting" for factors to be considered in determining the initial public offering price of the Common Stock. 14 USE OF PROCEEDS The net proceeds to the Company from the Offering are estimated to be $31.2 million (assuming an initial public offering price of $10.00 per share), after deducting the estimated underwriting discounts and estimated offering expenses payable by the Company. The Company intends to use the net proceeds of the Offering as follows: (i) approximately $17.3 million will be used to repay a portion of the $35.5 million owing under the Company's senior credit facility (the "Credit Facility"), approximately $9.8 million of which was incurred in October 1995 to finance the Kilovac Acquisition and approximately $12.9 million of which was incurred in July 1996 to finance the Hartman Acquisition; (ii) approximately $1.45 million will be used to repay senior subordinated promissory notes held by Mr. Dabbagh and three other original shareholders of the Predecessor (the "Seller Notes"); (iii) approximately $1.7 million will be used to repay the senior subordinated promissory note issued by the Company to the Partnership on October 11, 1995 in connection with the Kilovac Acquisition (the "Kilovac Note"); (iv) approximately $5.3 million will be used to repay amounts (including interest) owing under the promissory note issued by the Company to the Partnership in connection with the CII Acquisition (the "CII Note"); (v) $300,000 will be used to repay three subordinated promissory notes issued by the Company and held by the Partnership (the "Capital Notes"); and (vi) approximately $4.6 million will be used to redeem an equivalent amount of the Company's outstanding Cumulative Redeemable Preferred Stock held by the Partnership, including accrued and unpaid dividends. In connection with the consummation of the initial public offering, the Company will also pay to its senior lenders a success fee in the amount of $500,000 (based on the assumed initial public offering price). The amounts outstanding under the Credit Facility are due on October 11, 2000, and consist of revolving loans bearing interest at the lender's reference rate plus 1.5% per annum, as well as term loans bearing interest at the lender's reference rate plus 2% per annum. The Seller Notes and the Capital Notes each bear interest at 9.25% per annum and mature on May 11, 2003. The CII Note bears interest at 9.25% per annum and one-half of the unpaid principal of such note is due on each of May 31, 2002 and May 31, 2003. The Kilovac Note also bears interest at 9.25% per annum, and one-half of the unpaid principal on that note is due on each of October 11, 2004 and October 11, 2005. Amounts due under the CII Note and the Kilovac Note, $1.2 million and $74,000, respectively, represent accrued and unpaid interest, bearing interest, in each case, at an 11.75% per annum penalty rate. If the Underwriters' over-allotment is exercised, the additional proceeds received will be used by the Company to repay amounts owing to its senior bank lenders under the Credit Facility. DIVIDEND POLICY The Company has not declared or paid any cash dividends on its Common Stock in the past and currently intends to retain its earnings to finance future acquisitions and for general corporate purposes and therefore does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. Any future determination to pay cash dividends will be made by the Board of Directors in light of the Company's earnings, financial condition, capital and other cash requirements and such other factors as the Board of Directors deems relevant at such time. The Company's credit facilities have in the past and are likely to continue to contain significant restrictions on the Company's ability to pay cash dividends. 15 CAPITALIZATION The following table sets forth the short-term debt and consolidated capitalization of the Company (i) as of March 31, 1996 and (ii) as adjusted to give effect to (a) the Kilovac Share Exchange, (b) the Hartman Acquisition and (c) the sale of 3,500,000 shares of the Common Stock at an assumed initial public offering price of $10.00 per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds." This table should be read in conjunction with the Company's consolidated financial statements, including the notes thereto, included elsewhere in this Prospectus.
MARCH 31, 1996 -------------------------- ACTUAL AS ADJUSTED ----------- ------------- (DOLLARS IN THOUSANDS) Short-term debt: Current portion of long-term debt(1)............. $ 3,037 $ 37 =========== =========== Long-term obligations(1): Revolving loans(2)............................... $ 6,744 $ 6,259 Term loans....................................... 12,750 12,000 Seller Notes..................................... 1,450 -- Capital Notes.................................... 300 -- Capitalized lease obligation..................... 23 23 Subordinated notes payable to the Partnership.... 5,700 -- ----------- ----------- Total long-term debt........................... 26,967 18,282 Accrued interest on subordinated note............ 1,302 -- Cumulative Redeemable Preferred Stock, $.01 par value, 170,000 shares authorized; 40,000 shares Preferred Stock and 40,000 shares Preferred Stock Series A issued and outstanding, actual; 5,000,000 shares authorized and none issued and outstanding, as adjusted(3)..................................... 4,590 -- Common stock, $.01 par value, subject to put options, 400,000 shares issued and outstanding(4).................................. 165 -- ----------- ----------- Total long-term obligations.................... 33,024 18,282 Stockholders' equity (deficit): Common stock, $.01 par value, 2,150,000 shares authorized and 2,150,000 shares issued and outstanding, actual; and 25,000,000 shares authorized and 6,500,000 shares issued and outstanding, as adjusted........................ 22 65 Additional paid-in capital....................... 745 36,343 Retained earnings (deficit)...................... (3,157) (4,187) Currency translation adjustment.................. (36) (36) ----------- ----------- Total stockholders' equity (deficit)........... (2,426) 32,185 ----------- ----------- Total capitalization......................... $ 30,598 $ 50,467 =========== ===========
- -------- (1) For a further description of the Company's debt, see Note 5 of Notes to Consolidated Financial Statements. (2) Approximately $12.9 million of the proceeds from the Offering will be used to repay amounts incurred in July 1996 to finance the Hartman Acquisition. Shortly after the consummation of the Offering, the Company expects to amend its senior credit facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." (3) Includes accrued and unpaid dividends on the Cumulative Redeemable Preferred Stock in the amount of $590,000. (4) See Note 11 of Notes to Consolidated Financial Statements. 16 DILUTION As of March 31, 1996, the net tangible book value (deficit) applicable to the Company's Common Stock, giving effect to the Hartman Acquisition and the Kilovac Share Exchange, was $(22.1) million, or $(7.36) per share. Net tangible book value per share is determined by dividing the net tangible book value (tangible assets less liabilities) of the Company by the number of shares of Common Stock outstanding at that date, in each case giving effect to the Hartman Acquisition and the Kilovac Share Exchange as if such transactions occurred on March 31, 1996. After giving effect to the sale of 3,500,000 shares of Common Stock offered by the Company hereby (at an assumed initial public offering price of $10.00 per share) and the application of the net proceeds therefrom, the pro forma net tangible book value applicable to the Company's Common Stock as of March 31, 1996 would have been $13.7 million or $2.10 per share. This represents an immediate increase in pro forma net tangible book value of $9.46 per share to existing stockholders and an immediate dilution of $7.90 per share to investors purchasing shares in the Offering. The following table illustrates the per share dilution: Assumed initial public offering price per share................. $10.00 Net tangible book value (deficit) per share before the Offer- ing.......................................................... $(7.36) Increase per share attributable to new investors.............. 9.46 ------ Pro forma net tangible book value per share after the Offering.. 2.10 ------ Dilution per share to new investors............................. $ 7.90 ======
The following table summarizes on a pro forma basis as of March 31, 1996, the difference between the effective cash consideration paid by the Company's existing stockholders for shares of Common Stock and the consideration paid by the purchasers of the 3,500,000 shares of Common Stock to be sold by the Company in the Offering, and non-cash consideration paid by the participants in the Kilovac Share Exchange:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ----------------- ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ------- ----------- ------- --------- Existing stockholders...... 2,550,000 39.2% $ 1,025,600 2.5% $ .40 New investors.............. 3,500,000 53.9 35,000,000 86.4 10.00 Participants in the Kilovac Share Exchange............ 450,000 6.9 4,500,000(1) 11.1 10.00 --------- ----- ----------- ----- Total.................... 6,500,000 100.0% $40,525,600 100.0% ========= ===== =========== =====
- -------- (1) Reflects non-cash consideration recorded in respect of the issuance of 450,000 shares of Common Stock in exchange for the 20% interest in Kilovac not currently owned by the Company. 17 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following selected consolidated financial information as of the dates and for the periods indicated were derived from the audited consolidated financial statements of the Company, except data as of, and for the three months ended, April 2, 1995 and March 31, 1996 which were derived from the unaudited consolidated financial statements of the Company but include all adjustments (consisting of normal recurring adjustments) which management considers necessary for a full presentation of results for these periods. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results of operations that may be expected for the full year. The following selected consolidated financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and the related notes thereto, appearing elsewhere in this Prospectus.
PREDECESSOR COMPANY --------------------------------- ------------------------------------------------------------------------------- FISCAL YEARS ENDED DECEMBER 31, THREE MONTHS ENDED -------------------------------------- ------------------------------- FISCAL NINE PRO YEAR MONTHS JANUARY 1, PRO FORMA ENDED ENDED 1993 TO MAY 11, PRO FORMA AS ADJUSTED MARCH 31, DECEMBER 31, MAY 10, 1993 TO FORMA AS ADJUSTED APRIL 2, MARCH 31, MARCH 31, 1992 1992(1) 1993 1993 1993(2) 1994 1995 1995(3) 1995 1996 1996(4) --------- ------------ ---------- ------- ------- ------- ------- ----------- -------- --------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales....... $20,318 $15,346 $ 8,378 $17,095 $25,473 $31,523 $39,918 $68,408 $ 9,216 $13,119 $18,214 Cost of sales... 14,214 10,270 6,684 14,448 21,776 24,330 28,687 46,598 6,839 9,193 12,919 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Gross profit.... 6,104 5,076 1,694 2,647 3,697 7,193 11,231 21,810 2,377 3,926 5,295 Selling expenses....... 1,381 1,065 713 1,344 2,057 2,382 3,229 4,961 656 1,148 1,221 General and administrative expenses....... 1,253 842 586 1,150 1,736 2,248 3,334 5,749 656 1,187 1,478 Research and development.... 77 44 21 41 62 103 301 1,463 39 265 265 Amortization of goodwill and other intangible assets......... 70 53 45 117 173 177 251 808 52 122 194 Special compensation charge(5)...... -- -- -- -- -- -- 1,300 -- -- -- -- Environmental expenses(6).... -- -- -- -- -- -- 951 -- -- -- -- Special acquisition expenses(7).... -- -- 153 266 419 -- 2,064 -- 568 -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Operating income (loss)......... 3,323 3,072 176 (271) (750) 2,283 (199) 8,829 406 1,204 2,137 Interest expense........ 289 93 77 1,086 1,760 1,833 2,997 1,501 555 874 375 Other income (expense)...... 14 100 42 -- 42 -- 2 (81) 2 -- 1 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before taxes... 3,048 3,079 141 (1,357) (2,468) 450 (3,194) 7,247 (147) 330 1,763 Income tax expense (benefit)...... -- -- -- (499) (908) 178 (1,076) 2,948 (59) 142 712 Income applicable to minority interest in net income of subsidiary..... -- -- -- -- -- -- 35 -- -- 16 -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss)......... 3,048 3,079 141 (858) (1,560) 272 (2,153) 4,299 (88) 172 1,051 Preferred stock dividend....... -- -- -- 102 185 185 210 -- 46 93 -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) available for common stock... $ 3,048 $ 3,079 $ 141 $ (960) $(1,745) $ 87 $(2,363) $ 4,299 $ (134) $ 79 $ 1,051 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Net income (loss) per common share... $ (.93) $ .66 $ (.05) $ .03 $ .16 ======= ======= ======= ======= ======= Average shares outstanding.... 2,536 6,486 2,520 2,550 6,500 BALANCE SHEET DATA: (AT PERIOD END) Working capital........ $ 6,284 $ 6,853 $ 8,235 $ 7,313 $ 7,659 $ 9,904 $ 9,494 $ 9,825 $19,851 Total assets.... 11,561 10,825 14,593 25,425 26,836 48,986 28,677 48,359 69,924 Total debt...... 2,451 1,065 4,292 17,393 17,947 30,902 19,355 30,004 18,319 Cumulative redeemable preferred stock.......... -- -- -- 2,102 2,287 4,497 2,333 4,590 -- Total stockholders' equity (deficit)...... 6,958 8,538 7,782 (969) (837) (2,505) (996) (2,426) 32,185
18 - -------- (1) Reflects the change of the Predecessor's fiscal year end from March 31 to December 31. (2) Pro forma statement of operations data for the year ended December 31, 1993 represent the results of the Predecessor for the portion of the year ended May 11, 1993 and the results of the Company for the portion of the year beginning after May 11, 1993, together with pro forma adjustments (which adjustments include additional depreciation ($644,000), amortization of goodwill ($11,000), interest expense ($597,000) and cumulative redeemable preferred stock ($83,000)), as if the CII Acquisition (which was completed on May 11, 1993) had occurred on January 1, 1993. In allocating the purchase price for the CII Acquisition, the Company recorded an increase in inventory of $986,000 which was reflected in cost of sales in this period due to the revaluation of inventory to fair market value. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General." (3) Gives effect to (i) the Hartman Acquisition and the Kilovac Acquisition, (ii) the Kilovac Share Exchange, (iii) the sale by the Company of 3,500,000 shares of Common Stock in the Offering at an assumed initial public offering price of $10.00 per share and the application of the proceeds therefrom, as described in "Use of Proceeds" including, without limitation, the repayment of a portion of outstanding debt and the redemption of outstanding cumulative redeemable preferred stock and the elimination of accrued and unpaid dividends in connection therewith, and (iv) the elimination of a $1.3 million special compensation charge (as described in footnote 5), the elimination of $951,000 of environmental expenses (as described in footnote 6) and the elimination of special acquisition expenses (as described in footnote 7), in each case as adjusted to reflect the corresponding tax benefits associated with such adjustments and as if such transactions (in the case of the events described in clauses (i), (ii) and (iii)) had occurred on January 1, 1995. See "Use of Proceeds," "Capitalization," "Pro Forma Condensed Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Certain Relationships and Related Transactions--Kilovac Acquisition" and the Company's Consolidated Financial Statements and the Notes thereto. (4) Gives effect to (i) the Hartman Acquisition, (ii) the Kilovac Share Exchange and (iii) the sale by the Company of 3,500,000 shares of Common Stock in the Offering at an assumed initial public offering price of $10.00 per share and the application of the proceeds therefrom as described in "Use of Proceeds," including, without limitation, the repayment of debt and the redemption of outstanding cumulative redeemable preferred stock and the elimination of accrued and unpaid dividends in connection therewith, in each case as adjusted to reflect the corresponding tax expenses/benefits associated with such adjustments and as if such transactions had occurred on January 1, 1995 in the case of the statement of operations data, and at March 31, 1996 in the case of balance sheet data. (5) Reflects a special compensation charge of $1.3 million which represents (i) the difference between the purchase price of Common Stock issued to seven employees on December 1, 1995 and the estimated fair market value of such shares (based upon the appraised value on December 1, 1995) and (ii) a related special cash bonus granted by the Company to the same seven employees to pay taxes associated with such stock issuances. (6) Reflects a non-recurring charge of $951,000 which represents primarily the costs incurred to date and the present value of the estimated future costs payable by the Company over the next 30 years for groundwater remediation at the Fairview facility. See "Business--Environmental Matters." (7) Special acquisition expenses in 1993 consist primarily of costs related to the relocation of a facility following the acquisition of Midtex Relays and costs associated with relocating the operations acquired from West Coast Electrical Manufacturing Co. and CP Clare. Such expenses in 1995 include costs primarily related to (i) the relocation of certain assets acquired from HiG Relays and Deutsch Relays and (ii) the write-off of an agreement with a business development consultant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." 19 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) The pro forma condensed consolidated statement of operations data for the fiscal year ended December 31, 1995 gives effect to the Kilovac Acquisition and the Hartman Acquisition, as if each such transaction had occurred on January 1, 1995. See "Use of Proceeds," "Certain Relationships and Related Transactions--Kilovac Acquisition" and "The Company." The pro forma condensed consolidated statement of operations data for the three months ended March 31, 1996 and the pro forma condensed consolidated balance sheet at March 31, 1996 give effect to the Hartman Acquisition, as if such transaction had occurred on January 1, 1995 and March 31, 1996, respectively. See "The Company" and "Use of Proceeds." The pro forma condensed consolidated financial information should be read in conjunction with the consolidated financial statements of the Company, Kilovac and the Hartman Division and the related notes thereto included elsewhere in this Prospectus and with "Management's Discussion and Analysis of Financial Condition and Results of Operations." The pro forma condensed consolidated financial information does not purport to represent what the Company's actual results of operations would have been had such transactions occurred on such dates nor does it purport to predict or indicate the results of future operations. 20 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
PRO FORMA FOR THE KILOVAC FROM KILOVAC JANUARY 1, ADJUSTMENTS ADJUSTMENTS ACQUISITION 1995 TO FOR THE FOR THE AND THE PRO FORMA OCTOBER 11, KILOVAC HARTMAN HARTMAN AS COMPANY(1) 1995 ACQUISITION HARTMAN ACQUISITION(10) ACQUISITION ADJUSTED(16) ---------- ------------ ----------- ------- --------------- ----------- ------------ STATEMENT OF OPERATIONS DATA: Net sales............... $39,918 $11,029 $ -- $17,461 $ -- $68,408 $68,408 Cost of sales........... 28,687 6,453 (174)(6) 11,417 195 (11) 46,578 46,598 ------- ------- ------- ------- ------ ------- ------- Gross profit............ 11,231 4,576 174 6,044 (195) 21,830 21,810 Selling expenses........ 3,229 1,287 -- 445 -- 4,961 4,961 General and administrative expenses............... 3,334 1,240 -- 2,753 (1,582)(12) 5,745 5,749 Research and development............ 301 547 -- 615 -- 1,463 1,463 Amortization of goodwill and other intangible assets................. 251 -- 270 (7) -- 134 (13) 655 808 Special compensation charge(2).............. 1,300 -- -- -- -- 1,300 -- Environmental expenses.. 951(3) -- -- 850 (850)(14) 951 -- Special acquisition expenses(4)............ 2,064 -- -- -- -- 2,064 -- ------- ------- ------- ------- ------ ------- ------- Operating income (loss)................. (199) 1,502 (96) 1,381 2,103 4,691 8,829 Interest expense........ 2,997 35 1,002 (8) 50 1,303 (15) 5,387 1,501 Other income (expense).. 2 9 -- (92) -- (81) (81) ------- ------- ------- ------- ------ ------- ------- Income (loss) before taxes.................. (3,194) 1,476 (1,098) 1,239 800 (777) 7,247 Income tax expense (benefit)(5)........... (1,076) 561 (402) 496 318 (103) 2,948 Income applicable to minority interest in net income of subsidiaries........... 35 -- 43(9) -- -- 78 -- ------- ------- ------- ------- ------ ------- ------- Net income (loss)....... (2,153) 915 (739) 743 482 (752) 4,299 Preferred stock dividend............... 210 -- -- -- -- 210 -- ------- ------- ------- ------- ------ ------- ------- Net income (loss) available for common stock.................. $(2,363) $ 915 $ (739) $ 743 $ 482 $ (962) $ 4,299 ======= ======= ======= ======= ====== ======= ======= Net income (loss) per common share........... $ (.93) $ .66 ======= ======= Average shares outstanding............ 2,536 6,486
- -------- (1) Includes the results of operations of Kilovac from October 12, 1995 (the date following the date of the Kilovac Acquisition) to December 31, 1995, including net sales, gross profit and operating income of $3.7 million, $1.8 million and $562,000, respectively. (2) Reflects a special compensation charge of $1.3 million which represents (i) the difference between the purchase price of Common Stock issued to seven employees on December 1, 1995 and the estimated fair market value of such shares (based upon the appraised value on December 1, 1995) and (ii) a related special cash bonus granted by the Company to the same seven employees to pay taxes associated with such stock issuances. (3) Reflects a non-recurring charge of $951,000 which represents primarily the costs incurred to date and the present value of the estimated future costs payable by the Company over the next 30 years for groundwater remediation at the Fairview facility. See "Business--Environmental Matters." (4) Special acquisition expenses primarily reflect costs related to (i) the relocation of certain assets acquired from HiG Relays and Deutsch Relays and (ii) the write-off of an agreement with a business development consultant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." (5) Assumes an effective tax rate of 42.0% for Kilovac, 40.0% for Hartman and 40.7% for the pro forma as adjusted data. 21 (6) Reflects (i) decreased depreciation expenses relating to longer estimated lives of certain equipment acquired in the Kilovac Acquisition and (ii) the amortization of certain tooling expenditures previously expensed as incurred by Kilovac. (7) Reflects the amortization of goodwill ($185,000) and other intangible assets ($85,000) recorded in connection with the Kilovac Acquisition. (8) Reflects additional interest expense associated with $9.8 million of senior debt and $1.7 million of subordinated debt incurred to finance the Kilovac Acquisition. (9) Reflects the 20% of Kilovac not held by the Company. (10) The Company has accounted for the Hartman Acquisition as a purchase, applying the provisions of Accounting Principles Board Opinion No. 16. The purchase price has been allocated to the acquired assets and assumed liabilities based on their estimated relative fair values as of the closing. Such allocations are subject to final determination based on valuations and other studies that may be completed after the closing. (11) Reflects (i) increased depreciation expenses corresponding to a higher appraised value of certain equipment acquired in the Hartman Acquisition, (ii) reclassification of building depreciation to rent expense since the Company is leasing Hartman's facility and (iii) the amortization of certain tooling expenditures previously expensed as incurred by Hartman. (12) Reflects elimination of estimated Figgie corporate charges of $1.8 million recorded by Hartman, which are partially offset by the Company's estimate of accounting, legal and human resource expenses ($230,000). (13) Reflects the amortization of goodwill ($134,000) recorded in connection with the Hartman Acquisition. (14) Reflects certain environmental expense associated with liabilities not assumed by the Company. (15) Reflects additional interest expense associated with approximately $12.9 million of bank debt incurred to finance the Hartman Acquisition. (16) Reflects pro forma statement of operations data, as further adjusted to give effect to (i) the Kilovac Share Exchange, (ii) the sale by the Company of 3,500,000 shares of Common Stock in the Offering at an assumed initial public offering price of $10.00 per share and the application of the proceeds therefrom, as described in "Use of Proceeds", including, without limitation, the repayment of a portion of outstanding debt and the redemption of outstanding cumulative redeemable preferred stock and the elimination of accrued and unpaid dividends in connection therewith, and (iii) the elimination of a $1.3 million special compensation charge (as described in footnote 2), the elimination of $951,000 of environmental expenses (as described in footnote 3) and the elimination of special acquisition expenses (as described in footnote 4) in each case as adjusted to reflect the corresponding tax expenses/benefits associated with such adjustments and as if such transactions (in the case of the events described in clauses (i) and, (ii)) had occurred on January 1, 1995. See "Use of Proceeds," "Capitalization," "Pro Forma Condensed Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Certain Relationships and Related Transactions--Kilovac Acquisition" and the Company's Consolidated Financial Statements and the Notes thereto. 22 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
ADJUSTMENTS FOR THE PRO FORMA HARTMAN AS COMPANY HARTMAN ACQUISITION(1) PRO FORMA ADJUSTED(7) ------- ------- -------------- --------- ----------- STATEMENT OF OPERATIONS DATA: Net sales............... $13,119 $5,095 $ -- $18,214 $18,214 Cost of sales........... 9,193 3,656 65 (2) 12,914 12,919 ------- ------ ----- ------- ------- Gross profit............ 3,926 1,439 (65) 5,300 5,295 Selling expenses........ 1,148 73 -- 1,221 1,221 General and administrative expenses............... 1,187 685 (395)(3) 1,477 1,478 Research and development............ 265 -- -- 265 265 Amortization of goodwill and other intangible assets................. 122 -- 34 (4) 156 194 ------- ------ ----- ------- ------- Operating income (loss)................. 1,204 681 296 2,181 2,137 Interest expense........ 874 -- 338 (5) 1,212 375 ------- ------ ----- ------- ------- Income (loss) before taxes.................. 330 682 (42) 970 1,763 Income tax expense (benefit)(6)........... 142 272 (17) 397 712 ------- ------ ----- ------- ------- Net income (loss)....... 172 410 (25) 557 1,051 Preferred stock dividend............... 93 -- -- 93 -- ------- ------ ----- ------- ------- Net income (loss) available for common stock........... $ 79 $ 410 $ (25) $ 464 $ 1,051 ======= ====== ===== ======= ======= Net income per common share.................. $ .03 $ .16 ======= ======= Average shares outstanding............ 2,550 6,500
- -------- (1) The Company has accounted for the Hartman Acquisition as a purchase, applying the provisions of Accounting Principles Board Opinion No. 16. The purchase price has been allocated to the acquired assets and assumed liabilities based upon their estimated relative fair values as of the closing. Such allocations are subject to final determination based upon valuations and other studies that may be completed after closing. (2) Reflects (i) increased depreciation expenses relating to a higher appraised value of certain equipment acquired in the Hartman Acquisition, (ii) reclassification of building depreciation to rent expense since the Company is leasing Hartman's facility and (iii) the amortization of certain tooling expenditures previously expensed as incurred by Hartman. (3) Reflects elimination of estimated Figgie corporate charges ($453,000) recorded by Hartman, which are partially offset by the Company's estimate of accounting, legal and human resource expenses ($58,000). (4) Reflects the amortization of goodwill recorded in connection with the Hartman Acquisition. (5) Reflects additional interest expense associated with approximately $12.9 million of bank debt incurred to finance the Hartman Acquisition. (6) Assumes an effective tax rate of 40.0% for Hartman and 40.4% for the pro forma as adjusted data. (7) Reflects pro forma statement of operations data, as further adjusted to give effect to the Kilovac Share Exchange and to give effect to the Offering and the application of the estimated net proceeds therefrom, including, without limitation, the repayment of debt and the redemption of outstanding cumulative redeemable preferred stock and the elimination of accrued and unpaid dividends in connection therewith, in each case as adjusted to reflect the corresponding tax expenses/benefits associated with such adjustments and as if such events occurred on January 1, 1995. 23 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
ADJUSTMENTS ADJUSTMENTS FOR THE FOR THE OFFERING AND PRO FORMA HARTMAN THE KILOVAC AS COMPANY HARTMAN ACQUISITION(1) PRO FORMA SHARE EXCHANGE ADJUSTED(14) -------- -------- -------------- --------- -------------- ------------ ASSETS Current assets: Accounts receivable, net.................. $ 7,885 $ 2,596 $ -- $ 10,481 $ -- $ 10,481 Inventories........... 10,963 6,973 989 18,925 47 (9) 18,972 Other current assets.. 3,195 34 (22) 3,207 -- 3,207 -------- -------- ------- -------- -------- -------- Total current assets............. 22,043 9,603 967 (2) 32,613 47 32,660 Property, plant and equipment, net......... 13,004 1,407 1,689 (3) 16,100 169 (9) 16,269 Goodwill................ 7,662 -- 4,020 (4) 11,682 4,097 (10) 15,779 Other assets............ 5,650 1,427 (1,177)(5) 5,900 (684)(11) 5,216 -------- -------- ------- -------- -------- -------- $ 48,359 $ 12,437 $ 5,499 $ 66,295 $ 3,629 $ 69,924 ======== ======== ======= ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses..... $ 6,978 $ 6,634 $(1,548)(6) $ 12,064 $ -- $ 12,064 Accrued interest...... 1,495 -- -- 1,495 (1,495)(12) -- Current portion of long- term debt............ 3,037 504 (504)(6) 3,037 (3,000)(12) 37 Current payable due to minority stockholders of subsidiary........ 708 -- -- 708 -- 708 -------- -------- ------- -------- -------- -------- Total current liabilities........ 12,218 7,138 (2,052) 17,304 (4,495) 12,809 Long-term debt.......... 19,517 -- 12,850 (7) 32,367 (14,085)(12) 18,282 Notes payable to stockholders........... 7,450 -- -- 7,450 (7,450)(12) -- Other long-term debt, minority interest and other.................. 6,845 494 (494)(8) 6,845 (197)(13) 6,648 Capital stock subject to mandatory redemption/ put option(15)......... 4,755 -- -- 4,755 (4,755)(12) -- -------- -------- ------- -------- -------- -------- Total long-term obligations........ 38,567 494 12,356 51,417 (26,487) 24,930 Stockholders' equity (deficit).............. (2,426) 4,805 (4,805) (2,426) 34,611 (12) 32,185 -------- -------- ------- -------- -------- -------- $ 48,359 $ 12,437 $ 5,499 $ 66,295 $ 3,629 $ 69,924 ======== ======== ======= ======== ======== ========
- -------- (1) The Company has accounted for the Hartman Acquisition as a purchase, applying the provisions of Accounting Principles Board Opinion No. 16. The purchase price has been allocated to the acquired assets and assumed liabilities based upon their estimated relative fair values as of the closing. Such allocations are subject to final determination based upon valuations and other studies that may be completed after closing. (2) Reflects the purchase accounting adjustment to increase inventories to estimated fair market value in connection with the Hartman Acquisition ($989,000) offset by the elimination of Hartman's current assets not purchased by the Company ($22,000). 24 (3) Reflects (i) the capitalization of tooling previously expensed by Hartman ($1.4 million) and (ii) the purchase accounting adjustment to increase equipment to estimated fair market value ($872,000), offset by (iii) the elimination of the Hartman building not purchased by the Company ($629,000). (4) Reflects the goodwill adjustment in connection with the Hartman Acquisition. (5) Reflects deferred financing costs relating to the Hartman Acquisition ($250,000), offset by the elimination of Hartman's prepaid pension asset for the pension obligations not assumed by the Company ($1.4 million). (6) Reflects the elimination of the following liabilities not assumed in connection with the Hartman Acquisition: (i) environmental liability ($850,000), (ii) the current portion of a capital lease obligation ($504,000) and (iii) other accrued expenses ($698,000). (7) Reflects estimated long-term debt incurred to finance the Hartman Acquisition. (8) Reflects the elimination of the long-term portion of the capital lease obligation not assumed by the Company in connection with the Hartman Acquisition. (9) Reflects the purchase accounting adjustments to increase inventories ($47,000) and property plant and equipment ($169,000) to estimated fair market value in connection with the Kilovac Share Exchange. (10) Reflects the goodwill adjustment in connection with the Kilovac Share Exchange. (11) Reflects other intangible assets ($458,000) resulting from the Kilovac Share Exchange offset by the write-off of deferred financing costs due to the satisfaction of senior bank indebtedness with the estimated proceeds of the Offering ($968,000) and the write-off of pre-paid offering costs in connection with the Offering ($174,000). (12) Reflects (i) the net proceeds from the Offering ($31.2 million) used to reduce indebtedness and accrued interest thereon, and to redeem cumulative redeemable preferred stock including accrued and unpaid dividends, (ii) the issuance of Common Stock in connection with the Kilovac Share Exchange ($4.5 million) offset by (iii) the write-off of certain deferred costs in connection with the Offering ($1.1 million). (13) Reflects the purchase accounting adjustment to increase deferred tax liabilities in connection with the Kilovac Share Exchange ($271,000) offset by the payment of the accrued portion of a success fee ($417,000) to the Company's senior lenders and the elimination of the minority interest in subsidiary in connection with the Kilovac Share Exchange ($51,000). (14) Gives effect to (i) the Hartman Acquisition, (ii) the Kilovac Share Exchange, (iii) the sale by the Company of 3,500,000 shares of Common Stock in the Offering at an assumed initial public offering price of $10.00 per share, and as if such transactions had occurred on March 31, 1996. See "Use of Proceeds," "Capitalization," "Pro Forma Condensed Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Certain Relationships and Related Transactions--Kilovac Acquisition" and the Company's Consolidated Financial Statements and Notes thereto. (15) See Note 11 of Notes to Consolidated Financial Statements. 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Communications Instruments, Inc. was initially formed in 1980 by Ramzi Dabbagh (the Company's Chairman, President and Chief Executive Officer) and a group of private investors. The Company made its initial acquisition of several relay and switch products from the CP Clare division of General Instruments in 1980, and, since that initial acquisition, Mr. Dabbagh and his management team have pursued a growth strategy of acquiring manufacturers of relay products and related components, consolidating the acquired companies and/or their product lines into the Company's manufacturing facilities and eliminating significant overhead. In order to provide liquidity for the original shareholder group and to position the Company for future growth, in May 1993 CII was acquired by the Company (the "CII Acquisition") in a leveraged buyout transaction sponsored by Stonebridge Partners and members of management. The $21.0 million acquisition price was financed by $11.6 million of senior bank debt; the proceeds of $4.0 million of subordinated notes issued to CII Associates, L.P., a partnership controlled by Stonebridge Partners (the "Partnership"); $2.0 million aggregate redemption value of preferred stock issued to the Partnership; approximately $2.0 million of notes issued to shareholders of the Predecessor (including a note of approximately $370,000 issued to Mr. Dabbagh, of which approximately $223,000 is currently owing to Mr. Dabbagh); and $960,000 of common equity issued to the Partnership and members of management. The CII Acquisition was accounted for as a purchase for financial reporting purposes and, accordingly, the assets and liabilities of the Predecessor were recorded at their estimated fair values at the date of acquisition. The Company has in the past and will continue in the future to focus its efforts on growing its business internally and through acquisitions. Since the CII Acquisition, the Company has completed 13 acquisitions of other companies or product lines for aggregate consideration of $36.0 million, including the 1995 Kilovac Acquisition and the Hartman Acquisition which was consummated in July 1996. The Company has historically financed its acquisitions through a combination of secured bank debt and internally generated funds. In October 1995 the Company acquired an 80% interest in Kilovac, which was financed with $9.8 million of secured bank debt, $1.7 million of subordinated debt and the issuance of $2.0 million of preferred stock. Kilovac's operations and facility were maintained as a stand-alone operation and therefore significant integration costs were not incurred. The Company will exchange 450,000 shares of its Common Stock (based upon an assumed initial public offering price of $10.00 per share) for the remaining 20% interest in Kilovac in conjunction with the consummation of the Offering. See "Certain Relationships and Related Transactions--Kilovac Acquisition." In July 1996 the Company purchased the assets of the Hartman Division from Figgie for $12.0 million. The Company financed the Hartman Acquisition with secured bank debt, and a portion of the proceeds obtained in the Offering will be utilized to repay a portion of this debt. See "The Company" and "Use of Proceeds." In connection with the Hartman Acquisition, the Company has assumed a reserve previously established by Hartman of approximately $2.6 million in anticipation of losses that the Company expects to incur as a significant unprofitable Hartman contract is fulfilled over the next two years. As described herein, the amount of integration costs incurred by the Company in connection with each acquisition depends upon the size and nature of the acquisition. During the initial integration phase of smaller acquisitions, the Company typically has incurred integration-related selling, general and administrative expenses for training of staff members, for the conversion of information systems and for duplicate rents and other operating costs in connection with the consolidation of facilities. The Company intends to utilize a portion of the proceeds of the Offering made hereby to pay a portion of the amounts outstanding under its senior credit facility. See "Use of Proceeds." In connection therewith, upon the closing of the Offering (expected to occur during the quarter ending September 30, 1996), the Company is required to pay a one-time success fee of $500,000 to its senior lender, of which $83,000 has not been accrued and which will be expensed at the time of the Offering, and will incur an expense of $968,000 relating to the write-off of deferred financing charges. 26 RESULTS OF OPERATIONS The following table sets forth for the periods indicated information derived from the consolidated statements of operations expressed as a percentage of net sales, and the percentage change in such items compared to the same period in the prior year. There can be no assurance that the trends in sales growth or operating results will continue in the future.
PERCENTAGE OF NET SALES PERCENTAGE INCREASE ----------------------------------------------------- -------------------------------- YEARS ENDED DECEMBER 31, THREE MONTHS ENDED THREE MONTHS ------------------------------- ------------------- ENDED APRIL 2, PRO FORMA 1995 TO THREE PRO FORMA APRIL 2, MARCH 31, 1993 TO 1994 TO MONTHS ENDED 1993(1) 1994 1995 1995 1996 1994(1) 1995 MARCH 31, 1996 ----------- -------- -------- -------- --------- --------- ------- -------------- Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 23.8% 26.6% 42.4% Cost of sales........... 85.5 77.2 71.9 74.2 70.1 11.7 17.9 34.4 -------- -------- -------- ----- ----- Gross profit............ 14.5 22.8 28.1 25.8 29.9 94.6 56.1 65.2 Selling expenses........ 8.1 7.6 8.1 7.1 8.8 15.8 35.6 75.0 General and administrative expenses............... 6.8 7.1 8.4 7.1 9.0 29.5 48.3 80.9 Research and development............ 0.2 0.3 0.8 0.4 2.0 66.1 192.2 579.5 Amortization of goodwill and other intangible assets................. 0.7 0.6 0.6 0.6 0.9 2.3 41.8 134.6 Special compensation charge................. -- -- 3.3 -- -- -- -- -- Environmental expenses.. -- -- 2.4 -- -- -- -- -- Special acquisition expenses............... 1.6 -- 5.2 6.2 -- * -- * -------- -------- -------- ----- ----- Operating income (loss)................. (2.9) 7.2 (0.5) 4.4 9.2 * * 196.6 Interest expenses....... 6.9 5.8 7.5 6.0 6.7 4.1 63.5 57.5 Other income (expense).. 0.2 -- -- -- -- * -- * -------- -------- -------- ----- ----- Income (loss) before taxes.................. (9.7) 1.4 (8.0) (1.6) 2.5 * * * Income tax expense (benefit).............. (3.6) 0.6 (2.7) (0.6) 1.1 * * * -------- -------- -------- ----- ----- Income applicable to minority interest in net income of subsidiaries........... -- -- 0.1 -- 0.1 -- -- -- -------- -------- -------- ----- ----- Net income (loss)....... (6.1) 0.9 (5.4) (1.0) 1.3 * * * Preferred stock dividend............... 0.7 0.6 0.5 0.5 0.7 -- 13.5 102.2 -------- -------- -------- ----- ----- Net income (loss) available for common stock.................. (6.9)% 0.3% (5.9)% (1.5)% 0.6% * * * ======== ======== ======== ===== =====
- -------- (1) Pro forma data give effect to the CII Acquisition as if such acquisition had occurred on January 1, 1993. See footnote 2 to "Selected Consolidated Financial Information." * Not meaningful. 27 Three Months Ended March 31, 1996 compared to Three Months Ended April 2, 1995 Net sales for the three months ended March 31, 1996 increased $3.9 million, or 42.4%, to $13.1 million from $9.2 million for the corresponding period in 1995. The increase was primarily the result of the acquisition of Kilovac which represented $3.7 million in sales. Excluding the Kilovac Acquisition, net sales of the Company for the three months ended March 31, 1996 increased by $228,000, or 2.5%, from net sales for the corresponding period in 1995. This increase was due to growth in sales of high performance relays ($1.2 million) which was partially offset by the expiration of a significant general purpose relay contract ($426,000), the peak demand for a particular solenoid product during the first quarter of 1995 (representing $208,000 of net sales) and a decrease in sales of certain mature general purpose relay products ($268,000). The Company's gross profit for the three months ended March 31, 1996 increased by $1.5 million to $3.9 million from $2.4 million for the same period in 1995. Gross profit as a percentage of net sales increased to 29.9% for the three months ended March 31, 1996 from 25.8% for the same period in 1995. The increase in gross profit was due, in part, to the acquisition of Kilovac. Excluding Kilovac, the Company's gross profit for the three months ended March 31, 1996 increased by $10,000, or 0.4%, from the same period in 1995, and gross profit as a percentage of net sales decreased from 25.8% for the three months ended April 2, 1995 to 25.3% for the same period in 1996. This increase in dollar amount was primarily due to the implementation of increased prices on certain of the Company's high performance products and cost reductions in both materials and manufacturing expenses and was partially offset by lower margins for high performance relays due to start-up costs incurred at the Company's new Asheville facility. Selling expenses increased to $1.1 million for the three months ended March 31, 1996 from $656,000 for the corresponding period in 1995. The increase in dollar amount of selling expense was primarily due to the acquisition of Kilovac. Excluding Kilovac, selling expenses for the Company for the three months ended March 31, 1996 were $673,000 (7.1% of net sales) which represented an increase of $17,000 from such expenses in the corresponding period in 1995. The increase in dollar amount was primarily due to an increase in commissions associated with the Company's additional sales. General and administrative expenses increased to $1.2 million for the three months ended March 31, 1996 from $656,000 for the corresponding period in 1995. This increase was due primarily to the acquisition of Kilovac. Excluding Kilovac, general and administrative expenses of the Company were $810,000, or 8.6% of net sales, for the three months ended March 31, 1996, which represents an increase of $154,000, or 23.5%, from general and administrative expenses for the corresponding period in 1995. The increase in general and administrative expenses (excluding Kilovac) was primarily due to the start-up of production at the new Asheville facility and the addition of new management. Research and development expenses increased to $265,000 or 2.0% of net sales, for the three months ended March 31, 1996, compared to $39,000 or 0.4% of net sales for the corresponding period in 1995. The increase was primarily due to the $200,000 of research and development expenses of Kilovac. Amortization of goodwill and other intangible assets was $122,000, or 0.9% of net sales, for the three months ended March 31, 1996 compared to $52,000, or 0.6% of net sales, for the corresponding period in 1995. The increase in dollar amount primarily reflects amortization of goodwill and other intangible assets related to the acquisition of Kilovac. Special acquisition expenses were $568,000 for the first quarter of 1995. No special acquisition expenses were incurred in the first quarter of 1996. The costs in the first quarter of 1995 primarily related to the relocation of certain assets acquired in the HiG Acquisition and the Deutsch Acquisition to the new manufacturing facility in Asheville, N.C. and the commencement of production at such facility. Interest expense increased to $874,000 in the three months ended March 31, 1996 from $555,000 for the same period of 1995. The increase reflects additional borrowings to fund the Kilovac Acquisition ($11.5 million) and to accrue for additional amounts due to the Company's bank lenders, and was partially offset by a decrease in market interest rates. 28 Income taxes were an expense of $142,000 in the three month period ended March 31, 1996, compared to a benefit of $59,000 in the same period of 1995. Income taxes (benefit) as a percentage of income (loss) before taxes were 43.0% in the three months ended March 31, 1996 and 40.1% for the same period in 1995, with the increase due to the additional amortization of goodwill from the Kilovac Acquisition. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Net sales for 1995 increased by $8.4 million, or by 26.6%, to $39.9 million from $31.5 million in 1994. The increase was primarily the result of the acquisition of Kilovac, which represented $3.7 million in sales for the period from October 12, 1995 (the date following the date of the acquisition) to December 31, 1995, and the HiG Acquisition and Deutsch Acquisition which represented $1.7 million and $1.6 million in sales, respectively, from the date of the acquisition to December 31. Excluding these acquisitions, net sales of the Company for 1995 increased by $1.4 million, or 4.5%, from sales in 1994. The Company attributes this increase to increased sales of its high performance and general purpose relays and solenoid products. The Company's gross profit for 1995 increased by $4.0 million to $11.2 million in 1995 from $7.2 million in 1994. Gross profit as a percentage of net sales increased from 22.8% in 1994 to 28.1% in 1995. The increases in gross profit and gross profit as a percentage of net sales were due, in part, to the acquisition of Kilovac. From October 12, 1995, the date following the date of the Kilovac Acquisition, to December 31, 1995, Kilovac had a gross profit margin of 49.6%, as compared to the 28.1% overall gross profit margin of the Company. Excluding Kilovac, the Company's gross profit for 1995 increased by $2.2 million, or 30.8%, from gross profit in 1994, and gross profit as a percentage of net sales increased from 22.8% in 1994 to 25.9% in 1995. This increase was due to the implementation of increased prices on certain of the Company's high performance products and cost reductions in both materials and manufacturing expenses. Gross profit in 1995 was also favorably impacted by the devaluation of the Mexican peso in that year. The increase in gross profit was partially offset by integration costs incurred in connection with the Company's 1995 acquisitions. Selling expenses increased to $3.2 million in 1995 from $2.4 million in 1994. The increase in dollar amount of selling expense was primarily due to the acquisition of Kilovac. Excluding Kilovac, selling expenses for the Company for 1995 were $2.8 million (7.6% of net sales), which represents an increase of $371,000 from 1994. The increase in dollar amount was primarily due to an increase in commissions associated with the Company's additional sales. General and administrative expenses increased in 1995 to $3.3 million from $2.2 million in 1994. The Company attributes this increase primarily to the acquisition of Kilovac. Excluding Kilovac, general and administrative expenses of the Company were $2.9 million, or 7.9% of net sales, for 1995, which represents an increase of $627,000, or 27.9%, from general and administrative expenses in 1994. The increase in general and administrative expenses was primarily due to the start-up of production of certain of the Company's high performance relays at a new facility, the addition of new management and increased executive compensation and costs incurred reviewing potential acquisitions. Research and development expenses increased to $301,000 in 1995, or 0.8% of net sales, compared to $103,000, or 0.3% of net sales in 1994. The increase was due primarily to the $181,000 of research and development expenses of Kilovac from October 12, 1995 to the end of that year. Amortization of goodwill and other intangible assets was $251,000 in 1995, or 0.6% of net sales, compared to $177,000, or 0.6% of net sales, in 1994. The increase in dollar amount primarily reflects the acquisition of Kilovac. During 1995, the Company recorded a special compensation charge of $1.3 million, which represents (i) the difference between the purchase price of Common Stock sold to seven employees on December 1, 1995 and the estimated fair market value of such shares (based upon the appraised value at December 1, 1995) and (ii) a related special cash bonus granted by the Company to the same seven employees to pay taxes associated with such stock. See "Certain Relationships and Related Transactions--Issuance of Securities by the Company." 29 During 1995 the Company recorded a non-recurring charge of $951,000, which represents primarily the costs incurred to date and the present value of the estimated future costs payable by the Company over the next 30 years for groundwater remediation at the Fairview facility. During 1995 the Company entered into a settlement with the prior owner of the Fairview facility which determined the liability, as between the two parties, for current and future expenses related to the remediation of the facility. See "Business-- Environmental Matters." Special acquisition expenses were $2.1 million in 1995. These expenses related primarily to (i) the relocation of certain acquired assets resulting from the HiG Acquisition and the Deutsch Acquisition to a new manufacturing facility in Asheville, North Carolina and the commencement of production at such facility and (ii) the write-off of a contract with a business development consultant. Interest expense increased to $3.0 million in 1995 from $1.8 million in 1994. The increase reflects additional borrowings of approximately $13.0 million for the Kilovac Acquisition and HiG Relay asset acquisition, an increase in market interest rates and an accrual for additional amounts due to the Company's bank lenders. Income taxes were a benefit of $1.1 million in 1995, compared to an expense of $178,000 in the same period in 1994. Income taxes (benefit) as a percentage of income (loss) before taxes were 33.7% in 1995 compared to 39.6% in 1994. The lower benefit in 1995 was due primarily to additional Mexican income taxes of approximately $16,000 that arose in 1995 due to changes in Mexican tax law. Year Ended December 31, 1994 Compared to Pro Forma Year Ended December 31, 1993 For comparison purposes, the following discussion assumes that the CII Acquisition occurred as of January 1, 1993. See footnote 2 to "Selected Consolidated Financial Information." The Company's net sales increased by $6.0 million, or 23.8%, to $31.5 million in 1994 from $25.5 million in 1993 (pro forma). Approximately $2.8 million of the increase was due to the inclusion of the West Coast Electrical Manufacturing Co. and Midtex Relays acquisitions consummated in 1993 for the full year of 1994. Excluding these acquisitions, the Company's net sales increased by $3.2 million, or 16.7%. This increase was primarily due to growth of the Company's high performance and general purpose relays. Gross profit in 1994 increased by $3.5 million to $7.2 million from $3.7 million in 1993 (pro forma). Gross profit as a percentage of net sales increased to 22.8% in 1994 from 14.5% in 1993 (pro forma). The increase in gross margin dollars primarily reflected a 1993 purchase accounting adjustment of $986,000 (reflected in 1993 cost of sales) due to the revaluation of inventory to fair market value as a result of the CII Acquisition, and $1.3 million of the 1994 increase reflected the full year impact of the Company's 1993 acquisitions as well as the Company's acquisitions in 1994. Excluding the accounting adjustment and acquisitions, gross profit in 1994 increased $1.2 million from 1993, or 32.5%, due to increased volume of general purpose relays and increased efficiencies at the Company's Midtex Division, increased solenoid business resulting from new product developments and increased volume and efficiencies of the Company's high performance relays. Selling expenses were $2.4 million in 1994 compared to $2.1 million in 1993. Selling expenses as a percentage of net sales were 7.6% in 1994 compared to 8.1% in 1993 (pro forma). The increase in the dollar amount of selling expenses resulted from the full integration of the Midtex operation in 1994 and the addition of management and commission increases resulting from increased sales. The percentage decrease in selling expenses from 1993 to 1994 was due to the integration of the sales representatives of the newly acquired Midtex Division with the sales network of the CII Division, which resulted in the reduction of commissions as a percentage of sales. General and administrative expenses increased in 1994 to $2.2 million, or 7.1% of net sales, from $1.7 million, or 6.8% of net sales, in 1993 (pro forma). The increase in dollar amount of general and administrative expenses was primarily due to the full year impact of the Company's 1993 acquisitions and the addition of management and other personnel to support the growth of the business. 30 Research and development expenses were $103,000 or 0.3% of net sales in 1994, compared to $62,000, or 0.2% of net sales, in 1993 (pro forma). The increase was due to additional personnel. Amortization of goodwill and other intangible assets increased to $177,000, or 0.6% of net sales, in 1994 from $173,000, or 0.7% of net sales, in 1993 (pro forma). Special acquisition expenses were $419,000, or 1.6% of net sales, in 1993 (pro forma). The costs in 1993 were primarily related to the acquisition, shutdown, relocation and start-up of the solenoid product line and the costs related to restructuring the Midtex operation. No special acquisition expenses were incurred in 1994. Interest expense increased to $1.8 million in 1994 from $1.76 million in 1993 (pro forma), reflecting higher interest rates in 1994. Income tax expense was $178,000 in 1994 compared to a benefit of $908,000 in 1993 (pro forma). The rate of income tax expense (benefit) as a percentage of income before income taxes (benefit) was 39.6% in 1994 and 36.8% in 1993 (pro forma). The difference in the effective income tax rates was primarily due to the allocation of sales among the Company's divisions which are located in different states and subject to varying state tax rates. Quarterly Comparison The following table sets forth the results of operations by quarter for 1994, 1995 and the first quarter of 1996. This information includes all adjustments, consisting only of normal recurring accruals, that management considers necessary for a fair presentation of the data when read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere herein. The results of operations for historical periods may not necessarily be indicative of results for any future period.
FISCAL QUARTER ENDED ------------------------------------------------------------------------------- APRIL 3, JULY 3, OCT. 2, DEC. 31, APRIL 2, JULY 2, OCT. 1, DEC. 31, MARCH 31, 1994 1994 1994 1994 1995 1995 1995 1995(1) 1996 -------- ------- ------- -------- -------- ------- ------- -------- --------- (IN THOUSANDS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales............... $7,222 $8,201 $8,334 $7,766 $9,216 $9,352 $9,174 $12,176 $13,119 Cost of sales........... 5,856 6,264 6,402 5,808 6,839 6,729 6,763 8,356 9,193 ------ ------ ------ ------ ------ ------ ------ ------- ------- Gross profit............ 1,366 1,937 1,932 1,958 2,377 2,623 2,411 3,820 3,926 Selling expenses........ 562 690 620 510 656 753 708 1,112 1,148 General and administrative expenses............... 541 533 544 630 656 640 733 1,305 1,187 Research and development............ 25 30 27 21 39 39 22 201 265 Amortization of goodwill and other intangible assets................. 34 34 33 76 52 58 51 90 122 Environmental expenses.. -- -- -- -- -- -- -- 951 -- Acquisition related expenses............... -- -- -- -- 568 347 222 927 -- Special compensation expenses............... -- -- -- -- -- -- -- 1,300 -- ------ ------ ------ ------ ------ ------ ------ ------- ------- Operating income........ 204 650 708 721 406 786 675 (2,066) 1,204 Interest expenses....... 414 467 451 501 555 583 579 1,280 874 Other income (expense).. 1 (1) -- -- 2 -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------- ------- Income (loss) before taxes.................. (209) 182 257 220 (147) 203 96 (3,346) 330 Minority interest in net income of subsidiaries........... -- -- -- -- -- -- -- 35 16 Income tax expense (benefit).............. (84) 72 103 87 (59) 81 38 (1,136) 142 ------ ------ ------ ------ ------ ------ ------ ------- ------- Net income (loss)....... (125) 110 154 133 (88) 122 58 (2,245) 172 Preferred stock dividend............... 46 46 46 47 46 46 46 72 93 ------ ------ ------ ------ ------ ------ ------ ------- ------- Net income (loss) available for common stock.................. $ (171) $ 64 $ 108 $ 86 $ (134) $ 76 $ 12 $(2,317) $ 79 ====== ====== ====== ====== ====== ====== ====== ======= =======
- -------- (1) During this fiscal quarter the Kilovac Acquisition was completed. 31 Backlog As of March 31, 1996, the Company's backlog was approximately $32.9 million ($22.6 million excluding Kilovac) compared to $19.2 million as of March 31, 1995. Approximately $27.7 million of this backlog ($22.0 million excluding Kilovac) consists of orders scheduled to be fulfilled prior to March 31, 1997. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $2.0 million in 1993, $1.2 million in 1994 and $1.8 million in 1995. The decrease in cash provided by operating activities from 1993 to 1994 was primarily due to the growth in the Company's business which increased working capital requirements. The increase in cash provided by operating activities from 1994 to 1995 was mainly due to the reduction in inventory and slower growth of accounts receivable. For the three months ended March 31, 1996, cash provided by operating activities was $2.0 million, compared to $302,000 for the same period in 1995. This increase was primarily attributable to improved collections and slower growth of receivables and an increase in accounts payable, which was partially offset by an increase in inventory. The Company bills its customers upon shipment of products. Engineering sales represent revenues under fixed price development and cost sharing development contracts. Revenues under the contracts are recognized based on the percentage of completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. Costs in excess of contract revenues on cost sharing development contracts are expensed in the period incurred as research and development costs. Provision for estimated losses on fixed price development contracts are made in the period such losses are determined by management. The average days' sales outstanding for accounts receivable was approximately 51, 55 and 58 trade days at year end 1993, 1994 and 1995, respectively. The increase in average days' sales outstanding can be attributed to increases in foreign sales and corresponding increases in foreign receivables. The average days' sales outstanding for accounts receivable from foreign customers has traditionally been in the range of 60 to 90 days. The Company's inventories increased from $7.5 million at year end 1993 to $7.9 million at year end 1994. The increase of the Company's inventories from $7.9 million at year end 1994 to $10.6 million at year end 1995 is attributable to inventory acquired in connection with the purchase of assets from HiG Relays ($1.5 million) and the Kilovac Acquisition ($2.0 million) and increased volume. The increase in inventories from year end 1994 to year end 1995 was favorably offset by the implementation of more efficient manufacturing and material planning techniques. The Company's inventories increased from $9.0 million at March 31, 1995 to $11.0 million at March 31, 1996. The increase was primarily due to the Kilovac Acquisition ($2.3 million) and was offset by a decrease of $359,000 primarily due to improved inventory planning techniques. The Company's accounts payable increased from $1.7 million at year end 1993 to $2.3 million at year end 1994. The increase was primarily the result of increased purchases to support the Company's growth. The increase of the Company's payables from $2.3 million at year end 1994 to $2.6 million at year end 1995 was primarily due to the effect of the acquisition of Kilovac ($783,000) and increases in purchases to support the Company's growth. This increase between 1994 and 1995 was partially offset by the Company's strategy to shorten the payment period of its accounts payable. The Company's accounts payable increased from $2.3 million at March 31, 1995 to $3.7 million at March 31, 1996. This increase was primarily due to the Kilovac Acquisition ($817,000), increased purchases to support the Company's growth and costs incurred in connection with the Offering. The Company has historically financed its operations and acquisitions through a combination of internally generated funds and secured borrowings under its revolving credit agreement. The Company financed its largest acquisition, the Kilovac Acquisition, through $9.8 million of secured borrowings and the issuance of $1.7 million of subordinated debt and $2.0 million of cumulative redeemable preferred stock. The Company financed the Hartman Acquisition with secured bank debt, and a portion of the proceeds obtained in the Offering will be utilized to repay a portion of this debt. Capital expenditures, excluding acquisitions, were $454,000 in 1993, $444,000 in 1994, $1.1 million in 1995 and $380,000 for the three months ended March 31, 1996. Capital expenditures were primarily for 32 replacement and enhancement of production equipment. In 1995, capital expenditures also included $1.0 million for the purchase of and improvements to the Asheville facility, $133,000 for the acquisition of equipment for a high performance relay product line and $112,000 of capital expenditures by the Kilovac Division. Acquisition spending totaled $3.1 million in 1993, $1.1 million in 1994 and $14.3 million in 1995, and the Company expended approximately $12.9 million in July 1996 for the Hartman Acquisition. The Company will apply the estimated net proceeds of the offering ($31.2 million) to repay $17.3 million of the $35.5 million outstanding under its senior credit facility, $8.75 million of its subordinated debt, including $1.3 million of interest in arrears and $4.6 million of its preferred stock, including $620,000 of accrued and unpaid dividends. In connection with the initial public offering, the Company will also pay to its senior lenders a success fee in the amount of $500,000 (based on the assumed initial public offering price). The Company has entered into a letter of intent with Bank of America Illinois, which, upon the execution of definitive documentation at the time of the Offering, would provide for up to a $40.0 million secured credit facility, consisting of a $28.0 million revolving credit facility (bearing interest at LIBOR plus 1.75%) and a $12.0 million term loan facility (bearing interest at LIBOR plus 2.0%). The facility will be available for working capital purposes and to finance additional acquisitions and will be secured by the Company's assets. The Company anticipates that the loan agreement for the new facility will contain financial covenants including, without limitation, certain limitations on cash interest coverage, leverage, liquidity and minimum net worth and certain other customary restrictive covenants. The Company expects that the facilities will be available for five years and that amounts outstanding under the Term Loan will be repaid in $600,000 installments each fiscal quarter commencing October 31, 1996. There can be no assurance that the Company will be successful in arranging for such a facility or what the final terms of such facility will be. INFLATION The Company does not believe that inflation has had any material effect on the Company's business over the past three years. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed Of," which will be effective during the Company's year ending December 31, 1996. The impact of this new standard on 1996 earnings is not expected to be significant. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes an alternative method of accounting for employee stock compensation plans based on a fair value methodology. However, the statement allows an entity to continue to use the accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has not yet determined whether it will adopt the alternative method of accounting and has also not yet determined the effect of this standard on the Company's earnings. 33 BUSINESS GENERAL The Company is a leading designer, manufacturer and marketer of a broad line of high performance electromechanical and solid state relays and solenoids for customers in the commercial/industrial equipment, commercial airframe, defense/aerospace, communications, automatic test equipment and automotive industries. The Company's relays are used to control current or signals in electrical and electronic circuits, and are technological building blocks for a wide range of products. While the Company is a broad-based supplier of general and special purpose relays and solenoids, it has focused on manufacturing high performance relay products and targeting sophisticated and customized applications of these products to meet the needs of the markets it serves. The Company's high performance relays are sophisticated, complex devices that have been engineered for highly reliable performance over substantial periods of time, often in adverse operating environments. The Company sells its products to more than 2,100 customers including Boeing, AT&T, Rockwell, Hewlett Packard, McDonnell Douglas and General Motors. INDUSTRY OVERVIEW According to Frost & Sullivan, an industry market research firm, annual sales of relay products in North America were estimated to be $840 million in 1995. The Company estimates that the high performance relay market is growing at a 3-4% growth rate per year, in contrast to the less than 1% growth rate (according to Frost & Sullivan) which characterizes the relay market as a whole. The relay and solenoid markets are highly fragmented among a large number of small suppliers. The Company does not compete in the low-price, mass-produced relay market, which is dominated by suppliers in the Far East. These suppliers utilize highly automated lines and/or low-cost labor to produce long runs of standard relay products. It is impractical for those manufacturers to modify their product designs or manufacturing processes for the niche markets applications targeted by the Company within the high performance relay markets. These niche markets generally produce higher margins for the Company, are less sensitive to pricing and are more dependent on high reliability, performance, and meeting specific customer requirements than the markets for standard relay products. High performance relay products have also proven themselves to be less susceptible to obsolescence because the users of the sophisticated equipment of which such high performance products are a component part are less likely to modify such equipment because of the length of time required, and cost incurred, to requalify such equipment. The Company has identified two trends in the relay and solenoid industries that it believes will have a favorable impact on the Company's future growth. First, major customers in the primary markets that the Company serves are consolidating their supplier base in an effort to develop long term strategic business relationships with a limited number of leading suppliers. Suppliers must therefore provide a broad range of high quality products, at competitive prices, together with full service capabilities, including design, engineering and product management support. These requirements can best be met by suppliers with sufficient size and financial resources to satisfy such demands. Although this trend has already resulted in significant consolidation among suppliers in the relay and solenoid industries, the Company believes that the new environment provides an opportunity for growth through the acquisition of related products previously provided by other suppliers and by acquiring companies or product lines that further enhance its product, manufacturing and service capabilities. A second trend is an increase in the technological complexity and miniaturization of the equipment manufactured by the Company's customers. As its customers develop increasingly complex mechanisms which require sophisticated component parts, the Company expects that the demand for its high performance relays and solenoids which provide the advantages of small size, light weight, long life, low energy consumption and environmentally sealed contacts, will increase as well. 34 OPERATING STRATEGY The Company seeks to leverage its broad product offering, its reputation for quality, innovation and technological leadership, its diverse and efficient manufacturing capabilities and its wide and diversified customer base to further penetrate and expand the size and number of markets that it serves. The principal elements of its operating strategy are set forth below: Expand Product Line Capabilities. The Company manufactures over 750 different types of electromechanical and solid state relays and solenoids that have a wide variety of product applications. This broad product offering allows it to provide its customers with sophisticated, customized products, as well as more standard, general purpose products. The Company continuously seeks to expand its product offering through acquisitions and by using its in- house engineering and manufacturing resources to design, test and manufacture new products, both in response to specific requests by existing customers and in anticipation of potential new applications for its products. Maintain Leadership Position and Focus on High Performance Markets. The Company believes it is a leading manufacturer of high performance relays and is a sole source supplier of over 80 specialty relay types. The Company believes that its ability to produce proprietary high performance relays has been fundamental to its success and will enable the Company to grow its business in the future. This focus on the high performance relay market has allowed the Company to successfully target and serve leading original equipment manufacturers in niche markets who are willing to pay premium prices for the performance advantages offered by the Company's products. The Company's high performance relays are also critical enabling technologies in advanced emerging applications such as electric vehicles, automatic heart defibrillators, global positioning satellites, the Space Station, advanced communications systems and advanced commercial and military aircraft. Provide Efficient and Diverse Manufacturing Capability. The Company's domestic and international manufacturing capability enables it to respond to its customers' demands for high quality products at competitive prices. The Company manufactures and assembles its products at five facilities which are all capable of advanced mechanized assembly. The Company's two North Carolina facilities produce high performance signal relays and solenoids and each of these facilities has obtained the "Military Standard 790" certification promulgated by the United States Department of Defense ("DOD"). The Military Standard 790 certification is dependent upon the development and detailed documentation, on an ongoing basis, of the facilities' operating systems, manufacturing and quality control procedures, which, similar to ISO 9000 facility certification, assure product integrity and reliability among product lots. The Kilovac Division's facility in southern California manufactures high performance, high voltage relays, while the Midtex Division's facility in Juarez, Mexico produces general purpose relays and provides the Company with low-cost assembly capabilities. The Hartman Division's facility in Mansfield, Ohio has obtained the Military Standard I 45208 certification promulgated by the DOD which governs quality control and assurance, and operates under certain Federal Aviation Administration approvals. This facility manufactures high power relays and components of electrical power management systems for the airframe and aerospace industries. The Company has also entered into agreements with several subcontractors in the Far East to provide low-cost labor-intensive finished products and sub-assemblies. The Company anticipates that the Indian Joint Venture will bolster its ability to effectively compete in the global marketplace by expanding its manufacturing capability and providing increased flexibility at a lower cost structure. The Company has an excellent record of manufacturing high quality, highly reliable relays and solenoids and has experienced a low product return rate. In general, the Company's diverse manufacturing capabilities allow it to provide its customers with the specialized relay and solenoid products they require on delivery schedules that meet the customers' needs. Leverage Customer Relationships. The Company believes that its long-standing customer relationships are due, in large part, to its excellent product reputation and broad product offerings. The Company intends to further expand its customer relationships by offering complementary and new products to its existing customer base. For example, the Kilovac Division has established an Electric Vehicle Product Group that markets high power 35 and high voltage relays to major automobile manufacturers worldwide. As a result of this effort, the Company has developed an enhanced understanding of the automotive relay market and has established industry contacts which management believes can assist the Company in introducing its low power relays to certain segments of the automotive market. The Company believes that it is also the primary supplier to nearly all manufacturers of heart defibrillators, including customers such as Zoll, Hewlett Packard, and Physio Control. As these defibrillator manufacturers develop new products, such as the automatic external defibrillator (a product intended to provide quick and easy access to a defibrillator in public places), the Company believes that its existing customer contacts and advance knowledge regarding the relay requirements of these new products will prove beneficial. Pursue New Market Opportunities. The Company intends to pursue new market opportunities for its existing products and new products it develops. The Company has identified a demand for sophisticated relay and solenoid products in the transportation, medical, and manufacturing industries due to the more widespread use of electronics within the systems utilized by these industries. The Company believes that it is positioned to capitalize on this demand because it believes its technology is well-suited to meeting the stringent operating environments and the increased voltage and current requirements of these new markets. For example, the Company currently sells many of its products to the commercial and military aircraft industries which are developing aircraft with greater electric and electronic content and shifting from 115 volt AC power to 270 volt DC power. The Company has developed several new products which meet the higher power switching requirements of the new electrical systems and these products have been selected for use on several aircraft programs. Expand International Sales. Primarily as a result of the Kilovac Acquisition, approximately 14% of the Company's gross sales in 1995 were made to customers located outside the United States. In an effort to further increase its international sales, the Company has recently expanded the size and geographic scope of its European and Asian sales and marketing network by retaining sales representatives and distributors in England, Norway, Spain, Portugal, the Benelux countries, Japan, Taiwan, Korea, and Singapore/Malaysia. In addition, the Company intends to utilize the Kilovac Division's strong European sales representatives network to market the broad portfolio of products offered by the CII and Midtex Divisions to facilitate further international sales expansion. Invest in New Product Development. The Company intends to continue to devote engineering resources to developing new products and increasing the functionality of existing products in an effort to enter new markets and gain market share in existing markets. The Company's design engineers conduct internally sponsored research and development and provide similar services to its customers. The Company's core competencies in high performance design, processing, sealing and material processing in conjunction with collaborative efforts with customers allow the Company to introduce new products effectively. The Company is currently developing a number of new products, including high performance relays for space satellites, automatic external defibrillators, advanced aircraft, industrial vehicles and rail transportation, and solenoids for commercial/industrial equipment. There can be no assurance given that the Company will be successful in implementing this strategy. The discussion of the Company's strategy contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual results could differ materially from those projected in these forward-looking statements as a result of certain risk factors described elsewhere in this Prospectus. See "Risk Factors." ACQUISITION STRATEGY Since its formation, the Company's growth strategy has been to acquire manufacturers of relay products and related components and to consolidate the acquired operations where appropriate into the Company's business. The Company plans to continue this strategy and also intends to broaden the scope of its acquisitions to include related component companies and product lines. 36 Set forth in the table below is a description of the Company's acquisitions to date, the date of acquisition, the name of the seller or acquired company, the type of acquisition and a general description of the products acquired. The aggregate purchase price paid for the acquisitions listed below is approximately $36.0 million.
DATE NAME OF SELLER OR ACQUIRED COMPANY TYPE OF ACQUISITION PRODUCT TYPES ---- ---------------------------------- ------------------- ------------- January 1983 Sun Electric Company Product Line Aircraft instrumentation September 1984 Midland-Ross Corporation Product Line High performance relay products January 1985 Automotive Electric Product Line Telecommunications relay Division of GTE products June 1986 Branson Corporation Company High performance relay products July 1990 Sigma Relay Division of Product Line Custom application relay Pacific Scientific Co. products December 1990 Airpax Relay Division of Product Line High performance relay North American Phillips and solenoid products January 1993 CP Clare Corporation Product Line Telecommunication relay products March 1993 West Coast Electrical Company Solenoid products Manufacturing Co. March 1993 Midtex Relays Inc. Company General purpose relay products December 1994 Deutsch Relays Inc. Product Line High performance relay products, including T0-5 relay January 1995 HiG Relays Inc. Assets High performance electromechanical and solid state relay products October 1995 Kilovac Corporation Company High voltage relays, vacuum and gas filled relays and DC power relay products July 1996 Hartman Electrical Division High performance power Manufacturing relay products and electrical subsystems
When acquiring a smaller company or product line, the Company typically seeks to integrate the acquired operations and to consolidate functions such as finance, sales, marketing, and engineering, thus eliminating significant operating cost. Recent acquisitions which have been integrated in this manner include the acquisition of West Coast Electric Manufacturing Co., the Airpax Relay Division of North American Phillips, a product line acquired from Deutsch Relays Inc. and assets of HiG Relays Inc. In the case of the acquisition of Midtex Relays and the Kilovac Corporation, the acquired businesses were of such size that the companies were maintained as stand-alone operations. In addition, as a result of the acquisition of Midtex Relays, several of the Company's existing products were shifted to the newly acquired lower-cost operations in Mexico. Although the Hartman Division functions as a stand-alone operation, the Company expects to offer Hartman's product line through the Company's field sales force beginning in late 1996. The Company has made strategic acquisitions of assets employing sophisticated technology, and, as a result, the Company has and will continue to expend considerable time and expense on rationalizing acquired products with similar products in existing lines and creating synergies between related product technologies and existing products. For example, the Company's product engineers are currently integrating newly acquired technology into certain existing high performance relay products to enhance the performance of those products. The Company intends to continue to make acquisitions to expand its market geographically, complement its product line and supplement its technical knowledge. The Company presently has available capacity in certain of its facilities, and therefore the Company believes that it is well-positioned to make additional acquisitions and integrate the acquired businesses into its existing facilities. While the Company regularly evaluates potential acquisition opportunities in the ordinary course of its business, as of the date hereof there are no existing commitments or agreements with respect to any acquisitions. 37 PRODUCTS The Company manufactures products in the following four general categories: high performance relays, general purpose relays, solid state relays and solenoids, which represented 71.2%, 22.5%, 3.0% and 3.3%, respectively, of the Company's net sales in 1995. Relays A relay is an electrically operated switch which can be located at a remote location to control electrical current or signal transmissions. Electromechanical relays utilize discrete switching elements which are opened or closed by electromagnetic energy and thus control circuits with physical certainty. Since these devices are controlled electrically, they can be placed at remote locations where it may not be safe or convenient for a human operator to be located. Relays are designed to meet exacting circuit and ambient conditions and can control numerous circuits simultaneously. Certain relay types measured in microwatts are used to switch signals in test equipment, computers and telecommunications systems. Higher power relays, which switch or control high voltage or high currents, are used in electric vehicles, aircraft electrical systems, heart defibrillators and spacecraft power grids. Due to various application requirements, relays come in thousands of shapes, sizes and with differing levels of performance reliability. Because of the many switching functions performed by relays, they are found in thousands of electrical and electronic applications. High performance relays. High performance relays are characterized by their advanced design or construction, demanding performance and reliability requirements and used in adverse operating environments. High performance relays provide customers with the advantages of smaller size, lighter weight, longer life, energy efficiency and greater reliability than general purpose relays. Many of the Company's high performance relays are hermetically sealed in metal or ceramic enclosures to protect the internal operating mechanisms from harsh environments and to improve performance and reliability. The Company manufactures more than 400 types of high performance relays in its North Carolina, Ohio and California facilities. The inherent switching advantages of the Company's high performance relays generally command higher selling prices than general purpose relays. The sale prices of high performance relay products range from approximately $10 to $3,500 per unit. The Company's high performance relays are sold to commercial airframe manufacturers, manufacturers of communication systems, medical systems, avionics systems, automatic test equipment, aerospace, and defense equipment manufacturers. High performance relays can have a variety of applications in a single end product. For example, the Company believes that more than 250 of its high performance relays are used on each Boeing 777 aircraft to perform switching, power distribution and control functions in the avionics system, radio communications, power regulation equipment and electrical load management system. High performance relays are also an integral component in heart defibrillator machines and electric vehicles. General purpose relays. Like its high performance relay products, the Company's general purpose relays are generally targeted towards niche applications where they are typically sole-sourced or have limited competition. The Company's general purpose relays are used in commercial and industrial applications where performance and reliability requirements are somewhat less demanding than those for high performance relays. These relays are generally manufactured for the Company in Mexico and in China where longer production runs are necessary for operating efficiency. Many of these production lines are either semi-automated or utilize lower-cost assembly labor. The Company's general purpose relay offering includes some of the more sophisticated product types in the general purpose category. The prices of general purpose relays range from $1 to $25 per unit. Specific applications for the Company's general purpose relays include an environmental management system for buildings manufactured by Johnson Controls which uses up to 700 general purpose relays per system. Taylor Freezer also uses many of the Company's general purpose relays in its ice cream machines. 38 Solid state relays. A solid state relay contains no moving parts and performs switching functions utilizing semiconductor devices. Since there are no moving parts, these types of relays feature very long service lives and high reliability, but such products are not appropriate for applications requiring complete electrical isolation. High performance solid state relays are becoming increasingly sophisticated and provide the user with control and functional options not previously available. Switching speed of solid state relays is normally much faster than that of electromechanical relays. The Company significantly increased its solid state relay product offerings through the HiG Acquisition in January 1995. Management believes that, although sales of solid state relays represent approximately 3% of total 1995 net sales, solid state relays represent a logical and attractive growth opportunity for the Company. Solid state relays are sold to commercial industrial equipment manufacturers and defense equipment manufacturers for prices ranging from approximately $15 to $500 per unit. Solenoids Solenoids are similar to relays in design, but differ in that electromechanical action is used to perform mechanical functions. Rather than control currents or transmissions, solenoids are applied when a defined mechanical motion is required in the user's equipment or system. Among their many applications, solenoid products operate product release mechanisms in vending machines, activate remote door locks, open and close valves, and are utilized in custom automation equipment. Like relays, solenoids can be made in many sizes and shapes to meet specific customer application requirements. The Company supplies products to the high performance and the general purpose solenoid markets. High performance solenoids tend to be custom designed and are used in aerospace, security, power station and automotive applications such as aerospace de-icing equipment and commercial airframe fuel shut-off valves. General purpose solenoid types are used in vending machines, automation equipment, office machines and cameras. The Company manufactures its high performance solenoids in its Fairview, North Carolina facility, while its general purpose solenoid types are manufactured by subcontractors in China. The prices of the Company's solenoids range from $2 to $350 per unit. PRODUCT DEVELOPMENT The Company intends to continue to develop new products to meet the application requirements of its customers and to expand the Company's technical capabilities. High performance relays. The Company is developing several new types of high performance relays, including a high voltage relay to be used in a new model of automatic heart defibrillator, a high voltage relay for the rail transportation industry, a new energy efficient, long-life environmentally sealed relay for applications where energy consumption is critical, and a new relay designed to reduce printed circuit board space. The Company is also developing a new line of ultra-high reliability relays which are similar to the high performance relays in composition, but are subject to more rigorous testing because such relays are used in aerospace and satellite equipment and are therefore continuously utilized in adverse conditions. General purpose relays. The Company is currently developing several new product types to be used in automotive and commercial/industrial applications. These products are currently in the prototype stage and the Company expects to begin manufacturing and selling certain of these products in 1996. Solenoids. The Company is currently developing several new solenoid types for use in business equipment, vending machines, security systems, home appliances, automotive door locks, electronic games, and personal computers. Prototypes of many of these products are in the test phase while others are in mechanical design. The development cycle of new solenoids from design to prototype can generally be completed within one month. The Company expects to commence marketing these new solenoids in 1996. 39 CUSTOMERS The Company has established a diversified base of over 2,100 customers representing a wide range of industries and applications. Sales by industry segment are diversified across the commercial airframe, defense/aerospace, commercial/industrial equipment, communications, automatic test equipment, and automotive markets representing approximately 29.0%, 27.3%, 22.9%, 14.8%, 3.8% and 2.2% respectively, of net sales during 1995. Sales to customers outside of the United States comprised approximately 14% of net sales during 1995. No single customer accounted for greater than 10% of the Company's total net sales for 1995. The chart set forth below lists the Company's primary market segments, representative customers, and certain end product applications.
MARKET SEGMENT REPRESENTATIVE CUSTOMERS PRODUCT APPLICATIONS - -------------- ------------------------ -------------------- Commercial Airframe Airbus, Aerospatiale, Beech, Flight Control Systems, Boeing, British Aerospace, Navigation Control Systems, Cessna, Lear, McDonnell- Communication Systems, Radar Douglas, Smiths Industries Systems, Landing Gear Control Systems, Electrical Load Management Systems Defense/Aerospace Allied Signal, Bell Satellites, Missiles, Tanks, Helicopter, General Defense Systems, Navigation Dynamics, Grimes Aerospace, Equipment, Aircraft, Global HR Textron, Hughes Missile Positioning Equipment Systems, ITT Aerospace, Litton Industries, Lockheed Martin, Loral, Lucas Aerospace, McDonnell- Douglas, NASA, Raytheon, Rocketdyne, Rockwell, Sundstrand Aviation, TRW, Westinghouse Commercial/Industrial Amana, ABB, Burdick, Dover, Vending Machines, Overhead ECC, General Electric, Doors, Medical Hercules Corp., Hewlett- Instrumentation, Heart Packard, Honeywell, Johnson Defibrillators, Motor Controls, Laerdal, Landis & Controls, Welders, White Gyr, Lorain, Miller Goods, Appliances, Heating, Electric, Montgomery Ventilation, Air Elevator, Onan, Otis Conditioning Controls, Spas, Elevator, Physio Control, Metering, High Voltage Rockwell, Safetran, Testers Scotsman, Siemens, Taylor Freezer, Trane, Westinghouse, Whitaker Controls, Woodward Governor, Zoll Medical Communications AG Communications, Alcatel, Central Office Switches, Allied Signal, AT&T, Station Switches, RF Radios, Collins, Daewoo, IBM, Facsimile Communications, Motorola, Pulsecom, Line Test Equipment, Rockwell, Tellabs, Teltrend, Wireless Phones Wiltron Automatic Test Equipment Hewlett-Packard, IBM, Metric Electronic Systems, Test and Systems, Picon, Schlumberger Component Systems Automotive Chrysler, GM, Mercedes, Electric Vehicles, Rostra Automotive Security Systems
40 SALES AND DISTRIBUTION The Company sells its products worldwide through a network of 72 independent sales representatives and 27 distributors in North America, Europe and Asia. This sales network is supported by the Company's internal staff of 10 direct product marketing managers, 10 customer service associates, 10 application engineers and two marketing communication specialists. The Company believes it differentiates itself from many of its competitors by offering a high level of customer service and engineering support to its customers. A key element in the service provided by the Company to its customers is assistance in the proper application of the Company's products, thereby reducing field failures and overall product cost in use. The Company believes that its service oriented approach has contributed to significant customer loyalty. The Company seeks to provide customized solutions to its customers' switching problems and to sell complementary products across its broad product offering to both existing and new customers. The Company has formed strategic partnerships with certain customers to develop new products, improve on existing products, and reduce product cost in use. The Company provides its salespeople, representatives, and distributors with product training on the application and use of all Company products. The Company employs 10 technical application engineers who provide ongoing technical support to new and existing customers. The application engineers, along with the product marketing managers, develop application-related literature, provide answers to customer questions on the use and application of the Company's products, and provide field support at the customer's site during installation or use, if required. The Company believes that the services provided by its application engineers and product marketing managers are an integral factor in its sales and new customer development efforts. The Company produces internally nearly all of its own marketing communication materials, enabling the Company's marketing department to incorporate product improvements and respond to market changes rapidly. The Company maintains an up-to-date database of over 9,000 prospects with an active customer base of approximately 2,100. The Company conducts virtually all of its sales through sales representatives who sell both to end users and distributors. The Company has maintained relationships with many of its sales representatives and distributors for over ten years. The Company believes that its longstanding relationships with its sales network contributes to the effectiveness of its marketing program. Sales representatives, who market the Company's products exclusively, and distributors enter into agreements with the Company that allow for termination by either party upon 30 days notice. Distributors are permitted to market and sell competitive products and can return to the Company a small portion of products purchased by them during the term of such agreements. COMPETITION The markets in which the Company operates are highly competitive. The Company competes primarily on the basis of quality, reliability, price, service and delivery. Its primary competitors are Teledyne Relays, Genicom, Jennings, Leach, Ibex and Eaton in the high performance relay market, the Electromechanical Products division of Siemens in the general purpose relay market, and G.W. Lisk in the solenoid market. Several of the Company's competitors have greater financial, marketing, manufacturing and distribution resources than the Company and some have more automated manufacturing facilities. There can be no assurance that the Company will be able to compete successfully in the future against its competitors or that the Company will not experience increased price competition, which could adversely affect the Company's results of operations. The Company also faces competition for acquisition opportunities from its large competitors. The Company believes that significant barriers to entry exist in the high performance relay markets in the form of stringent commercial and military qualifications required to sell products to certain customers in 41 these markets. The Company holds military qualifications (QPL) for 29 of its product types. During 1995, approximately $9.7 million (14.2%) of the Company's total revenue was derived from the sale of qualified products. Obtaining and maintaining these qualifications is contingent upon successful completion of rigorous facility review and product testing on a regular basis and at a significant cost. Each of the Company's North Carolina manufacturing facilities are certified to Military Standard 790, a standard promulgated by the DOD. The elimination by the military or certain commercial customers of qualification requirements would lower these barriers to entry and enable other relay manufacturers to sell products to such customers. The Company holds patents on many of its products, including high voltage DC relays and other high performance relays. In addition, the Company has developed proprietary manufacturing capabilities which afford the Company an advantage over its competitors in many of its product lines. See "-- Proprietary Rights." MANUFACTURING The Company has established efficient, flexible and diverse manufacturing capabilities, which the Company believes enable it to provide its customers with a wide array of high quality custom and standard relays and solenoids at competitive prices and lead times. The Company manufactures its products at five facilities which utilize advanced and often proprietary assembly and processing techniques. The facilities of the CII Division in North Carolina manufacture high performance signal relays and solenoids and have each obtained the Military Standard 790 certification promulgated by the DOD which involves rigorous documentation of operating systems processes, assembly, and testing technique. The Kilovac Division's facility in Southern California manufactures high performance, high voltage relays utilizing advanced propriety assembly and processing techniques and maintains rigorous certifications and qualifications required by its sophisticated customer base. Products manufactured at the Kilovac facility represented approximately 21.5% of the Company's net sales in 1995. The Company's facility in Juarez, Mexico manufactures general purpose relays which represented approximately 13.1% of the Company's net sales in 1995. In addition to manufacturing a broad array of general purpose relays for its diverse customer base, this facility provides the Company with sophisticated low cost assembly, process, and testing capabilities for labor-intensive manufacture of certain components and products. The Hartman Division's facility in Mansfield, Ohio manufactures high performance, high current relays using a modular construction technique that is designed to satisfy diverse customer requirements. Products manufactured by the Hartman Division represented approximately 25.5% of the Company's net sales in 1995. Products representing approximately 0.9% of the Company's net sales in 1995 were manufactured at a subcontract facility in Connecticut. The Company owns substantially all of the assets at this subcontract facility. Under the agreement between the Company and the subcontractor, the subcontractor will provide consultation, manufacturing, design, and engineering services upon the Company's request on fixed pricing terms. The Company also subcontracts for certain relays and solenoids to six subcontractors located in China and Japan which represented approximately 3.1% of the Company's net sales in 1995. In addition, these subcontractors supply the Company with low cost labor-intensive assembly of certain components which assists the Company in its cost reduction efforts. The Company participated in the construction and design of the product lines of each of its subcontractors and routinely confirms that the manufacturing facilities of each subcontractor meet the Company's stringent product quality qualifications. The Company believes that production by its international subcontractors who maintain low labor costs and strong manufacturing competence enable the Company to compete effectively in the relay and solenoid marketplace. 42 FACILITIES The Company, headquartered in Fairview, North Carolina, operates the following manufacturing and distribution facilities worldwide:
SQUARE LOCATION FOOTAGE PRODUCTS MANUFACTURED -------- ------- --------------------- CII DIVISION: Fairview, North Carolina 70,000 High performance relays and solenoid products Asheville, North Carolina 26,000 High performance relays and electronic products KILOVAC DIVISION: Carpinteria, California 38,000 High voltage and power switching relay products MIDTEX DIVISION: Juarez, Mexico 45,000 General purpose relay products El Paso, Texas 6,000 Distribution center HARTMAN DIVISION: Mansfield, Ohio 53,000 High performance power relays INDIAN JOINT VENTURE: Cochin, India(1) 20,000 High performance and general purpose relay products
- -------- (1) The Company has a 25% ownership interest in the Indian Joint Venture named CII Guardian International Limited. Production is expected to commence at this facility in the third quarter of 1996. The Company's manufacturing and assembly facilities (including the Indian Joint Venture property) contain approximately an aggregate of 250,000 square feet of floor space. Each of the facilities is under lease, other than the two North Carolina properties which the Company owns. The Company currently has available manufacturing space in certain of its facilities. The Company believes this excess manufacturing capacity will allow for the integration of future product line acquisitions and/or the development of new product lines. The facilities of the CII Division and the Hartman Division, each of which manufacture products to be sold to the military, maintain Military Standard 790 and Military Standard I 45208 certifications, respectively. The Company's headquarters in Fairview, North Carolina house the sales and engineering staff of the CII Division. The corporate, sales and engineering staff of the Kilovac Division and the Midtex Division are located in the Carpinteria, California and Juarez, Mexico facilities, respectively, and the leases for these facilities expire in April 2006 and June 1998, respectively. The Company has entered into a lease for Hartman's Mansfield, Ohio facility providing for a ten year term and an option to purchase. Indian Joint Venture In November 1995 the Company formed a joint venture in India with Guardian Controls Ltd. ("Guardian"), an Indian company with which the Company has had a business relationship for more than ten years. The joint venture is expected to produce relays for the domestic Indian market and global markets and to manufacture labor-intensive relay components and sub-assemblies for export to the Company's divisions in North America. The Company trained the employees of the Indian Joint Venture in its North Carolina facilities and is currently transferring to the Indian Joint Venture's facility the assembly equipment which was purchased by the Indian Joint Venture. All sales for the Indian Joint Venture outside of India will be channeled through the Company's existing sales representatives. The Company and Guardian each have a 25% interest in the Indian Joint Venture, the Bank of India has a 15% interest, and the remaining 35% interest is held by certain financial investors in India. The governing board of the Indian Joint Venture is presently composed of two designees of the Company, one designee of Guardian and two outside directors. 43 EMPLOYEES As of June 30, 1996, the Company had approximately 1,054 employees. Of these employees, approximately 293, including the sales and engineering staff, were employed in its Fairview headquarters, approximately 185 were employed in the Asheville facility, approximately 267 were employed in the Mexico facility, approximately 3 were employed in the Texas facility, approximately 180 were employed in the Ohio facility and approximately 126 were employed in the California facility. Approximately 150 of Hartman's employees in the Ohio facility are represented by the International Union of Electronics, Electrical, Salaried, Machine and Furniture Workers AFL, CIO. As a result of the Hartman Acquisition, these employees are working under temporary terms of employment while the Company and the union negotiate a new collective bargaining agreement. No assurance can be given that the Company and the union will agree to a labor contract or that the terms of an agreement will be favorable to the Company. The Company believes that its relations with its employees are excellent. PROPRIETARY RIGHTS The Company currently holds seven patents, one registered trademark and has four patent applications and four trademark registrations pending. None of the Company's material patents expire prior to 2000. The Company intends to continue to seek patents on its products, as appropriate. The Company does not believe that the success of its business is materially dependent on the existence, validity or duration of any patent, license or trademark. The Company attempts to protect its trade secrets and other proprietary rights through formal agreements with employees, customers, suppliers and consultants. Although the Company intends to protect its intellectual property rights vigorously, there can be no assurance that these and other security arrangements will be successful. The Company has from time to time received, and may in the future receive, communications from third parties asserting patents on certain of the Company's products and technologies. Although the Company has not been a party to any material intellectual property litigation, if a third party were to make a valid claim and the Company could not obtain a license on commercially reasonable terms, the Company's operating results could be materially and adversely affected. Litigation, which could result in substantial cost to and diversion of resources of the Company, may be necessary to enforce patents or other intellectual property rights of the Company or to defend the Company against claimed infringement of the rights of others. The failure to obtain necessary licenses or the occurrence of litigation relating to patent infringement or other intellectual property matters could have a material adverse affect on the Company's business and operating results. LEGAL PROCEEDINGS The Company is involved in legal proceedings from time to time in the ordinary course of its business. As of the date of this Prospectus there are no material legal proceedings pending against the Company. ENVIRONMENTAL MATTERS The Company is subject to various foreign, federal, state and local environmental laws and regulations. The Company believes its operations are in material compliance with such laws and regulations. However, there can be no assurance that violations will not occur or be identified, or that environmental laws and regulations will not change in the future, in a manner that could materially and adversely affect the Company. Under certain circumstances, such environmental laws and regulations may also impose joint and several liability for investigation and remediation of contamination at locations owned or operated by an entity or its predecessors, or at locations at which wastes or other contamination attributable to an entity or its predecessors have come to be located. The Company can give no assurance that such liability at facilities the Company currently owns or operates, or at other locations, will not arise or be asserted against the Company or entities for which it may be responsible. Such other locations could include, for example, facilities formerly owned or operated by the Company (or an entity or business that the Company has acquired), or locations to which wastes generated by the Company (or an entity or business that the Company has acquired) have been sent. Under certain circumstances such liability at several locations (discussed below), or at locations yet to be identified, could materially and adversely affect the Company. 44 The Company has been identified as a potentially responsible party ("PRP") for investigation and cleanup costs at two sites under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). CERCLA provides for joint and several liability for the costs of remediating a site, except under certain circumstances. However, the Company believes it will be allocated responsibility for a relatively small percentage of the cleanup costs at each of these sites, and in both instances other PRPs will also be required to contribute to such costs. Although the Company's total liability for cleanup costs at these sites cannot be predicted with certainty, the Company does not currently believe that its share of those costs will have a material adverse effect. Soil and groundwater contamination has been identified at and about the Company's Fairview, North Carolina facility resulting in that site's inclusion in the North Carolina Department of Environmental, Health & Natural Resource's Inactive Hazardous Waste Sites Priority List. The Company believes that the Fairview contamination relates to the past activities of a prior owner of the Fairview property (the "Prior Owner"). On May 11, 1995, the Company entered into a Settlement Agreement with the Prior Owner, pursuant to which the Prior Owner agreed to provide certain funds for the investigation and remediation of the Fairview contamination in exchange for a release of certain claims by the Company. In accordance with the Settlement Agreement, the Prior Owner has placed $1.75 million in escrow to fund further investigation, the remediation of contaminated soils, and the installation and start-up of a groundwater remediation system at the Fairview facility. The Company is responsible for investigation, soil remediation and start-up costs in excess of the escrowed amount, if any. The Settlement Agreement further provides that after the groundwater remediation system has been operating for three years, the Company will provide to the Prior Owner an estimate of the then present value of the cost to continue operating and maintaining the system for an additional 27 years. After receiving the estimate, the Prior Owner is to deposit with the escrow agent an additional sum equal to 90% of the estimate, up to a maximum of $1.25 million. Although the Company believes that the Prior Owner has the current ability to satisfy its obligations pursuant to the Settlement Agreement, the Company believes that the total investigation and remediation costs may exceed the amounts that the Prior Owner is required to provide pursuant to the Settlement Agreement. Based on the possibility that the groundwater remediation will need to be operated for 30 years, the Company has estimated that the present value of the excess remediation and operating costs not covered by the Settlement Agreement may be approximately $690,000 and has accrued a reserve for such an amount on its books. Applicable environmental laws provide for joint and several liability, except under certain circumstances. Accordingly, the Company, as the current owner of a contaminated property, could be held responsible for the entire cost of investigating and remediating the site. If the site remedial system fails to perform as anticipated, or if the funds to be provided by the Prior Owner pursuant to the Settlement Agreement together with the Company's reserve are insufficient to remediate the property, or if the Prior Owner fails to make the scheduled future contribution to the environmental escrow, the Company could be required to incur costs that could materially and adversely affect the Company. See "Risk Factors--Environmental Matters." In connection with the Hartman Acquisition, the Company entered into an agreement pursuant to which it leases from a wholly owned subsidiary of Figgie a manufacturing facility in Mansfield, Ohio, at which Hartman has conducted operations (the "Lease"). The Mansfield property may contain contamination at levels that will require further investigation and may require soil and/or groundwater remediation. As a lessee of the Mansfield property, the Company may become subject to liability for remediation of such contamination at and/or from such property, which liability may be joint and several except under certain circumstances. The Lease includes an indemnity from the Company to the lessor for contamination that may arise following commencement of the Lease, where caused by the Company or related parties, except under certain circumstances. The Lease also includes an indemnity from Lessor to the Company, guaranteed by Figgie, for certain environmental liabilities in connection with the Mansfield Property, subject to a dollar limitation of $12.0 million (the "Indemnification Cap"). In addition, in connection with the Hartman Acquisition, Figgie has placed $515,000 in escrow for environmental remediation costs at the Mansfield property to be credited towards the Indemnification Cap as provided in the Lease. The Company believes that, while actual remediation costs may exceed the cash amount escrowed, such costs will not exceed the Indemnification Cap. If costs exceed the escrow and the Company is unable to obtain, or is delayed in obtaining, indemnification under the Lease for any reason, the Company could be materially and adversely affected. 45 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company anticipated to be in place upon consummation of the Offering and their ages and positions with the Company are set forth below:
NAME AGE POSITION OR AFFILIATION ---- --- ----------------------- Ramzi A. Dabbagh........ 61 Chairman of the Board, Chief Executive Officer, President and Director Michael A. Steinback.... 42 President of CII Division and Director Douglas Campbell........ 49 President of Kilovac Division and Director G. Daniel Taylor........ 60 Executive Vice President of Business Development and Director David Henning........... 49 Chief Financial Officer Theodore Anderson....... 40 Vice President and General Manager of Midtex Division Daniel McAllister....... 42 Vice President of Manufacturing and Engineering of Kilovac Division James R. Mikesell....... 54 Vice President and General Manager of Hartman Division Michael S. Bruno, Jr.... 41 Director Daniel A. Dye........... 43 Director John P. Flanagan........ 54 Director Donald E. Dangott....... 63 Director
Upon the consummation of the Offering, the Board of Directors of the Company will be expanded to 10 directors, and the Board currently intends to appoint two additional independent directors following consummation of the Offering. The present principal occupations and recent employment history of each of the executive officers and directors of the Company listed above are set forth below: Ramzi A. Dabbagh was recently named the Chairman of the Board, Chief Executive Officer and President of the Company. He served as President of Communications Instruments from 1982 to 1995. Mr. Dabbagh has served as President and Chairman of the National Association of Relay Manufacturers ("NARM") from 1991 to 1993 and has been a director of NARM since 1990. Michael A. Steinback became President of the CII Division and a director of the Company in 1995. He served as the Vice President of Operations of the CII Division from 1994 to 1995. From 1990 to 1993, Mr. Steinback was Vice President of Sales and Marketing for CP Clare Corporation. Mr. Steinback has served on the Board of Directors of NARM for 2 years. Douglas Campbell became President of the Kilovac Division and a director of the Company in 1995 as a result of the Kilovac Acquisition. He had been employed by the Kilovac Corporation since 1978, and its President since 1986. Mr. Campbell is expected to leave his position upon the expiration of his employment agreement in December 1996. The Company may elect to employ Mr. Campbell on a part-time consulting basis in 1997. See "--Employment Agreements." The Company has an understanding with Mr. Campbell that he will be nominated to serve as a director of the Company through October 1997. G. Daniel Taylor has been the Executive Vice President of Business Development of the Company since October 1995 and a director of the Company since 1993. He joined the Company in 1981 as Vice President of Engineering and Marketing and became Executive Vice President in 1984. He has served as the Company's representative to NARM and has acted as an advisor to the National Aeronautics and Space Administration (NASA) for relay applications and testing procedures since 1967. David Henning became Chief Financial Officer of the Company in December 1994. He held various positions at CP Clare Corporation from 1971 to 1994 and served as Chief Financial Officer of that corporation from 1992 to 1994. Theodore Anderson has served as Vice President and General Manager of the CII Division/Midtex Division since 1993. Mr. Anderson served as Product Marketing Manager of CP Clare Corporation from 1990 to 1993. 46 Daniel R. McAllister has served as the Vice President of Manufacturing and Engineering of the Kilovac Division since the Kilovac Acquisition in 1995 and had served as Vice President of Product Development for the Kilovac Corporation since 1990. James R. Mikesell joined the Company as Vice President and General Manager of the Hartman Division in July 1996 upon the completion of the Hartman Acquisition. Mr. Mikesell joined Hartman Electrical Manufacturing in February 1994, from IMO Industries, where he had been the General Manager of their Controlex Division for the previous 5 years. Prior to IMO, Mr. Mikesell was Director of Manufacturing for the U.S. operations of the Automatic Switch Division of Emerson Electric; Vice President of Engine Accessory Operations and Director of Materials Management for the Quincy Controls Division of Colt Industries; and in various operations management positions with Cummins Engine and Dana Corporation. Michael S. Bruno, Jr. has served as a director of the Company since 1993. He was a founding Partner of Stonebridge Partners in 1986. Daniel A. Dye has served as a director of the Company since 1993. He has been a Partner of Stonebridge Partners since March 1993. From 1977 to 1993 he was employed by Security Pacific Corporation and its successor company, BankAmerica Capital Corporation and served as Senior Vice President of that Company from 1988 to 1993. John P. Flanagan has served as a director of the Company since 1993. He has been an Operating Partner of Stonebridge Partners since 1992. He was the Chief Operating Officer of Cabot Safety Corporation from 1990 to 1991 and President of American Opticals Safety Business from 1985 to 1990. Donald E. Dangott has served as a director of the Company since 1994. He held various positions at Eaton Corporation until 1993, including serving as the Director of Business Development Commercial and Military Controls Operations from 1990 to 1993, and he presently serves as a business development consultant. He is the Executive Director and a member of the Board of Directors of NARM. COMPENSATION OF DIRECTORS As independent directors of the Company, Mr. Dangott and the directors to be appointed after the consummation of the Offering will receive $10,000 per year. All directors are entitled to reimbursement of reasonable out-of-pocket expenses incurred in connection with Board meetings. Directors who are officers of the Company or partners of Stonebridge Partners receive no additional compensation for serving as directors. See "--Compensation Committee Interlocks and Insider Participation." BOARD COMMITTEES The Board of Directors has an Audit Committee which makes recommendations to the Board of Directors regarding the independent auditors to be nominated for election by the shareholders, reviews the independence of such auditors, approves the scope of the annual audit activities and reviews audit results. The Audit Committee consists of Mr. Dye, Mr. Dangott and an additional independent director to be named after the consummation of the Offering. The Compensation Committee makes recommendations to the Board of Directors concerning salaries and incentive compensation for officers and employees of the Company. Mr. Flanagan, Mr. Dangott and an additional independent director to be named after the consummation of the Offering will comprise the Compensation Committee. The Board of Directors may from time to time establish other committees to assist it in the discharge of its responsibilities. 47 EXECUTIVE COMPENSATION The following sets forth a summary of all compensation paid to the chief executive officer and the three other executive officers of the Company (the "Named Executive Officers") for services rendered in all capacities to the Company for the year ended December 31, 1995. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION --------------------------------- OTHER ANNUAL ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION(2) - --------------------------- -------- -------- --------------- --------------- Ramzi A. Dabbagh ........ $163,752 $139,098 $361,305 $14,240 Chairman, President and Chief Executive Officer Michael A. Steinback..... 129,683 75,026 346,458 8,494 President of CII Division and Director G. Daniel Taylor......... 107,309 63,187 5,098 7,866 Executive Vice President of Business Development and Director David Henning............ 102,500 60,350 343,833 7,396 Chief Financial Officer
- -------- (1) These amounts represent the sum of (i) the difference between the appraised value of 25,000 shares of Common Stock at the date of purchase ($7.66 per share) and the purchase price paid for such shares ($0.46 per share) ($180,100 for each of Messrs. Dabbagh, Steinback and Henning); (ii) reimbursement for taxes related to stock compensation ($166,358 for Messrs. Dabbagh and Steinback and $156,233 for Mr. Henning; (iii) fringe benefits received by Messrs. Dabbagh and Taylor valued at $14,847 and $5,098, respectively and (iv) and with respect to Mr. Henning, reimbursement received by Mr. Henning for $7,500 of expenses relating to the commencement of his employment with the Company. (2)These amounts represent insurance premiums paid by the Company with respect to term life insurance. EMPLOYMENT AGREEMENTS The Company entered into employment agreements with Messrs. Dabbagh and Taylor which terminate on May 11, 1998 and provide for annual base salaries of $150,000 and $100,000. In addition, the employment agreements provide that each of these executive officers is entitled to participate in a bonus pool based upon the performance of the Company as established by the Board of Directors, and such other employee benefit plans and other benefits and incentives as the Board of Directors of the Company shall determine from time to time. Under the employment agreements, each of Messrs. Dabbagh and Taylor agrees that during the period of such agreement and for one year thereafter such executive officer will not (i) become employed by or in any other way associated with a business similar to that of the Company, (ii) solicit any business similar to that of the Company from any of its customers or clients or (iii) encourage any employees of the Company which have been employed by the Company for a year or less to enter into any employment agreement or perform any services for any other organization or enter into any other business. The agreements also provide that while employed by the Company neither of the executive officers may have a financial or other interest in a supplier, customer, client or competitor of the Company (provided that maintaining a financial interest equal to the lesser of $100,000 or 1% ownership of a public company is not precluded). The employment agreements may be terminated immediately by the Company "for cause" or within three months after the death or disability of the employee. The Company maintains key-man life insurance on Messrs. Dabbagh and Taylor and has agreed to pay out of the proceeds of such policy three years salary to the estate of either officer in the event of the death of such officer. 48 The Company entered into an employment agreement with Douglas Campbell in connection with the Kilovac Acquisition pursuant to which Mr. Campbell is employed on a full-time basis until December 31, 1996 and, at the Company's request, on a part-time consultancy basis for up to 12 months thereafter. Under such agreement, while he is a full-time employee Mr. Campbell is entitled to receive an annual salary of $150,000 and such stock options and bonuses as are afforded other key employees of the Kilovac Division. The Company is entitled to terminate this employment agreement for any reason upon 90 days notice, provided that Mr. Campbell is entitled to receive his full salary if he is terminated without "cause". Under the employment agreement Mr. Campbell agrees that for the term of such agreement and for five years thereafter he will not directly or indirectly participate, have a financial interest in or advise any business competitive with the business of the Company and will not at any time interfere with the business of the Company by soliciting its customers, suppliers or employees. The Company entered into employment agreements with Michael Steinback and David Henning in January 1994 and December 1994, respectively, which expire in April 1997 and December 1996, respectively, and are automatically renewed each year. Messrs. Steinback and Henning are entitled to receive annual salaries (subject to annual review) of $134,375 and $105,000, respectively, an annual auto allowance, and other standard employee benefits applicable to the Company's other executive officers, and are entitled to participate in the Company's executive bonus plan. Each of Messrs. Steinback and Henning is entitled to receive full salary and benefits for a year if he is terminated at any time during such year. EMPLOYEE BENEFIT PLAN The CII Technologies Inc. 1996 Management Stock Plan (the "1996 Plan") has been adopted by the Company's Board of Directors and approved by its stockholders. Administration. The 1996 Plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee has discretion to select the individuals to whom awards will be granted and to determine the type, size and terms of each award and the authority to administer, construe and interpret the 1996 Plan. Members of the Compensation Committee must be "disinterested" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934. Participants. All employees of the Company who are selected by the Compensation Committee are eligible to participate in the 1996 Plan. Each of the Named Executive Officers and other officers of the Company is an eligible participant under the 1996 Plan. Awards. The 1996 Plan provides for the granting of incentive and non- qualified incentive stock options, stock appreciation rights, and other stock based awards (collectively or individually, "Awards"). An individual to whom an Award is made has no rights as a stockholder with respect to any Common Stock issuable pursuant to that Award until the date of issuance of the stock certificate for such shares upon payment of the Award. Shares Available for Awards. A total of 325,000 shares of Common Stock may be subject to Awards under the 1996 Plan, subject to adjustment at the discretion of the Compensation Committee in the event of a Common Stock dividend, split, recapitalization or certain other transactions. The shares of Common Stock issuable under the 1996 Plan may be either authorized unissued shares, or treasury shares or any combination thereof. If any shares of Common Stock subject to repurchase or forfeiture rights are reacquired by the Company or if any Award is canceled, terminates or expires unexercised, the shares of Common Stock which were issued or would have been issuable pursuant thereto will become available for new Awards. No individual may receive options, SARs or other stock-based Awards during a calendar year attributable to more than 75,000 shares of Common Stock, subject to adjustment in accordance with the terms of the 1996 Plan. Stock Options. A stock option which may be a non-qualified or an incentive stock option (each, an "Option"), is the right to purchase a specified number of shares of Common Stock at a price (the "Option Price") fixed by the Compensation Committee. The Option Price of an incentive Option may be no less than the 49 fair market value of the underlying Common Stock on the date of grant. Unless otherwise provided in a participant's award agreement, options are not transferable during the participant's lifetime and will generally expire not later than ten years after the date on which they are granted. Options become exercisable at such times and in such installments as the Compensation Committee shall determine. The Compensation Committee may also accelerate the period for exercise of any or all Options held by a participant. The Compensation Committee may, at the time of the grant of an Option or thereafter, grant the participant a right (a "Limited Right") to surrender to the Company all or a portion of the related Option in connection with a Change in Control (as defined below). In exchange for such surrender, the Option holder would receive cash in an amount equal to the number of shares subject to the Option multiplied by the excess of the higher of (i) the highest price per share of Common Stock paid in certain Change of Control transactions or (ii) the highest fair market value per share of Common Stock at any time during the 90-day period preceding such Change in Control over the Option Price of the Option to which the Limited Right relates. A Limited Right can be exercised within the 30-day period following a Change of Control. A Limited Right will only be exercisable during the term of the related Option. A "Change in Control" is deemed to occur when: (i) 20% or more of the combined voting power of Company's voting securities is acquired in certain instances; (ii) individuals who are members of Company's Board of Directors prior to the Change of Control cease, subject to certain exceptions, to constitute at least a majority of such Board of Directors; or (iii) stockholders approve certain mergers, consolidations, reorganizations, or a liquidation of the Company or an agreement is approved for the sale or other disposition of all or substantially all of the assets of the Company. Stock Appreciation Rights. A stock appreciation right may be granted alone or in tandem with Options. Upon exercise, a stock appreciation right will entitle the participant to receive from the Company an amount equal to excess of the fair market value of a share of Common Stock on the settlement date over the per share grant or option price, as applicable (or some lesser amount as the Compensation Committee may determine at the time of grant), multiplied by the number of shares of Common Stock with respect to which the stock appreciation right is exercised. Upon the exercise of a stock appreciation right granted in connection with a stock option, the stock option shall be canceled to the extent of the number of shares as to which the stock appreciation right is exercised, and upon the exercise of a stock option granted in connection with a stock appreciation right or the surrender of such stock option, the stock appreciation right shall be canceled to the extent of the number of shares as to which the stock option is exercised or surrendered. The Compensation Committee will determine whether the stock appreciation right will be settled in cash, Common Stock or a combination of cash and Common Stock. The Compensation Committee may, at the time of the grant of a SAR unrelated to an Option or thereafter, grant a Limited Right in tandem with the SAR which will operate in a manner comparable to the Limited Rights described above under the caption "Stock Options." Other Stock Based Awards. Other Awards of Common Stock that are valued in whole or in part by reference to, or otherwise based on, the fair market value of Common Stock ("Other Stock-based Awards"), may be granted under the 1996 Plan in the discretion of the Compensation Committee. The Compensation Committee may make Other Stock-based Awards in the form of (i) the right to purchase shares of Common Stock, (ii) shares of Common Stock subject to restrictions on transfer until the completion of a specified period of service, the occurrence of an event or the attainment of performance objectives, each as specified by the Compensation Committee, and (iii) shares of Common Stock issuable upon the completion of a specified period of service, the occurrence of an event or the attainment of performance objectives, each as specified by the Compensation Committee. Other Stock-based Awards may be granted alone or in addition to any other Awards made under the Plan. Subject to the provisions of the 1996 Plan, the Compensation Committee has sole and absolute discretion to determine to whom and when such Other Stock-based Awards will be made, the number of shares of Common Stock to be awarded under (or otherwise related to) such Other Stock-based Awards and all other terms and conditions of such Awards. The Compensation Committee determines whether Other Stock-based Awards will be settled in cash, Common Stock or a combination of cash and Common Stock. Additional Information. The Compensation Committee may accelerate or waive vesting or exercise or the lapse of restrictions on all or any portion of any Award or extend the exercisability of Options or SARs. 50 Unless otherwise provided in an individual's award agreement, an individual's rights under the 1996 Plan may not be assigned or transferred (except in the event of death). The Company will have the right to deduct from all amounts paid to any participant in cash (whether under the 1996 Plan or otherwise) any taxes required by law to be withheld therefrom. In the case of payments of Awards in the form of Common Stock, at the Compensation Committee's discretion, the participant may be required to pay to the Company the amount of any taxes required to be withheld with respect to such Common Stock, or, in lieu thereof, the Company shall have the right to retain the number of shares of Common Stock the fair market value of which equals the amount required to be withheld. Without limiting the foregoing, the Compensation Committee may, in its discretion and subject to such conditions as it shall impose, permit share withholding to be done at the Participant's election. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal 1995 the Company's Compensation Committee consisted of Messrs. Dabbagh, Bruno and Flanagan. Neither Mr. Bruno nor Mr. Flanagan served as an officer or employee of the Company during that year. Mr. Bruno is a general partner and Mr. Flanagan is a special limited partner of the Partnership which will own approximately 33.1% of the Common Stock of the Company upon consummation of the Offering. As a general partner of the Partnership, Mr. Bruno may be deemed to share beneficial ownership of the Common Stock beneficially owned by the Partnership; however, Mr. Bruno disclaims such beneficial ownership. See "Ownership of Common Stock." Stonebridge Partners, which is an affiliate of the Partnership, renders management, consulting, acquisition and financial services to the Company for an annual fee of approximately $150,000. The Company believes that this fee is no less favorable than that which could be obtained for comparable services from unaffiliated third parties. From time to time, Stonebridge Partners may also receive customary investment banking fees for services rendered to the Company in connection with acquisitions and certain other transactions. The Company paid Stonebridge Partners fees of $140,000 and $130,000 upon consummation of the Kilovac Acquisition and Hartman Acquisition, respectively. The Company also reimburses Stonebridge Partners for out-of-pocket expenses incurred in connection with services rendered to the Company. Partners of Stonebridge Partners who also serve as directors of the Company do not receive additional compensation for service in such capacity. 51 OWNERSHIP OF COMMON STOCK The following table sets forth certain information concerning the beneficial ownership of the Common Stock of the Company as of June 30, 1996 assuming the consummation of the Kilovac Share Exchange and as adjusted to reflect the sale of the shares offered hereby of (i) each beneficial owner of more than 5% of the Common Stock of the Company, (ii) each director and each Named Executive Officer and (iii) all directors and executive officers of the Company as a group.
SHARES SHARES BENEFICIALLY BENEFICIALLY OWNED PRIOR TO OWNED AFTER THE OFFERING THE OFFERING -------------- ------------ NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT ---------------- --------- ------- --------- ------- CII Associates, L.P.(1)(2)................ 2,150,000 71.7% 2,150,000 33.1% Ramzi A. Dabbagh(3)....................... 75,000 2.5 75,000 1.2 Michael A. Steinback(3)................... 75,000 2.5 75,000 1.2 G. Daniel Taylor(3)....................... 100,000 3.3 100,000 1.5 David Henning(3).......................... 25,000 * 25,000 * Michael S. Bruno(1)(2).................... 2,150,000 71.7 2,150,000 33.1 Daniel A. Dye(1)(2)....................... 2,150,000 71.7 2,150,000 33.1 John P. Flanagan(3)....................... 75,000 2.5 75,000 1.2 Donald E. Dangott(3)...................... -- -- -- -- Douglas Campbell(4)....................... 279,713 9.3 279,713 4.3 Directors and executive officers as a group (12 persons)(2)(4)................. 2,779,713 92.7 2,779,713 42.8
- -------- * Represents less than 1% of the outstanding Common Stock of the Company. (1) c/o Stonebridge Partners, Westchester Financial Center, 50 Main Street, White Plains, NY 10606. (2) The general partners of CII Associates, L.P. have sole voting and investment power with respect to the shares of Common Stock owned by CII Associates, L.P. Messrs. Bruno and Dye (directors of the Company) and Messrs. David A. Zackrison and Harrison M. Wilson, as the general partners of CII Associates, L.P., may be deemed to share beneficial ownership of the shares shown as beneficially owned by CII Associates, L.P. Messrs. Bruno and Dye disclaim beneficial ownership of such shares. (3) c/o CII Technologies Inc., 1396 Charlotte Highway, Fairview, North Carolina 28730 (4) Includes 25,243 shares held by Douglas Campbell, as Trustee of the Campbell Charitable Remainder Unitrust (the "Unitrust") and 110,219 shares held by Douglas Campbell, as Trustee of the Kilovac Corporation Employee Stock Bonus Plan (the "ESBP"). Mr. Campbell disclaims beneficial ownership of all shares held as Trustee of the Unitrust and of 103,409 shares held by the ESBP, as to which the individual employees have the power to direct the Trustee as to the disposition of the shares. Mr. Campbell's address is c/o Kilovac Division, Communications Instruments, Inc., P.O. Box 4422, Santa Barbara, California 93140. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS KILOVAC ACQUISITION On October 11, 1995, the Company purchased 80% of the outstanding capital stock of Kilovac pursuant to a Stock Subscription and Purchase Agreement, as amended (the "Kilovac Purchase Agreement"), dated as of September 20, 1995 among the Company, Kilovac and the stockholders of Kilovac named therein (the "Kilovac Stockholders"). Under the terms of the Kilovac Purchase Agreement, concurrent with the consummation of the Offering, the 24,957 outstanding shares of Kilovac held by the Kilovac Stockholders will be exchanged for the number of shares of Common Stock of the Company equal to $4,500,000 divided by the initial per share offering price to the public of the Common Stock being offered hereby (450,000 shares of Common Stock based upon the assumed initial public offering price of $10.00 per share) (the "Kilovac Share Exchange"). The Shares of Common Stock to be issued in the Kilovac Share Exchange will be issued pursuant to an exemption from the registration requirements of the Securities Act and will be "restricted securities" within the meaning of Rule 144. Most of the Kilovac Stockholders have agreed not to sell or otherwise dispose of any of the Common Stock of the Company acquired in the Kilovac Share Exchange until 365 days after the Offering (the "Lock-up Period") without the prior written consent of the Representatives of the Underwriters. 52 REGISTRATION RIGHTS In connection with the CII Acquisition, the Partnership entered into a Registration Rights Agreement with the Company (the "Registration Rights Agreement") pursuant to which the Company granted demand registration rights to the Partnership in respect of the shares of Common Stock and Preferred Stock owned by the Partnership or a partner thereof (the "Registrable Securities"). Under the Registration Rights Agreement, holders of a majority of the outstanding Registrable Securities may make a demand registration at any time. Expenses in connection with the exercise of such demand registration rights are to be borne by the Company subject to certain limitations. Under the terms of the stock subscription agreements pursuant to which certain members of management and others purchased Common Stock in the Company, the Company granted such purchasers certain rights to have their shares of Common Stock included in registrations of capital stock of the Company ("piggyback registration rights"). The Company is obligated to assume all of the costs associated with the exercise of the piggyback registration rights other than each such purchaser's pro rata share of any underwriter's discounts or commissions. In connection with the Offering, all holders of Registrable Securities and piggyback registration rights have agreed to waive their registration rights for 365 days following the date of this Prospectus. Upon the expiration of the Lock-up Period, holders of shares of Common Stock received in the Kilovac Share Exchange may require the Company to register such shares (at the Company's expense) pursuant to the Securities Act. In addition, such stockholders have certain rights to register their shares pari passu with any registration of shares effected on behalf of another stockholder. ISSUANCE OF SECURITIES BY THE COMPANY In connection with the CII Acquisition on May 11, 1993, the Company issued to the Partnership (i) 2,150,000 shares of Common Stock for $860,000, (ii) 40,000 shares of Cumulative Redeemable Preferred Stock for $2.0 million, and (iii) a $4.0 million subordinated promissory note that bears interest at an annual rate of 9.25% and one-half of the unpaid principal of such note is due on each of May 31, 2002 and May 31, 2003 (the "CII Note"). $1.2 million of the amounts due under the CII Note represent accrued and unpaid interest which bears interest at an 11.75% interest rate. The general partners of the Partnership include Michael S. Bruno, Jr. and Daniel A. Dye (both directors of the Company), David A. Zackrison and Harrison M. Wilson and the limited partners include the other partners of Stonebridge Partners, certain private investors and the original shareholders of the Predecessor and Aleowyn C. Ward (the "Original Shareholders"). The general partners of the Partnership have sole voting and investment power with respect to the shares of Common Stock owned by the Partnership. As part of the financing of the CII Acquisition, the Original Shareholders issued notes for an aggregate principal amount of $2.0 million which bear interest at the annual rate of 9.25% and become due May 11, 2003 (the "Seller Notes"). The aggregate principal amount of the Seller Notes was reduced by $250,000 on May 17, 1994 in satisfaction of certain indemnity claims arising under the acquisition agreement pursuant to which the CII Acquisition was accomplished (the "Acquisition Agreement"). The Original Shareholders were subsequently released from all indemnity obligations arising under the Acquisition Agreement on October 11, 1995. On October 11, 1995, three of the four Original Shareholders, in their capacity as limited partners of the Partnership, each contributed $100,000 of their respective Seller Notes to their respective capital accounts in the Partnership (the "Capital Notes"). Proceeds from the Offering will be used to repay the $1.45 million outstanding principal and interest on the Seller Notes and the $300,000 outstanding principal and interest on the Capital Notes. On October 11, 1995, in connection with the Kilovac Acquisition, the Company issued to the Partnership (i) 40,000 shares of Cumulative Redeemable Preferred Stock Series A for a purchase price of $2.0 million and (ii) a subordinated promissory note in the principal amount of $1.7 million which bears interest at the annual rate of 9.25% and one-half of the unpaid principal amount on such note is due on each of October 11, 2004 and October 11, 2005 (the "Kilovac Note"). $74,000 of the amounts due under the Kilovac Note represent accrued and unpaid interest which bears interest at an 11.75% interest rate. Proceeds from the Offering will be used to repay the $1.8 million outstanding principal and accrued interest on the Kilovac Note and to redeem the Preferred Stock. 53 On October 11, 1995, the Company made a $70,000 loan to Ramzi Dabbagh (the Chairman, President and Chief Executive Officer of the Company) which was to bear interest at 9.25% per annum and secured by Mr. Dabbagh's limited partnership interest in the Partnership. Mr. Dabbagh repaid the principal and accrued interest on this loan in December 1995. On December 1, 1995 Ramzi Dabbagh, Michael Steinback and David Henning each purchased 25,000 shares of Common Stock for $11,400. On such date other employees also purchased stock of the Company as follows: Theodore Anderson purchased 12,500 shares of Common Stock for $5,700 and Gary C. McGill, Jeffrey W. Boyce and Raymond McClinton purchased 4,165, 4,165 and 4,170 shares of Common Stock, respectively, for purchase prices of $1,899, $1,899 and $1,902, respectively. The Company recorded a special compensation charge in 1995 to reflect the difference between the purchase price of such Common Stock issuances and the estimated fair market value of such shares. The Company also granted a cash bonus to each of these employees to compensate such employees for the tax impact of the stock issuances. See "--Summary Compensation Table." DESCRIPTION OF CAPITAL STOCK Upon completion of the Offering, consummation of the Kilovac Share Exchange and application of the proceeds as described herein, the authorized capital stock of the Company will consist of 25,000,000 shares of Common Stock, $.01 par value per share, of which 6,500,000 shares will be outstanding, and five million shares of Preferred Stock, $.01 par value per share, none of which will be outstanding. The following description of the capital stock of the Company, and certain provisions of the Company's Restated Certificate of Incorporation (the "Certificate of Incorporation") and Restated Bylaws (the "Bylaws") is a summary of such provisions as proposed to be amended prior to consummation of the Offering and is qualified in its entirety by the provisions of the Certificate of Incorporation and Bylaws, as anticipated to be amended, copies of which are filed as exhibits to the Company's Registration Statement of which this Prospectus is a part. As of the date of this Prospectus the Company's Common Stock is held of record by 11 stockholders. COMMON STOCK Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders, including the election of directors. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election if they choose to do so. The Certificate of Incorporation does not provide for cumulative voting for the election of directors. Subject to the prior rights of the holders of any Preferred Stock, holders of Common Stock will be entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor, and will be entitled to receive, pro rata, all assets of the Company available for distribution to such holders upon liquidation. Holders of Common Stock do not have preemptive, subscription or redemption rights. Application has been made to list the Common Stock on the Nasdaq National Market under the symbol CIIT. PREFERRED STOCK The Restated Certificate of Incorporation is expected to be amended to authorize the Company to issue "blank check" Preferred Stock, which may be issued from time to time in one or more series upon authorization by the Company's Board of Directors. The Board of Directors, without further approval of the stockholders, will be authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges and restrictions applicable to each series of the Preferred Stock. The issuance of Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could, among other things, adversely affect the voting power of the holders of Common Stock and, under certain circumstances, make it more difficult for a third party to gain control of the Company, discourage bids for the Company's Common Stock at a premium or otherwise adversely affect the market price of the Common Stock. 54 The Restated Certificate of Incorporation also authorizes 85,000 shares for each of two series of Preferred Stock, designated as the Cumulative Redeemable Preferred Stock and the Cumulative Redeemable Preferred Stock Series A (collectively, the "Existing Preferred Stock"). As of the date of this Prospectus, 40,000 shares of each series are issued and outstanding and are held by the Partnership. The Company anticipates that a portion of the proceeds of the Offering will be used to redeem all of the outstanding Existing Preferred Stock at a price per share of $50 plus an amount equal to all accrued and unpaid dividends to the date fixed by the Board of Directors as the redemption date. CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING STOCKHOLDERS Classified Board; Board Vacancies. Effective upon the first annual meeting of stockholders following the Offering, the Restated Certificate of Incorporation is expected to be amended to provide that the Company's Board of Directors will be divided into three classes, with each class, after a transitional period, serving for three years, and one class being elected each year. Members of the Board of Directors may be removed only with cause. A majority of the remaining directors then in office, though less than a quorum, or the sole remaining director, will be empowered to fill any vacancy on the Board of Directors. A majority vote of the stockholders will be required to alter, amend or repeal the foregoing provisions. The classification of the Board of Directors may discourage a third party from making a tender offer or otherwise attempting to gain control of the Company and may maintain the incumbency of the Board of Directors. See "Management." Special Meetings of Stockholders. The Restated Certificate of Incorporation is expected to be amended to require that special meetings of the stockholders of the Company be called only by a majority of the Board of Directors and certain officers. Advance Notice Requirements for Stockholder Proposals and Director Nominations. The Bylaws are expected to be amended to provide that stockholders seeking to bring business before or to nominate directors at any meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Company not less than 60 days nor more than 90 days prior to such meeting or, if less than 60 days' notice was given for the meeting, within 10 days following the date on which such notice was given. The Bylaws also will specify certain requirements for a stockholder's notice to be in proper written form. These provisions may preclude some stockholders from bringing matters before the stockholders or from making nominations for directors. Section 203 of Delaware Corporation Law. Following the consummation of the Offering, the Company will be subject to the "business combination" statute of the Delaware General Corporation Law. In general, such statute prohibits a publicly held Delaware corporation from engaging in various "business combination" transactions with any "interested stockholder" for a period of three years after the time that such person became an "interested stockholder," unless (i) the transaction is approved by the board of directors prior to the time the interested stockholder obtained such status, (ii) upon consummation of the transaction which resulted in the stockholder becoming an "interested stockholder," the "interested stockholder" owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or (iii) on or subsequent to such time the "business combination" is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the "interested stockholder." A "business combination" includes mergers, consolidations, asset sales and other transactions resulting in financial benefit to a stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of a corporation's voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. 55 Limitations on Directors' Liability. Delaware law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors' fiduciary duty of care. The Restated Certificate of Incorporation limits the liability of the Company's directors to the Company or its stockholders (in their capacity as directors but not in their capacity as officers) to the fullest extent permitted by Delaware law. As a result, directors will not be personally liable for monetary damages for breach of a director's fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. The inclusion of this provision in the Restated Certificate of Incorporation may have the effect of reducing the likelihood of derivative litigation against directors, and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited the Company and its stockholders. TRANSFER AGENT AND REGISTRAR First Union National Bank of North Carolina will be the Transfer Agent and Registrar for the Common Stock. 56 SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of the Offering, 6,500,000 shares of Common Stock will be outstanding (7,025,000 shares if the Underwriter's over-allotment option is exercised in full). Of these shares, the 3,500,000 shares (4,025,000 if the over-allotment option granted to the Underwriters is exercised in full) sold in the Offering may be freely traded without restriction under the Securities Act, except by purchasers in the Offering who may be deemed to be "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act (an "Affiliate"). All of the shares of Common Stock currently outstanding were, and the shares to be issued in the Kilovac Share Exchange will be, acquired in transactions exempt from registration under the Securities Act. These shares, as well as any shares purchased in the Offering by an Affiliate, may not be resold unless they are registered under the Securities Act or are sold pursuant to an applicable exemption from registration, including exemptions under Rule 144. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, if at least two years have elapsed since the later of the date "restricted securities" (as that term is defined in Rule 144) were acquired from the Company or from an Affiliate, the beneficial holder of such restricted shares (including an Affiliate) is entitled to sell a number of shares within any three-month period that does not exceed the greater of 1% of the then outstanding shares of Common Stock immediately after the Offering or the average weekly volume of trading in the Common Stock as reported through the automated quotation system of a registered securities association during the four calendar weeks preceding such sale and may sell such shares only through unsolicited brokers' transactions. Sales under Rule 144 are also subject to certain requirements pertaining to the manner of such sales, notices of such sales and the availability of current public information concerning the Company. Existing Stockholders holding 2,425,000 shares have already satisfied the two-year holding period. In addition, Affiliates may sell shares not constituting restricted securities in accordance with the foregoing volume limitations and other requirements but without regard to the two-year holding period. Most of the restricted securities will be subject to "lock-up" agreements under which the holders of such shares will agree not to sell or otherwise dispose of any shares of Common Stock for a period of 365 days without the prior written consent of the Representatives of the Underwriters. Under Rule 144(k), if at least three years have elapsed since the later of the date restricted shares were acquired from the Company or an Affiliate, a holder of such restricted shares who is not an Affiliate at the time of the sale and has not been an Affiliate for at least three months prior to the sale would be entitled to sell the shares immediately without regard to the volume limitations and other conditions described above. A non-affiliate existing stockholder holds 25,000 shares which may be resold under Rule 144(k) without restriction, assuming such existing stockholder does not become an Affiliate of the Company. The existing stockholders (including the recipients of shares in the Kilovac Share Exchange) will have registration rights with respect to the 3,000,000 shares of Common Stock held by such shareholders following the closing of the Offering. See "Certain Relationships and Related Transactions--Registration Rights" and "--Kilovac Acquisition." 57 UNDERWRITING The Company has entered into an underwriting agreement (the "Underwriting Agreement") with certain underwriters listed in the table below (the "Underwriters"), for whom William Blair & Company, L.L.C. and Furman Selz LLC are acting as Representatives (the "Representatives"). Subject to the terms and conditions set forth in the Underwriting Agreement, the Company has agreed to sell to each of the Underwriters, and each of the Underwriters has severally agreed to purchase from the Company, the number of shares of Common Stock set forth opposite each Underwriter's name in the table below:
NUMBER OF UNDERWRITERS SHARES ------------ --------- William Blair & Company, L.L.C. ................................ Furman Selz LLC................................................. --------- Total......................................................... 3,500,000 =========
In the Underwriting Agreement, the Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Common Stock being sold pursuant to the Underwriting Agreement if any of the Common Stock being sold pursuant to the Underwriting Agreement (excluding shares covered by the over-allotment option granted therein) is purchased. In the event of and default by an Underwriter, the Underwriting Agreement provides that, in certain circumstances, purchase commitments of the non-defaulting Underwriters will be increased or the Underwriting Agreement may be terminated. The Underwriters have advised the Company that they propose to offer the Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and to selected dealers at such price less a concession of not more than $ per share. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. After the initial public offering, the public offering price and other selling terms may be changed by the Underwriters. The Company has granted to the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to an additional 525,000 shares of Common Stock at the same price per share to be paid by the Underwriters for the other shares offered hereby. If the Underwriters purchase any such additional shares pursuant to this option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the table above. The Underwriters may exercise the option only for the purpose of covering over-allotments, if any, made in connection with the distribution of the Common Stock offered hereby. The Company and certain of its officers, directors and stockholders have agreed that they will not sell, contract to sell or otherwise dispose of any Common Stock or any interest therein for a period of 365 days after the date of this Prospectus without the prior written consent of the Representatives of the Underwriters. 58 There has been no public market for the shares of Common Stock prior to the Offering. The initial public offering price for the Common Stock will be determined by negotiation between the Company and the Representatives of the Underwriters. Among the factors to be considered in determining the initial public offering price are prevailing market conditions, revenue and earnings of the Company, estimates of the business potential and prospects of the Company, the present state of the Company's business operations, an assessment of the Company's management and the consideration of the above factors in relation to the market valuation of certain publicly traded companies. The Company has agreed to indemnify the Underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. The Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. LEGAL MATTERS Certain legal matters in connection with the Common Stock offered hereby are being passed upon for the Company by Simpson Thacher & Bartlett (a partnership which includes professional corporations), New York, New York, and for the Underwriters by Gardner, Carton & Douglas, Chicago, Illinois. EXPERTS The consolidated balance sheets of the Company at December 31, 1994 and December 31, 1995, the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended and the period from May 11, 1993 to December 31, 1993 and the statements of operations, stockholders' equity and cash flows for the Predecessor for the period from January 1, 1993 to May 10, 1993 included in this Prospectus and Registration Statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein. Such consolidated financial statements and financial statements of the Predecessor Company for the periods referred to above are included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated balance sheet of Kilovac at December 31, 1994, the related consolidated statements of income, stockholders' equity and cash flows for the year then ended and the consolidated statements of income, stockholders' equity and cash flows for the year ended December 31, 1993 and the period from January 1, 1995 to October 11, 1995 included in this Prospectus and Registration Statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein. Such consolidated financial statements of Kilovac referred to above are included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated balance sheet of the Hartman Division at December 31, 1994 and December 31, 1995 and the related statements of operations, stockholders' equity and cash flows for the years then ended included in this Prospectus and the Registration Statement referred to below have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein. Such consolidated financial statements of the Hartman Division referred to above are included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 59 ADDITIONAL INFORMATION The Company will furnish its stockholders with annual reports containing audited financial statements for each fiscal year and with quarterly reports containing unaudited summary financial information for each of the first three quarters of each fiscal year. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (the "Registration Statement") under the Securities Act, with respect to the Common Stock being offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, certain items of which are contained in schedules and exhibits to the Registration Statements as permitted by the rules and regulations of the Commission. Items of information omitted from this Prospectus but contained in the Registration Statement may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street N.W., Washington, D.C. 20549, and at the regional offices of the Commission at Seven World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Such material may also be accessed electronically by means of the Commission's Home Page on the Internet at http://www.sec.gov. Copies of such material may also be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. 60 CII TECHNOLOGIES INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE(S) ------- CII TECHNOLOGIES INC. AND SUBSIDIARIES Independent Auditors' Report.......................................... F-2 Consolidated Balance Sheets at December 31, 1994 and 1995 (Company) and Unaudited March 31, 1996 (Company)............................... F-3 Consolidated Statements of Operations for the Period From January 1, 1993 to May 10, 1993 (Predecessor Company), the Period From May 11, 1993 to December 31, 1993 (Company), the Years Ended December 31, 1994 and 1995 (Company) and the Unaudited Three Months Ended April 2, 1995 and March 31, 1996 (Company).................................... F-4 Consolidated Statements of Stockholders' Equity for the Period From January 1, 1993 to May 10, 1993 (Predecessor Company), the Period From May 11, 1993 to December 31, 1993 (Company), the Years Ended December 31, 1994 and 1995 (Company) and the Unaudited Three Months Ended March 31, 1996 (Company)....................................... F-5 Consolidated Statements of Cash Flows for the Period From January 1, 1993 to May 10, 1993 (Predecessor Company), the Period From May 11, 1993 to December 31, 1993 (Company), the Years Ended December 31, 1994 and 1995 (Company) and the Unaudited Three Months Ended April 2, 1995 and March 31, 1996 (Company).................................... F-6 Notes to Consolidated Financial Statements............................ F-7 KILOVAC CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS: Independent Auditors' Report.......................................... F-19 Consolidated Balance Sheet at December 31, 1994....................... F-20 Consolidated Statements of Income for the Years Ended December 31, 1993 and 1994 and the Period From January 1, 1995 to October 11, 1995................................................................. F-21 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993 and 1994 and the Period From January 1, 1995 to October 11, 1995..................................................... F-22 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993 and 1994 and the Period From January 1, 1995 to October 11, 1995................................................................. F-23 Notes to Consolidated Financial Statements............................ F-24 HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL INC.: Independent Auditors' Report.......................................... F-28 Balance Sheets at December 31, 1994 and 1995 and Unaudited March 31, 1996................................................................. F-29 Statements of Operations for the Years Ended December 31, 1994 and 1995 and the Unaudited Three Months Ended March 31, 1995 and 1996.... F-30 Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Unaudited Three Months Ended March 31, 1995 and 1996.... F-31 Notes to Consolidated Financial Statements............................ F-32 INDEX TO FINANCIAL STATEMENT SCHEDULES................................. II-4
F-1 INDEPENDENT AUDITORS' REPORT CII Technologies Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of CII Technologies Inc., formerly Communications Instruments Holdings, Inc. (the "Company"), as of December 31, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the period from May 11, 1993 to December 31, 1993 and the years ended December 31, 1994 and 1995. Our audits also included the financial statement schedule listed in the index at II-4. We have also audited the consolidated statements of operations, stockholders' equity and cash flows of Communications Instruments, Inc. (the "Predecessor Company") for the period from January 1, 1993 to May 10, 1993. These financial statements and financial statement schedule are the responsibility of the Company's and Predecessor Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 1994 and 1995, and the results of its operations and its cash flows for the period from May 11, 1993 to December 31, 1993 and the years ended December 31, 1994 and 1995 and the Predecessor Company's results of operations and cash flows for the period from January 1, 1993 to May 10, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Charlotte, North Carolina March 21, 1996 F-2 CII TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, ---------------- MARCH 31, 1994 1995 1996 ------- ------- ----------- (UNAUDITED) ASSETS (NOTE 5) CURRENT ASSETS: Cash............................................ $ 72 $ 193 $ 73 Accounts receivable (less allowance for doubtful accounts: 1994--$301; 1995--$420; 1996--$446) (Note 1)........................... 5,094 8,092 7,885 Inventories (Notes 1 and 2)..................... 7,934 10,642 10,963 Deferred income taxes (Note 7).................. 410 1,909 1,972 Other current assets............................ 76 1,321 1,150 ------- ------- ------- Total current assets............................ 13,586 22,157 22,043 ------- ------- ------- Property, Plant and Equipment, net (Notes 1, 3 and 6).......................................... 11,735 13,225 13,004 ------- ------- ------- OTHER ASSETS: Cash restricted for environmental remediation (Note 9)....................................... -- 1,755 1,304 Environmental settlement receivable (Note 9).... -- 1,050 1,062 Goodwill (net of accumulated amortization: 1994--$54; 1995--$130; 1996--$194)............. 717 7,726 7,662 Other intangible assets, net (Note 4)........... 798 3,061 3,145 Other noncurrent assets......................... -- 12 139 ------- ------- ------- Total other assets.............................. 1,515 13,604 13,312 ------- ------- ------- Total........................................... $26,836 $48,986 $48,359 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................ $ 2,282 $ 2,579 $ 3,671 Accrued interest (Note 5)....................... 626 1,269 1,495 Other accrued expenses.......................... 1,013 3,231 3,307 Current portion of long-term debt (Note 5)...... 2,006 3,721 3,037 Current payable due to minority stockholders of subsidiary (Note 1)............................ -- 1,453 708 ------- ------- ------- Total current liabilities....................... 5,927 12,253 12,218 ------- ------- ------- Long-Term Debt (Note 5).......................... 10,191 19,731 19,517 ------- ------- ------- Notes Payable to Stockholders (Notes 5 and 13)... 5,750 7,450 7,450 ------- ------- ------- Accrued Environmental Remediation Costs (Note 9).............................................. -- 3,491 3,052 ------- ------- ------- Deferred Income Taxes and Other Liabilities (Notes 7 and 8)................................. 3,418 3,004 2,877 ------- ------- ------- Noncurrent Payable Due to Minority Stockholders of Subsidiary (Note 1).......................... -- 865 865 ------- ------- ------- Minority Interest in Subsidiary.................. -- 35 51 ------- ------- ------- Cumulative Redeemable Preferred Stock--$.01 par value, stated at liquidation value--170,000 shares authorized; 40,000 shares issued and outstanding--1994; 80,000 shares issued and outstanding--1995 and 1996 (Note 11)............ 2,287 4,497 4,590 ------- ------- ------- Common Stock Subject to Put Options--$.01 par value, 110,000 shares issued and outstanding--1994; 160,000 shares issued and outstanding--1995 and 1996 (Note 11)............ 100 165 165 ------- ------- ------- COMMITMENTS AND CONTINGENCIES (Notes 6 and 8) STOCKHOLDERS' EQUITY (Notes 5 and 11): Common stock, $.01 par value--1,020,000 shares authorized; 860,000 shares issued and outstanding.................................... 9 9 9 Additional paid-in capital...................... 38 758 758 Accumulated deficit............................. (873) (3,236) (3,157) Currency translation loss....................... (11) (36) (36) ------- ------- ------- Total stockholders' equity (deficit)............ (837) (2,505) (2,426) ------- ------- ------- Total........................................... $26,836 $48,986 $48,359 ======= ======= =======
See notes to consolidated financial statements. F-3 CII TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (EXCEPT SHARE AMOUNTS)
COMPANY -------------------------------------------------------------- PREDECESSOR COMPANY YEAR ENDED THREE MONTHS ENDED JANUARY 1, MAY 11, 1993 DECEMBER 31, ---------------------- 1993 TO TO DECEMBER 31, ---------------------- APRIL 2, MARCH 31, MAY 10, 1993 1993 1994 1995 1995 1996 ------------ --------------- ---------- ---------- ---------- ---------- (UNAUDITED) Net Sales (Note 12)..... $8,378 $ 17,095 $ 31,523 $ 39,918 $ 9,216 $ 13,119 Cost of Sales........... 6,684 14,448 24,330 28,687 6,839 9,193 ------ ---------- ---------- ---------- ---------- ---------- Gross Profit............ 1,694 2,647 7,193 11,231 2,377 3,926 ------ ---------- ---------- ---------- ---------- ---------- Operating Expenses: Selling expenses....... 713 1,344 2,382 3,229 656 1,148 General and administrative expenses (Note 13).... 586 1,150 2,248 3,334 656 1,187 Research and development expenses.. 21 41 103 301 39 265 Amortization of goodwill and other intangible assets..... 45 117 177 251 52 122 Special compensation charge (Note 10)...... -- -- -- 1,300 -- -- Environmental expenses (Note 9).............. -- -- -- 951 -- -- Special acquisition expenses (Note 1)..... 153 266 -- 2,064 568 -- ------ ---------- ---------- ---------- ---------- ---------- Total operating expenses............. 1,518 2,918 4,910 11,430 1,971 2,722 ------ ---------- ---------- ---------- ---------- ---------- Operating Income (Loss)................. 176 (271) 2,283 (199) 406 1,204 Other Income............ 42 -- -- 2 2 -- Interest Expense (Note 5)..................... (77) (1,086) (1,833) (2,997) (555) (874) ------ ---------- ---------- ---------- ---------- ---------- Income (Loss) Before Income Taxes and Minority Interest in Subsidiary............. 141 (1,357) 450 (3,194) (147) 330 Income Tax Expense (Benefit) (Note 7)..... -- (499) 178 (1,076) (59) 142 ------ ---------- ---------- ---------- ---------- ---------- Income (Loss) After Income Taxes Before Minority Interest in Subsidiary............. 141 (858) 272 (2,118) (88) 188 Income Applicable to Minority Interest in Subsidiary............. -- -- -- 35 -- 16 ------ ---------- ---------- ---------- ---------- ---------- Net Income (Loss)....... 141 (858) 272 (2,153) (88) 172 Preferred Stock Dividend............... -- 102 185 210 46 93 ------ ---------- ---------- ---------- ---------- ---------- Net Income (Loss) Available for Common Stock.................. $ 141 $ (960) $ 87 $ (2,363) $ (134) $ 79 ====== ========== ========== ========== ========== ========== Pro Forma Earnings per Common Share (Unaudited) (Note 1): Net Income (Loss) Available for Common Stock................. $ (.38) $ .03 $ (.93) $ (.05) $ .03 ========== ========== ========== ========== ========== Weighted average of common shares outstanding........... 2,495,440 2,511,125 2,535,714 2,520,440 2,550,000 ========== ========== ========== ========== ========== Supplemental Pro Forma Earnings Per Common Share (Unaudited) (Note 1): Net Income (Loss) Available for Common Stock................. $ (.21) $ .06 ========== ========== Weighted average of common shares outstanding........... 6,035,714 6,050,000 ========== ==========
See notes to consolidated financial statements. F-4 CII TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
COMMON STOCK TREASURY STOCK ------------- ---------------- RETAINED SHARES AMOUNT SHARES AMOUNT EARNINGS PREDECESSOR COMPANY ------ ------ ------- ------- -------- Balances at January 1, 1993............. 6,875 $ 840 2,428 $ 545 $ 8,243 Distributions to stockholders......... -- -- -- -- (1,217) Net income............................ -- -- -- -- 141 ----- ----- ------- ------- ------- Balances at May 10, 1993................ 6,875 $ 840 2,428 $ 545 $ 7,167 ===== ===== ======= ======= =======
COMMON STOCK ADDITIONAL CURRENCY SUBSCRIPTION ---------------- PAID-IN ACCUMULATED TRANSLATION NOTE SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT RECEIVABLE COMPANY -------- ------ ---------- ----------- ----------- ------------ Issuance of stock May 11, 1993............... 960,000 $ 10 $ 950 -- -- $ (35) Reclass to common stock subject to put options.............. (100,000) (1) (99) -- -- -- Dividend deemed to be paid to continuing shareholders in conjunction with leveraged buyout transaction (Note 1)................... -- -- (843) -- -- -- Preferred stock dividend accrued..... -- -- -- $ (102) -- -- Collection on subscription note receivable........... -- -- -- -- -- 10 Net loss.............. -- -- -- (858) -- -------- ---- ----- -------- ----- ----- Balances at December 31, 1993................... 860,000 9 8 (960) -- (25) Preferred stock dividend accrued..... -- -- -- (185) -- -- Contribution.......... -- -- 30 -- -- -- Currency translation loss................. -- -- -- -- $ (11) -- Common stock issued... 10,000 -- 10 -- -- (10) Reclass to common stock subject to put options.............. (10,000) -- (10) -- -- 10 Collection on subscription note receivable........... -- -- -- -- -- 25 Net income............ -- -- -- 272 -- -- -------- ---- ----- -------- ----- ----- Balances at December 31, 1994................... 860,000 9 38 (873) (11) -- Preferred stock dividend accrued..... -- -- -- (210) -- -- Currency translation loss................. -- -- -- -- (25) -- Common stock issued... 50,000 -- 775 -- -- -- Reclass to common stock subject to put options.............. (50,000) -- (55) -- -- (10) Collection on subscription note receivable........... -- -- -- -- -- 10 Net loss.............. -- -- -- (2,153) -- -- -------- ---- ----- -------- ----- ----- Balances at December 31, 1995................... 860,000 9 758 (3,236) (36) -- Preferred stock dividend accrued..... -- -- -- (93) -- -- Net income............ -- -- -- 172 -- -- -------- ---- ----- -------- ----- ----- Balances at March 31, 1996 (Unaudited)....... 860,000 $ 9 $ 758 $ (3,157) $ (36) $ -- ======== ==== ===== ======== ===== =====
See notes to consolidated financial statements. F-5 CII TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
COMPANY PREDECESSOR ------------------------------------------------------ COMPANY YEAR ENDED JANUARY 1, DECEMBER 31, THREE MONTHS ENDED 1993 TO MAY 11, 1993 ----------------- ------------------- MAY 10, TO DECEMBER 31, APRIL 2, MARCH 31, 1993 1993 1994 1995 1995 1996 ----------- --------------- ------- -------- -------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)..... $ 141 $ (858) $ 272 $ (2,153) $ (88) $ 172 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization......... 201 1,309 2,158 2,442 581 775 Deferred taxes........ -- (749) (751) (1,583) (205) (220) Stock compensation charge............... -- -- -- 720 -- -- Minority interest..... -- -- -- 35 -- 16 Changes in operating assets and liabilities net of effects of acquisitions: Decrease (increase) in accounts receivable.......... (306) 453 (1,600) (1,033) (1,026) 207 Decrease (increase) in inventories...... 841 41 (274) 748 382 (321) Decrease (increase) in other current assets.............. 360 244 (3) (121) (76) 171 Increase (decrease) in accounts payable............. (205) 383 603 (486) 62 1,092 Increase (decrease) in accrued expenses............ 304 (181) 734 1,866 696 302 Increase in other assets and liabilities......... -- -- 46 1,411 (24) (152) ------- -------- ------- -------- ------- ------- Net cash provided by operating activities......... 1,336 642 1,185 1,846 302 2,042 ------- -------- ------- -------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of businesses and product lines, net of cash acquired........ (2,745) (13,320) (1,100) (14,345) (1,485) -- Investment in joint venture.............. -- -- -- -- -- (139) Purchases of property, plant and equipment.. (131) (323) (444) (1,139) (201) (380) ------- -------- ------- -------- ------- ------- Net cash used in investing activities........... (2,876) (13,643) (1,544) (15,484) (1,686) (519) ------- -------- ------- -------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayment) under line of credit arrangement.......... 1,400 160 (552) 114 (210) 536 Borrowings under long- term debt agreements........... 1,967 15,612 2,281 16,945 2,241 -- Principal payments under long-term debt agreements........... (540) (4,446) (1,300) (4,789) (624) (1,434) Loan fees paid........ -- (452) (50) (577) -- -- Proceeds from issuance of common stock...... -- 144 -- 56 -- -- Proceeds from issuance of cumulative redeemable preferred stock...... -- 2,000 -- 2,000 -- -- Receipt on stock subscription note.... -- 10 25 10 -- -- Payments of amounts owed to minority stockholders......... -- -- -- -- -- (745) Distributions to stockholders......... (1,216) -- -- -- -- -- ------- -------- ------- -------- ------- ------- Net cash provided by (used in) financing activities........... 1,611 13,028 404 13,759 1,407 (1,643) ------- -------- ------- -------- ------- ------- NET INCREASE IN CASH... 71 27 45 121 23 (120) CASH, BEGINNING OF PERIOD................ 10 -- 27 72 72 193 ------- -------- ------- -------- ------- ------- CASH, END OF PERIOD.... $ 81 $ 27 $ 72 $ 193 $ 95 $ 73 ======= ======== ======= ======== ======= ======= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: During the period from May 11, 1993 to December 31, 1993, the Company entered into a capital lease arrangement for computer equipment totaling $139. During the year ended December 31, 1995, the Company entered into a capital lease arrangement for a building totaling $640.
See notes to consolidated financial statements. F-6 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (INFORMATION FOR THE THREE MONTHS ENDED APRIL 2, 1995 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Description--Communications Instruments Holdings, Inc. ("Holdings") was formed in May 1993 for the purpose of acquiring Communications Instruments, Inc. and its subsidiary (the "Predecessor Company"). On March 13, 1996, Holdings changed its name to CII Technologies Inc. CII Technologies Inc. and its subsidiaries are hereinafter referred to as the Company. The Company is engaged in the design, manufacture and distribution of electromechanical and solid state relays and solenoids for the commercial/industrial equipment, commercial airframe, defense/aerospace, communications, automotive and automatic test equipment. Manufacturing is primarily performed in North Carolina, California and Juarez, Mexico. Acquisitions--On January 1, 1993, the Predecessor Company acquired certain relay and switch product lines from CP Clare Corporation for $750 in cash. On March 1, 1993, the Predecessor Company acquired certain assets and liabilities of the West Coast Electrical Manufacturing Company for $400 in cash and notes to the seller for $400. On March 22, 1993, the Predecessor Company acquired Midtex Relays, Inc. for $1,600 in cash. These acquisitions were accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the assets acquired based on their fair values at the date of acquisition. On May 11, 1993, the Company acquired the Predecessor Company in a leveraged buyout transaction (the "Acquisition") and merged the Predecessor Company with its wholly-owned acquisition shell company, Communications Instruments, Inc. ("CII"). The Company is 89% owned by investors that did not hold an interest in the Predecessor Company, with the remaining 11% held by stockholders who owned shares of the Predecessor Company prior to the Acquisition. The Acquisition has been accounted for as a purchase to the extent of the change in ownership (89%), with the remaining 11% valued at its historical cost. The total purchase price was approximately $20,205, including acquisition costs of approximately $1,300. To the extent of the 89% change in ownership, the purchase price has been allocated to the assets and liabilities of the Predecessor Company based on their fair values. Fair value was determined generally by appraisals with the excess allocated to goodwill. The excess of purchase price paid to continuing stockholders over the historical cost of shares owned by such continuing shareholders has been deemed to be a stockholder distribution and thus has been recorded as a reduction of additional paid-in capital. As the Predecessor Company financial statements have been prepared on the historical cost basis, they are not directly comparable to those of the Company. The following summarizes the purchase price allocation as of the acquisition date: Current assets.................................................. $11,704 Property and equipment.......................................... 13,200 Intangibles and other assets.................................... 2,577 Liabilities assumed............................................. (7,276) ------- Total purchase price.......................................... $20,205 =======
In conjunction with the Acquisition, the Company issued a term note payable to a bank of $6,500 and borrowed $5,112 under a revolving credit facility. In addition, Holdings issued subordinated notes payable of $4,000 and $2,000 (reduced to $1,750 on May 17, 1994 pursuant to an indemnity settlement agreement) as well as cumulative redeemable preferred stock of $2,000. On December 5, 1994, the Company purchased certain assets of Deutsch Relays, Inc. for a purchase price of approximately $1,100. The purchase price was allocated to the fair value of inventory, equipment and related business assets with the remainder of $200 allocated to a covenant not to compete. F-7 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On January 27, 1995, the Company acquired certain assets from HiG Company, Inc. for $1,485 in cash. The acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the assets acquired based on their fair values at the date of acquisition. As the purchase price was equal to the fair value of the inventory at the date of acquisition the entire purchase price was allocated to the inventory and no value was assigned to the machinery and equipment acquired. On October 11, 1995, the Company purchased an 80% ownership interest in Kilovac Corporation ("Kilovac") for an aggregate purchase price of approximately $15,700 including acquisition costs of approximately $1,300. Kilovac designs and manufactures high voltage and high frequency electromechanical relays. The transaction has been accounted for as a purchase. To the extent of the 80% change in ownership, the purchase price has been allocated to the assets and liabilities of Kilovac based on their fair values, with the remaining 20% minority interest valued at its historical cost. Fair values were determined generally by appraisals with the excess allocated to goodwill. The following summarizes the purchase price allocation as of the acquisition date: Current assets.................................................. $ 5,563 Property and equipment.......................................... 1,802 Intangibles and other assets.................................... 10,165 Liabilities assumed............................................. (1,849) ------- Total purchase price............................................ $15,681 =======
The transaction was financed through additional borrowings of approximately $9,700 on the term and revolver loans, issuance of $2,000 in preferred stock, and issuance of subordinated notes of $1,700. Additionally, an estimated $2,300 is payable to the sellers upon the future realization of potential tax benefits associated with a net operating loss carryforward. The Company is obligated to purchase, for additional shares of the Company, the remaining 20% interest in Kilovac on, at the option of the selling shareholders, either December 31, 2000 or December 31, 2005, or upon the occurrence of certain events, if earlier, at an amount based on the value of Kilovac as defined in the agreement. The anticipated initial public offering described in Note 14 is an event that would result in the acquisition of such shares. During 1996, the Company and holders of the remaining 20% interest in Kilovac agreed that the value of the remaining interest that would be acquired upon such offering is $4,500. The following unaudited pro forma financial information shows the results of operations of the Company as though the Kilovac acquisition occurred as of January 1, 1994 and 1995.
YEAR ENDED DECEMBER 31, ---------------------- 1994 1995 ---------- ---------- Net sales....................................... $ 43,742 $ 50,947 ========== ========== Net loss available for Common Stock............. $ (98) $ (2,187) ========== ========== Loss per share.................................. $ (.04) $ (.86) ========== ========== Average shares outstanding...................... 2,511,125 2,535,714 ========== ==========
Principles of Consolidation--The accompanying consolidated financial statements include Holdings, its wholly-owned subsidiary, CII and CII's wholly-owned subsidiary, Electro-Mech S.A. and 80% owned subsidiary, Kilovac and Kilovac's wholly-owned subsidiaries, Kilovac International Inc., and Kilovac International FSC Ltd. Inc. Significant intercompany transactions have been eliminated. F-8 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Revenue Recognition--Sales and the related cost of sales are recognized upon shipment of products. Certain sales for Kilovac, which constitute an immaterial proportion of the total consolidated sales, represent revenues under long-term fixed price development contracts. Revenues under these contracts are recognized based on the percentage of completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. Costs in excess of contract revenues on cost sharing development contracts are expensed in the period incurred as research and development costs. Provision for estimated losses on fixed price contracts is made in the period such losses are determined by management. Special Acquisition Expenses--In conjunction with the acquisition of several product lines and businesses, the Company has incurred direct costs of integration of the acquisitions into the existing business, such as moving, training and product qualification costs. Such costs are expensed in the period incurred. Accounts Receivable--The changes in the allowance for doubtful accounts receivable consist of the following:
JANUARY 1, MAY 11, YEAR ENDED 1993 TO 1993 TO DECEMBER 31, MAY 10, DECEMBER 31, -------------- 1993 1993 1994 1995 ---------- ------------ ------ ------ Allowance beginning of year........ $108 $265 $ 317 $ 301 Provision for uncollectible accounts.......................... -- 40 64 127 Write-off of uncollectible accounts (net)............................. (43) 12 (80) (48) Effect of acquisitions and other... 200 -- -- 40 ---- ---- ------ ------ Allowance end of year............ $265 $317 $ 301 $ 420 ==== ==== ====== ======
Inventories--Inventories are stated at the lower of cost (first-in, first- out method) or market. Property, Plant and Equipment--Property, plant and equipment held at the Acquisition date are recorded at their respective fair market values at the date of the Acquisition. Purchases of property, plant and equipment subsequent to the Acquisition are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are five to twenty years. Goodwill--Goodwill represents the excess of cost over net tangible and identifiable intangible assets acquired in the Acquisition and the Kilovac Acquisition, and is being amortized by the straight-line method over the estimated period benefited, 30 years. The Company regularly evaluates the recoverability of goodwill using estimates of undiscounted future cash flows and operating earnings of the businesses acquired. Intangible Assets--Intangible assets, primarily patents, covenants not to compete and debt issuance costs, are amortized on a straight-line basis over the patent life, term of the related agreement or on the effective interest method over the life of the loan. Reclassifications--Certain 1993 and 1994 amounts have been reclassified to conform with the 1995 presentation. Pro forma Earnings Per Common Share--Pro forma earnings per common share is computed based on the weighted average number of common shares outstanding during each period after giving retroactive effect to the planned 2.5 for one stock split to be effective prior to the closing of the anticipated initial public offering described more fully in Note 14. The Company issued 40,000 shares of common stock via subscription agreements to certain employees of the Company in December 1995 (Note 11). Pursuant to Staff Accounting Bulletin, Topic 4D, "Earnings Per Share Computations in an Initial Public Offering", stock issued within a one year period prior to the initial filing of the registration statement are treated as outstanding for periods reported. Supplemental Pro forma Earnings Per Common Share--Supplemental earnings per common share is computed based on the weighted average number of common shares outstanding during 1995 and the first quarter of 1996 after giving retroactive effect to the planned 2.5 for 1 stock split, and the planned issuance of 3,500,000 F-9 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) shares in the anticipated initial public offering described more fully in Note 14. The proceeds from such offering are anticipated to be used to retire approximately $18,300 of Company debt and Cumulative Redeemable Preferred Stock. Supplemental pro forma net earnings gives effect for the interest and dividend savings on such retired Company debt and Cumulative Redeemable Preferred Stock of $1,097, net of income taxes of $731. Use of Estimates in the Preparation of Financial Statements--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments--The carrying amount of accounts receivable, long-term debt, notes payable and other current and long-term liabilities approximates their respective fair values. Impact of New Accounting Pronouncements--In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of", which will be effective during the Company's year ending December 31, 1996. The Company adopted the new standard in the first quarter of 1996, which adoption had no impact on the accompanying financial statements. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes an alternative method of accounting for employee stock compensation plans based on a fair value methodology. However, the statement allows an entity to continue to use the accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The new standard also requires additional disclosures if the Company elects to remain with the accounting in Opinion 25. The Company has not determined whether it will adopt the alternative method of accounting and has also not yet determined its effect. 2. INVENTORIES Inventories consist of the following:
DECEMBER 31, --------------- MARCH 31, 1994 1995 1996 ------ ------- --------- Finished goods................................... $1,500 $ 2,495 $ 2,689 Work-in-process.................................. 2,821 4,201 4,144 Raw materials.................................... 4,116 4,730 4,943 Reserve for obsolete and slow-moving inventory... (503) (784) (813) ------ ------- ------- Total.......................................... $7,934 $10,642 $10,963 ====== ======= =======
3. PROPERTY, PLANT, AND EQUIPMENT Property, plant and equipment at December 31 consisted of the following:
1994 1995 ------- ------- Land......................................................... $ 250 $ 289 Buildings.................................................... 1,299 2,652 Machinery and equipment...................................... 13,042 15,145 Construction in progress..................................... 135 198 ------- ------- Total...................................................... 14,726 18,284 Less accumulated depreciation................................ 2,991 5,059 ------- ------- Total, net................................................. $11,735 $13,225 ======= =======
F-10 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. INTANGIBLE ASSETS Intangible assets at December 31 consisted of the following:
1994 1995 ------ ------ Debt issuance costs........................................... $ 502 $1,079 License of product name....................................... 44 -- Covenants not to compete...................................... 668 557 Patents....................................................... -- 1,634 Trademarks.................................................... -- 360 Other......................................................... -- 3 ------ ------ 1,214 3,633 Less accumulated amortization................................. 416 572 ------ ------ Total....................................................... $ 798 $3,061 ====== ======
5. LONG-TERM DEBT CII has a borrowing arrangement with a bank which provides for a maximum credit facility of $27,500 (including $2,000 for stand-by letters of credit), limited by outstanding indebtedness under the $16,500 term loan agreement or availability under the borrowing base, as defined. Amounts advanced under the revolving loan bear interest at the prime rate plus 1.5% (10.0% at both December 31, 1994 and December 31, 1995) and are due on October 11, 2000. No amounts are outstanding against the letter of credit portion of the credit arrangement at December 31, 1995. All of the Company's assets are pledged to secure the revolving credit and term loan bank indebtedness. Long-term debt at December 31 consisted of the following:
1994 1995 ------- ------- Term note payable to a bank due in quarterly installments of $750 from March 1, 1996 through December 1, 1997 and $875 from March 1, 1998 through September 1, 2000 with a final payment October 1, 2000. Interest is prime plus 2% (10.5% at December 31, 1994 and 1995).................... $ 7,183 $16,500 Revolving loan payable to a bank.......................... 4,720 6,208 Unsecured note payable, due in 1995, plus interest payable monthly at prime plus 2% (10.5% at December 31, 1994).... 200 -- Subordinated notes payable by Holdings to Communications Instruments Associates, L.P. ("Associates"), a stockholder, due in installments of $2,000 in May 2002, $2,000 in May 2003, $850 in October 2004 and $850 in October 2005, plus interest payable semiannually at 9.25%.................................................... 4,000 5,700 Subordinated notes payable by Holdings to prior owners of Predecessor Company and stockholders of the Company and Associates, due in May 2003, plus interest payable monthly at 9.25%......................................... 1,750 1,750 Subordinated notes payable to a former stockholder; interest at a rate of 8.25% payable monthly, principal due January 1996......................................... -- 81 Obligations under capital leases.......................... 94 663 ------- ------- Total................................................... 17,947 30,902 Less--current portion................................... 2,006 3,721 ------- ------- $15,941 $27,181 ======= =======
F-11 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Debt maturities at December 31, 1995 are as follows: 1996............................................................. $ 3,721 1997............................................................. 3,023 1998............................................................. 3,500 1999............................................................. 3,500 Thereafter....................................................... 17,158 ------- Total.......................................................... $30,902 =======
The term and revolving loans payable to a bank contain certain covenants, including maintenance of minimum net worth, interest coverage ratio and leverage ratio and limits on expenditures for property and equipment. Additionally, CII is restricted from issuing stock, retiring or otherwise acquiring any of its capital stock, further encumbering any of its assets and declaring or paying dividends such that approximately $8,800 of the $10,293 of net assets of CII may not be transferred to Holdings at December 31, 1995. At December 31, 1995, the Company was in compliance with the covenants except the capital investment limitation covenant for the year ended December 31, 1995. The Company received a waiver from the bank for exceeding the capital investment limitation covenant. At March 31, 1996, the Company was not in compliance with several of the covenants. The Company received a waiver from the bank for these violations (see Note 14). Both subordinated notes held by Associates include a provision for penalty interest at a rate of 11.75% for interest or principal payments not paid on the scheduled due date. At December 31, 1994 and 1995, accrued interest represents interest and penalty interest due on the $4,000 and $5,700 subordinated notes. No scheduled interest payments have been paid as allowed under the agreement. At December 31, 1994 and 1995, $617 and $1,140 in interest was due on the subordinated notes, respectively. Interest paid amounted to $77, $551, $1,142 and $1,874 for the period from January 1, 1993 to May 10, 1993, the period from May 11, 1993 to December 31, 1993, and the years ended December 31, 1994 and 1995, respectively. 6. LEASES The Company leases certain office equipment and a building under capital lease arrangements. The leased assets have a net book value of $92 and $683 at December 31, 1994 and 1995, respectively. The future minimum lease obligation under capital leases as of December 31 is included in long-term debt (see Note 5). On February 7, 1996, the Company purchased the building in accordance with the capital lease arrangement. The $625 purchase price was financed through additional borrowings under the revolving loan agreement. The Company leases certain premises and equipment under noncancelable operating leases which have remaining terms from one to four years and which provide for various renewal options. Total rent expense charged to operations was approximately $51, $23, $63 and $120 for the period from January 1, 1993 to May 10, 1993, the period from May 11, 1993 to December 31, 1993 and the years ended December 31, 1994 and 1995, respectively. Future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 1995 are as follows: 1996................................................................ $296 1997................................................................ 315 1998................................................................ 276 1999................................................................ 86 ---- Total............................................................. $973 ====
F-12 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. INCOME TAXES The Predecessor Company was a "Subchapter S" Corporation and therefore all taxable income was passed through to its shareholders. Accordingly, no tax provision has been recorded in the period from January 1, 1993 to May 10, 1993. The significant components of income tax expense are:
MAY 11, YEAR ENDED 1993 TO DECEMBER 31, DECEMBER 31, -------------- 1993 1994 1995 ------------ ----- ------- Current tax expense: Federal...................................... $ 196 $ 795 $ 378 State........................................ 48 131 83 Foreign...................................... 6 3 46 ----- ----- ------- Total current tax expense...................... 250 929 507 Deferred tax (benefit)......................... (749) (751) (1,583) ----- ----- ------- Total tax provision............................ $(499) $ 178 $(1,076) ===== ===== =======
Income tax payments amounted to approximately $254, $717 and $859 for the period from May 11, 1993 to December 31, 1993 and the years ended December 31, 1994 and 1995, respectively. The Company's effective tax rate differs from the statutory rate for the following reasons:
MAY 11, YEAR ENDED 1993 TO DECEMBER 31, DECEMBER 31, ------------- 1993 1994 1995 ------------ ------ ------ Provision at statutory U.S. tax rate.......... (34.0)% 34.0% (34.0)% Effective state income tax rate............... (4.5) 3.7 (3.6) Nondeductible meals, entertainment and officers' life insurance expenses............ -- 3.5 1.0 Mexican income taxes.......................... -- -- 1.4 Other, net.................................... 1.7 (1.7) 1.5 ----- ----- ------ (36.8)% 39.5% (33.7)% ===== ===== ======
F-13 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes consisted of the following at December 31:
1994 1995 ------ ------ Current deferred tax assets: U.S. net operating loss carryforward........................ -- $ 161 State net operating loss carryforward....................... -- 9 Other....................................................... $ 410 1,739 ------ ------ Total current deferred assets................................. $ 410 $1,909 ------ ------ Long-term deferred tax asset: Accrued expenses............................................ $ 248 $ 407 U.S. net operating loss carryforward........................ -- 1,422 State net operating loss carryforward....................... -- 182 ------ ------ 248 2,011 Less--Valuation allowance................................... -- (75) ------ ------ Total long-term deferred tax asset............................ $ 248 $1,936 ====== ====== Long-term deferred tax liabilities: Property and equipment...................................... $3,401 $3,217 Intangibles................................................. -- 726 Other....................................................... 218 186 ------ ------ Total long-term deferred tax liability........................ $3,619 $4,129 ====== ====== Total long-term deferred tax liability, net................... $3,371 $2,193 ====== ====== Deferred tax liability, net................................... $2,961 $ 284 ====== ======
At December 31, 1995, the Kilovac subsidiary has a U.S. net operating loss carryforward of $4,655 which expires in 2010. Internal Revenue Code Section 382 imposes certain limitations on the ability of a taxpayer to utilize its U.S. net operating losses in any one year if there is a change in ownership of more than 50% of the Company. Management has considered the Section 382 limitation and believes that it is more likely than not that the entire U.S. net operating loss carryforward will be utilized. California tax law limits loss carryforwards to a five-year period. A valuation allowance has been recorded for the portion of the California net operating loss carryforward which could not be realized due to the previously mentioned limitations. Realization of the benefit is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The amount of the deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. 8. COMMITMENTS AND CONTINGENCIES The Company has employment agreements with certain executives which expire in May 1998. Such agreements provide for minimum salary levels as well as incentive bonuses. The incentive bonuses are based upon the attainment of specified performance levels as determined by the board of directors. Additionally, one former executive will be paid a "finder's fee" for any acquisition originated by the executive that closes within eighteen months of origination. In the current year, this former executive was paid a finder's fee of $28 due to the acquisition of Hi-G assets. The agreements also restrict the executive's ability to compete directly with the Company or to solicit customers or employees of the Company. The aggregate commitment for salaries, excluding bonuses, was $1,688 and $1,338 at December 31, 1994 and 1995, respectively. F-14 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company is obligated to pay the bank that financed the Acquisition and the Kilovac acquisition a "success fee" upon the occurrence of certain specified events, such as sale of the Company or an initial public offering, or on the fifth anniversary of the Kilovac acquisition (collectively referred to as the valuation date). The fee will be based upon the market value or appraised value of the Company on the valuation date. At December 31, 1995, $387 has been accrued related to this fee, representing the fee based on management's estimate of the value of the Company accrued over the period to the maturity of the arrangement. The anticipated public offering discussed in Note 14 represents a valuation date that would require the fee to be paid. The success fee based on the anticipated value of the Company at the effective date of such offering is estimated to be $500. From time to time the Company is a party to certain lawsuits and administrative proceedings that arise in the conduct of its business. While the outcome of these lawsuits and proceedings cannot be predicted with certainty, management believes that, if adversely determined, the lawsuits and proceedings, either singularly or in the aggregate, would not have a material adverse effect on the financial condition or results of operations of the Company. 9. ENVIRONMENTAL REMEDIATION The Company has been notified by the State of North Carolina Department of Environment, Health & Natural Resources ("NCDHNR") that its manufacturing facility in Fairview, North Carolina has sites containing hazardous wastes resulting from activities by the predecessor to the Predecessor Company ("Prior Owner"). Additionally, the Company has been identified as a potentially responsible party for remediation at two superfund sites which were formerly used by hazardous waste disposal companies utilized by the Company. Several soil and groundwater contaminations have been noted at the Fairview facility the most serious of which is TCE contamination in the groundwater. Remedial investigations have been on-going at the facility and the NCDHNR has placed the facility on the Inactive Hazardous Sites Inventory. The Company is proceeding with development of a Corrective Action Plan and performing preliminary remediation under the Responsible Party Voluntary Site Remedial Action course of action. In the acquisition agreement of the Predecessor Company, the Company obtained indemnity from the selling shareholders for any environmental clean up costs as a result of existing conditions which would not be paid by the Prior Owner. The indemnity was limited to the extent of amounts owed to the selling shareholders through the subordinated note. On May 11, 1995, the Company reached a settlement with the Prior Owner which resulted in a cash deposit of $1,750 to an escrow account and an obligation for the Prior Owner to pay to the escrow account after the groundwater remediation system has been operating at least at 90% capacity for three years, an amount equal to the lesser of 90% of the present value of the long term operating and maintenance costs of the groundwater remediation system or $1,250. The Company has reflected the present value of the receivable, discounted at 5%, and the cash as restricted assets as the funds are held in escrow to be used specifically for the Fairview facility environmental remediation and monitoring and will become unrestricted only when the NCDHNR determines that no further action is required. In October 1995, the Company released the selling shareholders from their indemnity obligation. This action and the settlement with the Prior Owners resulted in the recording of a separate environmental remediation liability and the recognition in 1995 operations of an expense of $951 of environmental related costs which are not covered under the settlement with the Prior Owner. The environmental related costs include an environmental F-15 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) remediation liability which is recorded at the present value, discounted at 5%, of the best estimate of the costs to remediate and monitor the remediation over the estimated 30 year remediation period, which were developed by a third party environmental consultant based on experience with similar remediation projects and methods and taking inflation into consideration. Total amounts estimated to be paid related to environmental liabilities are $5,264 calculated as follows: 1996............................................................. $1,447 1997............................................................. 135 1998............................................................. 135 1999............................................................. 135 2000............................................................. 135 Thereafter....................................................... 3,277 ------ 5,264 Discount to present value........................................ 1,773 ------ Liability at present value....................................... $3,491 ======
10. EMPLOYEE BENEFITS The Company has a self-funded welfare benefit plan (the "Plan") composed of separate programs for the hourly and salaried employees. The Plan was formed in 1981 to provide hospitalization and medical benefits for substantially all full-time employees of the Company and their dependents. The Plan is funded principally by employer contributions in amounts equal to the benefits provided. Employee contributions vary depending upon the amount of coverage elected by the employee. Employer contributions amounted to $307 and $508 for the years ended December 31, 1995 and 1994, respectively. Effective January 1, 1988, the Company implemented an investment retirement plan (the "Retirement Plan") pursuant to Section 401(k) of the Internal Revenue Code for all employees who qualify based on tenure with the Company. The Retirement Plan provides for employee and the Company contributions subject to certain limitations. The cost of the Retirement Plan charged to operations was approximately $110 and $91 during the years ended December 31, 1995 and 1994, respectively. During 1995, the Company sold 50,000 shares of stock to certain employees. The issuance price was $1 per share for 10,000 shares and $1.14 per share for 40,000 shares. The Company has recorded compensation expense of $720 representing the difference between the issuance price and the fair value of the stock as determined by an independent appraiser. Additionally, the Company has accrued bonuses of $580 to the employees for reimbursement of the tax impact to the employees of these transactions. 11. CUMULATIVE REDEEMABLE PREFERRED STOCK AND COMMON STOCK SUBJECT TO PUT OPTIONS On May 11, 1993, the Company issued 40,000 shares of cumulative redeemable preferred stock for $50 per share. This issuance was in conjunction with the acquisition described in Note 1. On October 11, 1995, the Company issued 40,000 shares of cumulative redeemable preferred stock Series A at $50 per share to finance the Kilovac acquisition described in Note 1. At December 31, 1995, the Company has 40,000 shares of cumulative redeemable preferred stock Series A and 40,000 shares of cumulative redeemable preferred stock outstanding. The preferred stock has been stated at the liquidation preference value of $50 per share plus unpaid dividends. F-16 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Holders of the preferred stock are entitled to a cumulative dividend payable semiannually on May 31 and November 30 at an annual rate of 9.25%. No dividends have been paid as Management has elected not to pay dividends until completion of the offering as described in Note 14. The dividends have been accrued and reflected as an increase in preferred stock. The preferred stock carries a mandatory redemption feature requiring redemption of 50% of the then outstanding shares of preferred stock on May 31, 2002 and the remaining shares on May 31, 2003 at a rate of $50 per share plus accrued and unpaid dividends. The Series A preferred stock also carries a mandatory redemption feature requiring redemption of 50% of the then outstanding shares of Series A preferred stock on May 31, 2004 and the remaining shares on May 31, 2005 at a rate of $50 per share plus accrued and unpaid dividends. The preferred stock may, however, be redeemed at the option of the Company at any time prior to the mandatory redemption date, in whole or in part, at a price of $50 per share plus accrued and unpaid dividends. On May 11, 1993, the Company issued 100,000 shares of common stock via subscription agreements for $1.00 per share to members of management who owned shares of the Predecessor Company. On both May 17, 1994 and May 23, 1995, the Company issued 10,000 shares of common stock via subscription agreements for $1.00 per share. On December 1, 1995, the Company issued 40,000 shares of common stock via subscription agreements for $1.14 per share (see Note 10). These agreements stipulate that the purchaser cannot sell the stock without first offering it for sale back to the Company. Prior to the fifth year anniversary of purchase or an initial public offering such as the anticipated offering described in Note 14, the Company is obligated to buy back the stock at the higher of the original purchase price or book value per share in the event of death, disability, or voluntary termination of employment ("Put Options"). At December 31, 1995, the Company had 160,000 shares outstanding subject to Put Options of the total 1,020,000 shares outstanding. 12. SIGNIFICANT CUSTOMERS Sales to foreign customers accounted for 15%, 15%, 20% and 15% of total sales for the period from January 1, 1993 to May 10, 1993, the period from May 10, 1993 to December 31, 1993 and the years ended December 31, 1994 and 1995, respectively. Approximately 20% percent of the Company's sales are made directly, or indirectly, to the U.S. Department of Defense. 13. RELATED PARTY TRANSACTIONS Certain nonemployee shareholders provide management services to the Company. The Company was charged $150 and $156 for such services for the years ended December 31, 1994 and 1995, respectively. Additionally, this group was paid $150 in 1995 for fees related to the Kilovac acquisition (see Notes 1 and 5). 14. SUBSEQUENT EVENTS (UNAUDITED) On July 2, 1996, the Company acquired certain assets and assumed certain liabilities of the Hartman Electrical Division of Figgie International, Inc. for approximately $12,000. The transaction was financed with secured bank debt, which was made available through amendment to the existing credit facility. The amended credit facility contains financial covenants including, without limitation, certain limitations on cash interest coverage, leverage, liquidity and minimum net worth and certain other customary restrictive covenants. F-17 CII TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has entered into a Letter of Understanding with the bank, which, upon the execution of definitive documentation at the time of the offering, would provide for an amended $40 million credit facility, which will bear interest annually, at the election of the Company at a reference rate or at LIBOR (for the interest period selected by the Company) plus the applicable margin. The facility will be available for working capital purposes and to finance additional acquisitions. The Company anticipates that the loan agreement for the new facility will contain financial covenants including, without limitation, certain limitations on cash interest coverage, leverage, liquidity and minimum net worth and certain other customary restrictive covenants. The Company expects that the revolving loan facility will be available for three years, subject to one-year renewals, and that all outstanding amounts at the end of the three-year period will convert to a five-year term loan. In connection with the expected offering of 3,500,000 shares of Common Stock by the Company, a Registration Statement on Form S-1 will be filed with the Securities and Exchange Commission. The Company intends to use the anticipated net proceeds of the offering to repay amounts under the borrowing arrangement with a bank, the subordinated notes payable and the preferred stock. Subsequent to December 31, 1995, the Board of Directors approved a 2.5 for 1 stock split of the Common Stock effective immediately prior to the offering of Common Stock by the Company. F-18 INDEPENDENT AUDITORS' REPORT Board of Directors Kilovac Corporation: We have audited the consolidated balance sheet of Kilovac Corporation and subsidiaries as of December 31, 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 1994 and the period from January 1, 1995 through October 11, 1995. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Kilovac Corporation and subsidiaries as of December 31, 1994, and the results of their operations and their cash flows for the two years in the period ended December 31, 1994 and the period from January 1, 1995 through October 11, 1995 in conformity with generally accepted accounting principles. As discussed in Note 10 to the consolidated financial statements, in September 1995 Kilovac Corporation entered into a merger agreement with Communications Instruments, Inc. Effective October 11, 1995, the merger was completed. Deloitte & Touche LLP Los Angeles, California December 6, 1995 F-19 KILOVAC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1994 ASSETS CURRENT ASSETS: Cash and cash equivalents....................................... $ 533,532 Receivables: Trade, net of allowance for doubtful accounts of $6,134....... 1,315,546 Other......................................................... 191,531 Unbilled receivables.......................................... 30,518 Income taxes receivable....................................... 66,554 Inventories: Raw materials and processed parts............................. 558,907 Work-in-progress.............................................. 429,787 Finished products............................................. 208,536 Prepaid expenses................................................ 68,140 Deferred income taxes........................................... 325,827 ----------- Total current assets.......................................... 3,728,878 ----------- PROPERTY, At cost: Land............................................................ 435,408 Building........................................................ 145,136 Machinery....................................................... 1,999,514 Furniture and office equipment.................................. 754,106 Vehicles........................................................ 19,220 Leasehold improvements.......................................... 935,725 Construction-in-progress........................................ 36,450 ----------- Total......................................................... 4,325,559 Accumulated depreciation........................................ (2,671,554) ----------- Property, net................................................. 1,654,005 ----------- OTHER ASSETS: Deposits........................................................ 27,226 Patents......................................................... 145,295 ----------- Total other assets............................................ 172,521 ----------- TOTAL............................................................. $ 5,555,404 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Revolving line of credit........................................ $ 200,000 Notes payable................................................... 429,778 Accounts payable................................................ 486,855 Accrued liabilities............................................. 905,243 ----------- Total current liabilities..................................... 2,021,876 ----------- DEFERRED INCOME TAXES............................................. 18,916 ----------- COMMITMENTS AND CONTINGENCIES (Note 6) STOCKHOLDERS' EQUITY: Preferred stock, $100 par value; 5,000 shares authorized; none issued or outstanding.......................................... Preference stock, $100 par value; 5,000 shares authorized; none issued or outstanding.......................................... Common stock--Class A, no par value; 200,000 shares authorized; 58,574 shares issued and outstanding........................... 559,929 Common stock--Class B, no par value; 200 shares authorized; none issued or outstanding Retained earnings............................................... 2,954,683 ----------- Total stockholders' equity.................................... 3,514,612 ----------- TOTAL............................................................. $ 5,555,404 ===========
See notes to consolidated financial statements. F-20 KILOVAC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THE PERIOD JANUARY 1, 1995 TO OCTOBER 11, 1995
YEAR ENDED DECEMBER 31, JANUARY 1, 1995 ------------------------ TO OCTOBER 11, 1993 1994 1995 ----------- ----------- --------------- REVENUES: Product sales...................... $10,375,887 $11,257,160 $9,685,620 Engineering sales.................. 492,343 961,810 1,343,880 ----------- ----------- ---------- Total revenues................... 10,868,230 12,218,970 11,029,500 ----------- ----------- ---------- COSTS AND EXPENSES: Cost of product sales.............. 5,902,130 6,940,568 5,635,997 Engineering, research and development costs................. 943,532 1,431,703 1,364,845 Selling, general and administrative expenses.......................... 2,441,318 2,987,309 2,527,046 ----------- ----------- ---------- Total costs and expenses......... 9,286,980 11,359,580 9,527,888 ----------- ----------- ---------- OTHER EXPENSE (INCOME): Other (income) expense............. 226,133 (112,901) (8,788) Interest expense................... 150,813 130,247 34,527 ----------- ----------- ---------- Total other expense.............. 376,946 17,346 25,739 ----------- ----------- ---------- INCOME BEFORE INCOME TAXES........... 1,204,304 842,044 1,475,873 ----------- ----------- ---------- INCOME TAX PROVISION (BENEFIT): Current............................ 490,799 333,168 622,864 Deferred........................... (87,913) (104,852) (61,751) ----------- ----------- ---------- Total income taxes............... 402,886 228,316 561,113 ----------- ----------- ---------- NET INCOME........................... $ 801,418 $ 613,728 $ 914,760 =========== =========== ==========
See notes to consolidated financial statements. F-21 KILOVAC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THE PERIOD JANUARY 1, 1995 TO OCTOBER 11, 1995
COMMON STOCK TOTAL ---------------- RETAINED STOCKHOLDERS' SHARES AMOUNT EARNINGS EQUITY ------ -------- ---------- ------------- BALANCE, JANUARY 1, 1993............ 62,114 $538,795 $1,684,640 $2,223,435 Exercise common stock options..... 10 95 -- 95 Repurchase of common stock........ (2,448) (24,467) (68,526) (92,993) Net income........................ -- -- 801,418 801,418 ------ -------- ---------- ---------- BALANCE, DECEMBER 31, 1993.......... 59,676 514,423 2,417,532 2,931,955 Issuance of common stock.......... 1,346 69,992 -- 69,992 Repurchase of common stock........ (2,448) (24,486) (76,577) (101,063) Net income........................ -- -- 613,728 613,728 ------ -------- ---------- ---------- BALANCE, DECEMBER 31, 1994.......... 58,574 559,929 2,954,683 3,514,612 Repurchase of common stock........ (6,279) (185,714) (122,264) (307,978) Net income........................ -- -- 914,760 914,760 ------ -------- ---------- ---------- BALANCE, OCTOBER 11, 1995........... 52,295 $374,215 $3,747,179 $4,121,394 ====== ======== ========== ==========
See notes to consolidated financial statements. F-22 KILOVAC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THE PERIOD JANUARY 1, 1995 TO OCTOBER 11, 1995
YEAR ENDED DECEMBER 31, JANUARY 1, 1995 --------------------- TO OCTOBER 11, 1993 1994 1995 --------- ---------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................. $ 801,418 $ 613,728 $ 914,760 Adjustments to reconcile net income to net cash provided by activities: Depreciation and amortization......... 308,699 365,718 274,030 Loss on disposal of property.......... -- 14,543 -- Deferred income taxes................. (87,913) (104,852) (61,751) Provision for doubtful accounts and notes receivable..................... 78,151 (30,000) 31,682 Changes in operating assets and liabilities: Trade and other receivables......... (792,448) (6,632) (459,373) Inventories......................... (49,503) 167,438 (583,039) Prepaid expenses and deposits....... (108,146) 59,784 545 Accounts payable.................... 91,170 96,384 308,378 Income taxes........................ 159,464 (345,015) 453,441 Accrued liabilities................. 197,254 268,251 68,079 --------- ---------- --------- Net cash provided by operating activities....................... 598,146 1,099,347 946,752 --------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property................. (284,029) (486,583) (299,374) Additions to patents.................. (579) (68,779) (14,663) Proceeds from disposal of fixed assets............................... -- 1,205 -- --------- ---------- --------- Net cash used in investing activities......................... (284,608) (554,157) (314,037) --------- ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net revolving line of credit borrowings........................... -- 200,000 (200,000) Repayment of notes payable............ (137,968) (860,865) (348,936) Issuance of common stock.............. 95 69,992 -- Repurchase of common stock............ (92,993) (101,063) (307,978) --------- ---------- --------- Net cash used in financing activities......................... (230,866) (691,936) (856,914) --------- ---------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS............................ 82,672 (146,746) (224,199) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................. 597,606 680,278 533,532 --------- ---------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD................................. $ 680,278 $ 533,532 $ 309,333 ========= ========== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-- Cash paid during the year for: Interest.............................. $ 117,132 $ 97,810 $ 19,963 Income taxes.......................... $ 321,798 $ 717,500 $ 142,200
See notes to consolidated financial statements. F-23 KILOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THE PERIODFROM JANUARY 1, 1995 THROUGH OCTOBER 11, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General--Kilovac Corporation designs and manufactures high voltage and high frequency electromechanical relays with applications in the following industries: aerospace and defense, medical, test equipment, and other commercial industries. Kilovac Corporation sells its products and grants credit to customers in all of these industries located throughout the world. Principles of Consolidation--The consolidated financial statements include the accounts of Kilovac Corporation and its wholly owned subsidiaries (the "Company"). All intercompany accounts and transactions have been eliminated. Inventories--Inventories are stated at the lower of cost (first-in, first- out) or market. Property--Depreciation and amortization are computed using the straight-line method. Useful lives of the assets range from 3 to 30 years for buildings and leasehold improvements, 3 to 10 years for machinery, and 3 to 5 years for furnishings, office equipment and vehicles. Income Taxes--The Company files a federal income tax return and a California franchise tax return. Income taxes are recognized for (a) the amount of taxes payable or refundable for the current period, and (b) deferred income tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or income tax returns. The effects of income taxes are measured based on enacted laws and rates. Revenues--Engineering sales represent revenues under fixed price development and cost sharing development contracts. Revenues under the contracts are recognized based on the percentage of completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. Costs in excess of contract revenues on cost sharing development contracts are expensed in the period incurred as research and development costs. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are recorded in the accounting period in which the revisions are made. Provision for estimated losses on fixed price development contracts is made in the period such losses are determined by management. Product sales are recognized upon product shipment. Use of Estimates in the Preparation of Financial Statements--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Export Sales--The Company operates in one industry segment. Export sales primarily to the Far East and Europe for the years ended December 31, 1993 and 1994 and the period from January 1, 1995 through October 11, 1995 totaled $2,254,995, $2,743,502 and $3,118,545, respectively. New Accounting Standards--In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long- lived Assets and for Long-lived Assets to Be Disposed Of," which established a new accounting principle for the impairment of long-lived assets and certain identifiable intangible assets and is effective for fiscal years beginning after December 15, 1995 with earlier adoption encouraged. The Company adopted the new standard in 1995, which adoption had no impact on the accompanying consolidated financial statements. F-24 KILOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes an alternative method of accounting for employee stock compensation plans based on a fair value methodology. However, the statement allows an entity to continue to use the accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The new standard also requires additional disclosures if the Company elects to remain with the accounting in Opinion 25. The Company has not determined whether it will adopt the new accounting standard and has also not yet determined its effect. 2. BORROWING ARRANGEMENTS The Company had borrowing arrangements with a bank that provided for borrowings of up to $750,000 under a revolving line of credit and $600,000 under a term line of credit for equipment purchases. Interest on outstanding balances under these arrangements was payable at the bank's reference rate (8.5% at December 31, 1994) plus .75% under the revolving line of credit and 1% under the term line of credit. The credit arrangements required the Company to maintain certain financial ratios and a compensating balance equal to 7% of the revolving line of credit limit. In connection with the sale of the Company (see Note 9), the borrowing arrangements were canceled effective October 11, 1995. 3. NOTES PAYABLE Notes payable consist of the following:
DECEMBER 31, 1994 ------------ Term loan to bank; interest at the prime rate (8.5% at December 31, 1994) plus 1% with minimum and maximum rates set at 11% and 14.75%, respectively; principal due in monthly installments of $806 through March 1995 when the unpaid balance is due and payable. The loan is collateralized by a first trust deed on land and building with a net book value of $556,354 at December 31, 1994................................. $244,078 Term line of credit; interest at variable rates, 9.5% at December 31, 1994, principal and interest due in monthly installments through May 1995................................. 84,558 Subordinated notes payable to a former officer/stockholder; interest at a rate of 8.25% payable monthly, principal due December 1995................................................. 80,842 Other.......................................................... 20,300 -------- $429,778 ========
4. ACCRUED LIABILITIES Accrued liabilities consist of the following:
DECEMBER 31, 1994 ------------ Wages and certain benefits...................................... $319,033 Legal costs..................................................... 360,000 Provision for contract losses................................... 155,813 Other........................................................... 70,397 -------- $905,243 ========
F-25 KILOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. INCOME TAXES Significant components of the Company's net deferred income taxes are as follows:
DECEMBER 31, 1994 ------------ Current: Accrued expenses.............................................. $147,358 Provision for contract losses................................. 52,976 Inventories................................................... 31,449 Loan receivable............................................... 23,800 Other......................................................... (4,005) State taxes, net of federal benefit........................... 74,249 -------- $325,827 ======== Noncurrent: Depreciation.................................................. $(16,185) State taxes, net of federal benefit........................... (2,731) -------- $(18,916) ========
The net deferred tax asset is as follows:
DECEMBER 31, 1994 ------------ Deferred tax assets........................................... $336,608 Deferred tax liabilities...................................... (29,697) -------- $306,911 ========
The following is a reconciliation of the effective tax rate to the federal statutory rate:
PERIOD FROM YEAR ENDED YEAR ENDED JANUARY 1, 1995 DECEMBER 31, DECEMBER 31, TO OCTOBER 11, 1993 1994 1995 ------------ ------------ --------------- Tax provision at statutory rate.. $421,506 $294,715 $516,556 Benefit of foreign service corporation..................... (11,937) (9,821) (21,237) Research and development credit.. (55,776) (71,006) (27,610) State taxes, net of federal benefit......................... 63,628 14,915 80,969 Other............................ (14,535) (487) 12,435 -------- -------- -------- $402,886 $228,316 $561,113 ======== ======== ========
6. COMMITMENTS AND CONTINGENCIES The Company leases its premises under an operating lease that expires in April 1996. Future minimum lease payments under the lease total $77,805 at October 11, 1995. Rent expense for the years ended December 31, 1993 and 1994 and the period from January 1, 1995 through October 11, 1995 was $207,480, $207,480 and $163,590, respectively. In 1992, two former officers of the Company filed a lawsuit against the Company and an officer of the Company, stating various causes of action. The lawsuit has been settled and the settlement amount and related legal costs were reported in the 1994 consolidated financial statements as other (expenses) income, net of insurance reimbursements. F-26 KILOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. CAPITAL STOCK The dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption and other preferences of the Class B common stock, preferred stock and preference stock are subject to determination by the Board of Directors. 8. STOCK OPTIONS The Company has stock option plans that provide for the issuance of shares of the Company's common stock in incentive stock options and nonqualified stock options to key employees. Incentive stock options may be granted at a price not less than the fair market value of the stock at the grant date. Options granted vest over varying periods and expire no later than ten years from the grant date. The option agreements include a vesting acceleration provision in the event of certain occurrences, which include the merger or sale of the Company. In connection with the merger agreement discussed in Note 10, all of the employee stock options became fully vested on October 11, 1995 and were exercised. Information concerning outstanding options is as follows:
NUMBER OF OPTION PRICE SHARES PER SHARE --------- ------------ Outstanding, January 1, 1993......................... 70,500 $9.52-$38.70 Exercised.......................................... (10) 9.52 ------ ------------ Outstanding, December 31, 1993....................... 70,490 $9.52-$38.70 Granted............................................ 2,000 41.50 ------ ------------ Outstanding, December 31, 1994....................... 72,490 $9.52-$41.50 ------ ------------ Outstanding, October 11, 1995........................ 72,490 $9.52-$41.50 ====== ============
9. EMPLOYEE BENEFIT PLANS The Company has established the Kilovac Corporation Employee Stock Bonus Plan (the "Plan") for the benefit of substantially all of its employees. Annual contributions are limited to a maximum of 15% of eligible employees' compensation and are made at the discretion of the Board of Directors. Contributions may be made in the form of cash or stock. Valuation of stock contributed under the Plan is based on fair market value as determined by independent appraisal. Contributions to the Plan for the years ended December 31, 1993 and 1994 and the period from January 1, 1995 through October 11, 1995 totaled $147,607, $76,280 and $70,000, respectively. Effective with the consummation of the merger (see Note 10), the Company has discontinued further contributions to the plan. The Company has established a salary deferral savings plan under provisions of Section 401(k) of the Internal Revenue Code. Employees may elect to defer up to 15% of their annual compensation under the plan. 10. MERGER AGREEMENT On September 20, 1995, the Company entered into a merger agreement with Communications Instruments, Inc. ("CII") that was effective October 11, 1995. Under the terms of the agreement, CII acquired 80% of the outstanding common stock of the Company (99,828 shares) for a total cash consideration of $12,900,000 (less certain transaction fees), distribution of the Company's ownership in Kilovac Development Corporation, and certain future consideration. In conjunction with the acquisition, the outstanding stock options were exercised, representing 72,490 shares of the Company's common stock. The option holders received their pro rata share of the purchase price less the aggregate option exercise price totaling $1,202,692. F-27 INDEPENDENT AUDITORS' REPORT Hartman Electrical Manufacturing Division of Figgie International, Inc. We have audited the accompanying balance sheets of the Hartman Electrical Manufacturing Division (the "Company") of Figgie International, Inc. as of December 31, 1994 and 1995 and the related statements of operations, 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1994 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Deloitte & Touche LLP Cleveland, Ohio June 28, 1996 F-28 HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC. BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ---------------- MARCH 31, 1994 1995 1996 ------- ------- ----------- (UNAUDITED) ASSETS Cash............................................ $ 7 $ 22 $ 19 Receivables--net of allowance for doubtful accounts of $100 in 1994, 1995 and 1996........ 3,633 1,877 2,596 Inventories (Note 2)............................ 5,632 6,992 6,973 Prepaid expenses................................ 13 23 15 ------- ------- ------- Total current assets.......................... 9,285 8,914 9,603 Property and equipment--at cost (Note 3)........ 5,720 5,720 5,400 Less accumulated depreciation and amortization.. (3,626) (3,958) (3,993) ------- ------- ------- Property and equipment--net................... 2,094 1,762 1,407 Prepaid pension (Note 6)........................ 1,342 1,427 1,427 Other assets.................................... 174 33 -- ------- ------- ------- Total......................................... $12,895 $12,136 $12,437 ======= ======= ======= LIABILITIES AND DIVISIONAL EQUITY LIABILITIES: Accounts payable................................ $ 963 $ 1,356 $ 1,602 Accrued liabilities (Note 4).................... 6,819 5,333 5,032 Current portion of capital lease obligations (Note 7)....................................... 1,073 518 504 ------- ------- ------- Total current liabilities..................... 8,855 7,207 7,138 Non-current capital lease obligations (Note 7).. 1,138 617 494 ------- ------- ------- Total liabilities............................. 9,993 7,824 7,632 COMMITMENTS AND CONTINGENCIES (Note 7) DIVISIONAL EQUITY (Note 9)...................... 2,902 4,312 4,805 ------- ------- ------- Total......................................... $12,895 $12,136 $12,437 ======= ======= =======
The accompanying notes to financial statements are an integral part of these statements. F-29 HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ---------------- -------------------- 1994 1995 1995 1996 ------- ------- --------- --------- (UNAUDITED) NET SALES............................... $19,974 $17,461 $ 4,742 $ 5,095 ------- ------- --------- --------- COSTS AND EXPENSES: Cost of sales (Note 8)................ 17,120 11,417 3,024 3,656 Selling............................... 889 445 130 73 General and administrative (Note 1 and 8)................................... 3,331 2,753 697 685 Research and development.............. 969 615 216 -- Non-recurring charge (Note 10)........ 1,877 -- -- -- Provision for estimated environmental costs (Note 11)...................... -- 850 -- -- ------- ------- --------- --------- Total costs and expenses............ 24,186 16,080 4,067 4,414 ------- ------- --------- --------- INCOME (LOSS) FROM OPERATIONS........... (4,212) 1,381 675 681 ------- ------- --------- --------- OTHER INCOME (EXPENSE): Interest expense (Note 8)............. (332) (50) (17) -- Other................................. 118 (92) (33) 1 ------- ------- --------- --------- Total other income (expense)........ (214) (142) (50) 1 ------- ------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES....... (4,426) 1,239 625 682 PROVISION (BENEFIT) FOR INCOME TAXES (Note 5)............................... (1,765) 496 249 272 ------- ------- --------- --------- NET INCOME (LOSS)....................... $(2,661) $ 743 $ 376 $ 410 ======= ======= ========= =========
The accompanying notes to financial statements are an integral part of these statements. F-30 HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS YEARS ENDED ENDED DECEMBER 31, MARCH 31, ---------------- ------------- 1994 1995 1995 1996 ------- ------- ------ ----- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................ $(2,661) $ 743 $ 376 $ 410 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation............................... 389 332 88 67 Gain on sale of fixed assets............... (167) -- -- -- Loss on write-off of equipment and other assets.................................... 1,951 -- -- -- Changes in operating assets and liabilities: Receivables.............................. (1,322) 1,756 (603) (719) Inventories.............................. 1,315 (1,360) 181 19 Prepaid expenses......................... (4) (10) 6 8 Prepaid pension and other assets......... 629 56 26 33 Accounts payable......................... (1,314) 393 113 246 Accrued expenses......................... (2,613) (1,486) (951) (301) ------- ------- ------ ----- Net cash provided by (used in) operating activities................................ (3,797) 424 (764) (237) ------- ------- ------ ----- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures......................... (76) -- -- (63) Sale of property and equipment............... 217 -- -- -- ------- ------- ------ ----- Net cash provided by (used in) investing activities................................ 141 -- -- (63) ------- ------- ------ ----- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on capital lease obligations........ (491) (1,076) (281) (137) Net cash provided by Figgie.................. 4,149 667 1,055 434 ------- ------- ------ ----- Net cash provided by (used in) financing activities................................ 3,658 (409) 774 297 ------- ------- ------ ----- NET INCREASE (DECREASE) IN CASH.............. 2 15 10 (3) CASH, BEGINNING OF PERIOD.................... 5 7 7 22 ------- ------- ------ ----- CASH, END OF PERIOD.......................... $ 7 $ 22 $ 17 $ 19 ======= ======= ====== =====
The accompanying notes to financial statements are an integral part of these statements. F-31 HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED) (IN THOUSANDS) 1.BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity--Hartman Electrical Manufacturing (the "Company") is a division of Figgie International, Inc. ("Figgie"). The Company, located in Mansfield, Ohio, is a manufacturer and marketer of high current electromechanical relays for critical applications in the military and commercial aerospace markets. The Company specializes in lower volume, highly engineered relays targeted to aerospace original equipment manufacturers and aftermarket users. Due to the nature of the industry they serve, the Company's customer base is highly concentrated. Approximately 86% and 91% of net sales in 1994 and 1995, respectively, were to the Company's ten largest customers. Three customers in 1994 and four customers in 1995 exceeded 10% of net sales. Sales to these customers ranged from 11% to 21% of net sales in 1994 and 11% to 27% of net sales in 1995. Net sales to the U.S. Department of Defense (including prime contractors under U.S. government programs) amounted to 35% and 26% of total net sales in 1994 and 1995, respectively. Approximately 13% and 17% of net sales in 1994 and 1995, respectively, were to entities which principally operate outside of the United States. The financial statements have been prepared generally as if the Company had operated as a stand-alone entity for all periods presented. The financial information included herein is not necessarily indicative of the financial position and results of operations of the Company in the future. In addition, these financial statements do not reflect any effects of the proposed change in ownership transaction described in Note 12. The Company receives an allocation of various management services provided by Figgie such as insurance, legal, treasury, property management, human resources, accounting, tax, and other miscellaneous. Expenses for such common services, included in general and administrative expenses, were $1,812 in 1994 and 1995. Effective January 1, 1996, Figgie discontinued allocating expenses for common services discussed above due to the proposed transaction discussed in Note 12. An estimate of $453 relating to corporate charges that would have been allocated by Figgie to the Company during the quarter ended March 31, 1996 has been included in general and administrative expenses for the quarter ended March 31, 1996. Concentration of Credit Risk--Credit is extended based on an evaluation of the customer's financial condition and, generally, collateral is not required. Receivables from the Company's ten largest customers represent 82% and 78% of total receivables at December 31, 1994 and 1995, respectively. Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions pending completion of related events. These estimates and assumptions affect the amounts reported at the date of the financial statements for assets, liabilities, revenues and expenses and the disclosure of contingencies. Actual results could differ from those estimates. Fair Value of Financial Instruments--The Company has various financial instruments, including cash, accounts receivable, accounts payable, and capital leases. The Company believes that the carrying values of these financial instruments approximate their fair values. Inventories--Inventories are stated at the lower of first-in, first-out (FIFO) cost or market. Reserves for excess and obsolete inventories are determined based on historical and projected usage. Revenue Recognition--Revenues are generally recognized as finished products are shipped to customers. The Company follows the guidelines of AICPA Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" (the contract method of accounting) for certain long-term commercial and governmental contracts. Under the contract method of accounting, the Company's sales F-32 HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) are primarily under fixed-price contracts, certain of which require delivery of products over several years. Sales and profit on each contract are recognized primarily in accordance with the percentage-of-completion method of accounting, using the units of delivery method. Revisions of estimated profits on contracts are included in earnings by the reallocation method, which spreads the change in estimate over future deliveries. Any anticipated losses on contracts are charged to earnings when identified. Estimated warranty costs are provided for based on known claims and historical experience. Depreciation--Depreciation is computed on the straight-line method over the assets' estimated useful lives, ranging from 15 to 40 years for buildings and improvements and 5 to 10 years for machinery and equipment. Research and Development--Research and development costs are expensed as incurred. 2. INVENTORIES Inventories consist of the following:
DECEMBER 31, ---------------- MARCH 31, 1994 1995 1996 ------- ------- ----------- (UNAUDITED) Products in process.......................... $ 2,089 $ 3,475 $ 3,518 Raw materials, supplies and finished components.................................. 6,456 6,709 6,793 ------- ------- ------- Inventories--gross........................... 8,545 10,184 10,311 Reserve for excess and obsolete inventory.... (2,913) (3,192) (3,338) ------- ------- ------- Total...................................... $ 5,632 $ 6,992 $ 6,973 ======= ======= =======
3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ------------- 1994 1995 ------ ------ Land.......................................................... $ 205 $ 205 Buildings and improvements.................................... 1,134 1,134 Machinery and equipment....................................... 4,131 4,381 Construction in progress...................................... 250 -- ------ ------ Total....................................................... $5,720 $5,720 ====== ======
4. ACCRUED LIABILITIES Accrued liabilities consist of the following:
DECEMBER 31, ------------- MARCH 31, 1994 1995 1996 ------ ------ ----------- (UNAUDITED) Compensation and related benefits................. $ 617 $ 642 $ 565 Taxes other than income........................... 334 335 429 Estimated losses on uncompleted contracts......... 5,332 3,091 2,644 Estimated environmental remediation liability..... -- 850 850 Warranty.......................................... 200 200 224 Other............................................. 336 215 320 ------ ------ ------ Total........................................... $6,819 $5,333 $5,032 ====== ====== ======
F-33 HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. INCOME TAXES The operations of the Company are included in the consolidated tax return of Figgie. The income tax provision included in the statements of operations has been determined as if the Company was a separate taxpayer. Current and deferred tax assets and liabilities are transferred to divisional equity. The provision (benefit) for income taxes consists of the following for the years ended December 31:
1994 1995 ------- ---- Current........................................................ $(1,654) $ 1 Deferred....................................................... (111) 495 ------- ---- Total........................................................ $(1,765) $496 ======= ====
The effective income tax rates for the years ended December 31, 1994 and 1995 were 40%. The principle difference between income taxes computed at the federal statutory rate (35%) and the Company's effective income tax rate is state and local income taxes. Components of the deferred tax liabilities (assets) included in divisional equity at December 31 were as follows:
1994 1995 ------- ------- Depreciation.............................................. $ 214 $ 186 Pension................................................... 537 571 Inventory basis difference................................ (1,065) (1,178) Estimated losses on uncompleted contracts................. (2,133) (1,236) Accrued liabilities....................................... (213) (508) Bad debt reserve.......................................... (40) (40) ------- ------- Total................................................... $(2,700) $(2,205) ======= =======
6. RETIREMENT PLANS Hourly employees covered under the Company's collective bargaining agreement participate in a defined benefit pension plan. The plan provides for various levels of benefits based on length of service. The plan is fully funded and no contributions to the plan were required in 1994 and 1995. The plan's assets consist primarily of listed common stocks, corporate and government bonds, real estate investments, and cash and cash equivalents. Net periodic pension income of the defined benefit pension plan consists of the following for the years ended December 31:
1994 1995 ----- ----- Service cost--benefits earned during the year................. $ 59 $ 53 Interest cost on accumulated benefit obligation............... 190 221 Actual (return) loss on plan assets........................... 171 (748) Net amortization and deferral................................. (607) 389 ----- ----- Net periodic pension income................................. $(187) $ (85) ===== =====
F-34 HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The funded status of the defined benefit pension plan and the amounts recognized in the balance sheets at December 31 are as follows:
1994 1995 ------- ------- Fair value of plan assets................................ $ 3,548 $ 4,091 Actuarial present value of benefit obligation--projected and accumulated......................................... (2,443) (3,014) ------- ------- Plan assets greater than projected benefit obligation.... 1,105 1,077 Unrecognized net transition asset........................ (521) (456) Unrecognized net loss.................................... 670 728 Unrecognized prior service cost.......................... 88 78 ------- ------- Prepaid pension asset.................................... $ 1,342 $ 1,427 ------- ------- Vested benefits.......................................... $ 2,411 $ 2,970 ------- -------
Assumptions used were as follows: discount rate--8.25% in 1994 and 7.50% in 1995; and return on plan assets--10%. Eligible salaried employees of the Company participate in a defined benefit pension plan sponsored by Figgie. Plan benefits under this plan are based on employees' earnings during their years of participation in the plan. Amounts allocated by Figgie and charged to expense were $170 and $49 in 1994 and 1995, respectively. In addition, eligible employees may participate in a 401(k) defined contribution plan, also sponsored by Figgie. The Plan does not provide for employer contributions. 7. COMMITMENTS The Company has commitments under operating leases primarily for computer and office equipment. Rental expense was $488 in 1994 and $424 in 1995. Future minimum rental commitments under operating leases having initial or remaining non-cancelable lease terms exceeding one year are $356 in 1996; $263 in 1997; $176 in 1998; and $23 in 1999. The Company has commitments under capital leases primarily for machinery and equipment. Future principal payments under these capital leases are as follows: Year ending December 31, 1996............................................................ $ 518 1997............................................................ 490 1998............................................................ 127 ------ $1,135 ======
The net book value of machinery and equipment under capital leases is not significant. Implicit interest rates in the capital leases range from 8.9% to 9.8%. 8. RELATED PARTY TRANSACTIONS The Company purchases certain component parts from Interstate Electronics, a subsidiary of Figgie. Amounts purchased during the years ended December 31, 1994 and 1995 were $4,670 and $2,005, respectively. Amounts purchased during the three months ended March 31, 1995 and 1996 were $823 and $439, respectively. F-35 HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The Company's working capital and other cash requirements are financed by Figgie with an interest charge or benefit computed based on working capital variance to plan budgets. Net interest expense charged by Figgie in 1994 and 1995 amounted to $315 and $44, respectively. During the three month period ending March 31, 1996, the Company transferred equipment with a net book value of $351 to Figgie. 9.DIVISIONAL EQUITY Changes in divisional equity, which includes cash advances and allocated costs, were as follows: Balance, January 1, 1994............................................ $ 1,414 Net loss for 1994................................................. (2,661) Net cash transferred from Figgie.................................. 4,149 ------- Balance, December 31, 1994.......................................... 2,902 Net income for 1995............................................... 743 Net cash transferred from Figgie.................................. 667 ------- Balance, December 31, 1995.......................................... 4,312 Net income for the three months ended March 31, 1996.............. 410 Net cash transferred from Figgie.................................. 434 Equipment transferred to Figgie................................... (351) ------- Balance, March 31, 1996............................................. $ 4,805 =======
10.NON-RECURRING CHARGE The non-recurring charge in 1994 represents the write-off of test equipment. This equipment was developed for the purpose of testing relays in a more efficient manner. Management determined in 1994 that the equipment was not effective. 11.CONTINGENCIES In 1995, the Company recorded an estimated liability of $850 for environmental remediation and compliance costs related to its facility in Mansfield, Ohio. Management believes that the actual outcome of any remediation and compliance costs in excess of the recorded liability would not have a material effect on the financial condition or results of operations of the Company. 12.SUBSEQUENT EVENT On May 10, 1996, Communications Instruments, Inc. ("CII") entered into a non-binding letter of intent with Figgie to acquire certain assets and assume certain liabilities of the Company. This proposed transaction is subject to negotiation of definitive agreements, due diligence, Board and regulatory approvals and CII obtaining financing for the acquisition. If this transaction is consummated as proposed, the pension plan assets and obligations described in Note 6 will remain with Figgie, the plan sponsor, as well as certain other assets and liabilities including, but not limited to, land, buildings and environmental related liabilities. F-36 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO- SPECTUS IN CONNECTION WITH THE OFFERING COVERED HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO- RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Summary Consolidated Financial Data...................................... 5 The Company.............................................................. 7 Risk Factors............................................................. 9 Use of Proceeds.......................................................... 15 Dividend Policy.......................................................... 15 Capitalization........................................................... 16 Dilution................................................................. 17 Selected Consolidated Financial Information.............................. 18 Pro Forma Condensed Consolidated Financial Information................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 26 Business................................................................. 34 Management............................................................... 46 Ownership of Common Stock................................................ 52 Certain Relationships and Related Transactions........................... 52 Description of Capital Stock............................................. 54 Shares Eligible for Future Sale.......................................... 57 Underwriting............................................................. 58 Legal Matters............................................................ 59 Experts.................................................................. 59 Additional Information................................................... 60 Index to Financial Statements............................................ F-1
--------------- UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EF- FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE- MENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIP- TION. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO] CII TECHNOLGIES (TM) 3,500,000 SHARES COMMON STOCK --------------- PROSPECTUS , 1996 --------------- WILLIAM BLAIR & COMPANY FURMAN SELZ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Set forth below is an itemization of the estimated costs expected to be incurred in connection with the offer and sale of the securities registered hereby. Securities Act Registration Fee.................................. $15,267.24 NASD Filing Fee.................................................. 4,928 Nasdaq National Market Listing Fee............................... 33,750 Transfer Agent Fee............................................... * Printing and Engraving Expenses.................................. * Legal Fees and Expenses.......................................... * Accounting Fees and Expenses..................................... * Blue Sky Fees and Expenses....................................... * Miscellaneous.................................................... * ---------- Total.......................................................... $ * ==========
- -------- * To be provided by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Reference is made to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. The Registrant's Restated Certificate of Incorporation limits the liability of directors to the extent permitted by Section 102(b)(7) of the DGCL. Under the Restated Certificate of Incorporation of the Registrant and under its Amended and Restated Bylaws, the Registrant shall have the power to indemnify its officers, directors, employees and agents to the full extent permitted by the laws of the State of Delaware. The Registrant maintains insurance, at its expense, to protect any director or officer of the Registrant against certain expenses, liabilities or losses. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. (a) Securities sold: (i) On May 11, 1993, as part of the CII Acquisition, the Registrant issued to CII Associates, L.P. (the "Partnership") 2,150,000 shares of Common Stock and 40,000 shares of Cumulative Redeemable Preferred Stock for a total consideration of $860,000 and $2,000,000, respectively. (ii) Also in connection with the CII Acquisition on May 11, 1993, Ramzi A. Dabbagh, Alan Gordon, G. Daniel Taylor and John Flanagan subscribed for and purchased 50,000, 25,000, 100,000 and 75,000 shares, respectively of Common Stock of the Company for purchases price of $20,000, $10,000, $40,000 and $30,000, respectively. (iii) On May 11, 1993 the Company issued a subordinated promissory note due May 31, 2003 in the principal amount of $4,000,000 and one-half of the unpaid principal of such note is due on each of May 31, 2002 and May 31, 2003. II-1 (iv) On May 17, 1994 and May 23, 1995 Michael A. Steinback purchased 25,000 shares of Common Stock and the consideration for each such purchase was $10,000. (v) On October 11, 1995 the Company issued to the Partnership 40,000 shares of Cumulative Redeemable Preferred Stock Series A for a total consideration of $2,000,000. (vi) On October 11, 1995 the Company issued a subordinated promissory note due October 11, 2005 in the principal amount of $1,700,000 and one-half of the unpaid principal of such note is due on each of October 11, 2004 and October 11, 2005. (vii) On December 1, 1995, Ramzi Dabbagh, Michael Steinback and David Henning each purchased 25,000 shares of Common Stock for $11,400. On such date, Theodore Anderson also purchased 12,500 shares of Common Stock for $5,700 and Gary L. McGill, Jeffrey W. Boyce and Raymond McClinton purchased 4,165, 4,165 and 4,170 shares, respectively, for purchase prices of $1,899, $1,899 and $1,902, respectively. (b) Underwriters and other purchasers None. (c) Consideration See (a) above. (d) Exemption from registration claimed The foregoing securities were not offered or sold in transactions involving any public offering in the United States and, accordingly, were exempt from registration under Section 4(2) of the Securities Act. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits *1 --Form of Underwriting Agreement. *3.1 --Restated Certificate of Incorporation. *3.2 --Bylaws. *4 --Form of Common Stock Certificate. *5 --Opinion of Simpson Thacher & Bartlett (a partnership which includes professional corporations) regarding the legality of the Common Stock being registered. 10.1 --Management Subscription Agreements between the Company and Messrs. Dabbagh, Gordon, Taylor and Flanagan. 10.2 --Subscription Agreements between the Company and Messrs. Dabbagh, Steinback, Henning, Anderson, Jr., McGill, Boyce and McClinton. 10.3 --Registration Rights Agreement between the Company and CII Associates, L.P. 10.5 --Employment Agreement with Ramzi Dabbagh. 10.6 --Employment Agreement with G. Daniel Taylor. 10.7 --Employment Agreement with Douglas Campbell. 10.8 --Employment Agreement with Michael Steinback. 10.9 --Employment Agreement with David Henning. *10.10 --Stock Subscription and Purchase Agreement dated as of September 20, 1995, as amended, by and among CII, Kilovac Corporation and the stockholders and optionholders of Kilovac Corporation named therein. 10.11 --Second Amended and Restated Loan and Security Agreement dated as of July 2, 1996 among CII, the financial institutions named therein (the "Lenders") and Bank of America Illinois as agent for the Lenders. 10.12 --Asset Purchase Agreement dated as of June 27, 1996 between Communications Instruments Inc. and Figgie International Inc. 10.13 --Environmental Remediation and Escrow Agreement, dated as of July 2, 1996. 10.14 --Lease Agreement dated as of July 2, 1996 by and between Figgie Properties, Inc. and Communications Instruments, Inc. dba Hartman Division of CII Technologies Inc. *10.15 --CII Technologies Inc. 1996 Management Stock Plan. 11 --Statement re computation of pro forma per share earnings. 21 --Subsidiaries of Registrant. 23.1 --Consent of Deloitte & Touche LLP. *23.2 --Consent of Simpson Thacher & Bartlett (included in Exhibit 5). 24 --Powers of Attorney (included in the signature pages of this registration statement) 27.1 --Financial Data Schedule
- -------- * To be filed by amendment. (b) Financial Statement Schedules: I. Condensed Financial Information of Registrant. II-3 SCHEDULE I CII TECHNOLOGIES INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE(S) ------- I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT..................... II-5 Notes to Condensed Financial Information of Registrant............. II-8
Schedules not filed herewith are omitted because of the absence of conditions under which they are required or because the information called for is shown in the Consolidated Financial Statements or Notes thereto. II-4 CII TECHNOLOGIES INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------- 1994 1995 ------ ------- ASSETS CURRENT ASSETS: Income tax receivable........................................ $ 60 $ 59 Current deferred tax asset................................... 249 455 ------ ------- Total current assets....................................... 309 514 INVESTMENT IN SUBSIDIARY....................................... 7,862 10,538 ------ ------- Total...................................................... $8,171 $11,052 ====== ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Payable due to subsidiary.................................... $ 256 $ 304 Accrued interest............................................. 615 1,141 ------ ------- Total current liabilities.................................. 871 1,445 LONG-TERM DEBT................................................. 5,750 7,450 CUMULATIVE REDEEMABLE PREFERRED STOCK.......................... 2,287 4,497 COMMON STOCK SUBJECT TO PUT OPTIONS............................ 100 165 STOCKHOLDERS' EQUITY: Common stock................................................. 9 9 Additional paid-in capital................................... 38 758 Accumulated deficit.......................................... (873) (3,236) Currency translation loss.................................... (11) (36) ------ ------- Total...................................................... $8,171 $11,052 ====== =======
See notes to condensed financial statements. II-5 CII TECHNOLOGIES INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
YEAR ENDED MAY 11, 1993 ------------------------- TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1994 1995 --------------- ------------ ------------ INTEREST EXPENSE.................... $ 358 $ 554 $ 689 OTHER EXPENSE....................... -- -- 8 ----- ----- ------- LOSS BEFORE EQUITY IN INCOME (LOSS) OF SUBSIDIARY AND INCOME TAXES..... (358) (554) (697) INCOME TAX EXPENSE (BENEFIT)........ 142 208 264 ----- ----- ------- LOSS BEFORE EQUITY IN INCOME (LOSS) OF SUBSIDIARY...................... (216) (346) (433) EQUITY IN INCOME (LOSS) OF SUBSIDIARY......................... (642) 618 (1,720) ----- ----- ------- NET INCOME (LOSS)................... $(858) $ 272 $(2,153) ===== ===== =======
See notes to condensed financial statements. II-6 CII TECHNOLOGIES INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED MAY 11, 1993 ------------------------- TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1994 1995 --------------- ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES.......................... $ (121) $ (160) $ (114) NET CASH USED IN INVESTING ACTIVITIES-- Acquisition of Common Stock of Communications Instruments, Inc... (7,904) -- (3,700) NET CASH PROVIDED BY FINANCING ACTIVITIES: Proceeds from issuance of debt..... 5,750 -- 1,700 Proceeds from issuance of preferred stock............................. 2,000 -- 2,000 Proceeds from issuance of common stock............................. 144 -- 56 Borrowings from subsidiary......... 121 135 48 Receipt on stock subscription note.............................. 10 25 10 ------- ------ ------- NET INCREASE (DECREASE) IN CASH...... -- -- -- CASH, BEGINNING OF PERIOD............ -- -- -- ------- ------ ------- CASH, END OF PERIOD.................. $ -- $ -- $ -- ======= ====== =======
See notes to condensed financial statements. II-7 CII TECHNOLOGIES INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT 1. BASIS OF PRESENTATION The Condensed Financial Information of Registrant reflects the financial statements of CII Technologies Inc. with its wholly-owned subsidiaries, Communications Instruments, Inc. Kilovac Corporation, Kilovac International FSC Limited and Electro-Mech, S.A. DE C.V., presented on the equity method of accounting in order to comply with the requirements of Schedule I of the Form S-1 to be filed with the Securities and Exchange Commission. 2. LONG-TERM DEBT See Note 5 of the Notes to Consolidated Financial Statements. 3. CUMULATIVE REDEEMABLE PREFERRED STOCK AND COMMON STOCK SUBJECT TO PUT OPTIONS See Note 11 of the Notes to Consolidated Financial Statements. 4. COMMITMENTS AND CONTINGENCIES See Note 8 of the Notes to Consolidated Financial Statements. 5. CASH DIVIDENDS PAID TO REGISTRANT For the fiscal years ending December 31, 1993, 1994 and 1995, CII Technologies Inc. did not receive any dividends. II-8 ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the Representatives of the Underwriters at the closing specified in the Underwriting Agreement certificates for Common Stock in such denominations and registered in such names as required by the Representatives of the Underwriters to permit prompt delivery to each purchaser of Common Stock. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of 1933 shall be deemed to be a part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-9 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FAIRVIEW, STATE OF NORTH CAROLINA, ON JULY 18, 1996. CII Technologies Inc. /s/ Ramzi A. Dabbagh By __________________________________ RAMZI A. DABBAGH CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER We, the undersigned officers and directors of CII Technologies Inc. and each of us, do hereby constitute and appoint each and any of Ramzi A. Dabbagh, G. Dan Taylor and David Henning, our true and lawful attorney and agent, with full power of substitution and resubstitution, to do any and all acts and things in our name and behalf in any and all capacities and to execute any and all instruments for us in our names in any and all capacities, which attorney and agent may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto as well as any additional registration statement filed pursuant to Rule 462(b) of the Securities Act; and we do hereby ratify and confirm all that said attorney and agent, or his substitute, shall do or cause to be done by virtue thereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON JULY 18, 1996. SIGNATURE TITLE /s/ Ramzi A. Dabbagh Chairman of the Board of Directors, - ------------------------------------- and Chief Executive Officer and RAMZI A. DABBAGH Director (principal executive officer) /s/ G. Daniel Taylor Executive Vice President of Business - ------------------------------------- Development and Director G. DANIEL TAYLOR /s/ David Henning Chief Financial Officer (principal - ------------------------------------- financial and accounting officer) DAVID HENNING /s/ Michael A. Steinback President of Communications - ------------------------------------- Instruments Inc. and Director MICHAEL A. STEINBACK /s/ Douglas Campbell President of Kilovac Division and - ------------------------------------- Director DOUGLAS CAMPBELL II-10 SIGNATURE TITLE /s/ Michael S. Bruno, Jr. Director - ------------------------------------- MICHAEL S. BRUNO, JR. /s/ Daniel A. Dye Director - ------------------------------------- DANIEL A. DYE /s/ John P. Flanagan Director - ------------------------------------- JOHN P. FLANAGAN /s/ Donald E. Dangott Director - ------------------------------------- DONALD E. DANGOTT II-11 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBIT PAGE ------- ---------------------- ------------ *1 --Form of Underwriting Agreement. *3.1 --Restated Certificate of Incorporation. *3.2 --Bylaws. *4 --Form of Common Stock Certificate. *5 --Opinion of Simpson Thacher & Bartlett (a partnership which includes professional corporations) regarding the legality of the Common Stock being registered. 10.1 --Management Subscription Agreements between the Company and Messrs. Dabbagh, Gordon, Taylor and Flanagan. 10.2 --Subscription Agreements between the Company and Messrs. Dabbagh, Steinback, Henning, Anderson, Jr., McGill, Boyce and McClinton. 10.3 --Registration Rights Agreement between the Company and CII Associates, L.P. 10.5 --Employment Agreement with Ramzi Dabbagh. 10.6 --Employment Agreement with G. Daniel Taylor. 10.7 --Employment Agreement with Douglas Campbell. 10.8 --Employment Agreement with Michael Steinback. 10.9 --Employment Agreement with David Henning. *10.10 --Stock Subscription and Purchase Agreement dated as of September 20, 1995, as amended, by and among CII, Kilovac Corporation and the stockholders and optionholders of Kilovac Corporation named therein. 10.11 --Second Amended and Restated Loan and Security Agreement dated as of July 2, 1996 among CII, the financial institutions named therein (the "Lenders") and Bank of America Illinois as agent for the Lenders. 10.12 --Asset Purchase Agreement dated as of June 27, 1996 between Communications Instruments Inc. and Figgie International Inc. 10.13 --Environmental Remediation and Escrow Agreement, dated as of July 2, 1996. 10.14 --Lease Agreement dated as of July 2, 1996 by and between Figgie Properties, Inc. and Communications Instruments, Inc. dba Hartman Division of CII Technologies Inc. *10.15 --CII Technologies Inc. 1996 Management Stock Plan. 11 --Statement re computation of pro forma per share earnings. 21 --Subsidiaries of Registrant. 23.1 --Consent of Deloitte & Touche LLP. *23.2 --Consent of Simpson Thacher & Bartlett (included in Exhibit 5). 24 --Powers of Attorney (included in the signature pages of this registration statement) 27.1 --Financial Data Schedule
- ------- * To be filed by amendment. EX-10.1 2 MANAGEMENT SUBSCRIPTION AGREEMENT EXHIBIT 10.1 SUBSCRIPTION AGREEMENT ---------------------- FOR RAMZI A. DABBAGH -------------------- This Subscription Agreement (the "Agreement") is entered into as of this 11th day of May, 1993 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and Ramzi A. Dabbagh, an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.Ol per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the terms --------------------------------------------- and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.00 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants that he ---------- is acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act") , or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general --------------------------- prohibition on Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the common Stock, or the refinancing of 2 any such indebtedness, provided, however, that such bank, investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. C. Legend. Each certificate representing shares of the Stock shall ------ bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF MAY __, 1993 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he has ------------------------- been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the Company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. 3 e. Rule 144 Sales. The Purchaser agrees that if he intends to -------------- dispose of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition such documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. f. Resales Prohibited During Public Offerings. The Purchaser agrees ------------------------------------------ that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common Stock for his own account. 4 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by Section ------- 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public Offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. b. Right of First Refusal. A Purchaser or Transferor (as defined in ---------------------- Section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3 (b) . The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event any Purchaser or ------------------------------- Transferor receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on offer by Corporation: Within 30 days after receipt ------------------------------ of the Offer, the Company shall give written notice to the offering Purchaser (the "Purchaser's Notice") of its election to purchase the offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances. 5 (3) Closing Date: The closing date for purchase of the Offered ------------ Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal: The Company's right of ------------------------------------ first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction: If, upon the expiration of the right ------------------------ of first refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the Offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. -------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the ------- Purchaser's Trusts and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a "disability" or have been terminated "for cause" shall be made by the Board of Directors of the Company in good faith which determination shall be final and conclusive. b. Purchaser's Death, Disability or Voluntary Termination of -------------------------------------------------------- Employment. If at any time before the earlier of the fifth anniversary of the - ---------- Purchase Date or prior to the 6 date of the closing of a Public Offering the Purchaser separates from service to the Company for any reason, including, (i) the Purchaser's employment is terminated other than "for cause" or the Purchaser voluntarily leaving the employ of the Company or, (ii) the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall sell immediately following the date of termination of employment, permanent disability or death (as applicable, the "Termination Date") to the Company, and the Company shall have the obligation, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall inform by written notice the Company of its obligation to purchase shares of Common Stock pursuant to this Section 4(b) no later than 30 days after the Termination Date. c. Purchaser's Termination of Employment "For Cause" or Voluntary -------------------------------------------------------------- Termination of Employment by Purchaser. If at any time before the earlier of - -------------------------------------- the fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser is terminated "for cause" or the Purchaser voluntarily leaves the employ of the Company, then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the obligation immediately following the date of termination of employment to sell to the Company, and the Company shall have the option, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate, such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice of the exercise by the Company of its option to purchase the shares of Common Stock pursuant to this Section 4 (c) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of determination of Repurchase Price. ----------------------------------------- The Repurchase Price shall be determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this section 5 shall be 7 made by the Chief Financial Officer of the Company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per share ------------------------------- of Common Stock for the purposes of Section 4 hereof shall be equal to: (1) if a termination of employment by the Purchaser in the event of the death or disability of the Purchaser prior to the fifth anniversary of the Purchase Date or for any other reason other than "for cause" or the voluntary termination of employment by Purchaser prior to the fifth anniversary of the Purchase Date, then the higher of the Purchase Price and Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the Company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book Value Per Share shall be based on the unaudited financial statements of the Company as of the Repurchase Calculation Date. (2) if a voluntary termination by Purchaser of employment or termination or Purchaser "for cause" before the fifth anniversary of the Purchase Date, then the lower of the Purchase Price and Book Value per share. 6. "Piggyback" Registration Rights. ------------------------------- a. Purchaser's Right to Request Registration. If, at any time after ----------------------------------------- the Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration"). If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The number of ------------------------------------------------- shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum 8 of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the Company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered will be registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Associates, L.P., a Delaware limited partnership, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common Stock ---------------- in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company -------------------------------------------- represents and warrants to the Purchaser that: a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum, is true, correct and complete. 8. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its best --------------------- efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be -------------- binding upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be a Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2 (b) (ii) , (iii) and (iv) hereof) shall derive any rights under this Agreement 9 unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for ------- herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3909 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. ------------------------------------------------------- Except as otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a 10 right to purchase hereunder, it may assign such right in all or in part to any employee of the Company. g. Remedies for Violations. The shares of ----------------------- Common Stock cannot be readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any -------------------------------- obligation of the Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for the borrowing of monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for the borrowing of monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are ---------------- for convenience of reference only and shall not be deemed to alter or affect any provision hereof. 11 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. The Company: By: /s/ Michael S. Bruno, Jr. - ----------- ------------------------------ Michael S. Bruno, Jr. President Purchaser: By: /s/ Ramzi A. Dabbagh 4/29/93 - --------- ------------------------------ Ramzi A. Dabbagh No. of Shares of Common Stock Purchased Hereunder: 20,000 (2%) - ------------------------- Total Consideration: $20,000 - ------------------------- 12 SUBSCRIPTION AGREEMENT ---------------------- FOR ALAN GORDON --------------- This Subscription Agreement (the "Agreement") is entered into as of this 11th day of May, 1993 between Communications Instrument Holdings, Inc., a Delaware corporation (the "Company"), and Alan Gordon, an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.Ol per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the terms --------------------------------------------- and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.00 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resale. The Purchaser hereby represents and warrants that --------- he is acquiring the Common Stock for investment for his own ac:count and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act") , or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general ------- --------- --------- prohibition on Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, 2 investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. C. Legend. Each certificate representing shares of the Stock shall ------ bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF MAY , 1993 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he has ------------------------- been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the Company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. 3 e. Rule 144 Sales. The Purchaser agrees that if he intends to -------------- dispose of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition such documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. f. Resales Prohibited Public Offerings. ------- ---------- ------ --------- The Purchaser agrees that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments, Inc. Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common Stock for his own account. 4 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by Section ------- 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. b. Right of First Refusal. A Purchaser or Transferor (as defined in ---------------------- Section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering then to the Company as described in this Section 3 (b) . The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event any Purchaser or ------------------------------ Transferor receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days after receipt ------------------------------- of the offer, the Company shall give written notice to the Offering Purchaser (the "Purchaser's Notice") of its election to purchase the Offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances, 5 (3) closing Date: The closing date for purchase of the Offered ------------- Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal: ------------------------------------- The Company's right of first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction: If, upon the expiration of the ------------------------- right of first refusal, the offer has not been accepted as to all of the offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. "Piggyback" Registration Rights. -------------------------------- a. Purchaser's Right to Request Registration. If, at any time after ----------------------------------------- the Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration") . If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 4. b. Number of Shares of Common Stock to be Registered. The number -------------------------------------------------- of shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for 6 purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered will be registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Associates L.P., a Delaware limited partnership, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common ---------------- Stock in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 5. The Company's Representations and Warranties. The Company represents -------------------------------------------- and warrants to the Purchaser that: a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum, is true, correct and complete. 6. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its best --------------------- efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be binding -------------- upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be a Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2(b)(ii), (iii) and (iv) hereof) shall derive any rights under this Agreement 7 unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for ------- herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P. 0. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. ------------------------------------------------------- Except as otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase Common Stock hereunder. Whenever the company is given a right 8 to purchase hereunder, it may assign such right in all or in part to any employee of the Company. g. Remedies for Violations. The shares of Common Stock cannot ----------------------- be readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right: or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any -------------------------------- obligation of the Company to make payments .Hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for borrowing monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for borrowing monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are for ---------------- convenience of reference only and shall not be deemed to alter or affect any provision hereof. 9 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. The Company: By: /s/ Michael S. Bruno, Jr. ----------------------------------- Michael S. Bruno, Jr. President Purchaser: By: /s/ Alan Gordon ----------------------------------- Alan Gordon Richland Gordon & Co. 20 North Wacker Drive Suite 2807 Chicago, Illinois 60606 No. of Shares of Common Stock Purchased Hereunder: 10,000 (1%) - ---------------------------- Total Consideration: $10,000 - ---------------------------- 10 SUBSCRIPTION AGREEMENT ---------------------- FOR G. DAN TAYLOR ----------------- This Subscription Agreement (the "Agreement") is entered into as of this 11th day of May, 1993 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and G. Dan Taylor, an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common stock, par value $.Ol per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the terms --------------------------------------------- and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.00 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants that ---------- he is acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act") , or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general --------------------------- prohibition on Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, 2 investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. c. Legend. Each certificate representing shares of the Stock ------ shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF MAY__, 1993 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY 5F- THE COMPANY) . EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he ------------------------- has been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the Company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. 3 e. Rule 144 Sales. The Purchaser agrees that if he intends to -------------- dispose of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition such documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. f. Resales Prohibited During Public Offerings. The Purchaser ------------------------------------------ agrees that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has ad equate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common Stock for his own account. 4 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by ------- Section 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public Offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. b. Right of First Refusal. A Purchaser or Transferor (as defined ---------------------- in Section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3 (b) . The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event any ------------------------------ Purchaser or Transferor receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days after ------------------------------- receipt of the offer, the Company shall give written notice to the Offering Purchaser (the "Purchaser's Notice") of its election to purchase the offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances. (3) Closing Date: The closing date for purchase of the ------------ Offered Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal: The Company's right ------------------------------------ of first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction: If, upon the expiration of the ------------------------ right of first refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the offer. The transfer must take place within 30 days following the expiration of the right of first refusal. Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. -------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the ------- Purchaser's Trusts and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the Company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a "disability" or have been terminated "for cause" shall be made by the Board of Directors of the Company in good faith which determination shall be final and conclusive. b. Purchaser's Death, Disability or Voluntary Termination of --------------------------------------------------------- Employment. If at any time before the earlier of the fifth anniversary of the - ---------- Purchase Date or prior to the 6 date of the closing of a Public Offering the Purchaser separates from service to the Company for any reason, including, (i) the Purchaser's employment is terminated other than "for cause" or the Purchaser voluntarily leaving the employ of the Company or, (ii) the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall sell immediately following the date of termination of employment, permanent disability or death (as applicable, the "Termination Date") to the Company, and the Company shall have the obligation, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall inform by written notice the Company of its obligation to purchase shares of Common Stock pursuant to this section 4(b) no later than 30 days after the Termination Date. c. Purchaser's Termination of Employment "For cause" or Voluntary -------------------------------------------------------------- Termination of Employment by Purchaser. If at any time before the earlier of - ------------------------------------- the fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser is terminated "for cause" or the Purchaser voluntarily leaves the employ of the Company, then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the obligation immediately following the date of termination of employment to sell to the Company, and the Company shall have the option, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate, such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice of the exercise by the Company of its option to purchase the shares of Common Stock pursuant to this Section 4(c) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of Determination of Repurchase Price. The Repurchase Price ----------------------------------------- shall be determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this Section 5 shall be 7 made by the Chief Financial officer of the company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per ------------------------------- share of Common Stock for the purposes of Section 4 hereof shall be equal to: (1) if a termination of employment by the Purchaser in the event of the death or disability of the Purchaser prior to the fifth anniversary of the Purchase Date or for any other reason other than "for cause" or the voluntary termination of employment by Purchaser prior to the fifth anniversary of the Purchase Date, then the higher of the Purchase Price and Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the Company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book Value Per Share shall be based on the unaudited financial statements of the Company as of the Repurchase Calculation Date. (2) if a voluntary termination by Purchaser of employment or termination or Purchaser "for cause" before the fifth anniversary of the Purchase Date, then the lower of the Purchase Price and Book Value per share. 6. "Piggyback" Registration Rights. ------------------------------- a. Purchaser's Right to Request Registration. If, at any time ----------------------------------------- after the Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration") . If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The number ------------------------------------------------- of shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares hold by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum 8 of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered will be registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Associates L.P., a Delaware limited partnership, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common ---------------- Stock in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company -------------------------------------------- represents and warrants to the Purchaser that: a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum, is true, correct and complete. 8. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its --------------------- best efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be -------------- binding upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be a Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2 (b)(ii), (iii) and (iv) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. 9 c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for ------- herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3909 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. Except ------------------------------------------------------- as otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a right to purchase hereunder, it may assign such right in all or in part to any employee of the Company. 10 g. Remedies for Violations. The shares of Common Stock cannot be ----------------------- readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any -------------------------------- obligation of the Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for the borrowing of monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for the borrowing of monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headincrs. The section headings of this Agreement are ----------------- for convenience of reference only and shall not be deemed to alter or affect any provision hereof. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. The Company: By: /s/ Michael S. Bruno, Jr. - ----------- ------------------------- Michael S. Bruno, 7r. President Purchaser: By: /s/ G. Dan Taylor - --------- ------------------------- G. Dan Taylor No. of Shares of Common Stock Purchased Hereunder: 40,000 (4%) - ------------------------- Total Consideration: $40,000 - ------------------------- 12 EXHIBIT 10.1C SUBSCRIPTION AGREEMENT ---------------------- FOR JOHN FLANAGAN ----------------- This Subscription Agreement (the "Agreement") is entered into as of this 11th day of May, 1993 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and John Flanagan, an individual (the "Purchaser") . The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.Ol per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock subject to the terms --------------------------------------------- and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.00 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants that he ---------- is acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act") , or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general --------------------------- prohibition on Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to he in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, 2 investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. C. Legend. Each certificate representing shares of the Stock shall ------ bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF MAY 1993 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he has ------------------------- been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the Company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. 3 e. Rule 144 Sales. The Purchaser agrees that if he intends to -------------- dispose of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition such documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. f. Resales Prohibited During Public Offerings. The Purchaser agrees ------------------------------------------ that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments, Inc. Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the common Stock for his own account. 4 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------- a. General. Except for Transfers otherwise contemplated by Section ------- 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public Offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. b. Right of First Refusal. A Purchaser or Transferor (as defined in ---------------------- Section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3(b). The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public offering. (1) Offer to Purchase Stock: In the event any Purchaser or ----------------------- Transferor receives a bona fide written offer to purchase all or any portion of his common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days after receipt ------------------------------ of the Offer, the Company shall give written notice to the offering Purchaser (the "Purchaser's Notice") of its election to purchase the Offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances. 5 (3) Closing Date: The closing date for purchase of the Offered ------------ Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal: The Company's right of ------------------------------------ first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction: If, upon the expiration of the ------------------------ right of first refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the Offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. -------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the ------- Purchaser's Trusts and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the Company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a disability shall be made by the Board of Directors of the Company which determination shall be final and conclusive. Purchaser, such Purchaser's Estate, such Purchaser's Trust and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice by the Company of his obligation to sell shares of Common Stock pursuant to this Section 4. 6 b. Purchaser's Death or Disability. If at any time before the -------------------------------- earlier of the fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the option immediately following the date of disability or death (as applicable, the "Termination Date") to sell to the Company, and the Company shall have the obligation, if Transferors shall so elect, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants as the case may be, shall inform by written notice the Company of the election of the option to sell shares of Common Stock to the Company pursuant to this Section 4(b) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of determination of Repurchase Price. The Repurchase ----------------------------------------- Price shall be determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this Section 5 shall be made by the Chief Financial Officer of the Company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per share ------------------------------- of Common Stock for the purposes of section 4 hereof shall be equal to: the higher of the Purchase Price or the Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book value Per Share shall be based on the unaudited financial statements of the company as of the Repurchase Calculation Date. 6. "Piggyback" Registration Rights. ------------------------------- a. Purchaser's Right to Request Registration. If, at any time after ------------------------------------------ the Purchase Date, the Company plans to register any shares of common stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the 7 Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration"). If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company) , shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The number of ------------------------------------------------- shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the Company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered will be registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Associates L.P., a Delaware limited partnership, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions . d. Other Agreements. The Purchaser including shares of Common Stock ---------------- in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company represents -------------------------------------------- and warrants to the Purchaser that: a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum, is true, correct and complete. 8 8. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its best --------------------- efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be -------------- binding upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be a Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2 (b) (ii), (iii) and (iv) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for herein ------- shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlottte Highway P.0. Box 520 Fairview, North Carolina 2873C Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street White Plains, New York 10606 Attention: David A. Zackrison 9 and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. Except ------------------------------------------------------- as otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a right to purchase hereunder, it may assign such right in all or in part to any employee of the Company. 9. Remedies for Violations. The shares of Common Stock cannot be ----------------------- readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any obligation -------------------------------- of the Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for borrowing monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for borrowing monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are for ----------------- convenience of reference only and shall not be deemed to alter or affect any provision hereof. 10 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. The Company: By: /s/ Michael S. Bruno, Jr. - ----------- ----------------------------- Michael S. Bruno, Jr. President Purchaser: By: /s/ John Flanagan - --------- ----------------------------- John Flanagan 2150 Massachusetts Avenue Lexington, MA 02173 No. of Shares of Common Stock Purchased Hereunder: 30,000 (3%) - -------------------------- Total Consideration: $30,000 - -------------------------- 11 EX-10.2 3 SUBSCRIPTION AGREEMENT EXHIBIT 10.2 SUBSCRIPTION AGREEMENT ---------------------- FOR RAMZI A. DABBAGH -------------------- This Subscription Agreement (the "Agreement") is entered into as of this 1st day of December, 1995 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and Ramzi A. Dabbagh, an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.01 per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the terms --------------------------------------------- and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.14 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants that he ---------- is acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act"), or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be 2 counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general --------------------------- prohibition on Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. c. Legend. Each certificate representing shares of the Stock shall ------ bear the following legend: 3 "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 1, 1995 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he has ------------------------- been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. e. Rule 144 Sales. The Purchaser agrees that, if he intends to -------------- dispose of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. 4 f. Resales Prohibited During Public Offerings. The Purchaser agrees ------------------------------------------ that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common stock for his own account. 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by Section ------- 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. 5 b. Right of First Refusal - A Purchaser or Transferor (as defined in ---------------------- section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3(b). The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event any Purchaser or ------------------------------ Transferor receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days after receipt ------------------------------ of the offer, the Company shall give written notice to the offering Purchaser (the "Purchaser's Notice") of its election to purchase the Offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances. (3) Closing Date: The closing date for purchase of the Offered ------------ Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal. The Company's right of ------------------------------------ first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction. If, upon the expiration of the ------------------------ right of first refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. 6 Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the Offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. -------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the ------- Purchaser's Trusts and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the Company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a "disability" or have been terminated "for cause" shall be made by the Board of Directors of the Company in good faith which determination shall be final and conclusive. b. Purchaser's Death, Disability or Voluntary Termination of Employment. --------------------------------------------------------- - ---------- If at any time before the earlier of the fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser separates from service to the Company for any reason, including, (i) the Purchaser's employment is terminated other than "for cause" or the Purchaser voluntarily leaving the employ of the Company or, (ii) the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall sell immediately following the date of termination of employment, permanent disability or death (as applicable, the "Termination Date") to the Company, and the Company shall have the obligation, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall inform by written notice the Company of its obligation to purchase shares of Common Stock pursuant to this Section 4(b) no later than 30 days after the Termination Date. 7 c. Purchaser's Termination of Employment "For Cause or Voluntary ------------------------------------------------------------- Termination of Employment by Purchaser. If at any time before the earlier of - -------------------------------------- the fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser is terminated "for cause" or the Purchaser voluntarily leaves the employ of the Company, then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the obligation immediately following the date of termination of employment to sell to the Company, and the Company shall have the option, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate, such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice of the exercise by the Company of its option to purchase the shares of Common Stock pursuant to this Section 4(c) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of determination of Repurchase Price. The Repurchase Price ----------------------------------------- shall be determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this Section 5 shall be made by the Chief Financial Officer of the Company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per share ------------------------------- of Common Stock for the purposes of Section 4 hereof shall be equal to: (1) if a termination of employment by the Purchaser in the event of the death or disability of the Purchaser prior to the fifth anniversary of the Purchase Date or for any other reason other than "for cause" or the voluntary termination of employment by Purchaser prior to the fifth anniversary of the Purchase Date, then the higher of the Purchase Price and Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the Company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book Value Per Share shall be based on the unaudited financial statements of the Company as of the Repurchase Calculation Date. 8 (2) if a voluntary termination by Purchaser of employment or termination or Purchaser "for cause" before the fifth anniversary of the Purchase Date, then the lower of the Purchase Price and Book Value per share. 6. "Piggyback" Registration Rights. ------------------------------- a. Purchaser's Right to Request Registration. If, at any time after ----------------------------------------- the Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration"). If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The number of ------------------------------------------------- shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the Company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered will be registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Holdings, Inc., a Delaware company, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common Stock ---------------- in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company represents -------------------------------------------- and warrants to the Purchaser that: 9 a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum is true, correct and complete. 8. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its best --------------------- efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be binding -------------- upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be at Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2(b)(ii), (iii) and (iv) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for herein ------- shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street 10 White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3909 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. Except as ------------------------------------------------------- otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a right to purchase hereunder, it may assign such right in all or in part to any employee of the Company. g. Remedies for Violations. The shares of Common Stock cannot be ----------------------- readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any obligation -------------------------------- of the Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for the borrowing of monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for the borrowing of monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are for ---------------- convenience of reference only and shall not be deemed to alter or affect any provision hereof. IN WITNESS WHEREOF, the Parties have executed this 11 Agreement as of the date first above written. The Company: /s/ Michael S. Bruno, Jr. - ----------- By: ____________________________________ Michael S. Bruno, Jr. President Purchaser: /s/ Ramzi A. Dabbagh - --------- By: ___________________________________ Ramzi A. Dabbagh 16 Cedar Hill Drive Asheville, NC 28803 No. of Shares of Common Stock Purchased Hereunder: 10,000 - ------ Total Consideration: $11,400.00 - ---------- SUBSCRIPTION AGREEMENT ---------------------- FOR MICHAEL A. STEINBACK ------------------------ This Subscription Agreement (the "Agreement") is entered into as of this 1st day of December, 1995 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and MICHAEL A. STEINBACK, an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.01 per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the --------------------------------------------- terms and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.14 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants ---------- that he is acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act"), or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be 2 counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general --------------------------- prohibition on Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. c. Legend. Each certificate representing shares of the Stock ------ shall bear the following legend: 3 "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 1, 1995 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he ------------------------- has been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. e. Rule 144 Sales. The Purchaser agrees that, if he intends to -------------- dispose of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission . 4 f. Resales Prohibited During Public Offerings. The Purchaser ------------------------------------------ agrees that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common stock for his own account. 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by ------- Section 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. 5 b. Right of First Refusal - A Purchaser or Transferor (as ---------------------- defined in section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3(b). The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event ------------------------------ any Purchaser or Transferor receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days ------------------------------ after receipt of the offer, the Company shall give written notice to the offering Purchaser (the "Purchaser's Notice") of its election to purchase the Offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances. (3) Closinq Date: The closing date for purchase of the ------------ Offered Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal. The ------------------------------------ Company's right of first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction. If, upon the expiration ------------------------ of the right of first refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. 6 Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the Offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. ------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the ------- Purchaser's Trusts and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the Company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a "disability" or have been terminated "for cause" shall be made by the Board of Directors of the Company in good faith which determination shall be final and conclusive. b. Purchaser's Death, Disability or Voluntary Termination of --------------------------------------------------------- Employment. If at any time before the earlier of the fifth anniversary of the - ---------- Purchase Date or prior to the date of the closing of a Public Offering the Purchaser separates from service to the Company for any reason, including, (i) the Purchaser's employment is terminated other than "for cause" or the Purchaser voluntarily leaving the employ of the Company or, (ii) the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall sell immediately following the date of termination of employment, permanent disability or death (as applicable, the "Termination Date") to the Company, and the Company shall have the obligation, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall inform by written notice the Company of its obligation to purchase shares of Common Stock pursuant to this Section 4(b) no later than 30 days after the Termination Date. 7 c. Purchaser's Termination of Employment "For Cause or --------------------------------------------------- Voluntary Termination Of Employment by Purchaser. If at any time before the - ------------------------------------------------ earlier of the fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser is terminated "for cause" or the Purchaser voluntarily leaves the employ of the Company, then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the obligation immediately following the date of termination of employment to sell to the Company, and the Company shall have the option, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate, such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice of the exercise by the Company of its option to purchase the shares of Common Stock pursuant to this Section 4(c) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of determination of Repurchase Price. The Repurchase ----------------------------------------- Price shall be determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this Section 5 shall be made by the Chief Financial Officer of the Company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per ------------------------------- share of Common Stock for the purposes of Section 4 hereof shall be equal to: (1) if a termination of employment by the Purchaser in the event of the death or disability of the Purchaser prior to the fifth anniversary of the Purchase Date or for any other reason other than "for cause" or the voluntary termination of employment by Purchaser prior to the fifth anniversary of the Purchase Date, then the higher of the Purchase Price and Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the Company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book Value Per Share shall be based on the unaudited financial statements of the Company as of the Repurchase Calculation Date. 8 (2) if a voluntary termination by Purchaser of employment or termination or Purchaser "for cause" before the fifth anniversary of the Purchase Date, then the lower of the Purchase Price and Book Value per share. 6. "Piggyback" Registration Rights. ------------------------------ a. Purchaser's Right to Request Registration. If, at any time ----------------------------------------- after the Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration"). If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The ------------------------------------------------- number of shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the Company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered will be registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Holdings, Inc., a Delaware company, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common ---------------- Stock in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company -------------------------------------------- represents and warrants to the Purchaser that: 9 a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum, is true, correct and complete. 8. Miscellaneous ------------- a. State Securities Laws. The Company hereby agrees to use its --------------------- best efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be -------------- binding upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be at Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2(b)(ii), (iii) and (iv) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for ------- herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street 10 White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3909 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. ------------------------------------------------------- Except as otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a right to purchase hereunder, it may assign such right in all or in part to any employee of the Company. g. Remedies for Violations. The shares of Common Stock cannot be ----------------------- readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any -------------------------------- obligation of the Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for the borrowing of monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for the borrowing of monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are ---------------- for convenience of reference only and shall not be deemed to alter or affect any provision hereof. IN WITNESS WHEREOF, the Parties have executed this 11 Agreement as of the date first above written. The Company: By: /s/ Michael S. Bruno Jr. - ------------ ------------------------ Michael S. Bruno, Jr. President Purchaser: By: /s/ Michael A. Steinback - ---------- ------------------------ Michael A. Steinback 339 Red Fox Circle Asheville, NC 28803 No. of Shares of Common Stock Purchased Hereunder: 10, 000 - -------------------- Total Consideration: $11,400.00 - ------------------------------ SUBSCRIPTION AGREEMENT ---------------------- FOR DAVID HENNING ----------------- This Subscription Agreement (the "Agreement") is entered into as of this 1st day of December, 1995 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and DAVID HENNING, an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.01 per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the --------------------------------------------- terms and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.14 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants that ---------- he is acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act"), or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general --------------------------- prohibition on Transfers contained in Sections 2(a) and 3 hereof , the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. c. Legend. Each certificate representing shares of the Stock ------ shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 1, 1995 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he ------------------------- has been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. e. Rule 144 Sales. The Purchaser agrees that, if he intends to -------------- dispose of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. f. Resales Prohibited During Public Offerings. The Purchaser ------------------------------------------ agrees that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common Stock for his own account. 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by Section ------- 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public Offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. 5 b. Right of First Refusal - A Purchaser or Transferor (as defined ---------------------- in section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3(b). The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event any Purchaser ------------------------------ or Transferor receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days after ------------------------------ receipt of the offer, the Company shall give written notice to the offering Purchaser (the "Purchaser's Notice") of its election to purchase the Offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold. free and clear of any liens, claims and encumbrances. (3) Closing Date: The closing date for purchase of the ------------ Offered Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal. The Company's right ------------------------------------ of first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction. If, upon the expiration of the ------------------------ right of first refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. 6 Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the Offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. -------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the ------- Purchaser's Trusts and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the Company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a "disability" or have been terminated "for cause" shall be made by the Board of Directors of the Company in good faith which determination shall be final and conclusive. b. Purchaser's Death, Disability or Voluntary Termination of Employment. --------------------------------------------------------- - ---------- If at any time before the earlier of the fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser separates from service to the Company for any reason, including, (i) the Purchaser's employment is terminated other than "for cause" or the Purchaser voluntarily leaving the employ of the Company or, (ii) the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall sell immediately following the date of termination of employment, permanent disability or death (as applicable, the "Termination Date") to the Company, and the Company shall have the obligation, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall inform by written notice the Company of its obligation to purchase shares of Common Stock pursuant to this Section 4(b) no later than 30 days after the Termination Date. c. Purchaser's Termination of Employment "For Cause or Voluntary ------------------------------------------------------------- Termination Of Employment by Purchaser." If at any time before the earlier - -------------------------------------- of the fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser is terminated "for cause" or the Purchaser voluntarily leaves the employ of the Company, then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the obligation immediately following the date of termination of employment to sell to the Company, and the Company shall have the option, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate, such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice of the exercise by the Company of its option to purchase the shares of Common Stock pursuant to this Section 4(c) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of determination of Repurchase Price. The Repurchase ----------------------------------------- Price shall be determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this Section 5 shall be made by the Chief Financial Officer of the Company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per ------------------------------- share of Common Stock for the purposes of Section 4 hereof shall be equal to: (1) if a termination of employment by the Purchaser in the event of the death or disability of the Purchaser prior to the fifth anniversary of the Purchase Date or for any other reason other than "for cause" or the voluntary termination of employment by Purchaser prior to the fifth anniversary of the Purchase Date, then the higher of the Purchase Price and Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the Company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book Value Per Share shall be based on the unaudited financial statements of the Company as of the Repurchase Calculation Date. 8 (2) if a voluntary termination by Purchaser of employment or termination or Purchaser "for cause" before the fifth anniversary of the Purchase Date, then the lower of the Purchase Price and Book Value per share. 6. "Piggyback" Registration Rights. ------------------------------- a. Purchaser's Right to Request Registration. If, at any time ----------------------------------------- after the Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration"). If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The number ------------------------------------------------- of shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the Company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company benefically owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Holdings, Inc., a Delaware company, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common ---------------- Stock in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company -------------------------------------------- represents and warrants to the Purchaser that: 9 a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum, is true, correct and complete. 8. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its --------------------- best efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be -------------- binding upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be at Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2(b)(ii), (iii) and (iv) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for herein ------- shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street 10 White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3909 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. Except as ------------------------------------------------------- otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a right to purchase hereunder, it may assign such right in all or in part to any employee of the Company. g. Remedies for Violations. The shares of Common Stock cannot be ----------------------- readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any obligation -------------------------------- of the Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for the borrowing of monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for the borrowing of monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are for ---------------- convenience of reference only and shall not be deemed to alter or affect any provision hereof. IN WITNESS WHEREOF, the Parties have executed this 11 Agreement as of the date first above written. The Company: /s/ Michael S. Bruno, Jr. - ----------- By: ______________________________________ Michael S. Bruno, Jr. President Purchaser: /s/ David Henning - --------- By: ______________________________________ David Henning 740 Ruskin Drive Elk Grove, IL 60004 No. of Shares of Common Stock Purchased Hereunder: 10,000 - ------ Total Consideration: $11,400.00 - ---------- SUBSCRIPTION AGREEMENT ---------------------- FOR THEODORE A. ANDERSON, JR. ----------------------------- This Subscription Agreement (the "Agreement") is entered into as of this 1st day of December, 1995 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and THEODORE A. ANDERSON, JR., an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.01 per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the terms --------------------------------------------- and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.14 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants that he ---------- is acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act"), or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the company and may be 2 counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general --------------------------- prohibition on Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. c. Legend. Each certificate representing shares of the Stock shall ------ bear the following legend: 3 "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 1, 1995 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he ------------------------- has been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. e. Rule 144 Sales. The Purchaser agrees that, if he intends to -------------- dispose of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. 4 f. Resales Prohibited During Public Offerings. The Purchaser ------------------------------------------ agrees that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common stock for his own account. 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by Section ------- 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. 5 b. Right of First Refusal - A Purchaser or Transferor (as defined ---------------------- in section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3(b). The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event any Purchaser ------------------------------ or Transferor receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days after ------------------------------ receipt of the offer, the Company shall give written notice to the offering Purchaser (the "Purchaser's Notice") of its election to purchase the Offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances. (3) Closing Date: The closing date for purchase of the Offered ------------ Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal. The Company's right ------------------------------------ of first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction. If, upon the expiration of the ------------------------ right of first refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. 6 Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the Offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. -------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the ------- Purchaser's Trusts and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the Company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a "disability" or have been terminated "for cause" shall be made by the Board of Directors of the Company in good faith which determination shall be final and conclusive. b. Purchaser's Death, Disability or Voluntary Termination of --------------------------------------------------------- Employment. If at any time before the earlier of the fifth anniversary of the - ---------- Purchase Date or prior to the date of the closing of a Public Offering the Purchaser separates from service to the Company for any reason, including, (i) the Purchaser's employment is terminated other than "for cause" or the Purchaser voluntarily leaving the employ of the Company or, (ii) the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall sell immediately following the date of termination of employment, permanent disability or death (as applicable, the "Termination Date") to the Company, and the Company shall have the obligation, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall inform by written notice the Company of its obligation to purchase shares of Common Stock pursuant to this Section 4(b) no later than 30 days after the Termination Date. 7 c. Purchaser's Termination of Employment "For Cause or Voluntary ------------------------------------------------------------- Termination Of Employment by Purchaser. If at any time before the earlier of the - -------------------------------------- fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser is terminated "for cause" or the Purchaser voluntarily leaves the employ of the Company, then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the obligation immediately following the date of termination of employment to sell to the Company, and the Company shall have the option, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate, such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice of the exercise by the Company of its option to purchase the shares of Common Stock pursuant to this Section 4(c) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of determination of Repurchase Price. The Repurchase Price ----------------------------------------- shall be determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this Section 5 shall be made by the Chief Financial Officer of the Company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per share ------------------------------- of Common Stock for the purposes of Section 4 hereof shall be equal to: (1) if a termination of employment by the Purchaser in the event of the death or disability of the Purchaser prior to the fifth anniversary of the Purchase Date or for any other reason other than "for cause" or the voluntary termination of employment by Purchaser prior to the fifth anniversary of the Purchase Date, then the higher of the Purchase Price and Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the Company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book Value Per Share shall be based on the unaudited financial statements of the Company as of the Repurchase Calculation Date. 8 (2) if a voluntary termination by Purchaser of employment or termination or Purchaser "for cause" before the fifth anniversary of the Purchase Date, then the lower of the Purchase Price and Book Value per share. 6. "Piggyback" Registration Rights. ------------------------------ a. Purchaser's Right to Request Registration. If, at any time ----------------------------------------- after the Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration"). If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The number of ------------------------------------------------- shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the Company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered will be registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Holdings, Inc., a Delaware company, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common Stock ---------------- in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company represents -------------------------------------------- and warrants to the Purchaser that: 9 a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum is true, correct and complete. 8. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its best --------------------- efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be -------------- binding upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be at Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2(b)(ii), (iii) and (iv) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for ------- herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street 10 White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3909 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. Except ------------------------------------------------------- as otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a right to purchase hereunder, it may assign such right in all or in part to any employee of the Company g. Remedies for Violations. The shares of Common Stock cannot be ----------------------- readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall he enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any obligation -------------------------------- of the Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for the borrowing of monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for the borrowing of monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are for ---------------- convenience of reference only and shall not be deemed to alter or affect any provision hereof. IN WITNESS WHEREOF, the Parties have executed this 11 Agreement as of the date first above written. The Company: By: /s/ Michael S. Bruno, Jr. - ------------ ----------------------------- Michael S. Bruno, Jr. President Purchaser: By: /s/ Theodore A. Anderson, Jr. - ---------- ----------------------------- THEODORE A. ANDERSON, JR. 11539 Jacquelin Ann El Paso, TX 79936 No. of Shares of Common Stock Purchased Hereunder: 5,000 - ------------------- Total Consideration: $5,700.00 - ------------------------- SUBSCRIPTION AGREEMENT ---------------------- FOR GARY L. McGILL ------------------ This Subscription Agreement (the "Agreement") is entered into as of this 1st day of December, 1995 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and GARY L. McGILL, an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.01 per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the terms and --------------------------------------------- conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.14 per share 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants that he is ---------- acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act"), or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be 2 counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act b. Certain Permitted Transfers. Notwithstanding the general prohibition on --------------------------- Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. c. Legend. Each certificate representing shares of the Stock shall bear the ------ following legend: 3 "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 1, 1995 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he has been ------------------------- advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. e. Rule 144 Sales. The Purchaser agrees that, if he intends to dispose of any -------------- shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. 4 f. Resales Prohibited During Public Offerings. The Purchaser agrees that, if ------------------------------------------ any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further represents and ------------------------------------- warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common stock for his own account. 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by Section 2(b) of ------- this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. 5 b. Right of First Refusal - A Purchaser or Transferor (as defined in section 4 ---------------------- hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3(b). The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event any Purchaser or Transferor ------------------------------ receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days after receipt of the offer, ------------------------------ the Company shall give written notice to the offering Purchaser (the "Purchaser's Notice") of its election to purchase the Offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances. (3) Closing Date: The closing date for purchase of the Offered Shares under ------------ this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal. The Company's right of first refusal ------------------------------------ to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction. If, upon the expiration of the right of first ------------------------ refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. 6 Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the Offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. -------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the Purchaser's Trusts ------- and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the Company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a "disability" or have been terminated "for cause" shall be made by the Board of Directors of the Company in good faith which determination shall be final and conclusive. b. Purchaser's Death, Disability or Voluntary Termination of Employment. If at -------------------------------------------------------------------- any time before the earlier of the fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser separates from service to the Company for any reason, including, (i) the Purchaser's employment is terminated other than "for cause" or the Purchaser voluntarily leaving the employ of the Company or, (ii) the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall sell immediately following the date of termination of employment, permanent disability or death (as applicable, the "Termination Date") to the Company, and the Company shall have the obligation, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall inform by written notice the Company of its obligation to purchase shares of Common Stock pursuant to this Section 4(b) no later than 30 days after the Termination Date. 7 c. Purchaser's Termination of Employment "For Cause or Voluntary Termination ------------------------------------------------------------------------- Of Employment by Purchaser. If at any time before the earlier of the fifth - -------------------------- anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser is terminated "for cause" or the Purchaser voluntarily leaves the employ of the Company, then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the obligation immediately following the date of termination of employment to sell to the Company, and the Company shall have the option, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate, such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice of the exercise by the Company of its option to purchase the shares of Common Stock pursuant to this Section 4(c) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of Determination of Repurchase Price. The Repurchase Price shall be ----------------------------------------- determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this Section 5 shall be made by the Chief Financial Officer of the Company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per share of Common ------------------------------- Stock for the purposes of Section 4 hereof shall be equal to: (1) if a termination of employment by the Purchaser in the event of the death or disability of the Purchaser prior to the fifth anniversary of the Purchase Date or for any other reason other than "for cause" or the voluntary termination of employment by Purchaser prior to the fifth anniversary of the Purchase Date, then the higher of the Purchase Price and Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the Company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book Value Per Share shall be based on the unaudited financial statements of the Company as of the Repurchase Calculation Date. 8 (2) if a voluntary termination by Purchaser of employment or termination or Purchaser "for cause" before the fifth anniversary of the Purchase Date, then the lower of the Purchase Price and Book Value per share. 6. "Piggyback" Registration Rights. ------------------------------ a. Purchaser's Right to Request Registration. If, at any time after the ----------------------------------------- Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration"). If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The number of shares of ------------------------------------------------- Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the Company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be registered will be --------------------- registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Holdings, Inc., a Delaware company, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common Stock in a ---------------- registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company represents and -------------------------------------------- warrants to the Purchaser that: 9 a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum, is true, correct and complete. 8. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its best efforts to --------------------- comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be binding upon and -------------- accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be at Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2(b)(ii), (iii) and (iv) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only bY a written instrument --------- signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and construed in -------------- accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for herein shall be ------- in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street 10 White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3909 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. Except as ------------------------------------------------------- otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a right to purchase hereunder, it may assign such right in all or in part to any employee of the Company. g. Remedies for Violations. The shares of Common Stock cannot be readily ----------------------- purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any obligation of the -------------------------------- Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for the borrowing of monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for the borrowing of monies. i. Counterparts. This Agreement may be executed in any number of counterparts, ------------ each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are for ---------------- convenience of reference only and shall not be deemed to alter or affect any provision hereof. IN WITNESS WHEREOF, the Parties have executed this 11 Agreement as of the date first above written. The Company: By: /s/ Michael S. Bruno, Jr. - ------------ --------------------------- Michael S. Bruno, Jr. President Purchaser: By: /s/ Gary L. McGill - ---------- --------------------------- GARY L. McGILL 487 Onteora Blvd. Asheville, NC 28803 No. of Shares of Common Stock Purchased Hereunder: 1,666 - -------------------- Total Consideration: $1,909.24 - -------------------- SUBSCRIPTION AGREEMENT ---------------------- FOR JEFFREY W. BOYCE -------------------- This Subscription Agreement (the "Agreement") is entered into as of this 1st day of December, 1995 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and JEFFREY W. BOYCE, an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.01 per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the terms --------------------------------------------- and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.14 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants that he ---------- is acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act"), or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be 2 counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general --------------------------- prohibition on Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. c. Legend. Each certificate representing shares of the Stock shall bear ------ the following legend: 3 "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 1, 1995 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he has ------------------------- been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. e. Rule 144 Sales. The Purchaser agrees that, if he intends to -------------- dispose of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. 4 f. Resales Prohibited During Public Offerings. The Purchaser agrees ------------------------------------------ that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common stock for his own account. 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by Section ------- 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. 5 b. Right of First Refusal - A Purchaser or Transferor (as defined in ---------------------- section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3(b). The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event any Purchaser ------------------------------ or Transferor receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days after receipt ------------------------------ of the offer, the Company shall give written notice to the offering Purchaser (the "Purchaser's Notice") of its election to purchase the Offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances. (3) Closing Date: The closing date for purchase of the Offered ------------ Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal. The Company's right of ------------------------------------ first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction. If, upon the expiration of the ------------------------ right of first refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. 6 Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the Offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. -------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the ------- Purchaser's Trusts and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the Company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a "disability" or have been terminated "for cause" shall be made by the Board of Directors of the Company in good faith which determination shall be final and conclusive. b. Purchaser's Death, Disability or Voluntary Termination of --------------------------------------------------------- Employment. If at any time before the earlier of the fifth anniversary of the - ---------- Purchase Date or prior to the date of the closing of a Public Offering the Purchaser separates from service to the Company for any reason, including, (i) the Purchaser's employment is terminated other than "for cause" or the Purchaser voluntarily leaving the employ of the Company or, (ii) the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall sell immediately following the date of termination of employment, permanent disability or death (as applicable, the "Termination Date") to the Company, and the Company shall have the obligation, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall inform by written notice the Company of its obligation to purchase shares of Common Stock pursuant to this Section 4(b) no later than 30 days after the Termination Date. 7 c. Purchaser's Termination of Employment "For Cause or Voluntary ------------------------------------------------------------- Termination Of Employment by Purchaser. If at any time before the earlier of the - -------------------------------------- fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser is terminated "for cause" or the Purchaser voluntarily leaves the employ of the Company, then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the obligation immediately following the date of termination of employment to sell to the Company, and the Company shall have the option, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate, such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice of the exercise by the Company of its option to purchase the shares of Common Stock pursuant to this Section 4(c) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of determination of Repurchase Price. The Repurchase Price ----------------------------------------- shall be determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this Section 5 shall be made by the Chief Financial Officer of the Company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per share of ------------------------------- Common Stock for the purposes of Section 4 hereof shall be equal to: (1) if a termination of employment by the Purchaser in the event of the death or disability of the Purchaser prior to the fifth anniversary of the Purchase Date or for any other reason other than "for cause" or the voluntary termination of employment by Purchaser prior to the fifth anniversary of the Purchase Date, then the higher of the Purchase Price and Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the Company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book Value Per Share shall be based on the unaudited financial statements of the Company as of the Repurchase Calculation Date. 8 (2) if a voluntary termination by Purchaser of employment or termination or Purchaser "for cause" before the fifth anniversary of the Purchase Date, then the lower of the Purchase Price and Book Value per share. 6. "Piggyback" Registration Rights. ------------------------------- a. Purchaser's Right to Request Registration. If, at any time ----------------------------------------- after the Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration"). If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The number ------------------------------------------------- of shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the Company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company, beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered will be registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Holdings, Inc., a Delaware company, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common ---------------- Stock in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company represents -------------------------------------------- and warrants to the Purchaser that: 9 a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum, is true, correct and complete. 8. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its best --------------------- efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be binding -------------- upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be at Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2(b)(ii), (iii) and (iv) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and construed -------------- in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for herein ------- shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street 10 White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3909 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. Except as ------------------------------------------------------- otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a right to purchase hereunder, it may assign such right in all or in part to any employee of the Company. g. Remedies for Violations. The shares of Common Stock cannot be ----------------------- readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any obligation -------------------------------- of the Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for the borrowing of monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for the borrowing of monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are for ---------------- convenience of reference only and shall not be deemed to alter or affect any provision hereof. IN WITNESS WHEREOF, the Parties have executed this 11 Agreement as of the date first above written. The Company: By: /s/ Michael S. Bruno, Jr. - ------------ ------------------------------- Michael S. Bruno, Jr. President Purchaser: By: /s/ Jeffrey W. Boyce - ---------- ------------------------------- JEFFREY W. BOYCE 7-B Cedarwood Drive Asheville, NC 28803 No. of Shares of Common Stock Purchased Hereunder: 1,666 - -------------------- Total Consideration: $1,909.24 - -------------------- SUBSCRIPTION AGREEMENT ---------------------- FOR RAYMOND McCLINTON --------------------- This Subscription Agreement (the "Agreement") is entered into as of this 1st day of December, 1995 between Communications Instruments Holdings, Inc., a Delaware corporation (the "Company"), and RAYMOND McCLINTON, an individual (the "Purchaser"). The Company and the Purchaser are sometimes collectively referred to herein as the "Parties." RECITALS -------- The Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell to the Purchaser, the number of shares of its Common Stock, par value $.01 per share (the "Common Stock"), set forth opposite the name of the Purchaser on the signature page hereof for the consideration hereinafter set forth (the "Purchase Price"). The term "Purchase Date" as used herein, shall mean the date on which the Purchaser shall purchase the Common Stock. AGREEMENT --------- In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. Subscription for and Purchase of Common Stock. Subject to the terms and --------------------------------------------- conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to the Purchaser the number of shares of Common Stock set forth opposite the name of the Purchaser on the signature page hereof at a price of $1.14 per share. 2. Purchaser's Representations, Warranties and Agreements. ------------------------------------------------------ a. No Resales. The Purchaser hereby represents and warrants that he is ---------- acquiring the Common Stock for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Except for those transfers permitted pursuant to Section 2(b) hereof, the Purchaser agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, "Transfer") any shares of Common Stock unless such Transfer complies with Section 3 of this Agreement and (i) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations in effect thereunder (the "Act"), or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company and may be 2 counsel to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act. b. Certain Permitted Transfers. Notwithstanding the general prohibition on --------------------------- Transfers contained in Sections 2(a) and 3 hereof, the Company acknowledges and agrees that the following Transfers of Common Stock may be made at any time and are deemed to be in compliance with the Act and this Agreement and no opinion of counsel (except as otherwise specified in this Section 2(b)) is required in connection therewith: (1) a Transfer of Common Stock made by the Purchaser to the Company pursuant to Sections 3, 4 and 6 hereof; (2) a Transfer of Common Stock made in compliance with the Act to a trust the beneficiaries of which may include only the Purchaser, his spouse and/or his lineal descendants (a "Purchaser's Trust") or a Transfer made to such a trust by a person who has become a holder of the Common Stock in accordance with the terms of this Agreement; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; (3) a Transfer of Common Stock upon the death of the Purchaser to his lineal descendants or a Transfer to the lineal descendants of a person who has become a holder of the Common Stock in accordance with the terms of this Agreement, and subject to Section 3 hereof; provided, however, that no such Transfer shall be of any force or effect or shall be given effect on the books of the Company unless the transferee shall deliver to the Company a valid undertaking to be bound by the terms of this Agreement; or (4) a pledge or hypothecation by the Purchaser of the Common Stock or his interest therein to a bank, the Company or other financial institution to secure a loan by such bank or financial institution to him for the purchase of the Common Stock, or the refinancing of any such indebtedness, provided, however, that such bank, investment banking firm or financial institution accepts the Common Stock or interest therein subject to all of the terms and conditions of this Agreement. c. Legend. Each certificate representing shares of the Stock shall bear ------ the following legend: 3 "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 1, 1995 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." d. Common Stock Unregistered. The Purchaser acknowledges that he has ------------------------- been advised that (i) the Common Stock has not been registered under the Act, (ii) the Common Stock must be held for an indefinite period and the Purchaser must continue to bear the economic risk of the investment in the Common Stock unless it is subsequently registered under the Act or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the Common Stock, (iv) Rule 144 promulgated under the Act does not presently permit any sales of any securities of the Company, and the Company has made no covenant to make such Rule available in the future, (v) when and if shares of the Common Stock may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (vi) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Act, (vii) a restrictive legend in the applicable form heretofore set forth shall be placed on the certificates representing the Common Stock and (viii) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Common Stock. e. Rule 144 Sales. The Purchaser agrees that, if he intends to dispose -------------- of any shares of the Common Stock in accordance with Rule 144 under the Act or otherwise, he will promptly notify the Company of such intended disposition and will deliver to the Company at or prior to the time of such disposition documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, will deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. 4 f. Resales Prohibited During Public Offerings. The Purchaser agrees ------------------------------------------ that, if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, he will not effect any public sale or distribution of any shares of the Common Stock that are not covered by such registration statement within 7 days prior to, or within 90 days after, the effective date of such registration statement. g. Additional Investment Representations. The Purchaser further ------------------------------------- represents and warrants that with respect to the Common Stock to be purchased by him hereunder (i) he has received and reviewed the Communications Instruments Confidential Financing Memorandum (the "Memorandum") relating to the Common Stock and the documents referred to therein, (ii) he has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company as he deems necessary to evaluate the merits and risks related to his investment in the Common Stock and to verify the information contained in the Memorandum and no representations concerning such matters or any other matters have been made to the Purchaser except as set forth in the Memorandum and in this Agreement, (iii) his net worth and his financial condition is such that he can afford to bear the economic risk of holding the unregistered Common Stock for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies, (iv) he can afford to suffer a complete loss of his investment in the Common Stock, (v) all information which he has provided to the Company concerning himself and his financial position is correct and complete as of the date of this Agreement, (vi) he understands and has taken cognizance of all risk factors related to the purchase of the Common Stock, (vii) his knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of his purchase of the Common Stock as contemplated by this Agreement and (viii) he is the sole party in interest to this Agreement and is acquiring the Common Stock for his own account. 3. Restrictions on Transfer; Right of First Refusal. ------------------------------------------------ a. General. Except for Transfers otherwise contemplated by Section ------- 2(b) of this Agreement and until the earlier of (i) the date of closing of a public offering of shares of common stock of the Company pursuant to an effective registration statement (other than with respect to an employee benefit plan) which has been filed after the Purchase Date under the Act (a "Public offering") or (ii) the fifth anniversary of the Purchase Date, the Purchaser agrees that he will not transfer any shares of the Common Stock at any time. No Transfer of any shares of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. 5 b. Right of First Refusal - A Purchaser or Transferor (as defined in ---------------------- section 4 hereof) may transfer all or part of his Common Stock after the fifth anniversary hereof only after first offering them to the Company as described in this Section 3(b). The obligations of Purchaser and Transferor under this Section 3(b) shall expire upon a Public Offering. (1) Offer to Purchase Common Stock: In the event any Purchaser or ------------------------------ Transferor receives a bona fide written offer to purchase all or any portion of his Common Stock, and desires to accept the offer, he shall first deliver to the Company an identical offer in writing (the "Offer") which shall set forth (i) the Purchaser's desire to make such transfer; (ii) the name, residence address and business address of the proposed transferee; (iii) the number of shares proposed to be transferred (the "Offered Shares"); and (iv) the price proposed to be paid by such transferee and the precise terms of payment. (2) Action on Offer by Corporation: Within 30 days after receipt of ------------------------------ the offer, the Company shall give written notice to the offering Purchaser (the "Purchaser's Notice") of its election to purchase the Offered Shares for the consideration and on the terms stated in the Offer. In the event that the Company elects to purchase the Offered Shares, it shall specify in the Purchaser's Notice a closing date for the purchase, determined in accordance with paragraph 3 below. The Closing shall take place at the principal office of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Purchaser or Transferor against delivery of the certificate or other instruments representing the shares of the Common Stock sold, free and clear of any liens, claims and encumbrances. (3) Closing Date: The closing date for purchase of the Offered ------------ Shares under this Section 3 by the Company shall be a date not less than 20 nor more than 30 days after the date the Purchaser's Notice is given. (4) Expiration of Right of First Refusal. The Company's right of ------------------------------------ first refusal to elect to purchase the Offered Shares shall expire 30 days after it receives the Offer. (5) Release from Restriction. If, upon the expiration of the right ------------------------ of first refusal, the Offer has not been accepted as to all of the Offered Shares by the Company, the offering Purchaser may transfer to the transferee named in the Offer exactly that number of shares specified in the Offer, no more and no less. The transfer shall be made in strict accordance with the price and terms stated in the Offer. The transfer must take place within 30 days following the expiration of the right of first refusal. 6 Each transferee shall receive and hold the Offered Shares subject to all of the provisions and restrictions of this Agreement theretofore applicable to the Purchaser, and by the receipt of the Offered Shares shall be deemed to consent to the terms of and be a party to this Agreement. If the transferor Purchaser shall fail to consummate the transfer of all of the Offered Shares within 30 days following the expiration of the right of first refusal, then all of the Offered Shares shall remain subject to all the restrictions of this Agreement, and the transfer by the transferor Purchaser of any such Shares shall constitute a breach of this Agreement. 4. Repurchase Common Stock by the Company. ------------------------------------- a. General. The Purchaser, the Purchaser's Estates and the ------- Purchaser's Trusts and the Purchaser's lineal descendants are referred to in this Section 4 as "Transferors." The completion of the purchases by the Company pursuant to this Section 4, if any, shall take place at the principal offices of the Company. At such place, the Company shall deliver a certified bank check or checks in the requisite amount payable to the order of the Transferor against delivery of the certificates or other instruments representing the shares of the Common Stock sold, free and clear of all liens, claims and encumbrances. For purposes of this Agreement, the determination of whether the Purchaser shall be deemed to have a "disability" or have been terminated "for cause" shall be made by the Board of Directors of the Company in good faith which determination shall be final and conclusive. b. Purchaser's Death, Disability or Voluntary Termination of --------------------------------------------------------- Employment. If at any time before the earlier of the fifth anniversary of the - ---------- Purchase Date or prior to the date of the closing of a Public Offering the Purchaser separates from service to the Company for any reason, including, (i) the Purchaser's employment is terminated other than "for cause" or the Purchaser voluntarily leaving the employ of the Company or, (ii) the Purchaser either dies or becomes disabled (as defined above), then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall sell immediately following the date of termination of employment, permanent disability or death (as applicable, the "Termination Date") to the Company, and the Company shall have the obligation, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall inform by written notice the Company of its obligation to purchase shares of Common Stock pursuant to this Section 4(b) no later than 30 days after the Termination Date. 7 c. Purchaser's Termination of Employment "For Cause or Voluntary ------------------------------------------ ------------------ Termination Of Employment by Purchaser. If at any time before the earlier of the - -------------------------------------- fifth anniversary of the Purchase Date or prior to the date of the closing of a Public Offering the Purchaser is terminated "for cause" or the Purchaser voluntarily leaves the employ of the Company, then the Purchaser, the Purchaser's Estate or the Purchaser's Trust, or the Purchaser's lineal descendants, as the case may be, shall have the obligation immediately following the date of termination of employment to sell to the Company, and the Company shall have the option, on such occasion, to purchase all of the shares of Common Stock then held (as of the Termination Date) by the Purchaser, the Purchaser's Trust and/or the Purchaser's Estate, or the Purchaser's lineal descendants, as the case may be, at the Repurchase Price, as defined in Section 5 hereof. Such Purchaser, such Purchaser's Estate, such Purchaser's Trust, and/or such Purchaser's lineal descendants, as the case may be, shall be informed by written notice of the exercise by the Company of its option to purchase the shares of Common Stock pursuant to this Section 4(c) no later than 30 days after the Termination Date. 5. Determination of Repurchase Price. --------------------------------- a. Date of determination of Repurchase Price. The Repurchase Price ----------------------------------------- shall be determined for the purposes of Section 4 hereof as of the last day of the fiscal quarter immediately preceding the quarter during which the event giving rise to a repurchase obligation or option occurred (hereinafter called the "Repurchase Calculation Date"). Any determination of the Repurchase Price pursuant to this Section 5 shall be made by the Chief Financial Officer of the Company, and approved by the Board of Directors of the Company, whose determination shall be final and conclusive. b. Calculation of Repurchase Price. The Repurchase Price per share of ------------------------------- Common Stock for the purposes of Section 4 hereof shall be equal to: (1) if a termination of employment by the Purchaser in the event of the death or disability of the Purchaser prior to the fifth anniversary of the Purchase Date or for any other reason other than "for cause" or the voluntary termination of employment by Purchaser prior to the fifth anniversary of the Purchase Date, then the higher of the Purchase Price and Book Value Per Share. The Book Value Per Share shall be equal to the stockholders' common equity per share of all common stock of the Company, as of the Repurchase Calculation Date, determined in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. The computation of Book Value Per Share shall be based on the unaudited financial statements of the Company as of the Repurchase Calculation Date. 8 (2) if a voluntary termination by Purchaser of employment or termination or Purchaser "for cause" before the fifth anniversary of the Purchase Date, then the lower of the Purchase Price and Book Value per share. 6. "Piggyback" Registration Rights. ------------------------------ a. Purchaser's Right to Request Registration. If, at any time after ----------------------------------------- the Purchase Date, the Company plans to register any shares of Common Stock held by any of the holders of the capital stock of the Company for public offering pursuant to the Act, the Company will promptly notify the Purchaser in writing (a "Notice") of such proposed registration (a "Proposed Registration"). If within 10 business days of the receipt by the Purchaser of such Notice the Company receives from the Purchaser a written request (a "Request") to register a specific number of shares of Common Stock (which Request will be irrevocable unless otherwise mutually agreed to in writing by the Purchaser and the Company), shares of Common Stock will be so registered as provided in this Section 6. b. Number of Shares of Common Stock to be Registered. The number of ------------------------------------------------- shares of Common Stock that will be registered pursuant to a Request will be the lesser of (i) the number of shares of Common Stock then held by the Purchaser which the Purchaser specifies in his Request (which for purposes of this Section 6 shall include shares held by such Purchaser's Estate or such Purchaser's Trust) or (ii) the sum of the shares of Common Stock specified in the Request by such Purchaser multiplied by a percentage calculated by dividing the number of shares of capital stock of the Company being registered by the holders of such capital stock in the Proposed Registration by the total number of shares of capital stock of the Company beneficially owned by such holders. c. Terms of Registration. The shares of Common Stock to be --------------------- registered will be registered by the Company and offered to the public pursuant to this Section 6 on the same terms and subject to the same conditions applicable to the registration in a Proposed Registration of shares of Common Stock of Communications Instruments Holdings, Inc., a Delaware company, except that the Purchaser shall not be required to pay the costs of the registration, other than its pro rata share of the underwriter's discounts or commissions. d. Other Agreements. The Purchaser including shares of Common Stock ---------------- in a registration shall execute and deliver such other agreements and instruments as are reasonably and customarily required by the managing underwriter (or the Company if there is not an underwritten offering) of selling shareholders in a public offering. 7. The Company's Representations and Warranties. The Company -------------------------------------------- represents and warrants to the Purchaser that: 9 a. this Agreement has been duly authorized, executed and delivered by the Company, (b) the Common Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and (c) the description of the capitalization of the Company contained in the Memorandum, is true, correct and complete. 8. Miscellaneous. ------------- a. State Securities Laws. The Company hereby agrees to use its --------------------- best efforts to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Common Stock to the Purchaser. b. Binding Effect. The provisions of this Agreement shall be -------------- binding upon and accrue to the benefit of the Parties and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 2(b)(iv) hereof, such transferee shall be deemed to be at Purchaser hereunder for purposes of obtaining the benefits or enforcing the rights of the Purchaser hereunder; provided, however, that no transferee (including, without limitation, transferees referred to in Section 2(b)(ii), (iii) and (iv) hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking to be bound by the terms of this Agreement. c. Amendment. This Agreement may be amended only by a written --------- instrument signed by all of the Parties. d. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the internal laws of the State of Delaware (without reference to the laws and cases providing for the choice of the law of another forum). e. Notices. All notices and other communications provided for ------- herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed: (1) If to the Company, to: CII 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attention: President with copies to: Stonebridge Partners Westchester Financial Center 50 Main Street 10 White Plains, New York 10606 Attention: David A. Zackrison and Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3909 Attention: Richard C. Weisberg, Esq. (2) If to the Purchaser, to him at the address set forth on the signature page hereof under his signature or at such other address as the Parties shall have specified by notice in writing to each of the others. f. Time and Place of Purchases by and Sales to the Company. Except ------------------------------------------------------- as otherwise provided herein, the closing of each purchase and sale of shares of Common Stock pursuant to this Agreement shall take place at the principal office of the Company on the third business day following delivery of the notice by the Company of its exercise of the right to purchase such Common Stock hereunder. Whenever the Company is given a right to purchase hereunder, it may assign such right in all or in part to any employee of the Company. g. Remedies for Violations. The shares of Common Stock cannot be ----------------------- readily purchased or sold on the open market and for this reason, among others, the Parties will be irreparably damaged in the event that this Agreement is not followed by the parties. In the event of any controversy concerning the right or obligation to purchase or sell such shares, such right or obligation shall be enforceable in a court of equity by decree of specific performance. h. No Conflict with Loan Agreements. Notwithstanding any obligation -------------------------------- of the Company to make payments hereunder, the Company shall not be required to make such payments to the extent the same would cause a breach of any of its agreements or its subsidiaries' agreements or undertakings for the borrowing of monies, provided, however, that the Company shall be obligated to make such payments as soon as practicable when the same would not cause a breach of any of its agreements or undertakings for the borrowing of monies. i. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. j. Section Headings. The section headings of this Agreement are for ---------------- convenience of reference only and shall not be deemed to alter or affect any provision hereof. IN WITNESS WHEREOF, the Parties have executed this 11 Agreement as of the date first above written. The Company: By: /s/ MICHAEL S. BRUNO, JR - ------------ -------------------------- Michael S. Bruno, Jr President Purchaser: By: /s/ RAYMOND MCCLINTON - ---------- --------------------------- Raymond McClinton 108 Big Spring Drive Asheville, NC 28804 No. of Shares of Common Stock Purchased Hereunder: 1,668 - ------------------------- Total Consideration: $1,911.52 - ------------------------- EX-10.3 4 REGISTRATION RIGHTS AGREEMENT BETWEEN CO. & CII AS EXHIBIT 10.3 REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement (the "Agreement") is made and entered into on this 11th day of May, 1993, between Communications Instruments Holdings, ---- Inc., a Delaware corporation (the "Company"), and Communications Instruments Associates, L.P., a Delaware limited partnership (the "Purchaser"). This Agreement is made pursuant to the Common Stock Purchase Agreement and the Preferred Stock Purchase Agreement, both dated the date hereof, between the Company and the Purchaser. In order to induce the Purchaser to enter into the Common Stock Purchase Agreement and the Preferred Stock Purchase Agreement, the Company has agreed to provide the demand registration rights set forth in this Agreement. The parties hereby agree as follows: 1. Definitions ----------- As used in this Agreement, the following capitalized terms shall have the following meanings: Agent: Any Person authorized to act and who acts on behalf of the ----- Purchaser with respect to the transactions contemplated by the Documents. Demand Registration: See Section 3 hereof. ------------------- Documents: This Agreement and the Common Stock Purchase Agreement. --------- Exchange Act: The Securities Exchange Act of 1934, as amended from time ------------ to time. Person: An individual, partnership, corporation, trust or unincorporated ------ organization, or a government or agency or political subdivision thereof. Prospectus: The prospectus included in any Registration Statement, as ---------- amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. Registrable Securities: The capital stock of the Company held by the ---------------------- Purchaser or by a partner of the Purchaser which consists of: (i) 860,000 shares of common stock, par value $.01 per share, of the Company and (ii) 40,000 shares of preferred stock, par value $.01 per share, and any shares issued as dividends thereof of the Company. Registration Expenses: See Section 6 hereof. --------------------- Registration Statement: Any registration statement of the Company which ---------------------- covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement. Restricted Securities: The Registrable Securities upon original issuance ---------------------- thereof, subject to the provisions of Section 2(a) hereof. SEC: The Securities and Exchange Commission. --- Securities Act: The Securities Act of 1933, as amended from time to time. --------------- Underwritten Registration or Underwritten Offering: A registration in -------------------------- ---------------------- which securities of the Company are sold to an underwriter for reoffering to the public. 2. Securities Subject to this Agreement. ------------------------------------ a. Registrable Securities. The securities entitled to the benefits ---------------------- of this Agreement are the Registrable Securities but, with respect to any particular Registrable Security, only so long as such security continues to be a Restricted Security. A Registrable Security ceases to be a Restricted Security when (i) it has been effectively registered under the Securities Act and disposed of in accordance with the Registration Statement covering it, (ii) it is distributed to the public pursuant to Rule 144 (or any similar provisions then in force) under the Securities Act, or (iii) it has otherwise been transferred and a new certificate or other evidence of ownership not bearing the legend set forth in Section 6 of the Common Stock Purchase Agreement (or other legend of similar import) has, subject to any stop transfer order, been delivered by or on behalf of the Company and no other restriction on transfer exists. b. Holders of Registrable Securities. A Person is deemed to be a --------------------------------- holder of Registrable Securities whenever such Person owns Registrable Securities or has the right to acquire such Registrable Securities, whether or not such acquisition has actually been effected and disregarding any legal restrictions upon the exercise of such right. 3. Demand Registration Rights. -------------------------- 2 a. Any holder or holders of Registrable Securities holding a majority of the outstanding shares of such Registrable Securities may, at any time, make a written request for registration with the SEC, under the Securities Act, of all or part of its or their Registrable Securities. Any such request by the holder or holders of Registrable Securities shall specify the aggregate number of shares of Registrable Securities proposed to be sold and shall also specify the intended method of disposition thereof. Within ten business days after receipt of such request, the Company shall give written notice of such registration request to all holders of Registrable Securities and thereupon shall effect the registration of such Registrable Securities and shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 business days after the receipt by the applicable holders of the Company's notice. Each such request will also specify the aggregate number of shares of the Registrable Securities to be registered and the intended method of disposition thereof. b. Neither the Company nor any of its security holders (other than the holders of Registrable Securities in such capacity) shall have the right hereunder to include any of the Company's securities in such Demand Registration. c. If the holders of a majority of the aggregate number of shares of Registrable Securities to be registered in a Demand Registration so elect, the offering of Registrable Securities pursuant to such Demand Registration shall be in the form of an underwritten offering. In such event, if the managing underwriter or underwriters of such offering advise the Company and the holders of such Registrable Securities in writing that in their opinion the dollar amount of Registrable Securities requested to be included in such offering is sufficiently large to materially adversely affect the success of such offering, the Company will include, on behalf of such holders, in such registration a number of shares of Registrable Securities equal to the total number of shares which in the opinion of such managing underwriter or underwriters can be sold without any such material adverse effect, and such securities shall be allocated pro rata among the holders of Registrable Securities requested to be included in such registration according to their respective holdings of such securities. In such event, the Company shall be obligated to file one additional Demand Registration pursuant to this Section 3 covering the number of Registrable Securities not so included at any time within 60 days after the closing dated for the sale of securities included in such registration if the holder or holders thereof shall have given notice to the Company of such holder's or holders' intention to dispose of such Registrable Securities. d. A registration will not be considered a Demand Registration unless it has been kept continuously 3 effective for a period of six months following the date on which such registration was declared effective. 4. Registration Procedures. In connection with the Company's registration ----------------------- obligations pursuant to Section 3 hereof, the Company will use its best efforts to effect such registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Company will as expeditiously as possible: a. prepare and file with the SEC, as soon as practicable, a Registration Statement or Registration Statements relating to the demand registration on any appropriate form under the Securities Act, which form shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof and shall include all financial statements (including, if applicable, financial statements of any subsidiary of the Company which shall have guaranteed any indebtedness of the Company) required by the SEC to be filed therewith, and use its best efforts to cause such Registration Statement to become effective; provided that, before filing a Registration Statement or Prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the Registration Statement, the Company will furnish to the holders of the Registrable Securities covered by such Registration Statement and the underwriters, if any, copies of all such documents proposed to be filed, which documents will be subject to the reasonable review of such holders and underwriters, and the Company will not file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto (including such documents incorporated by reference) to which the holders of a majority of the aggregate number of shares of the Registrable Securities covered by such Registration Statement or the underwriters, if any, shall reasonably object; b. prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period, or such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; the Company shall not be deemed to have used its best efforts to keep a Registration Statement effective during the applicable period if it voluntarily takes any action that would result in holders of the Registrable Securities covered thereby not being able to sell such 4 Registrable Securities during that period unless such action is required under applicable law; c. notify the selling holders of Registrable Securities and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such advice in writing, (1) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (4) if at any time the representations and warranties of the Company contemplated by paragraph (p) below cease to be true and correct, (5) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (6) of the happening of any event which makes any statement made in or the omission of any statement from the Registration Statement, the Prospectus or any document incorporated therein by reference untrue or misleading, or which requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated therein by reference in order to make the statements therein or the omission of any statements therefrom not misleading; d. make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; e. if requested by the managing underwriter or underwriters or a holder of Registrable Securities being sold in connection with an underwritten offering, promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters and the holders of a majority of the aggregate number of shares of the Registrable Securities being sold agree should be included therein relating to the sale of the Registrable Securities, including, without limitation, information with respect to the number of shares of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; f. promptly prior to the filing of any document which is to be incorporated by reference into the Registration Statement or the Prospectus (after initial filing of the 5 Registration Statement), provide copies of such document to counsel to the selling holders of Registrable Securities and to the managing underwriters, if any, make the Company's representatives available for discussion of such document and make such changes in such document prior to the filing thereof as counsel for such selling holders or the underwriters may reasonably request; g. furnish to each selling holder of Registrable Securities and each managing underwriter, without charge, at least one copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); h. deliver to each selling holder of Registrable Securities and the underwriters, if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company consents to the use of the Prospectus or any amendment or supplement thereto by each of the selling holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; i. prior to any public offering of Registrable Securities, register or qualify or cooperate with the selling holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any seller or underwriter reasonably requests in writing and do any and all other reasonable acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject; j. cooperate with the selling holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of Registrable Securities to the underwriters; k. use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies 6 or authorities as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; l. upon the occurrence of any event contemplated by Section (c)(6) above, prepare a supplement or post effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; m. cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed if requested by the holders of a majority in aggregate principal amount of such Registrable Securities or the managing underwriters, if any; n. cause the Registrable Securities covered by the Registration Statement to be rated with the appropriate rating agencies, if so requested by the holders of a majority in aggregate principal amount of such Registrable Securities or the managing underwriters, if any; o. provide a CUSIP number for all Registrable Securities, not later than the effective date of the applicable Registration Statement; p. enter into such agreements (including an underwriting agreement) and take all such other actions in connection therewith in order to expedite or facilitate the disposition of such Registrable Securities and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration (1) make such representations and warranties to the holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering matters including, but not limited to, those set forth in the Common Stock Purchase Agreement; (2) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority of the aggregate number of shares of the Registrable Securities being sold) addressed to each selling holder and the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such holders and underwriters; (3) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the selling holders of 7 Registrable Securities and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by underwriters in connection with primary underwritten offerings; (4) if an underwriting agreement is entered into, the same shall set forth in full the indemnification provisions and procedures of Section 6 hereof with respect to all parties to be indemnified pursuant to said Section; and (5) the Company shall deliver such documents and certificates as may be requested by the holders of a majority of the aggregate number of shares of the Registrable Securities being sold and the managing underwriters, if any, to evidence compliance with clause (1) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; q. make available for inspection by a representative of the holders of a majority of the aggregate number of shares of the Registrable Securities outstanding, any underwriter participating in any disposition pursuant to any such Registration Statement, and any attorney or accountant retained by the sellers or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with any such Registration Statement; provided, that any records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such Persons unless disclosure of such records, information or documents is required by court or administrative order; and r. otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make generally available to its security holders, earnings statements satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of any 12-month period (or 90 days, if such period is a fiscal year) (1) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm or best efforts underwritten offering, or (2) if not sold to underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statements shall cover said 12-month periods. The Company may require each seller of Registrable Securities as to which registration is being effected to furnish to the Company such information regarding the distribution of such securities as the Company may from time to time reasonably request in writing. Each holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any 8 notice from the Company of the happening of any event of the kind described in Section 4(l) hereof, such holder will forthwith discontinue disposition of Registrable Securities until such holder's receipt of the copies of the supplemented or amended Prospectus Contemplated by Section 4(l) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, such holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the time periods regarding the effectiveness of Registration Statements set forth in Section 3 hereof shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 4(c)(6) hereof to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 4(l) hereof or the Advice. 5. Registration Expenses. --------------------- a. All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees with respect to the filings required to be made with the National Association of Securities Dealers, fees and expenses of compliance with the securities or blue sky laws (including fees and disbursements of counsel for the underwriters or selling holders in connection with blue sky qualifications of the Registrable Securities and determination of their eligibility for investment under the laws of such jurisdictions as the managing underwriters or holders of a majority of the Registrable Securities being sold may designate), printing expenses, messenger, telephone and delivery expenses, and fees and disbursements of counsel for the Company and for the sellers of the Registrable Securities (subject to the provisions of Section 6(b) hereof) and of all independent certified public accountants of the Company (including the expenses of any special audit and "cold comfort" letters required by or incident to such performance), underwriters (excluding discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Registrable Securities or legal expenses of any Person other than the Company and the selling holders), securities acts liability insurance if the Company so desires and fees and expenses of other Persons retained by the Company (all such expenses being herein called "Registration Expenses") will be borne by the Company, regardless whether the Registration Statement becomes effective. The Company will, in any event, pay its internal expenses (including, without limitation, all sal- 9 aries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed, rating agency fees and the fees and expenses of any Person, including special experts, retained by the Company. b. In connection with each Registration Statement to be filed hereunder, the Company will reimburse the holders of Registrable Securities being registered in such registration for the reasonable fees and disbursements of not more than one counsel (or more than one counsel if a conflict exists among such selling holders in the exercise of the reasonable judgment of counsel for the selling holders and counsel for the Company) chosen by the holders of a majority in principal amount of such Registrable Securities. 6. Indemnification. --------------- a. Indemnification by Company. The Company agrees to indemnify and -------------------------- hold harmless, to the full extent permitted by law, each holder of Registrable Securities, its officers, directors and employees and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary Prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the Registration Statement or Prospectus after the Company has furnished such holder with a sufficient number of copies of the same. The Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities, if requested. b. Indemnification by Holder of Registrable Securities. In connection --------------------------------------------------- with each registration pursuant to the terms of this Agreement, each holder of Registrable Securities will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any Registration Statement or Prospectus and agrees to indemnify and hold harmless, to the full extent permitted by law, the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities 10 and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary Prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder to the Company specifically for inclusion in such Registration Statement or Prospectus. In no event shall the liability of any selling holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds received by such holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement. c. Conduct of Indemnification Proceedings. Any Person entitled to -------------------------------------- indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assure the defense of such claim and employ counsel reasonably satisfactory to such Person or (c) in the reasonable judgment of any such Person, based upon advice of its counsel, a conflict of interest may exist between such Person and the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will be required to consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between 11 such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. d. Contribution. If for any reason the indemnification provided for ------------ in the preceding clauses (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless as contemplated by the preceding clauses (a) and (b), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that the Purchaser shall not be required to contribute in an amount greater than the dollar amount of the proceeds received by the Purchaser with respect to the sale of any of its Registrable Securities. 7. Rule 144. The Company covenants that it will file the reports -------- required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any holder of Registrable Securities made after July 18, 1991, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 under the Securities Act), and it will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with such information and requirements. 8. Participation in Underwritten Registration. If any of the ------------------------------------------ Registrable Securities covered by any of the registrations by the Company are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the holders of a majority of the aggregate number of shares of such Registrable Securities included in such offering; provided that such investment bankers and managers must be reasonably satisfactory to the Company. No Person may participate in any underwritten registration hereunder unless such Person (a) agrees to sell such Person's securities,on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to 12 approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. Nothing in this Section 8 shall be construed to create any additional rights regarding the registration of Registrable Securities in any Person otherwise than as set forth herein. 9. Miscellaneous. ------------- a. Remedies. If the Company shall breach its obligations to register -------- the Registrable Securities pursuant to this Agreement, each holder of Registrable Securities, shall be entitled to exercise all rights provided herein or granted by law, including recovery of damages. In addition, such holder shall be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. b. No Inconsistent Agreements. The Company will not on or after the -------------------------- date of this Agreement enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The Company has not previously entered into any agreement with respect to its securities granting any registration rights to any Person other than with respect to the shares of common stock, par value $0.01 per share, of the Company held by certain members of management of the operating subsidiary of the Company, and included in a "Piggyback" Registration as provided for in Section 5 of each of the Management Subscription Agreements, dated as of the date hereof, between such members of management and the Company. c. Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of holders of at least 66-2/3% of the principal amount of the outstanding Registrable Securities. d. Notices. All notices and other communications provided for or ------- permitted hereunder shall be made as set forth in Section 7 of the Common Stock Purchase Agreement. e. Successors and Assigns. This Agreement shall ---------------------- inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent holders of Registrable Securities. 13 f. Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. g. Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. h. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the internal laws of the State of New York. i. Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. j. 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 registration rights granted by the Company with respect to the securities sold pursuant to the Common Stock Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. k. Attorneys' Fees. In any action or proceeding brought to enforce --------------- any provision of this Agreement, the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. The Company: COMMUNICATIONS INSTRUMENTS HOLDINGS, INC. By: /s/ Michael S. Bruno, Jr. ------------------------- Michael S. Bruno, Jr. President Purchaser: CII ASSOCIATES, L.P. By: /s/ Harrison M. Wilson ------------------------- Harrison M. Wilson General Partner 15 EX-10.5 5 EMPLOYMENT AGREEMENT WITH RAMZI DABBAGH EXHIBIT 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into this ___ day of May, 1993, by and between COMMUNICATIONS INSTRUMENTS, INC., an Illinois corporation (the "Company"), and RAMZI A. DABBAGH (the "Employee"). R E C I T A L S - - - - - - - - WHEREAS, the parties desire to define the duties and responsibilities of each of the parties hereto, and the Company desires to employ the Employee only upon the terms and conditions hereafter stated; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto do hereby agree as follows: 1. EXCLUSIVE EMPLOYMENT; DUTIES; COMPENSATION TERM. The Company hereby agrees to employ the Employee in its business pursuant to the terms and conditions set forth herein and the Employee agrees to devote the Employee's exclusive time, attention and skill to the business of the Company. The Employee's duties with the Company shall be to serve as President or such other duties as the Board of Directors of the Company shall from time to time direct. The Employee agrees not to accept other employment that would conflict with the performance of the duties prescribed by the Company during the term of this Agreement, except with the written consent of the Company. The Employee also shall receive an annual base salary of $150,000, payable in monthly installments. Employee shall be entitled to participate in a bonus pool based upon the performance of the Company as established by the Board of Directors, from time to time. The term of this Agreement shall commence on the date hereof and terminate with the fifth anniversary of such date. This agreement may be terminated immediately by the Company "for cause" or within three months after the death of disability of Employee, which shall all be determined in good faith by the Board of Directors of the Company. The Employee shall also be entitled to participate in those employee benefit plans and other benefits and incentives as the Board of Directors of the Company shall determine. 2. MANNER OF PERFORMANCE OF EMPLOYEE'S DUTIES. Employee shall at all times faithfully, industriously and to the best of Employee's ability, experience and talent perform all duties that may be required of and from him pursuant to the terms 2 hereof. Such duties shall be rendered at such places as the Company shall in good faith require or as the interests, needs, business and opportunities of the Company shall require or make advisable. 3. RESTRICTIONS ON EMPLOYEE AUTHORITY. Employee shall only have any authority to make, enter into or agree to make or enter into any contracts, commitments or obligations on behalf of the Company as directed by the Board of Directors. 4. ASSIGNMENT OF CERTAIN RIGHTS. In consideration of employment and other benefits of value, the employee, on the Employee's behalf and on behalf of the Employee's heirs and representatives, agrees to assign and transfer and hereby assigns and transfers to the Company, its successors and assigns, as applicable, all of the Employee's right, title and interest in and to any inventions, discoveries, developments, improvements, techniques, designs, data, processes, procedures, systems and all other work products, whether tangible or intangible, that the Employee, either solely or jointly with others, has conceived, created during employment with the Company, and which relate in any manner to any of the business, services or products, techniques, processes or procedures, products, designs, data or systems of the Company and/or any of its Affiliates. The Employee further agrees that, upon the termination of the employment of the Employee for any reason, to immediately return any of the foregoing and any information or copies of information to any of the foregoing to the Company. 5. TRADE SECRETS; CONFIDENTIALITY. a. "Trade Secrets" as used herein means trade secrets, plans, programs, processes, procedures and manners of operation, assignment confirmation booklets, computer systems, customized software, management information systems, call accounting reports, department manuals, customers, customer lists, client prospects, financial, statistical and accounting data, methods and type of recruitment and placement services, methods of service preferred by clients and placement candidates (including both employees and independent contractors), ideas, marketing programs, fees paid by clients, fees, salaries and bonuses to placement candidates, work assignments and capabilities of officers and employees, documents, agreements, contracts and other arrangements, personnel information, matters of internal organization and other confidential information, in each case, of the Company and/or any of its Affiliates; b. The Employee hereby acknowledges that the Trade Secrets, all of which are original or proprietary with the Company, its Affiliates, and/or their founders or shareholders, 3 regardless of whether such information is considered to be confidential or proprietary by third parties, were developed only after great effort and expense by the Company, its Affiliates, founders and/or shareholders, are considered by them to be confidential and substantially affect the effective and successful conduct of the business and goodwill of the Company and/or its Affiliates. The Company and its Affiliates exercise substantial efforts to maintain the secrecy of the Trade Secrets, which derive independent economic value from not being generally known and readily ascertainable by proper means by others who can obtain economic value from their disclosure or use. c. The Employee shall not, both during the term of this Agreement or at any time after its termination (regardless of the manner of validity of termination), at any time or in any form, manner, or fashion, either directly or indirectly, disseminate, divulge, disclose, use or communicate any Trade Secrets to any person, firm, corporations, association, entity or organization (collectively, "Organization"). No business conducted by Employee or any Organization of which Employee, directly or indirectly, is an owner, officer, director or partner, shareholder, employee, agent, advisor or consultant in any state or country in which the Company and/or any of its Affiliates conduct business shall use any name, designation or logo which is substantially similar to that presently used by the Company and/or any of its Affiliates. Upon the termination of Employee's employment with the Company, the Employee (regardless of the manner or validity of termination) shall immediately return to the Company any and all Trade Secrets and other information and property obtained from or relating to the Company and/or any of its Affiliates or to which the Employee has access in good condition, normal wear and tear accepted. d. The Employee shall not, both during the term hereof or for a period of one (1) year thereafter, discuss the terms of this Agreement or the Employee's compensation with the Company with any other employee of the Company or any person whom the Employee reasonably believes would directly or indirectly communicate such information to any other employee of the Company. The Employee further agrees not to at any time remove any Trade Secrets from the Company's premises without the prior written approval of a director of the Company. 6. NON-COMPETE. "Business" as used herein means the business of Employer which Employee performs his works. The Employee further agrees that during the term of this Agreement and for a period of one (1) year following its termination (regardless of the manner or validity of termination), the Employee will not, directly or indirectly, become or remain interested in, associated with, employed by, an owner, officer, director, partner, shareholder, employee, agent, advisor or 4 consultant in or indebted to any Organization that is engaged in the Business similar to that of the Company's and/or any of its Affiliates. Employee has come in contact or provided services to during the course of the Employee's employment with the Company, or which the Employee, during the course of such employment, became aware that the Company has provided services to. The Employee acknowledges that because of the Employee's access to the Company's and its Affiliates' Trade Secrets and other confidential information, a violation of this covenant will cause irreparable injury to the Company and its Affiliates. 7. Nonsolicitation of Customers or Clients. Notwithstanding any other provisions hereof, the Employee shall not, during the term of this Agreement and for a period of one (1) year following its termination (regardless of the manner or validity of termination), at any time or in any manner, either directly or indirectly, for the Employee's own behalf or for or on behalf of any Organization (other than the Company and/or its Affiliates), solicit or attempt to solicit any business similar to the Business from any customers or clients of the Company and/or any of its Affiliates or divert or attempt to divert any Business from the Company and/or any of its Affiliates. A "customer" or "client" shall mean any Organization with which the Company and/or any of its Affiliates have dealt with or provided services to, regardless of whether such Organization was solicited or provided services by the Employee at any time during such employment, whether during the usual hours of employment or otherwise. 8. Nonsolicitation of Employees. Notwithstanding any other provision of this Agreement, the Employee agrees that during the term of this Agreement and for a period of one (1) year following its termination (regardless of the manner or validity of termination) at any time or in any manner, either on the Employee's own behalf or for or on behalf of any Organization (other than the company and/or its Affiliates), directly or indirectly , solicit, divert or otherwise encourage or attempt to solicit, divert or otherwise encourage employees or agents of the Company and/or any of its Affiliates to enter into any employment, consulting or advisory arrangement or contract with or to perform any services for or on behalf of the Employee or any Organization (other than the Company and/or any of its Affiliates), or to enter into any kind of business, including without limitation the Business or any similar business unless such employee or former employee has been employed by the Company for a period in excess of twelve (12) months. 9. Financial or Other Interest. The Company shall be entitled to all benefits and profits arising from or incident to any and all work, services and advice of Employee while employed by the Company. The Employee agrees that while employed by the 5 Company the Employee will not have a direct or indirect financial or other interest in a privately-owned Organization, or a direct or indirect substantial financial or other interest in a Publicly-Owned Organization, either of which is a current or potential supplier of goods or services, a customer or client, or competitor of the Company and/or any of its Affiliates, unless the circumstances are fully disclosed in writing to a director of the Company and written approval is obtained from such director. A "substantial" interest in a Publicly-Owned Organization means an ownership interest having a market value of $100,000 or more, or a one percent or greater ownership interest in such Organization, whichever is less. 10. Gifts and Entertainment. The Employee agrees that while employed by the Company the Employee will not accept, directly or indirectly, any loan, gift, gratuity, favor or entertainment of more than normal value from any persons with whom the Company has an existing or a potential relationship as a supplier of goods or services, a customer or competitor. If the Employee is offered anything with a value of more than $50, the Employee must immediately report such offer to the Employee's immediate supervisor. 11. Use of Company Property. The Employee agrees that while employed by the Company the Employee shall (i) protect and conserve Company property including equipment, supplies and any other property entrusted to the Employee and (ii) not directly or indirectly, use, or allow the use of, Company property of any kind (including property leased to the Company), for other than Company activities, except with the authorization of a director of the Company. 12. Sensitive Payments. The Employee agrees that while employed by the Company the Employee will not, for any purpose, accept any kickback or payment of cash or other consideration which may be deemed to be illegal or improper. 13. Financial and Other Books and Records. If the Employee is responsible for the completeness and correctness of financial and other books and records, the Employee is required to enter all assets, liabilities, payments and disbursements on such books in accordance with generally accepted accounting principles, as well as with the established practices and policies of the Company, and in a manner that will reflect the nature and purpose as well as the amount thereof. In this connection, the Employee shall not bypass established internal control procedures, or make any false or artificial entries in the books and records for any reason, and the Employee shall not participate in any procedures that result in such prohibited acts. 6 14. Prior Agreements. The employee hereby represents that the Employee is not restricted by any prior agreement(s) with any other party or parties which would, in any way, conflict with or prevent the execution of the responsibilities that pertain to the Employee's position with the Company. 15. Disabilities/Limitations. The Employee hereby attests that the Employee does not have any physical, mental or medical impairments which would interfere with the Employee's ability to perform the job for which the Employee was hired. 16. Miscellaneous. a. Employee has carefully read and considered the provisions of this Agreement and, having done so agrees that the restrictions set forth herein (including without limitation, the time period of restrictions set forth in Sections 6,7 and 8 hereof) are fair and reasonable and are reasonably required for the protection of the interests of the Company, its Affiliates, founders, directors, officers and other employees and to prevent irreparable harm to the foregoing. b. The parties agree that the covenants of the Employee herein are material parts of the consideration received by the Company for entering into this Agreement and employing the Employee and conditions to such employment and that any breach of Sections 3-13 of this Agreement by the Employee will result in irreparable injury to the Company. For that reason and because the actual damages that might be sustained by the Company and/or any of its Affiliates might be difficult, if not impossible to ascertain and may not be adequate to redress any injuries, the Company shall, in addition to any and all other remedies provided by law or otherwise, be entitled to an injunction to prevent a breach or contemplated breach of any covenant of the Employee contained herein. c. Each of the covenants herein is independent and severable. Each such covenant shall remain in full force and effect regardless of the enforceability of any other covenant herein, or of the breach thereof by either party. If it shall be determined at any time by any court of competent jurisdiction that any provision of this Agreement or any portion thereof is unenforceable, or that any provision relating to time period or area of restriction exceeds the maximum time period or areas such court deems reasonable, then such portions as shall have been determined to be unreasonably restrictive or unenforceable or to exceed the maximum reasonable time period or area or restriction shall thereupon be deemed to be so amended as to make such restrictions reasonable in the determination of such court or to become and thereafter be the maximum time period and/or areas which such court deems reasonable and enforceable and the 7 provision, as so amended, shall be enforceable between the parties to the same extent as if such amendment had been made prior to the date of any alleged breach of such provision. d. Employee shall not delegate the Employee's employment obligation pursuant to this Agreement to any other person. Employee agrees to perform all acts necessary to enable the Company to learn of and protect the rights it receives under this Agreement, including without limitation making full and immediate disclosure to the Company and assisting in the preparation and execution of all documents required to acquire and convey to the Company the rights obtained hereunder and under applicable law. e. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings between the Employee and the Company with respect thereto. No understandings exist between the parties other than as expressed herein. This Agreement may be amended or modified only by written agreement executed by all of the parties hereto. The provisions of this Agreement shall survive the termination of this Agreement, except that the Company and the Employee shall have no further obligations under Sections 1 and 2 hereof other than the Company's obligations to pay the compensation, if any, due to Employee. f. This Agreement is to be considered an agreement entered into and delivered in the State of Illinois. The validity, interpretation, construction, effect and enforcement of this Agreement shall be governed by the laws of the State of Illinois. The Employee (1) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted exclusively in Cook County, Illinois, (2) waives any objection that the Employee may have now or hereafter to the venue of any such suit, action or proceeding and (3) irrevocably consents to the jurisdiction of the Illinois state courts located in Cook County, and the United Stated District Court for the Eastern District of Illinois in any such suit, action or proceeding. The Employee further agrees to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding and agrees that service of process upon the Employee mailed by certified mail to the Employee's address shall be deemed in every respect effective service of process upon the Employee, in any such suit, action or proceeding. 17. If either party waives a breach of this Agreement or fails to exercise any right under this Agreement, such waiver or failure to exercise rights shall not be construed as a waiver 8 of any subsequent breach or right under this Agreement, or affect the party's rights thereafter to exercise such rights. IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. COMPANY: COMMUNICATIONS INSTRUMENTS, INC ATTEST: - ----------------------------- By--------------------------- ---------- Secretary Vice President Date EMPLOYEE: _____________________________ _____________________________ __________ Witness Ramzi A. Dabbagh Date EX-10.6 6 EMPLOYMENT AGREEMENT WITH G. DANIEL TAYLOR EXHIBIT 10.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into this __ day of May, 1993, by and between COMMUNICATIONS INSTRUMENTS, INC., an Illinois corporation (the "Company"), and G. DAN TAYLOR (the "Employee"). R E C I T A L S --------------- WHEREAS, the parties desire to define the duties and responsibilities of each of the parties hereto, and the Company desires to employ the Employee only upon the terms and conditions hereafter stated; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto do hereby agree as follows: 1. EXCLUSIVE EMPLOYMENT; DUTIES; COMPENSATION TERM. The Company hereby agrees to employ the Employee in its business pursuant to the terms and conditions set forth herein and the Employee agrees to devote the Employee's exclusive time, attention and skill to the business of the Company. The Employee's duties with the Company shall be to serve as Executive Vice President or such other duties as the Board of Directors of the Company shall from time to time direct. The Employee agrees not to accept other employment that would conflict with the performance of the duties prescribed by the Company during the term of this Agreement, except with the written consent of the Company. The Employee also shall receive an annual base salary of $100,000, payable in monthly installments. Employee shall be entitled to participate in a bonus pool based upon the performance of the Company as established by the Board of Directors, from time to time. The term of this Agreement shall commence on the date hereof and terminate with the fifth anniversary of such date. This agreement may be terminated immediately by the Company "for cause" or within three months after the death or disability of Employee, which shall all be determined in good faith by the Board of Directors of the Company. The Employee shall also be entitled to participate in those employee benefit plans and other benefits and incentives as the Board of Directors of the Company shall determine. 2 2. MANNER OF PERFORMANCE OF EMPLOYEE'S DUTIES. Employee shall at all times faithfully, industriously and to the best of Employee's ability, experience and talent perform all duties that may be required of and from him pursuant to the terms hereof. Such duties shall be rendered at such places as the Company shall in good faith require or as the interests, needs, business and opportunities of the Company shall require or make advisable. 3. RESTRICTIONS ON EMPLOYEE AUTHORITY. Employee shall only have any authority to make, enter into or agree to make or enter into any contracts, commitments or obligations on behalf of the Company as directed by the Board of Directors. 4. ASSIGNMENT OF CERTAIN RIGHTS. In consideration of employment and other benefits of value, the employee, on the Employee's behalf and on behalf of the Employee's heirs and representatives, agrees to assign and transfer and hereby assigns and transfers to the Company, its successors and assigns, as applicable, all of the Employee's right, title and interest in and to any inventions, discoveries, developments, improvements, techniques, designs, data, processes, procedures, systems and all other work products, whether tangible or intangible, that the Employee, either solely or jointly with others, has conceived, made, acquired, suggested, reduced to practice, or otherwise created during employment with the Company, and which relate in any manner to any of the business, services or products, techniques, processes or procedures, products, designs, data or systems of the Company and/or any of its Affiliates. The Employee further agrees that, upon the termination of the employment of the Employee for any reason, to immediately return any of the foregoing and any information or copies of information to any of the foregoing to the Company. 5. TRADE SECRETS; CONFIDENTIALITY. a. "Trade Secrets" as used herein means trade secrets, plans, programs, processes, procedures and manners of operation, assignment confirmation booklets, computer systems, customized software, management information systems, call accounting reports, departmental manuals, customers, customer lists, client prospects, financial, statistical and accounting data, methods and type of recruitment and placement services, methods of service preferred by clients and placement candidates (including both employees and independent contractors), ideas, marketing programs, fees paid by clients, fees, salaries and bonuses to placement candidates, work assignments and capabilities of officers and employees, documents, agreements, contracts and other arrangements, personnel information, matters of internal organization and other confidential information, in each case, of the Company and/or any of its Affiliates; 3 b. The Employee hereby acknowledges that the Trade Secrets, all of which are original or proprietary with the Company, its Affiliates, and/or their founders or shareholders, regardless of whether such information is considered to be confidential or proprietary by third parties, were developed only after great effort and expense by the Company, its Affiliates, founders and/or shareholders, are considered by them to be confidential and substantially affect the effective and successful conduct of the business and goodwill of the Company and/or its Affiliates. The Company and its Affiliates exercise substantial efforts to maintain the secrecy of the Trade Secrets, which derive independent economic value from not being generally known and readily ascertainable by proper means by others who can obtain economic value from their disclosure or use. c. The Employee shall not, both during the term of this Agreement or at any time after its termination (regardless of the manner of validity of termination), at any time or in any form, manner, or fashion, either directly or indirectly, disseminate, divulge, disclose, use or communicate any Trade Secrets to any person, firm, corporation, association, entity or organization (collectively, "Organization"). No business conducted by Employee or any Organization of which Employee, directly or indirectly, is an owner, officer, director or partner, shareholder, employee, agent, advisor or consultant in any state or country in which the Company and/or any of its Affiliates conduct business shall use any name, designation or logo which is substantially similar to that presently used by the Company and/or any of its Affiliates. Upon the termination of Employee's employment with the Company, the Employee (regardless of the manner or validity of termination) shall immediately return to the Company any and all Trade Secrets and other information and property obtained from or relating to the Company and/or any of its Affiliates or to which the Employee has access in good condition, normal wear and tear accepted. d. The Employee shall not, both during the term hereof or for a period of one (1) year thereafter, discuss the terms of this Agreement or the Employee's compensation with the Company with any other employee of the Company or any person whom the Employee reasonably believes would directly or indirectly communicate such information to any other employee of the Company. The Employee further agrees not to at any time remove any Trade Secrets from the Company's premises without the prior written approval of a director of the Company. 6. NON-COMPETE. "Business" as used herein means the business of Employer which Employee performs his works. The Employee further agrees that during the term of this Agreement and for a period of one (1) year following its termination (regardless of the manner or validity of termination), the 4 Employee will not, directly or indirectly, become or remain interested in, associated with, employed by, an owner, officer, director, partner, shareholder, employee, agent, advisor or consultant in or indebted to any Organization that is engaged in the Business similar to that of the Company's and/or any of its Affiliates. Employee has come in contact or provided services to during the course of the Employee's employment with the Company, or which the Employee, during the course of such employment, became aware that the Company has provided services to. The Employee acknowledges that because of the Employee's access to the Company's and its Affiliates' Trade Secrets and other confidential information, a violation of this covenant will cause irreparable injury to the Company and its Affiliates. 7. NONSOLICITATION OF CUSTOMERS OR CLIENTS. Notwithstanding any other provisions hereof, the Employee shall not, during the term of this Agreement and for a period of one (1) year following its termination (regardless of the manner or validity of termination), at any time or in any manner, either directly or indirectly, for the Employee's own behalf or for or on behalf of any Organization (other than the Company and/or its Affiliates), solicit or attempt to solicit any business similar to the Business from any customers or clients of the Company and/ or any of its Affiliates or divert or attempt to divert any Business from the Company and/or any of its Affiliates. A "customer" or "client" shall mean any Organization with which the Company and/or any of its Affiliates have dealt with or provided services to, regardless of whether such Organization was solicited or provided services by the Employee at any time during such employment, whether during the usual hours of employment or otherwise. 8. NONSOLICITATION OF EMPLOYEES. Notwithstanding any other provision of this Agreement, the Employee agrees that during the term of this Agreement and for a period of one (1) year following its termination (regardless of the manner or validity of termination) at any time or in any manner, either on the Employee's own behalf or for or on behalf of any Organization (other than the Company and/or its Affiliates), directly or indirectly, solicit, divert or otherwise encourage or attempt to solicit, divert or otherwise encourage employees or agents of the Company and/or any of its Affiliates to enter into any employment, consulting or advisory arrangement or contract with or to perform any services for or on behalf of the Employee or any organization (other than the Company and/or any of its Affiliates), or to enter into any kind of business, including without limitation the Business or any similar business unless such employee or former employee has been employed by the Company for a period in excess of twelve (12) months. 5 9. FINANCIAL OR OTHER INTEREST. The Company shall be entitled to all benefits and profits arising from or incident to any and all work, services and advice of Employee while employed by the Company. The Employee agrees that while employed by the Company the Employee will not have a direct or indirect financial or other interest in a privately-owned Organization, or a direct or indirect substantial financial or other interest in a Publicly-Owned Organization, either of which is a current or potential supplier of goods or services, a customer or client, or competitor of the Company and/or any of its Affiliates, unless the circumstances are fully disclosed in writing to a director of the Company and written approval is obtained from such director. A "substantial" interest in a Publicly-Owned Organization means an ownership interest having a market value of $100,000 or more, or a one percent or greater ownership interest in such Organization, whichever is less. 10. GIFTS AND ENTERTAINMENT. The Employee agrees that while employed by the Company the Employee will not accept, directly or indirectly, any loan, gift, gratuity, favor or entertainment of more than normal value from any persons with whom the Company has an existing or a potential relationship as a supplier of goods or services, a customer or competitor. If the Employee is offered anything with a value of more than $50, the Employee must immediately report such offer to the Employee's immediate supervisor. 11. USE OF COMPANY PROPERTY. The Employee agrees that while employed by the Company the Employee shall (i) protect and conserve Company property including equipment, supplies and any other property entrusted to the Employee and (ii) not directly or indirectly, use, or allow the use of, Company property of any kind (including property leased to the Company), for other than Company activities, except with the authorization of a director of the Company. 12. SENSITIVE PAYMENTS. The Employee agrees that while employed by the Company the Employee will not, for any purpose, accept any kickback or payment of cash or other consideration which may be deemed to be illegal or improper. 13. FINANCIAL AND OTHER BOOKS AND RECORDS. If the Employee is responsible for the completeness and correctness of financial and other books and records, the Employee is required to enter all assets, liabilities, payments and disbursements on such books in accordance with generally accepted accounting principles, as well as with the established practices and policies of the Company, and in a manner that will reflect the nature and purpose as well as the amount thereof. In this connection, the Employee shall not bypass established internal control procedures, or make any false or artificial entries in 6 the books and records for any reason, and the Employee shall not participate in any procedures that result in such prohibited acts. 14. PRIOR AGREEMENTS. The Employee hereby represents that the Employee is not restricted by any prior agreement(s) with any other party or parties which would, in any way, conflict with or prevent the execution of the responsibilities that pertain to the Employee's position with the Company. 15. DISABILITIES/LIMITATIONS. The Employee hereby attests that the Employee does not have any physical, mental or medical impairments which would interfere with the Employee's ability to perform the job for which the Employee was hired. 16. MISCELLANEOUS. a. Employee has carefully read and considered the provisions of this Agreement and, having done so agrees that the restrictions set forth herein (including without limitation, the time period of restrictions set forth in Sections 6, 7 and 8 hereof) are fair and reasonable and are reasonably required for the protection of the interests of the Company, its Affiliates, founders, directors, officers and other employees and to prevent irreparable harm to the foregoing. b. The parties agree that the covenants of the Employee herein are material parts of the consideration received by the Company for entering into this Agreement and employing the Employee and conditions to such employment and that any breach of Sections 3 - 13 of this Agreement by the Employee will result in irreparable injury to the Company. For that reason and because the actual damages that might be sustained by the Company and/or any of its Affiliates might be difficult, if not impossible to ascertain and may not be adequate to redress any injuries, the Company shall, in addition to any and all other remedies provided by law or otherwise, be entitled to an injunction to prevent a breach or contemplated breach of any covenant of the Employee contained herein. c. Each of the covenants herein is independent and severable. Each such covenant shall remain in full force and effect regardless of the enforceability of any other covenant herein, or of the breach thereof by either party. If it shall be determined at any time by any court of competent jurisdiction that any provision of this Agreement or any portion thereof is unenforceable, or that any provision relating to time period or area of restriction exceeds the maximum time period or areas such court deems reasonable, then such portions as shall have been determined to be unreasonably restrictive or unenforceable or to exceed the maximum reasonable time period or area or restriction 7 shall thereupon be deemed to be so amended as to make such restrictions reasonable in the determination of such court or to become and thereafter be the maximum time period and/or areas which such court deems reasonable and enforceable and the provision, as so amended, shall be enforceable between the parties to the same extent as if such amendment had been made prior to the date of any alleged breach of such provision. d. Employee shall not delegate the Employee's employment obligation pursuant to this Agreement to any other person. Employee agrees to perform all acts necessary to enable the Company to learn of and protect the rights it receives under this Agreement, including without limitation making full and immediate disclosure to the Company and assisting in the preparation and execution of all documents required to acquire and convey to the Company the rights obtained hereunder and under applicable law. e. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings between the Employee and the Company with respect thereto. No understandings exist between the parties other than as expressed herein. This Agreement may be amended or modified only by written agreement executed by all of the parties hereto. The provisions of this Agreement shall survive the termination of this Agreement, except that the Company and the Employee shall have no further obligations under Sections 1 and 2 hereof other than the Company's obligations to pay the compensation, if any, due to Employee. f. This Agreement is to be considered an agreement entered into and delivered in the State of Illinois. The validity, interpretation, construction, effect and enforcement of this Agreement shall be governed by the laws of the State of Illinois. The Employee (1) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted exclusively in Cook County, Illinois, (2) waives any objection that the Employee may have now or hereafter to the venue of any such suit, action or proceeding, and (3) irrevocably consents to the jurisdiction of the Illinois state courts located in Cook County, and the United States District Court for the Eastern District of Illinois in any such suite action or proceeding. The Employee further agrees to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding and agrees that service of process upon the Employee mailed by certified mail to the Employee's address shall be deemed in every respect effective service of process upon the Employee, in any such suit, action or proceeding. 8 17. If either party waives a breach of this Agreement or fails to exercise any right under this Agreement, such waiver or failure to exercise rights shall not be construed as a waiver of any subsequent breach or right under this Agreement, or affect the party's rights thereafter to exercise such rights. IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. COMPANY: COMMUNICATIONS INSTRUMENTS, INC. ATTEST: /s/ Harrison M. Wilson By /s/ - -------------------------- ----------------------- ------------ Secretary Vice President Date EMPLOYEE: /s/ /s/ G. Dan Tayor - --------------------------- ------------------------- ------------ Witness G. Dan Tayor Date EX-10.7 7 EMPLOYMENT AGREEMENT WITH DOUGLAS CAMPBELL EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of October 11, 1995 between COMMUNICATIONS INSTRUMENTS, INC., a North Carolina corporation, and any successor by merger or reorganization ("Employer"), and DOUGLAS L. CAMPBELL ("Employee") with reference to the following facts: A. Employee has served as President of Kilovac Corporation. B. Kilovac Corporation has become a subsidiary of Employer. C. Employer now desires to continue the employment of Employee on the terms stated herein. NOW, THEREFORE, IN CONSIDERATION OF the foregoing facts and the mutual agreements set forth below, the parties agree as follows: 1. Employment. Employer hereby employs Employee, and Employee hereby ---------- accepts employment, in such positions as designated by the Board of Directors of Employer, for the period from the date hereof until the earlier of December 31, 1996 or the termination of his employment pursuant to Section 5. Employee's place for employment shall be Kilovac's facility in Carpenteria, California subject to ordinary and necessary business travel. 2. Services. During the term of his employment, Employee shall devote -------- substantially full time and his best efforts, knowledge and skill to the operation, promotion and advancement of Employer's business. The specific duties of Employee shall be designated from time to time by the Board of Directors of Employer. Employee further covenants and agrees that he will not, directly or indirectly, engage or participate in any activities at any time during the term of this Agreement in conflict with the best interests of Employer. 3. Salary and Benefits. During the term of employment, Employer shall ------------------- (i) pay Employee an annual salary of $150,000 payable in equal installments in accordance with Employer's normal payroll practices, (ii) provide Employee with all other fringe benefits which Employer may from time to time afford key employees of Kilovac Corporation, (iii) permit Employee four weeks of vacation during each fiscal year of the Employer, and (iv) include Employee in any stock option and bonus programs afforded key employees of Kilovac Corporation. On termination of Employee's employment for any reason other than Employee's termination under Sections 4.1, Employee shall be entitled to receive the balance of his and benefits (at no cost to Employee) until December 31, 1996. 2 4. Termination. ----------- 4.1 Misconduct. Employer may terminate this Agreement immediately in ---------- the event of Employee's personal dishonesty, gross negligence, willful misconduct or breach of fiduciary duty involving personal profit, intentional and habitual failure to perform stated duties or willful violation of any law, rule or regulation applicable to the business of Employer. 4.2 Breach. Employer may terminate this Agreement upon thirty days ------ notice to Employee if Employee shall be in material breach of any provision of this Agreement, which breach shall remain uncured at the expiration of such 30 day period. 4.3 Disability. Employer may terminate this Agreement upon ninety days, ---------- notice to Employee in the event that prior to the giving of such notice Employee shall have been totally or partially, physically or mentally, disabled for a period of at least ninety days where such disability shall have been of a nature which had prevented Employee from discharging his duties under this Agreement for such ninety-day period. 4.4 Other. Employer may terminate this Agreement for any reason upon ----- ninety days' notice to Employee. 5. Service as Consultant. If requested by Employer, Employee agrees to --------------------- serve as a consultant to Employer for a period of up to 12 months after the termination of his employment with Employer. Employee shall not be required to devote more than the equivalent of five business days per month to his service as consultant. Compensation and other terms of service shall be mutually agreed upon by Employer and Employee. 6. Disclosure of Information. Employee acknowledges that in and as a ------------------------- result of his employment or service as consultant hereunder Employee may be making use of, acquiring or adding to confidential information of a special and unique nature and value relating to such matters as Employer's trade secrets, systems, procedures, manuals, formulas, confidential reports and lists of clients, as well as the nature and type of products by Employer, the equipment and methods used and preferred by Employer's customers, and the prices paid by them. As a material inducement to Employer to enter into this Agreement and to pay to Employee the compensation stated herein, Employee covenants and agrees that Employee shall not, at any time during or following the term of this Agreement, directly or indirectly, divulge or disclose for any purpose whatsoever any confidential information that has been obtained by, or disclosed to, Employee as a result of Employee's employment by or service as consultant to Employer. 7. Inventions. Employee shall promptly disclose to Employer all ---------- inventions, discoveries and improvements, whether patentable or not (an "Invention"), conceived or made by Employee during the term of employment, and hereby assigns all rights 3 thereto to Employer. EMPLOYEE SHALL NOT BE REQUIRED TO ASSIGN ANY RIGHTS TO A INVENTION FOR WHICH NO EMPLOYER EQUIPMENT, SUPPLIES OR FACILITY, OR CONFIDENTIAL INFORMATION WAS USED IF SUCH INVENTION WAS DEVELOPED ENTIRELY ON EMPLOYEE'S OWN TIME AND (i) DOES NOT RELATE TO THE BUSINESS OF EMPLOYER OR TO EMPLOYER'S ACTUAL OR ANTICIPATED RESEARCH OR DEVELOPMENT OR (ii) DOES NOT RESULT FROM ANY WORK PERFORMED BY EMPLOYEE FOR EMPLOYER. Employee will cooperate with Employer to obtain patents on the inventions for Employer in the United States and all foreign countries. Employee also will assign to Employer Employee's rights in any Inventions where Employer is required to grant those rights to the United States government or any agency thereof. Employee hereby grants Employer the right, at its option, to keep the Inventions as trade secrets. For purposes of this Agreement, an Invention is deemed to have been made during the term of his employment if, during such period, the invention was conceived or first actually reduced to practice. Any patent application filed within one year after termination of his employment shall be presumed by the parties to relate to an Invention which was made during the term of his employment. Employee will execute any and all additional assignments or documents that Employer may request to effect the purposes of this Section 7. For purposes of this Section, "Confidential Information" shall mean information or material proprietary to Employer or designated as Confidential Information by Employer and not generally known by non-Employer personnel, of or to which Employee may obtain knowledge or access through or as a result of Employee's relationship with Employer or access to Employer's premises. Confidential Information includes, but is not limited to, the following types of information and other information of a similar nature (whether or not reduced to writing): trade secret information, discoveries, ideas, concepts, formulas, software in various stages of development, designs, drawings, specifications, techniques, models, data, source code, object code, documentation, diagrams, flow charts, research, development, processes, procedures, "know-how", marketing techniques and materials, marketing and development plans, customer names and other information related to customers, price lists, pricing policies and financial information. Confidential Information also includes any information described above which Employer obtains from another party and which Employer treats as proprietary or designates as Confidential Information, whether or not owned or developed by Employer. 8. Covenant Not To Compete. Employee will not during the term of this ----------------------- Agreement and for a period of five years after the termination of his employment in any manner, directly or indirectly, alone or jointly, with or as an agent for, or as an employee of, any person or persons, firms or corporations, own, manage, operate, control, participate in or be connected with or be interested in as an investor, creditor, manager, partner, shareholder, proprietor or otherwise, or provide services, advice or other assistance to, any occupation, interest or business competitive with the businesses of Employer. During the term of 4 this Agreement, and at any time thereafter, Employee will not disrupt, damage, impair or interfere with the businesses of Employer whether by way of interfering with or seeking to employ its employees, disrupting its relationship with customers, agents, representatives or vendors or otherwise. 9. Surrender of Books and Records. Employee shall on the termination of ------------------------------ his employment in any manner immediately surrender to Employer all lists, books, and records and other documents incident to Employer's business and all other property belonging to Employer, it being distinctly understood that all such lists, books, records and other documents are the property of Employer. 10. Waiver of Breach. The failure of Employer at any time to require ---------------- performance by Employee of any provision hereof shall in no way affect Employer's right thereafter to enforce the same, nor shall the waiver by Employer of any breach of any provision hereof be taken or held to be a waiver of any succeeding breach of any provision or as a waiver of the provision itself. 11. Resignations. In the event that the Employee's services hereunder ------------ are terminated under any of the provisions of this Agreement, Employee agrees to deliver a written resignation as an officer of Employer to the Board of Directors, such resignation to become effective immediately. 12. Notice. Any notice hereunder shall be in writing and shall be ------ deemed given, if personally delivered, upon receipt or, if mailed, upon the third business day following mailing by deposit in United States mail, postage prepaid and addressed: (a) If to Employer: Communications Instruments, Inc. P.O. Box 520, Highway 74 East Fairview, North Carolina 28730 (b) If to Employee: Douglas L. Campell 5503 Calle Arena Carpinteria, California 93013 or such other address as either party shall provide for such purpose pursuant to this paragraph. 13. Attorney's Fees. In the event of any suit or judicial proceeding --------------- between the parties hereto with respect to this Agreement, the prevailing party shall, in addition to such other relief as the court may award, be entitled to reasonable attorneys' fees, costs and expenses of investigation, all as actually incurred and including, without limitation, attorneys' 5 fees, costs and expenses of investigation incurred in appellate proceedings or in any action or participation in, or in connection with, any case or proceeding under Chapter 7, 11, or 13 of the Bankruptcy Code and any successor thereto. 14. Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement or the breach thereof, including any claim or controversy as to the arbitrability of any claim or controversy and any claim for rescission, shall be settled by arbitration in Santa Barbara County, California in accordance with the commercial arbitration rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof, provided, however, that Employer may pursue the remedy of specific performance of any term contained in this Agreement, or a preliminary or permanent injunction against the breach of any such term or in aid of the exercise of any power granted in this Agreement, or any combination thereof, in any court having jurisdiction thereof without resort to arbitration. 15. Insurance. Employer shall have the right at its own cost and --------- expense to apply for and secure in its own name, or otherwise, life, health or accident insurance or any or all of them covering Employee, and Employee agrees to submit to the usual and customary medical examination or otherwise to cooperate with Employer in connection with the procurement of any such insurance and any claims thereunder. 16. Miscellaneous. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of California; provided that Section 8 shall be governed by the laws of the jurisdiction in which the alleged breach of such Section occurred. No rights or obligations hereunder may be assigned by either party without the prior written consent of the other. This Agreement shall inure to the benefit of and be binding upon any successor of Employer. If any provision of this Agreement shall be invalid and legally unenforceable, the same shall not affect in any respect whatsoever the validity and enforceability of the remainder of this Agreement. If any court shall determine that the time period or geographical limit or any provision is unenforceable, the parties agree that such provision shall be deemed amended to the extent necessary to render it valid and enforceable. This Agreement cannot be amended, modified or supplemented in any respect except by an agreement in writing signed by the party against whom enforcement of any amendment, modification or supplement is sought. 6 IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement effective as of the date first set forth above. EMPLOYEE /s/ DOUGLAS L. CAMPBELL ------------------------ DOUGLAS L. CAMPBELL EMPLOYER COMMUNICATIONS INSTRUMENTS, INC. By /s/ ------------------------- Title: EX-10.8 8 EMPLOYMENT AGREEMENT WITH MICHAEL STEINBACK EXHIBIT 10.8 [LETTERHEAD OF COMMUNICATIONS INSTRUMENTS,INC.] January 7, 1994 MR. MICHAEL A. STEINBACK 2851 WHISPERING OAKS BUFFALO GROVE, IL 60089 Dear Mike: We are very pleased to set forth the following terms of CII's offer of ----- employment to you: I. TITLE: VICE PRESIDENT OF OPERATIONS ------ II. REPORTING TO: RAMZI DABBAGH, PRESIDENT ------------- III. RESPONSIBILITIES: ----------------- * SALES AND MARKETING * MANUFACTURING OPERATIONS (MIDTEX AND FAIRVIEW) * PLANT FACILITIES * MATERIALS * HUMAN RESOURCES * BUSINESS PLANS AND P & L IV. COMPENSATION ------------ * BASE SALARY: $125,000 PER YEAR ------------ * AUTO ALLOWANCE: $7,800 PER YEAR ($650 MONTH) --------------- * BONUS INCENTIVE: SAME AS PRESIDENT AND VICE PRESIDENT ---------------- OF BUSINESS DEVELOPMENT BASED ON PERFORMANCE AGAINST OBJECTIVES. * ANNUAL SALARY INCREASE/REVIEW: CONSISTENT WITH COMPANY ----------------------------- POLICY AS RELATES TO OTHER EXECUTIVE STAFF MEMBERS. V. STOCK OPTION ------------ * ENTITLED TO ACQUIRE 1% (10,000 SHARES) OF COMMON STOCK UPON EMPLOYMENT AT $1.00 PER SHARE. PAYMENT PLAN TO BE WORKED OUT. ADDITIONALLY, ENTITLED TO ACQUIRE ADDITIONAL 1% OF STOCK AFTER FIRST YEAR OF EMPLOYMENT WITH COST AND PAYMENT PLAN IDENTICAL TO INITIAL 1%. VI. MOVING EXPENSES: CII TO PAY FOR ALL MOVE RELATED EXPENSES ---------------- --- INCLUDING: * REAL ESTATE COMMISSIONS * VAN LINES (PACKING, STORAGE, UNPACKING AND INSURANCE) * CLOSING COSTS * HOUSEHUNTING VISITS FOR MYSELF, WIFE AND FAMILY * TEMPORARY LIVING/HOUSING EXPENSES * SETTLE-IN ALLOWANCE * FULL INCOME TAX EQUALIZATION AND PROTECTION VII. EMPLOYMENT/SEVERANCE AGREEMENT ------------------------------ * INITIAL PERIOD: 15 MONTHS --------- * SUBSEQUENT PERIODS: 12 MONTHS --------- * 100% SALARY AND BENEFIT CONTINUATION/COVERAGE IF TERMINATED FOR THIS INITIAL AND SUBSEQUENT TIME PERIODS * FULL DETAILS TO BE WORKED OUT VIII. OTHER BENEFITS -------------- * ENTITLED TO RECEIVE ALL OTHER BENEFITS OF CII AS --- PUBLISHED. AS OF THE DAY OF EMPLOYMENT AND OTHER SUCH BENEFITS, THAT MAY BE ADDED FROM TIME TO TIME. BENEFITS INCLUDE MAJOR MEDICAL, DENTAL, LIFE, AND DISABILITY INSURANCE, HOLIDAYS AND VACATIONS, 401K AND/OR PROFIT SHARING PLANS. COVER "PRE-EXISTING ILLNESS" DURING FIRST 12 MONTHS IF I AM UNABLE FOR ANY REASON TO OBTAIN COVERAGE UNDER "COBRA" Mike, we are convinced that this move in position is very important at this point of your career. We believe that your knowledge and experience will add much value to our organization as we grow the business. We are very excited about this association. Please sign a copy where indicated and return to my attention. Sincerely, /s/ Ramzi A. Dabbagh - ------------------------------ Ramzi A. Dabbagh, President Accepted by: /s/ Michael Steinback - ------------ --------------------------------- Michael Steinback /ss ms2.wpf EX-10.9 9 EMPLOYMENT AGREEMENT WITH DAVID HENNING EXHIBIT 10.9 [LETTERHEAD OF COMMUNICATIONS INSTRUMENTS, INC.] November 21, 1994 Mr. David Henning 740 Ruskin Drive Elk Grove Village, IL 60067 SUBJECT: EMPLOYMENT OFFER ---------------- Dear David: We are most pleased to set forth the following terms of CII's offer of employment to you: I. TITLE: VICE-PRESIDENT OF FINANCE ----- II. REPORT TO: RAMZI DABBAGH, PRESIDENT --------- III. RESPONSIBILITIES: ---------------- 1) Direct responsibility for all Finance, Accounting, and MIS functions. 2) Assistance in the development of business plans and P&L for the corporation. IV. COMPENSATION: ------------ 1) BASE SALARY: $100,000 PER YEAR ----------- 2) AUTO ALLOWANCE: $6,000 PER YEAR -------------- 3) SPECIAL: Review base salary after six (6) months ------- employment. The intention is to provide a reasonable base salary increase providing first 6 month objectives are met. 4) INCENTIVE: Participation in the Executive Bonus Plan --------- -------------------- starting in 1995. V. STOCK OPTIONS: ------------- 1) Entitled to acquire 1/2% (5,000 shares) of the Common Stock of CII after your first year of employment pro- vided your first year's objectives are met. 2) Entitled to acquire an additional 1/2% (5,000 shares) of the Common Stock of CII after your second year of employment provided your second year objectives are met. 3) If more Common Stock becomes available you will be entitled to acquire additional shares based on meeting employment objectives. 4) Cost and payment plan to be worked out. VI. EMPLOYMENT AGREEMENT -------------------- 1) Rolling Twelve (12) Month Employment Agreement with annual salary review consistent with company policy and guidelines. VII. RELOCATION EXPENSES ------------------- 1) First six (6) months: -------------------- * Reasonable temporary living and travel expenses for yourself and your immediate family up until permanent residence is established. 2) Second six (6) months: --------------------- * Reasonable travel expenses for yourself and your immediate family. VIII. MOVING EXPENSES --------------- 1) HOUSE ----- * Reimbursement of actual real estate commissions if house is sold on or before December 31, 1995. 2) MOVING EXPENSES --------------- * Actual reasonable costs of moving expenses and belongings to the Asheville area, plus $2,500.00 settle-in allowance, or if belongings are not moved, $7,500.00 settle-in allowance. IX. OTHER ----- 1) Entitled to receive other standard published benefits of CII in effect as of the day of your employment, and that may be added thereafter. These benefits include major medical, dental, holidays, vacations, 401(K), life and disability insurance. 2) CII will acquire a lap-top computer and printer at reasonable cost for your business use while travelling and at your residence. 3) Special unpaid time-off allowance from January 23-27, 1995 to accommodate your previously planned vacation. X. STARTING DATE ------------- 1) MONDAY, DECEMBER 5, 1994 ------------------------ XI. OFFER EXPIRATION ---------------- 1) WEDNESDAY, NOVEMBER 30, 1994 ---------------------------- David, we are convinced that this move and change in position is important for you at this point in your career. CII is growing and our future is very exciting indeed. We believe that your knowledge and experience will add much value to our business. We are most excited about this mutually rewarding association. Sincerely, /s/ Ramzi A. Dabbagh - ---------------------------------- Ramzi A. Dabbagh, President /s/ G. Dan Taylor - ---------------------------------- G. Dan Taylor, Executive V.P. /s/ Mike Steinback - ---------------------------------- Mike Steinback, V.P. of Operations ACCEPTED: /s/ David Henning 11-23-94 - -------- -------------------------------- -------------------- DAVID HENNING DATE /ss HENNING.WPF EX-10.11 10 SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT EXHIBIT 10.11 EXECUTION COPY SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as of July 2, 1996 among COMMUNICATIONS INSTRUMENTS, INC., as Borrower THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO, as Lenders and BANK OF AMERICA ILLINOIS, as Agent TABLE OF CONTENTS 1. DEFINITIONS...................................................... 2 1.1 General Terms............................................. 2 1.2 Accounting Terms.......................................... 15 1.3 Other Terms Defined in Illinois Uniform Commercial Code... 15 2. CREDIT........................................................... 15 2.1 Credit Facilities......................................... 15 2.2 Prepayments; Reduction in Maximum Revolving Facility...... 17 2.3 Borrower's Loan Account................................... 18 2.4 Statements................................................ 18 2.5 Interest and Fees......................................... 19 2.6 Method for Making Payments................................ 20 2.7 Term of This Agreement.................................... 21 2.8 Letter of Credit Payments and Reimbursements.............. 21 2.9 Overdraft Loans........................................... 21 2.10 Setoff.................................................... 22 2.11 Pro Rata Treatment........................................ 22 3. REPORTING AND ELIGIBILITY REQUIREMENTS........................... 23 3.1 Monthly Reports and Daily Reports......................... 23 3.2 Eligible Accounts......................................... 24 3.3 Account Warranties........................................ 25 3.4 Verification of Accounts.................................. 26 3.5 Account Covenants......................................... 26 3.6 Collection of Accounts and Payments; Blocked Accounts..... 26 3.7 Appointment of the Agent as Borrower's AttorneyinFact..... 28 3.8 Instruments and Chattel Paper............................. 28 3.9 Notice to Account Debtors................................. 28 3.10 Eligible Inventory........................................ 29 3.11 Inventory Warranties...................................... 29 3.12 Inventory Covenants....................................... 29 3.13 Safekeeping of Inventory and Inventory Covenants.......... 30 3.14 Equipment Warranties...................................... 30 3.15 Equipment Records......................................... 30 3.16 Safekeeping of Equipment and Real Property................ 31 3.17 Real Property Warranties.................................. 31 4. CONDITIONS TO LOANS AND ISSUANCE OF LETTERS OF CREDIT; TO EFFECTIVENESS OF THIS AGREEMENT.................................. 31 4.1 Conditions to All Advances and Issuance of Letters of Credit.................................................... 31 4.2 Conditions Precedent to Effectiveness of this Agreement... 32
5. COLLATERAL....................................................... 34 5.1 Security Interest......................................... 34 5.2 Preservation of Collateral and Perfection of Security Interests Therein......................................... 35 5.3 Loss of Value of Collateral or Real Property.............. 35 5.4 Cash Collateral........................................... 35 6. WARRANTIES....................................................... 36 6.1 Corporate Existence....................................... 36 6.2 Corporate Authority....................................... 36 6.3 Binding Effect............................................ 37 6.4 Financial Data............................................ 37 6.5 Collateral and Real Property; Leased Premises............. 38 6.6 Solvency and Other Matters................................ 38 6.7 ChiefPlace of Business.................................... 38 6.8 Other Corporate Names..................................... 39 6.9 Tax Liabilities........................................... 39 6.10 Loans; Bank Accounts...................................... 39 6.11 Margin Security........................................... 39 6.12 Survival of Warranties.................................... 39 6.13 Subsidiaries.............................................. 40 6.14 Litigation and Proceedings................................ 40 6.15 Other Agreements.......................................... 40 6.16 Labor Contracts; Employee Controversies................... 40 6.17 Compliance with Laws and Regulations; Environmental Matters................................................... 40 6.18 Patents, Trademarks and Licenses.......................... 41 6.19 ERISA..................................................... 41 7. AFFIRMATIVE COVENANTS............................................ 42 7.1 Financial Statements...................................... 42 7.2 Inspection................................................ 45 7.3 Conduct of Business....................................... 45 7.4 Claims and Taxes.......................................... 45 7.5 Agent's Closing Costs and Expenses........................ 46 7.6 Borrower's Liability Insurance............................ 46 7.7 Borrower's Property Insurance............................. 46 7.8 ERISA..................................................... 47 7.9 Notice of Suit or Adverse Change in Business.............. 48 7.10 Supervening Illegality.................................... 49 7.11 Environmental Laws........................................ 49 7.12 Leasehold Assignments; Landlord Consents and Waivers...... 50 7.13 Destruction and Condemnation.............................. 50 8. NEGATIVE COVENANTS............................................... 51 8.1 Encumbrances.............................................. 51 8.2 Indebtedness.............................................. 52
-ii- 8.3 Consolidations, Mergers or Acquisitions................... 52 8.4 Investments or Loans...................................... 52 8.5 Guarantees................................................ 52 8.6 Inventory Covenants....................................... 53 8.7 Disposal of Property...................................... 53 8.8 (INTENTIONALLY LEFT BLANK)................................ 53 8.9 Dividends and Stock Redemptions........................... 53 8.10 Issuance of Stock......................................... 54 8.11 Amendment of Articles of Incorporation, ByLaws, or Stock Purchase Agreements, Corporate Name; Places of Business... 54 8.12 Transactions with Subsidiaries and Affiliates............. 54 8.13 Lease Limitations......................................... 55 8.14 ERISA..................................................... 55 8.15 Financial Covenants....................................... 55 8.16 Capital Investment Limitations............................ 57 9. DEFAULT: RIGHTS AND REMEDIES OF THE AGENT AND THE LENDERS ................................................................ 57 9.1 Defaults.................................................. 57 9.2 Rights and Remedies Generally............................. 60 9.3 Entry Upon Premises and Access to Information............. 60 9.4 Sale or Other Disposition of Collateral by the Agent or any Lender................................................ 61 9.5 Waiver of Demand.......................................... 61 10. MISCELLANEOUS.................................................... 62 10.1 Amendments and Waivers.................................... 62 10.2 Costs and Attorneys Fees.................................. 62 10.3 Expenditures by the Agent and the Lenders................. 63 10.4 Custody and Preservation of Collateral.................... 63 10.5 Reliance by the Agent and the Lenders..................... 63 10.6 Parties; Assignments and Participations................... 63 10.7 Severability.............................................. 65 10.8 CHOICE OF LAW............................................. 65 10.9 PERSONAL JURISDICTION..................................... 65 10.10 SERVICE OF PROCESS........................................ 66 10.11 WAIVER OF JURY TRIAL...................................... 66 10.12 WAIVER OF BOND............................................ 66 10.13 ADVICE OF COUNSEL......................................... 66 10.14 Application of Payments................................... 67 10.15 Marshaling; Payments Set Aside............................ 67 10.16 Section Titles............................................ 67 10.17 Continuing Effect......................................... 67 10.18 Notices................................................... 67 10.19 Equitable Relief.......................................... 69 10.20 Indemnification........................................... 69 10.21 Capital Adequacy.......................................... 69
-iii- 11. THE AGENT........................................................ 70 11.1 Powers.................................................... 70 11.2 Agent in its Capacity as a Lender......................... 70 11.3 Independent Credit Analysis............................... 71 11.4 General Immunity.......................................... 71 11.5 Right to Indemnity........................................ 71 11.6 Action by Agent........................................... 72 11.7 Exercise of Rights and Remedies........................... 72 11.8 Agent's Resignation....................................... 73 11.9 Disbursement of Proceeds of Loans and Other Advances...... 73 11.10 Participation in Letters of Credit........................ 73 11.11 Apportionment of Payments................................. 74 11.12 Agent's Periodic Settlements With Lenders................. 74 11.13 Obligation of the Lenders to Fund......................... 76
-iv- EXHIBITS AND SCHEDULES Exhibit A Substituted Term Note Exhibit B Form of Certificate to Accompany Monthly Reports Exhibit B-1 Form of Certificate to Accompany Monthly and Annual Reports Exhibit C-1 Form of Government Contract Assignment Exhibit C-2 Form of Government Contract Notice of Assignment Exhibit D Real Property Exhibit E1-A Pro Forma Balance Sheet of Borrower Exhibit E1-B Pro Forma Consolidated Balance Sheet of Kilovac Exhibit E2-A Fair Salable Value Balance Sheet of Borrower Exhibit E2-B Fair Salable Value Balance Sheet of Kilovac Exhibit F Form of Assignment and Acceptance Schedule 3.1 1 Locations of Collateral Schedule 6.5(A) Liens Schedule 6.5(B) Leased Premises Schedule 6.8 Other Corporate Names Schedule 6.10 Other Loans; Bank Accounts Schedule 6.14 Litigation Schedule 6.17 Environmental Schedule 6.19 ERISA Schedule 8.9 Fees Payable on Closing Date Schedule 10.22 Existing Violations of 1995 Agreement Schedule A List of Closing Documents SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ------------------------------------------------------- THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, made as of July 2, 1996 by and between Communications Instruments, Inc., a North Carolina corporation ("Borrower"), the financial institutions set forth on the signature pages hereto (each individually, a "Lender" and collectively, the ------ "Lenders") and Bank of America Illinois, as contractual representative (the ------- "Agent") for the Lenders: ----- W I T N E S S E T H: ------------------- WHEREAS, Borrower, the Lenders and the Agent entered into that certain Amended and Restated Loan and Security Agreement dated as of October 11, 1995, (the " 1995 Agreement"), pursuant to which the Lenders made "Term Loans," the ---- --------- aggregate principal balance of which as of the date hereof is $15,000,000 (the "Existing Term Loans") and "Revolving Loans," the aggregate principal balance ------------------- of which as of the date hereof is $7,326,936.82 (the "Existing Revolving Loans") ------------------------ to the Borrower, and the Agent issued "Letters of Credit" having an aggregate undrawn face amount as of the date hereof of $0.00 (the "Existing Letters of ------------------- Credit") for the benefit of the Borrower. - ------ WHEREAS, Borrower, the Lenders and the Agent previously entered into that certain Loan and Security Agreement dated as of May 11, 1993, as amended (the "1993 Agreement"), pursuant to which the Lenders made "Term Loans" and -------------- "Revolving Loans", and the Agent issued "Letters of Credit", to or for the benefit of the Borrower, which 1993 Agreement was restated in its entirety and amended by the 1995 Agreement and which Term Loans, Revolving Loans and Letters of Credit under the 1993 Agreement, to the extent outstanding on the date of such restatement and amendment, respectively became Term Loans, Revolving Loans and Letters of Credit under and as defined in the 1995 Agreement; WHEREAS, the Borrower has entered into that certain Asset Purchase Agreement dated as of June 27, 1996 among the Borrower and Figgie International Inc., a Delaware corporation (the "Seller") pursuant to which, among other ----- things, the Borrower has agreed to acquire (the "Acquisition") substantially all ----------- of the operating assets of the Seller's Hartman Electrical Manufacturing Division ("Hartman Division") (such Asset Purchase Agreement, together with that ---------------- certain related Lease Agreement and that certain Environmental Remediation and Escrow Agreement, being hereinafter referred to as the "Hartman Purchase ---------------- Agreement"); - --------- WHEREAS, to facilitate the payment of the cash consideration due the Seller under the Hartman Purchase Agreement at the closing of the Acquisition and related fees and expenses, Borrower desires to borrow an aggregate amount of $9,000,000 in additional term loans from the Lenders and an aggregate amount of $3,702,566.00 in additional revolving loans from the Lenders, and the Lenders are willing to extend such additional loans to Borrower in such amounts upon the terms and subject to the conditions set forth herein; WHEREAS, Borrower, the Lenders and the Agent have agreed that, upon the satisfaction of the conditions precedent to the effectiveness of this Agreement set forth in subsection 4.2 hereof, the terms and provisions of the -------------- 1995 Agreement shall be amended and restated in their entirety by the terms and provisions of this Agreement. This Agreement is not intended to, and shall not, effect a novation of any of the "Liabilities" under or as defined in the 1995 Agreement, but merely an amendment and restatement of the terms governing such Liabilities. The Existing Term Loans shall continue as outstanding "Term Loans" under this Agreement, the Existing Revolving Loans shall continue as outstanding "Revolving Loans" under this Agreement, and the undrawn Existing Letters of Credit shall continue as undrawn "Letters of Credit" under this Agreement. NOW THEREFORE, in consideration of the terms and conditions contained herein, and of any loans or extensions of credit heretofore, now or hereafter made to or for the benefit of Borrower by the Lenders, the parties hereto hereby agree as follows: 1. DEFINITIONS. ----------- 1.1 General Terms. When used herein, the following terms shall have ------------- the following meanings: "Account Debtor" shall mean the party who is obligated on or under an -------------- Account. "Account Trial Balance" shall have the meaning set forth in subsection --------------------- ---------- 3.1 (A). - ------- "Accounts" shall mean all present and future accounts and rights of -------- Borrower, or Kilovac, as the case may be, to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not they have been earned by performance. "Acquisition" shall have the meaning set forth in the introductory ----------- paragraphs of this Agreement. "Affiliate" shall mean any Person (a) that directly or indirectly, --------- through one or more intermediaries, controls or is controlled by, or is under common control with, Borrower, (b) that directly or beneficially owns or holds five percent (5%) or more of any class of the voting stock of Borrower or (c) five percent (5%) or more of the voting stock (or in the case of a person which is not a corporation, five percent (5%) or more of the equity interest) of which is owned directly or beneficially or held by Borrower. "Agreement" shall mean this Second Amended and Restated Loan and --------- Security Agreement, as it may be further amended, restated, supplemented or otherwise modified from time to time. "Assignee" shall have the meaning set forth in subsection 10.6(B). -------- ------------------ -2- "Assignee Deposit Accounts" shall have the meaning set forth in ------------------------- subsection 3.6. - -------------- "Benefit Plan" shall mean a defined benefit plan as defined in Section ------------ 3(35) of ERISA (other than a Multiemployer Plan) in respect of which Borrower or an ERISA Affiliate is, or within the immediately preceding six (6) years was an "employer" as defined in Section 3(5) of ERISA. "Blocked Accounts" shall have the meaning set forth in subsection ---------------- ---------- 3.6(B). - ------ "Borrower Pledge" shall mean that certain Pledge Agreement dated as of --------------- October 11, 1995 executed by Borrower in favor of the Agent with respect to all of the issued and outstanding capital stock of Kilovac owned by Borrower. "Borrowing Base" shall mean at any time an amount equal to the sum at -------------- such time of (i) Receivables Availability and (ii) the lesser of (A) Inventory Availability and (B) 110% of Receivables Availability. "Business Day" shall mean any day, except Saturdays and Sundays, on ------------ which commercial banks are not authorized or required to close in Chicago, Illinois. "Capital Expenditures" shall have the meaning set forth in subsection -------------------- ---------- 8.16 to this Agreement. - ---- "Clean-up Costs" shall mean all costs and expenses incurred by -------------- Borrower in connection with the remediation of any spill or release of a hazardous or toxic waste, substance or constituent on Borrower's or any Subsidiary's premises or as a result of Borrower's or any Subsidiary's past or present operations. "Closing Date" shall mean the date on or after the date hereof on ------------ which all of the conditions precedent set forth in subsection 4.2 have been -------------- satisfied. "Collateral" shall mean all property and interests in property now ---------- owned or hereafter acquired by Borrower, Holdings or any Subsidiary of Borrower in or upon which a security interest, lien or mortgage is granted to the Agent for the benefit of the Lenders by any such Person, whether under this Agreement, the other Financing Agreements, or under any other documents, instruments or writings executed by any such Person and delivered to the Agent or the Lenders. "Collecting Bank" shall have the meaning set forth in subsection --------------- ---------- 3.6(B). - ------ "Commercial L/C Fee" shall have the meaning set forth in subsection ------------------ ---------- 2.5(E). - ------ "Contribution Agreement" shall mean that certain Contribution ---------------------- Agreement dated as of October 11, 1995 between Borrower and Kilovac. -3- "CII Mexico" shall mean Electro-Mech, S.A. de C.V., a Mexican ---------- corporation. "CII Mexico Pledge" shall mean that certain Stock Pledge Agreement, ----------------- dated as of May 11, 1993 executed by Borrower in favor of the Agent with respect to sixty-six percent (66%) of the issued and outstanding capital stock of CII Mexico. "Current Financing Agreements" shall mean this Agreement, the Deed of ---------------------------- Trust Modification, the Hartman Assignment Agreement, the Hartman Trademark Amendment, the Hartman Patent Amendment, the Substituted Term Note, the Master Reaffirmation, the Government Contract Assignments relating to the Hartman Division (in each case as amended, restated, supplemented or otherwise modified from time to time) and all other agreements, instruments and documents executed in connection therewith or with this Agreement, including, without limitation, all security agreements, loan agreements, notes, guarantees, mortgages, deeds of trust, subordination agreements, pledges, powers of attorney, consents, assignments, contracts, notices, leases, financing statements and all other written matter whether now or hereafter executed by or on behalf of Borrower, Holdings or any Subsidiary of Borrower and delivered to the Agent for the benefit of the Lenders, together with all agreements and documents referred to therein or contemplated thereby. "Daily Report" shall have the meaning set forth in subsection 3.1 (C). ------------ ------------------ "Default" shall mean the occurrence or existence of any one or more of ------- the events described in subsection 9.1 of this Agreement. -------------- "Deed of Trust Modification" shall mean that certain Fourth -------------------------- Reaffirmation and Modification of Deed of Trust of even date herewith between Borrower and the Agent, with respect to the Mortgage, as further described in subsection 5.1 hereto. - -------------- "Demand Deposit Account" shall have the meaning set forth in ---------------------- subsection 2.3 of this Agreement. - -------------- "Destruction" shall have the meaning set forth in subsection 7.13. ----------- --------------- "DOL" shall mean the United States Department of Labor and any --- successor department or agency. "Eligible Accounts" shall have the meaning set forth in subsection 3.2 ----------------- -------------- of this Agreement. "Eligible Inventory" shall have the meaning set forth in subsection ------------------ ---------- 3.10 of this Agreement. - ---- -4- "Environmental Lien" shall mean a lien in favor of any governmental ------------------ entity for (a) any liability under federal or state environmental laws or regulations, or (b) damages arising from, or costs incurred by such governmental entity in response to, a release or threatened release of a hazardous or toxic waste, substance or constituent or other substance into the environment. "Equipment" shall mean all of Borrower's and its Subsidiaries' now --------- owned or hereafter acquired machinery, equipment, furniture, furnishings, fixtures and all tangible personal property similar to any of the foregoing (other than Inventory), together with tools, machine parts, and motor vehicles of every kind and description, and all improvements, accessions and appurtenances thereto, and any proceeds thereof, including insurance proceeds and condemnation awards. "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as amended from time to time, and any successor statute. "ERISA Affiliate" shall mean any (i) corporation which is a member of --------------- the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as Borrower; (ii) partnership, trade or business under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with Borrower; and (iii) member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as Borrower, any corporation described in clause (i) above or any partnership, ---------- trade or business described in clause (ii) above. ----------- "Event of Default" shall mean an event which through the passage of ---------------- time or the service of notice or both would (assuming no action is taken by Borrower to cure the same) mature into a Default. "Excess Availability" shall mean, at any time, the lesser of (i) the ------------------- positive difference between (a) the Borrowing Base at such time minus the aggregate face amount of all issued and requested Letters of Credit at such time and (b) the outstanding principal balance of the Revolving Loan at such time and (ii) the positive difference between (x) the Maximum Revolving Facility at such time minus the aggregate face amount of all issued and requested Letters of Credit at such time and (y) the outstanding principal balance of the Revolving Loan at such time. "Excess Cash Flow" shall mean, for any fiscal year of Borrower, (i) ---------------- Borrower's and its Subsidiaries' consolidated earnings for such period (exclusive of extraordinary nonrecurring items of income) before amortization, depreciation, interest, taxes, and minority interests, plus any decrease during ---- such period, or minus any increase during such period, in (ii) Working Capital, ----- minus (iii) Capital Expenditures for such period, minus (iv) taxes paid in cash - ----- ----- during such period, minus (v) dividends and management fees paid in cash during ----- such period to the extent permitted to be paid under subsection 8.9 of this -------------- Agreement, minus (vi) consulting and non-compete payments paid in cash during ----- such period pursuant to the Original Stock Purchase, minus (vii) scheduled ----- principal and interest and other mandatory payments made during such -5- period with respect to the Liabilities and minus (viii) the amount of payments ----- to be made under Section 1.3(iii) of the Kilovac Purchase Agreement and constituting "Tax Benefits Consideration" attributable to such fiscal year (as defined therein). "Existing Revolving Loans," "Existing Term Loans" and "Existing ------------------------ ------------------- -------- Letters of Credit" shall have the meanings respectively ascribed to such terms - ----------------- in the introductory paragraphs of this Agreement. "Existing Term Note" shall mean that certain Substituted and Amended ------------------ Term Note dated as of October 11, 1995 executed by the Borrower and made payable to Bank of America Illinois in the principal amount of $16,500,000 evidencing the Term Loans made pursuant to the 1993 Agreement and 1995 Agreement. "Financing Agreements" shall mean, collectively, (i) the Current -------------------- Financing Agreements and (ii) the Original Financing Agreements. "Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of --------------------------- Borrower's and its Subsidiaries' (i) consolidated earnings (exclusive of extraordinary nonrecurring items of income) before amortization, depreciation, interest, taxes and minority interests minus Capital Expenditures to (ii) the ----- aggregate of all principal payments paid with respect to the Term Loans during such period, plus interest expense for such period with respect to the ---- Liabilities. "General Intangibles" shall mean all general intangibles, choses in ------------------- action, causes of action and all other intangible personal property of Borrower of every kind and nature (other than Accounts) now owned or hereafter acquired by Borrower, including, without limitation, corporate or other business records, inventions, applications, service marks, patents, patent applications, trademarks, trade names, trade secrets, goodwill, registrations, copyrights, licenses, franchises, customer lists, tax refund claims, rights and claims against carriers and shippers, rights to indemnification, proceeds of insurance covering the lives of key employees on which Borrower is beneficiary, and any letter of credit, guarantee, security interest or other security held by or granted to Borrower to secure payment by an Account Debtor. "Government Contract Assignments" shall mean those certain ------------------------------- "Assignments" with respect to Borrower's or its Subsidiaries' contracts with agencies or instrumentalities of the United States executed by Borrower or such Subsidiary in favor of the Agent, for the benefit of the Lenders, and heretofore, now, or hereafter delivered to the Agent from time to time in connection with the 1993 Agreement, the 1995 Agreement or this Agreement, as applicable. "Hartman Assignment Agreement" shall mean that certain Assignment of ---------------------------- Representations, Warranties and Covenants of even date herewith executed by the Borrower in favor of the Agent evidencing the collateral assignment by the Borrower to the Agent of all of the Borrower's rights and claims under the Hartman Purchase Agreement. "Hartman Division" shall have the meaning set forth in the ---------------- introductory paragraphs of this Agreement. -6- "Hartman Patent Amendment" shall mean that certain Amendment to ------------------------ Patent Security Agreement of even date herewith between the Borrower and the Agent pursuant to which the Patent Agreement is amended to include certain patents, patent applications and related property acquired by the Borrower pursuant to the Hartman Purchase Agreement. "Hartman Purchase Agreement" shall have the meaning set forth in the -------------------------- introductory paragraphs of this Agreement. "Hartman Trademark Amendment" shall mean that certain Amendment to --------------------------- Trademark Security Agreement of even date herewith between the Borrower and the Agent pursuant to which the Trademark Agreement is amended to include certain trademarks, trademark applications and related property acquired by the Borrower pursuant to the Hartman Purchase Agreement. "Hi-G Inventory" shall mean Inventory acquired by the Borrower -------------- pursuant to that certain Purchase and Sale Agreement dated as of January 27, 1995 between Borrower and Congress Financial Corporation. "Holdings" shall mean (CII Technologies Inc. (formerly known as -------- Communications Instruments Holdings, Inc.), a Delaware corporation. "Holdings Guaranty" shall mean that certain Guaranty and Security ----------------- Agreement dated as of May 11, 1993 executed by Holdings in favor of the Agent and the Lenders. "Holdings Pledge" shall mean that certain Pledge Agreement dated as of --------------- May 11, 1993 evidencing Holdings' pledge to the Agent of all of the issued and outstanding capital stock of Borrower. "Holdings Subordinated Debt" shall mean (i) the Investor Subordinated -------------------------- Debt and (ii) the Seller Subordinated Debt. "Indemnified Matters" shall have the meaning set forth in subsection ------------------- 10.20. - ----- "Indemnitees" shall have the meaning set forth in subsection 10.20. ----------- ---------------- "Interest Coverage Ratio" shall mean, for any period, the ratio of ----------------------- Borrower's and its Subsidiaries' (i) consolidated earnings (exclusive of extraordinary nonrecurring items of income) before amortization, depreciation, interest, taxes and minority interests minus Capital Expenditures to (ii) ----- interest expense. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, --------------------- as amended from time to time, and any successor statute. "IRS" shall have the meaning set forth in subsection 7.8. --- -------------- -7- "Inventory" shall mean any and all inventory and goods, including, -------- without limitation, goods in transit, wheresoever located, whether now owned or hereafter acquired by Borrower or Kilovac, as the case may be, which are held for sale or lease, furnished under any contract of service or held as raw materials, work in process or supplies, and all materials used or consumed in Borrower's or Kilovac's business, and shall include such property the sale or other disposition of which has given rise to Accounts and which has been returned to or repossessed or stopped in transit by Borrower or Kilovac. "Inventory Advance Percentage" shall mean, at all times, thirty-seven ---------------------------- percent (37%). "Inventory Availability" shall mean, at any time, an amount equal to --------------------- the Inventory Advance Percentage of Borrower's or Kilovac's Eligible Inventory (to be valued at the lower of cost or market value, except in the case of Hi-G ------ Inventory, which shall be valued at fair market value) shown on its general ledger inventory records at such time less such reserves as the Agent in its sole but reasonable discretion elects to establish. "Investor Subordinated Debt" shall mean, collectively, the -------------------------- indebtedness evidenced by (i) that certain Subordinated Promissory Note dated as of October 11, 1995 in the original principal amount of $2,000,000 executed by Holdings and made payable to the Partnership and (ii) that certain Subordinated Promissory Note dated as of May 11, 1993 in the original principal amount of $4,000,000 executed by Holdings and made payable to the Partnership, in each case as the same may be amended, extended, restated, substituted or otherwise modified from time to time. "IPO" shall mean an initial public offering of debt or equity --- securities of Holdings, the Borrower, any Subsidiary, or any other Person which directly or indirectly owns a majority of the outstanding voting securities of, or otherwise controls, the Borrower or any Subsidiary immediately prior to such offering. "Juarez Agreement" shall mean that certain Acknowledgment Agreement ---------------- dated as of May 11, 1993 among CII Mexico, the Agent and Borrower with respect to certain of Borrower's Inventory located in Juarez, Mexico. "Kilovac" shall mean Kilovac Corporation, a California corporation. ------- "Kilovac Assignment Agreement" shall mean that certain Assignment of ---------------------------- Representations, Warranties and Covenants dated as of October 11, 1995 executed by the Borrower in favor of the Agent evidencing the collateral assignment by Borrower to the Agent of all of Borrower's rights and claims under the Kilovac Purchase Agreement. "Kilovac Guaranty" shall mean that certain Guaranty and Security ---------------- Agreement dated as of October 11 l 995 executed by Kilovac in favor of the Agent. -8- "Kilovac International" shall mean Kilovac International, Inc., a --------------------- California corporation. "Kilovac Jamaica" shall mean Kilovac International FSC Limited, a --------------- Jamaican corporation. "Kilovac Patent Agreement" shall mean that certain Patent Security ------------------------ Agreement dated as of October 11, 1995 executed by Kilovac in favor of the Agent evidencing Kilovac's agreement with respect to the disposition of Kilovac's patents. "Kilovac Pledge" shall mean that certain Pledge Agreement dated as of -------------- October 11, 1995 executed by Kilovac in favor of the Agent with respect to all of the issued and outstanding capital stock of Kilovac International and 66% of the issued and outstanding capital stock of Kilovac Jamaica. "Kilovac Purchase Agreement" shall mean that certain Stock -------------------------- Subscription and Purchase Agreement dated as of September 20, 1995, among the Borrower and the "Selling Shareholders" set forth in Schedule 1 thereto, pursuant to which, among other things, the Borrower acquired eighty percent (80%) of the outstanding capital stock of Kilovac. "Kilovac Trademark Agreement" shall mean that certain Trademark --------------------------- Security Agreement dated as of October 11, 1995 executed by Kilovac in favor of the Agent, evidencing Kilovac's agreement with respect to the use and disposition of Kilovac's trademarks. "Lender Assignment" shall have the meaning set forth in subsection ----------------- ---------- 10.6(B) hereof. - ------- "L/C Facility" shall have the meaning set forth in subsection 2.1(C). ------------ ----------------- "Letters of Credit" shall mean any documentary or stand-by letters of ------------------ credit which have been heretofore, now or are at any time hereafter issued by the Agent at the request of and for the account of Borrower pursuant to the 1993 Agreement, the 1995 Agreement or this Agreement and which have not expired or been revoked or terminated. "Leverage Ratio" shall mean, for any period, the ratio of (i) the -------------- aggregate outstanding principal portion of the Liabilities as of the last day of such period to (ii) Borrower's and its Subsidiaries' (a) consolidated earnings (exclusive of extraordinary nonrecurring items of income) before amortization, depreciation, interest, taxes and minority interests minus (b) Capital ----- Expenditures for such period. "Liabilities" shall mean all of Borrower's liabilities, obligations, ----------- and indebtedness to the Agent or any of the Lenders of any and every kind and nature, whether heretofore, now or hereafter owing, arising, due or payable and howsoever evidenced, created, incurred, acquired, or owing, whether primary, secondary, direct, contingent, fixed or otherwise (including obligations of performance) and whether arising or existing under written agreement, oral agreement or -9- operation of law, including, without limitation all of Borrower's indebtedness and obligations to the Agent and the Lenders under this Agreement, the 1993 Agreement, the 1995 Agreement, the Financing Agreements and all of Borrower's reimbursement obligations, whether contingent or liquidated, with respect to any Letter of Credit. "Loan Account" shall have the meaning set forth in subsection 2.3. ------------ -------------- "Loss" shall have the meaning set forth in subsection 9.1(f). ---- ----------------- "Loss Payable Endorsement" shall mean a lender's loss payable ------------------------ endorsement with respect to the Collateral and the Real Property, in form and substance satisfactory to the Agent and the Lenders. "Management Subscription Agreements" shall mean, collectively, those ---------------------------------- certain Subscription Agreements dated as of May 11, 1993 with certain members of management providing for the issuance of up to 140,000 shares of the common stock of Holdings. "Master Reaffirmation" shall mean that certain Master Reaffirmation --------------------- and Amendment Agreement of even date herewith executed and delivered by Borrower, Kilovac, CII Mexico and Holdings in favor of the Agent and the Lenders, with respect to the Original Financing Agreements. "Maximum Revolving Facility" shall mean the maximum amount which the -------------------------- Lenders have agreed to consider as a ceiling on the outstanding principal balance of Revolving Loans to be made to Borrower pursuant to subsection 2.1(A) ----------------- of this Agreement, as such amount may be reduced from time to time pursuant to subsection 2.2 of this Agreement. The Maximum Revolving Facility shall be - -------------- $15,000,000. "Monthly Report" shall have the meaning set forth in subsection -------------- ---------- 3.1(A). - ------ "Mortgage" shall mean that certain Deed of Trust, Security Agreement, -------- Financing Statement and Assignment of Rents and Leases dated as of May 11, 1993 executed and delivered by Borrower in favor of the Agent and the Lenders with respect to Borrower's real property located in Fairview, North Carolina, as reaffirmed and modified pursuant to that certain Reaffirmation and Modification of Deed of Trust dated as of December 6, 1994 between Borrower and the Agent, pursuant to that certain Second Reaffirmation and Modification of Deed of Trust dated as of March 2, 1995 between Borrower and the Agent, pursuant to that Third Reaffirmation and Modification of Deed of Trust dated as of October 11, 1995 between the Borrower and the Agent, and pursuant to the Deed of Trust Modification, as may be further amended, restated, supplemented or otherwise modified from time to time. "Multiemployer Plan" shall mean an employee benefit plan defined in ------------------ Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by Borrower or an ERISA Affiliate. -10- "Net Award" shall have the meaning set forth in subsection 7.13. --------- --------------- "Net Proceeds" shall have the meaning set forth in subsection 7.13. ------------ --------------- "Net Worth" shall mean (i) the book value (net of depreciation, --------- obsolescence, amortization, valuation and other appropriate reserves as determined in accordance with generally accepted accounting principles) at which Borrower's and its Subsidiaries consolidated total assets would be shown on a consolidated balance sheet of Borrower and its Subsidiaries at such time prepared in accordance with generally accepted accounting principles, plus (ii) ---- the amount at which the consolidated total liabilities of Borrower and its Subsidiaries would be shown on such balance sheet prepared in accordance with generally accepted accounting principles, including as liabilities all reserves for contingencies and other potential liabilities which would, in accordance with generally accepted accounting principles, be shown on such balance sheet, minus (iii) dividends paid to Holdings the proceeds of which are used by - ----- Holdings to pay interest on the Holdings Subordinated Debt and dividends on the Preferred Stock, in any event to the extent permitted under subsection 8.9 -------------- hereof. "1993 Agreement" and "1995 Agreement" shall have the meanings -------------- -------------- respectively ascribed to such terms in the introductory paragraphs of this Agreement. "Original Acquisition" shall have the meaning set forth in subsection -------------------- ---------- 8.15. - ---- "Original Assignment Agreement" shall mean that certain Assignment of ----------------------------- Representations, Warranties and Covenants dated as of May 11, 1993 executed by Borrower and Holdings in favor of the Agent evidencing the collateral assignment by Borrower and Holdings to the Agent of all of their rights and claims under the Original Stock Purchase Agreement. "Original Financing Agreements" shall mean the 1993 Agreement, the ----------------------------- Agreement, the Patent Agreement, the Trademark Agreement, the Juarez Agreement, the Government Contract Assignments which were delivered in connection with the 1993 Agreement or 1995 Agreement the CII Mexico Pledge, the Mortgage, the Original Assignment Agreement, the Holdings Pledge, the Contribution Agreement, the Borrower Pledge, the Kilovac Assignment Agreement, the Kilovac Guaranty, the Kilovac Patent Agreement, the Kilovac Pledge, the Kilovac Trademark Agreement (in each case as amended, restated, supplemented or otherwise modified from time to time) and all other agreements, instruments and documents executed in connection therewith or with the 1993 Agreement or 1995 Agreement, including, without limitation, all security agreements, loan agreements, notes, guarantees, mortgages, deeds of trust, subordination agreements, pledges, powers of attorney, consents, assignments, contracts, notices, leases, financing statements and all other written matter executed by or on behalf of Borrower, Holdings, or any Subsidiary of the Borrower and delivered to the Agent for the benefit of the Lenders, together with all agreements and documents referred to therein or contemplated thereby. -11- "Original Stock Purchase Agreement" shall mean that certain --------------------------------- Acquisition Agreement dated as of April 30, 1993 among Borrower (under its previous name, CII Acquisition, Inc.) and the former shareholders of Communications Instruments, Inc., formerly an Illinois corporation. "Outstanding Revolving Credit Liabilities" shall have the meaning set ---------------------------------------- forth in subsection 11.12(B). ------------------- "Over Advances" shall have meaning set forth in subsection 2.1(A) of ------------- this Agreement. "Overdraft Loans" shall have the meaning set forth in subsection 2.9 --------------- -------------- of this Agreement. "Participant" shall have the meaning set forth in subsection 10.6(C). ----------- ------------------ "Partnership" shall mean CII Associates, L.P., a Delaware limited ----------- partnership. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any ---- Person succeeding to the functions thereof. "Patent Agreement" shall mean that certain Patent Security Agreement ---------------- dated as of May 11, 1993 executed by Borrower in favor of the Agent evidencing Borrower's agreement with respect to the disposition of Borrower's patents. "Person" shall mean any individual, sole proprietorship, partnership, ------ joint venture, trust, unincorporated organization, association, corporation, institution, entity, party, or government (whether national, federal, state, provincial, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Plan" shall mean any employee benefit plan defined in Section 3(3) ---- of the ERISA in respect of which Borrower or an ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "Preferred Stock" shall mean, collectively, the "Preferred Stock" --------------- issued by Holdings pursuant to and as respectively defined in the applicable Preferred Stock Purchase Agreement. "Preferred Stock Purchase Agreements" shall mean, collectively, (i) ----------------------------------- that certain Preferred Stock Purchase Agreement dated as of October 11, 1995 by and between Holdings and the Partnership, and (ii) that certain Preferred Stock Purchase Agreement dated as of May 11, 1993 by and between Holdings and the Partnership. "Pro Formas" shall have the meaning set forth in subsection 6.14. ---------- --------------- -12- "Property" shall have the meaning set forth in subsection 10.9(b). -------- ------------------ "Pro Rata Share" shall mean, with respect to any Lender, the -------------- percentage interest of such Lender as indicated on the signature pages to the Agreement or as set forth in the most recent Lender Assignment to which such Lender is a party. "Real Property" shall mean all of Borrower's or any Subsidiary's ------------- rights, title, and interest in all of those plots, pieces or parcels of land now owned or hereafter acquired by Borrower or such Subsidiary (the "Land"), together with the right, title, and interest of Borrower or such Subsidiary, if any, in and to the following: the streets, the land lying in the bed of any streets, roads or avenues, opened or proposed, in front of, adjoining, or abutting the Land to the center line thereof, the air space and development rights pertaining to the Land and right to use such air space and development rights, all rights of way, privileges, liberties, tenements, hereditaments, and appurtenances belonging or in any way appertaining thereto, all easements now or hereafter benefitting the Land and all royalties and all rights appertaining to the use and enjoyment ofthe Land, including, without limitation, all alley, vault, drainage, mineral, water, oil, and gas rights, timber, sewers, pipes, conduits, wires, and other facilities furnishing utility or other services to the Land and other similar rights, together with all of the buildings and other improvements and fixtures now or hereafter erected on the Land. "Receivables Availability" shall mean at any time an amount equal to ------------------------ eighty percent (80%) of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith) outstanding at such time under existing Eligible Accounts, less such reserves as the Agent in its sole discretion elects to establish. "Reference Rate" shall mean the rate of interest publicly announced by -------------- the Agent from time to time as its reference rate. Any change in the Reference Rate shall be effective as of the effective date stated in the announcement by the Agent of such change. "Report" shall have the meaning set forth in subsection 11.12(B). ------ ------------------- "Reportable Event" shall mean any of the events described in Section ---------------- 4043 of ERISA. "Requisite Lenders" shall mean Lenders holding, in the aggregate, at ----------------- least sixty-six and two-thirds percent (66-2/3%) of the outstanding principal balance of the Liabilities and participations in the issued and outstanding Letters of Credit, or if no Liabilities or Letters of Credit are outstanding, Lenders having Pro Rata Shares, in the aggregate, at least sixty-six and two-thirds percent (66-2/3%). "Restoration" shall have the meaning set forth in subsection 7.13. ----------- --------------- "Revolving Loans" shall have the meaning set forth in subsection --------------- ---------- 2.1(A) of this Agreement. - ------ -13- "Seller" shall have the meaning set forth in the introductory ------ paragraph of this Agreement. "Seller Subordinated Debt" shall mean the indebtedness evidenced by ------------------------ those certain Senior Subordinated Promissory Notes dated as of May 11, 1993 and October 11, 1995 in an aggregate principal amount outstanding as of the date hereof of $1,750,000 executed by Holdings and made payable to the former shareholders of Communications Instruments, Inc, formerly an Illinois corporation. "Settlement Date" shall have the meaning set forth in subsection --------------- ---------- 11.12 hereof. - ----- "Standby L/C Fee" shall have the meaning set forth in subsection --------------- ---------- 2.5(E). - ------ "Subordinated Convertible Demand Note" shall mean that certain ------------------------------------ subordinated convertible demand note dated as of October 11, 1995 in the maximum principal amount of $10,000.000, executed by Kilovac and made payable to Borrower. "Subsidiary" shall mean any corporation of which more than fifty ---------- percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned by Borrower or Kilovac, as the context may require. "Substituted Term Note(s)" shall mean promissory note(s) evidencing ----------------------- the Term Loan(s), made payable to the Lender(s) substantially in the form of Exhibit A to this Agreement, and in substitution for the Existing Term Note, - --------- together with all substitutions, amendments, extensions restatements or other modifications thereof. "Success Fee" shall mean the success fee payable to the Agent pursuant ----------- to that certain Amended and Restated Success Fee Agreement dated as of October 11, 1995 by and between the Borrower and Bank of America Illinois in its individual capacity. "Taking" shall have the meaning set forth in subsection 7 13. ------ --------------- "Term Loans" shall have the meaning set forth in subsection 2.1(B) ---------- ----------------- hereof. "Termination Date" shall have the meaning set forth in subsection 2.7 ---------------- -------------- hereof. "Termination Event" shall mean (i) any reportable event described in ----------------- Section 4043 of ERISA or regulations promulgated thereunder occurring with respect to a Benefit Plan, or (ii) the withdrawal of Borrower or any ERISA Affiliate from a Benefit Plan during a plan year in which it was a "substantial employer" as defined in Section 4001 (a)(2) of ERISA, or the cessation of operations which results in the termination of employment of 20% of Benefit Plan participants who are employees of Borrower or an ERISA Affiliate, (iii) the imposition of an -14- obligation arising under Section 4041 of ERISA of Borrower or an ERISA Affiliate to provide affected parties with a written notice of an intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA, (iv) the PBGC's institution of proceedings to terminate a Benefit Plan, (v) any event or condition which might constitute grounds under Section 4042 of ERISA for termination of, or the appointment of a trustee to administer a Benefit Plan and (vi) the partial or complete withdrawal of Borrower or an ERISA Affiliate from a Multiemployer Plan. "Trademark Agreement" shall mean that certain Trademark Security ------------------- Agreement dated as of May 11, 1993 executed by Borrower in favor of the Agent, evidencing Borrower's agreement with respect to the use and disposition of Borrower's trademarks. "Unusual Availability Fee" shall have the meaning set forth in ------------------------ subsection 2.5(C). - ----------------- "Weekly Report" shall have the meaning set forth in subsection 3.1(B). ------------- ----------------- "Working Capital" shall mean, at the time of determination, Borrower's --------------- and its Subsidiaries' consolidated (i) current assets minus (ii) current ----- liabilities. 1.2 Accounting Terms. Any accounting terms used in this Agreement ---------------- which are not specifically defined herein shall have the meanings customarily given them in accordance with generally accepted accounting principles in existence as of the date hereof. 1.3 Other Terms Defined in Illinois Uniform Commercial Code. All ------------------------------------------------------- other terms contained in this Agreement (and which are not otherwise specifically defined herein) shall have the meanings provided by the Uniform Commercial Code of the State of Illinois (the "Code") to the extent the same are ---- used or defined therein. 2. CREDIT. ------ 2.1 Credit Facilities. ----------------- (A) Revolving Loan. Subject to the provisions of Section 4 below, -------------- --------- each Lender agrees to make advances to Borrower, on a revolving credit basis in addition to the Existing Revolving Loans (collectively, including such Existing Revolving Loans, the "Revolving Loans"), upon Borrower's request therefor from --------------- time to time during the period commencing on the date hereof and ending on the date on which this Agreement shall terminate pursuant to subsection 2.7 hereof, -------------- provided that the aggregate principal amount of all Revolving Loans heretofore, now, or hereafter made by such Lender shall not at any time exceed an amount equal to such Lender's Pro Rata Share of the lesser of (i) the Maximum Revolving Facility in effect at such time minus the aggregate undrawn face amount of all ----- outstanding and requested Letters of Credit and (ii) the Borrowing Base in effect at such time minus the aggregate undrawn face amount of all outstanding ----- and requested Letters of Credit. Each Lender irrevocably agrees that it shall make its Pro Rata Share of each Revolving Loan to the Borrower available to the Agent in accordance -15- with the terms of this Agreement. Each Revolving Loan to Borrower shall, on the day of such advance, be deposited, in immediately available funds, in Borrower's Demand Deposit Account. The Liabilities shall become immediately due and payable (i) as provided in subsection 9.1 of this Agreement and (ii) without notice or -------------- demand, upon termination of this Agreement pursuant to subsection 2.7 hereof. -------------- Subject to the provisions of Section 11 hereof, the Agent, in its sole and absolute discretion may from time to time elect to make advances to Borrower in excess of the amount available pursuant to the formula set forth above ("Over ---- Advances") and each Lender hereby agrees to make its Pro Rata Share of any Over - -------- Advances made by the Agent pursuant to the immediately preceding sentence available to the Agent in accordance with the terms of this Agreement. The Over Advances shall constitute part of the Liabilities, shall be secured by the Collateral and shall be payable immediately upon demand by the Agent or the Requisite Lenders, on behalf of all of the Lenders. It is expressly understood and agreed that nothing contained in this Agreement shall, at any time, require the Agent, on behalf of the Lenders, to make any Over Advance or other extension of credit to Borrower. No event or occurrence shall, as between the Agent and the Lenders on the one hand and the Borrower on the other hand, cause or constitute a waiver by the Agent or any Lender of its right to refuse to make any further Revolving Loans requested or deemed requested by Borrower or to issue any Letters of Credit at any time that an Over Advance exists or would result therefrom. The outstanding principal balance of any Over Advances shall bear interest at a rate equal to the greater of 130% of the highest rate of interest then charged for the Liabilities or $50 per day. Borrower shall use the proceeds of each Revolving Loan and Term Loan advances made under this Agreement on and after the Closing Date (i) to perform its obligations to pay the purchase price for the Acquisition under the Hartman Purchase Agreement, (ii) to perform its obligations under all of its contracts with agencies and instrumentalities of the government of the United States, and (iii) for other legal corporate purposes not prohibited by the terms or conditions of this Agreement. (B) Term Loans. Subject to the provisions of Section 4 below, each ---------- --------- Lender hereby agrees, immediately following the Borrower's execution of the Current Financing Agreements, to extend a term loan to Borrower in an aggregate principal amount equal to such Lender's Pro Rata Share of $9,000,000 (which term loan, together with the Existing Term Loans, are hereinafter collectively referred to as the "Term Loans"). All of the Term Loans shall be evidenced by and shall be repayable in accordance with the Substituted Term Note. The provisions of the Substituted Term Note notwithstanding, the Liabilities evidenced by the Substituted Term Note shall become immediately due and payable (i) as provided in subsection 9.1 hereof and (ii) without notice or demand upon -------------- termination of this Agreement pursuant to subsection 2.7 hereof. -------------- (C) Letter of Credit Facility. Subject to the provisions of ------------------------- Section 4 below, the Agent may, in its sole discretion, at Borrower's request - --------- and for the account of Borrower, issue from time to time during the period commencing on the date hereof and ending on the date on which this Agreement shall terminate pursuant to subsection 2.7 hereof, one or more Letters of Credit -------------- in an aggregate undrawn face amount outstanding at any one time (including, without limitation, all Existing Letters of Credit) of up to $2,000,000 (the "L/C Facility"); without limiting the Agent's discretion, the Agent will not ------------ issue any Letter of Credit (i) if after giving effect to the issuance of such Letter of Credit, the sum of the outstanding principal balance of the Revolving -16- Loans and the undrawn face amount of all outstanding and requested Letters of Credit would exceed an amount equal to the lesser of (a) the Maximum Revolving Facility in effect at such time and (b) the Borrowing Base in effect at such time or (ii) which has an expiration date occurring (x) more than one ( 1 ) year after the date of issuance (provided that a standby Letter of Credit may provide for an annual renewal if such renewal is consented to by the Agent) or (y) after the Termination Date. Borrower agrees to pay the Agent, on demand, for Agent's own account and not for the account of any Lender, in addition to the fees required to be paid pursuant to subsection 2.5(E), the Agent's standard ----------------- administrative operating fees and charges in effect from time to time for issuing and administering any Letter of Credit. Borrower agrees to reimburse the Agent, for the benefit of the Lenders, on demand for each payment made by the Agent, for the benefit of the Lenders, under or pursuant to any Letter of Credit; provided, however, that the Lenders may, but shall not be obligated to, -------- ------- provide for the payment of any reimbursement obligation due to the Agent and the Lenders and any interest accrued thereon by making an advance under the Revolving Loan to Borrower in the amount thereof as provided in subsection 2.8 -------------- hereof. Borrower further agrees to pay to the Agent, for the benefit of the Lenders, on demand, interest at the post-default rate applicable to Revolving Loans on any amount paid by the Agent and the Lenders under or pursuant to any Letter of Credit from the date of such payment until the date of reimbursement to the Agent, for the benefit of the Lenders or the date an advance is made by the Lenders under the Revolving Loan with respect to such reimbursement obligation. Borrower's obligation to reimburse the Agent and the Lenders for payments and disbursements made by the Agent and the Lenders under or in respect of any Letter of Credit shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which Borrower may have or have had against the Agent or the Lenders, including, without limitation, any defense based on the failure of the demand for payment under such Letter of Credit to conform to the terms of such Letter of Credit, the legality, validity, regularity or enforceability of such Letter of Credit, or the identity of the transferee of such Letter of Credit or the sufficiency of any transfer if such Letter of Credit is transferable; provided, however, that -------- ------- Borrower shall not be obligated to reimburse the Agent or the Lenders for any wrongful payment or disbursement made under any Letter of Credit as a result of acts or omissions constituting gross negligence or willful misconduct on the part of the Agent or the Lenders or any of their officers, employees or agents. Upon the issuance of any Letter of Credit, each Lender shall be deemed to have purchased a participation in such Letter of Credit pursuant to the terms of subsection 11.10 hereof. - ---------------- 2.2 Prepayments: Reduction in Maximum Revolving Facility. ---------------------------------------------------- (A) Mandatory Prepayments. --------------------- (1) Borrower agrees that if at any time the outstanding principal balance of the Revolving Loan shall exceed the lesser of (i) the Borrowing Base in effect at such time minus the aggregate undrawn face ----- amount of all outstanding Letters of Credit or (ii) the Maximum Revolving Facility in effect at such time minus the undrawn face amount of all ----- outstanding Letters of Credit, Borrower shall promptly pay to the Agent, for the benefit of the Lenders, such amount as may be necessary to eliminate such excess. -17- (2) Not later than the ninetieth (9Oth) day after the end of each fiscal year (or, if such day is not a Business Day, not later than the next succeeding Business Day) of Borrower ending after the date hereof, Borrower shall make a mandatory prepayment in an amount equal to fifty percent (50%) of Excess Cash Flow for such fiscal year, which payment shall be accompanied by a detailed calculation of Excess Cash Flow for such period certified as accurate by the chief financial officer or treasurer of Borrower. Each mandatory prepayment required by this subsection ---------- 2.2(A)(2)(a) shall be applied to the unpaid installments of the Term Loans ------------ in the inverse order of their respective maturities, and, following the payment in full of the Term Loans, to the outstanding Revolving Loans. (B) Reduction in Maximum Revolving Facility. Borrower may, upon at --------------------------------------- least forty-five (45) days' prior irrevocable written notice to the Agent and the Lenders, permanently reduce the Maximum Revolving Facility, provided that (i) each such reduction shall be in a minimum amount of $500,000 or a multiple integral of $200,000 in excess thereof, (ii) on the effective date of each such reduction, Borrower shall pay to the Agent, for the benefit of the Lenders, such amount as is necessary to cause Borrower to be in compliance with the provisions of subsection 2.2(A) above and (iii) the Maximum Revolving Facility shall in no ----------------- event be reduced below $8,000,000 pursuant to this subsection 2.2(B). ----------------- 2.3 Borrower's Loan Account. The Agent maintains and shall continue ----------------------- to maintain a loan account ("Loan Account") on its books in which shall be ------------ recorded (i) all loans and advances made by each Lender to Borrower pursuant to this Agreement, including, without limitation, all payments made by the Agent and each Lender with respect to any Letter of Credit, (ii) all payments made by Borrower on all such loans and advances and (iii) all other appropriate debits and credits as provided in this Agreement, including, without limitation, all fees, charges, expenses and interest. All entries in Borrower's Loan Account shall be made in accordance with the Agent's customary accounting practices as in effect from time to time. Borrower promises to pay the amount reflected as owing by it under each such Loan Account and all of its other obligations hereunder as such amounts become due or are declared due pursuant to the terms of this Agreement. Each Lender will credit or cause to be credited to a commercial account maintained by Borrower at the Agent's 231 South LaSalle Street, Chicago, Illinois office ("Demand Deposit Account"), the amount of any ---------------------- sums advanced hereunder by any Lender. 2.4 Statements. All advances to Borrower, and all other debits and ---------- credits provided for in this Agreement, shall be evidenced by entries made by the Agent in its internal data control systems showing the date, amount and reason for each such debit or credit. Until such time as the Agent shall have rendered to Borrower written statements of account as provided herein, the balance in Borrower's Loan Account, as set forth on the Agent's most recent printout, shall be rebuttably presumptive evidence of the amounts due and owing the Agent by Borrower. Not more than twenty (20) days after the last day of each calendar month (or, if such day is not a Business Day, not later than the next immediate Business Day), the Agent shall render to Borrower a statement setting forth the balance of Borrower's Loan Account, including principal, interest, expenses and fees. Each such statement shall be subject to subsequent adjustment by the Agent but shall, absent manifest errors or omissions, be presumed correct and binding upon -18- Borrower and shall constitute an account stated unless, within thirty (30) days after receipt of any statement from the Agent (or, if such thirtieth day is not a Business Day, by the next immediate Business Day), Borrower shall deliver to the Agent written objection thereto specifying the error or errors, if any, contained in such statement. 2.5 Interest and Fees. ----------------- (A) Borrower shall pay to the Agent, for the benefit of the Lenders, interest (i) on the outstanding principal balance of the Liabilities (other than the Overdraft Loans, the Over Advances and the Liabilities evidenced by the Substituted Term Notes), at the rate of one and one-half percent (1.5%) per annum in excess of the Reference Rate, (ii) on the aggregate outstanding principal balance of the Over Advances and the Overdraft Loans, at the rates respectively set forth in subsections 2.1 (A) and 2.9 of this Agreement, and ------------------- --- (iii) on the outstanding principal balance of the Liabilities constituting the Term Loans, at the rate of two percent (2.0%) per annum in excess of the Reference Rate. Interest shall be payable once each month in arrears not later than the thirteenth day of each consecutive calendar month (or, if such thirteenth day is not a Business Day, not later than the next immediate Business Day). Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed. Following the occurrence of a Default, Borrower shall pay to the Agent, for the benefit of the Lenders, interest on the outstanding principal balance of the Liabilities (other than Liabilities in respect of the Overdraft Loans and the Over Advances) from the date of such Default at the per annum rate of one percent (1%) per annum in excess of the rate which would otherwise be applicable. (B) Borrower shall pay to the Agent, for the benefit of the Lenders, (i) a non refundable closing fee payable on the date hereof in the amount of $175,000 and (ii) a non refundable supplemental availability fee in the amount of $75,000 with respect to the accommodations provided by the Lenders to the Borrower in connection with the Kilovac acquisition, payable on the earliest to occur of the payment in full of the outstanding Liabilities, a termination of this Agreement pursuant to subsection 2.7, the consummation of an -------------- IPO and October 11, 1996. (C) Borrower shall pay to the Agent, for the benefit of the Lenders, an unused availability fee ("Unused Availability Fee") on the average ----------------------- daily amount, if any, by which the Maximum Revolving Facility in effect at such time minus the undrawn face amount of any Letters of Credit shall exceed the ----- aggregate outstanding principal balance of the Revolving Loan, from the date hereof until the termination of the Lenders' commitments to make advances under the Revolving Loan at the rate of one-half of one percent (0.5%) per annum, payable monthly in arrears not later than the thirteenth day of each following calendar month (or, if such thirteenth day is not a Business Day, not later than the next immediate Business Day) and on the date of termination of this Agreement. The Unused Availability Fee shall be computed on the basis of a 360- day year for the actual number of days elapsed. (D) The Borrower shall pay to the Agent on the last day of each month during which an audit, inventory analysis or other business analysis is performed by or for the benefit of Agent and the Lenders (or, if such day is not a Business Day, on the next immediate Business -19- Day), an audit fee in an amount equal to the Agent's standard audit fee at such time for each of the Agent's employees used reasonably to perform such audit or analysis plus all costs or expenses incurred by the Agent in the performance of ---- such audit or analysis, including, without limitation, the Agent's reasonable out-of-pocket expenses relating to the hiring of outside consultants. (E) For each standby Letter of Credit, Borrower shall pay to the Agent, for the benefit of the Lenders, a fee ("Standby L/C Fee") equal to two --------------- percent (2%) per annum of the undrawn face amount of such Letter of Credit, provided that the Standby L/C Fee shall not be less than $300 for any Letter of Credit. The Standby L/C Fee shall be payable monthly in arrears on the thirteenth day of each month during which such Letter of Credit remains outstanding (or, if such thirteenth day is not a Business Day, on the next immediate Business Day). The Standby L/C Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed. For each commercial Letter of Credit, Borrower shall pay to the Agent, for the benefit of the Lenders, a fee ("Commercial L/C Fee") in an amount equal to two percent (2%) per annum of ------------------ the original face amount of such commercial Letter of Credit, payable upon the initial draw under, or acceptance of any draft with respect to, such Letter of Credit. In addition, Borrower shall pay the Agent its customary fees for any amendments, modifications, renewals or other changes with respect to any one or more of the Letters of Credit. The Agent may, on behalf of the Lenders, provide for the payment of any fees, charges or commission due with respect to Letters of Credit by advancing the amount thereof to Borrower as an advance under the Revolving Loan (and, if so advanced by the Agent, the Lenders shall promptly reimburse the Agent for their Pro Rata Shares of such advance). 2.6 Method for Making Payments. (A) All payments to be made by -------------------------- Borrower to the Agent or the Lenders hereunder shall be made without set-off or counterclaim and shall be made to the Agent in immediately available funds (except as the Agent and the Lenders may otherwise consent) prior to 12:30 p.m., Chicago time, on the date due at the Agent's office at 231 South LaSalle Street, Chicago, Illinois 60697, or at such other place as may be designated by the Agent to Borrower in writing. Any payments received after such time shall be deemed received on the next Business Day. Whenever any payment to be made hereunder shall be stated to be due on a date other than a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall be included in the computation of payment of interest or any fees. (B) Borrower hereby authorizes the Agent and the Lenders, and the Agent and the Lenders may, in their sole and absolute discretion (but in no event shall the Agent or the Lenders be obligated to), charge to Borrower at any time when due or declared due all or any portion of any of the Liabilities (and interest, if any, thereon) including but not limited to any fees, costs and expenses of the Agent and the Lenders for which Borrower is liable pursuant to the terms of this Agreement or any Financing Agreement, by charging Borrower's Demand Deposit Account or any other bank account of Borrower with the Agent or the Lenders; provided, however that (i) the Agent provides Borrower with notice -------- ------- of any such charge and (ii) the provisions of this subsection 2.6(B) shall not ----------------- affect Borrower's obligation to pay when due all amounts payable by Borrower under this Agreement, the Substituted Term Note or any Financing -20- Agreement, whether or not there are sufficient funds therefor in the Demand Deposit Account or any such other bank account of Borrower. 2.7 Term of This Agreement. This Agreement shall terminate on the ---------------------- earlier to occur of the consummation of an IPO and July 2, 2001, unless terminated earlier as provided hereinbelow. Upon the effective date of termination of this Agreement (the "Termination Date"), all of the Liabilities ---------------- shall become immediately due and payable without notice or demand, provided that notwithstanding such termination, until all of the Liabilities under this Agreement and the other Financing Agreements shall have been fully paid and satisfied, all financing arrangements between Borrower, the Agent and the Lenders shall have been terminated and all of the Letters of Credit shall have expired, been canceled or terminated, all of the Agent's and the Lenders' rights and remedies under this Agreement and the other Financing Agreements shall survive, all representations and warranties and covenants contained in the Financing Agreements shall continue to be binding upon the Borrower and Holdings, the Agent, on behalf of the Lenders, shall be entitled to retain its security interest in and to all existing and future Collateral and its liens with respect to the Real Property and Borrower shall continue to remit collections of Accounts and proceeds as provided herein. 2.8 Letter of Credit Payments and Reimbursements. If a beneficiary -------------------------------------------- draws against any Letter of Credit, Borrower hereby irrevocably authorizes the Lenders (i) to make a loan to Borrower in an amount equal to the amount drawn under such Letter of Credit and (ii) to pay the proceeds of such loan to the beneficiary of such Letter of Credit. Payments made by the Agent or any Lender to any Person with respect to any Letter of Credit or with respect to any of Borrower's obligations secured by any Letter of Credit shall constitute part of the Liabilities, shall immediately be charged to Borrower's Loan Account and shall be payable by Borrower to the Agent and the Lenders in accordance with the terms of this Agreement. 2.9 Overdraft Loans. The Agent, subject to the provisions of Section 11 hereof, may, on behalf of the Lenders, make loans to Borrower in an - ---------- amount equal to the amount of any overdraft which may from time to time exist with respect to any bank account which Borrower may now or hereafter have with the Agent. The existence of any such overdraft shall be deemed to be a request by Borrower for such a loan. Borrower acknowledges that neither the Agent nor the Lenders are under any duty or obligation to make any loan to Borrower to cover any overdraft. Borrower further agrees that each overdraft shall constitute a separate loan under this agreement (each an "Overdraft Loan" and, -------------- collectively, the "Overdraft Loans"). The Overdraft Loans shall bear, from the --------------- date on which such loans are advanced until paid, interest in an amount equal to the greater of 130% of the highest rate of interest then charged for loans (other than Overdraft Loans and Over Advances) made hereunder, or $50.00 per day. If the Agent or the Lenders, in their sole and absolute discretion, decide not to make a loan to cover part or all of any overdraft, the Agent may return any check(s) which created such overdraft. The Overdraft Loans shall constitute part of the Liabilities and shall be secured by the Collateral and the Real Property. -21- 2.10 Setoff. In addition to and not in limitation of other rights ------ and remedies (including other rights of offset or banker's lien) that any Lender may have under applicable law, each Lender shall, upon the occurrence and during the continuation of any Default, have the right, subject to the provisions of subsection 11.7 hereof, to appropriate and apply to the payment of the - --------------- Liabilities (whether or not then due), in such order of application as such Lender may elect, any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of Borrower or any Subsidiary of Borrower then or thereafter in possession of such Lender. Such Lender shall promptly advise Borrower and the other Lenders of any such setoff and application, but failure to do so shall not affect the validity of such setoff and application. The rights of each Lender under this subsection ---------- 2.10 are in addition to other rights and remedies (including other rights of - ---- setoff under applicable law or otherwise) which such Lender may have. 2.11 Pro Rata Treatment. Subject to the provisions of this Agreement ------------------ and the other Financing Agreements that permit the Agent to receive fees for its own account or make advances under the Revolving Loan or other payments for its own account on a non-pro rata basis pending the occurrence of a Settlement Date, (a) all borrowings and repayments shall be effected so that all advances under the Revolving Loan and all participations in the Letters of Credit shall be pro rata among the Lenders according to their respective Pro Rata Shares and (b) if any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of the Liabilities or any participation interest in any Letter of Credit in excess of its Pro Rata Share of payments then or therewith obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in the Liabilities and the participation interests in the Letters of Credit held by the other Lenders as shall be necessary to cause such purchasing Lender to share the excess payment or recovery ratably with each of such other Lenders; provided, -------- however, that if all or any portion of the excess payment or other recovery is - ------- thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (i) the amount of such selling Lender's required repayment to the purchasing Lender to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Borrower agrees that any Lender purchasing a participation from another Lender pursuant to this subsection may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to subsection 2.10) with --------------- respect to such participation fully as if such lender were a direct creditor of Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this subsection applies, such Lender shall to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the other Lenders entitled under this subsection to share in the benefits of any recovery on such secured claim. -22- 3. REPORTING AND ELIGIBILITY REQUIREMENTS. -------------------------------------- 3.1 Monthly Reports and Daily Reports. (A) Monthly Reports. --------------------------------- --------------- Borrower shall submit to each Lender, not later than the twentieth (20th) day of each month (or, if such twentieth day is not a Business Day, not later than the next immediate Business Day) a monthly report ("Monthly Report"), accompanied by -------------- a certificate in the form attached hereto as Exhibit B, which shall be signed --------- by the president or chief financial officer of Borrower. The Monthly Report shall include as of the last Business Day of the preceding month: (i) an aged trial balance of Accounts indicating which Accounts are current, up to 30, 30 to 60 and over 60 days past invoice date ("Accounts Trial Balance") and accounts ---------------------- payable; (ii) a schedule of Inventory and Eligible Inventory owned by Borrower or Kilovac, or in Borrower's, CII Mexico's or Kilovac's, possession valued at FIFO cost; (iii) a representation by Borrower that no Equipment or Real Property has been sold since the date of the last Monthly Report and that there has been no change in the schedule of Equipment owned by Borrower most recently delivered to the Lenders by Borrower, except for sales of Equipment or any such changes otherwise permitted hereunder and noted in reasonable detail; (iv) a schedule of Inventory stored with a bailee, warehouseman or processor during such month and setting forth the type, value and location of such third party, (v) a schedule of intransit inventory, (vi) a copy of Borrower's monthly statement for the disbursement account(s) identified on Schedule 6.10 hereof, (vii) the ------------- outstanding principal balance of the Liabilities (other than Borrower's reimbursement obligations with respect to the then outstanding Letters of Credit and fees and charges for which payment is not yet due) and the undrawn face amount of all Letters of Credit then outstanding, and (viii) a schedule identifying the respective aggregate amounts of Accounts and Inventory included within each such Monthly Report and Accounts Trial Balance which are owned by Borrower and which are owned by Kilovac. Borrower shall additionally deliver to the Agent along with each Monthly Report, a certificate computing the Borrowing Base as of the last day of the then most recently ended month, in form and substance acceptable to the Agent. (B) Weekly Reports. In addition, Borrower shall provide each Lender -------------- with a written report on a weekly basis reflecting activity for each Business Day (the "Weekly Report") describing, in a form and with such specificity as is ------------- satisfactory to the Agent: (a) all Eligible Accounts created or acquired by either Borrower or Kilovac subsequent to the immediately preceding Weekly Report; Borrower shall furnish copies of any other reports or information, in a form and with such specificity as is satisfactory to the Agent, concerning Accounts included, described or referred to in the Weekly Reports and any other documents in connection therewith requested by the Requisite Lenders including, without limitation, but only if specifically requested by the Requisite Lenders, copies of all invoices prepared in connection with such Accounts, (b) information in connection with (i) any Account in excess of $5,000 which has ceased to be an Eligible Account since the most recent Weekly Report and (ii) any other Account which is in excess of $10,000 with respect to which any setoff, counterclaim or dispute has been asserted by any Account Debtor or any allegation of delayed performance or nonperformance has been made by any Account Debtor and a -23- statement of any modification, adjustment or compromise with respect to any such Account which affects the amount due or the time when payment of such Account is to be made; (c) information on all reductions of and all additions to Inventory and Eligible Inventory, all returns of Inventory, all credits issued by Borrower or Kilovac and all complaints and claims against Borrower or Kilovac in connection with Inventory subsequent to the immediately preceding Monthly Report; (d) a borrowing base certificate, in a form acceptable to the Agent, calculating the Borrowing Base, which certificate must be delivered by Wednesday of each week with respect to the last day of the week then most recently ended; and (e) such additional information, and with such frequency, as any Lender shall reasonably require. (C) Daily Reports. In addition to the Weekly and Monthly Reports, -------------- Borrower shall also provide each Lender with information relating to sales of Inventory on a daily basis ("Daily Reports") in a form and with such specificity ------------- as the Agent may reasonably request. 3.2 Eligible Accounts. The Agent shall have the sole right, in its ------------------ reasonable discretion, to determine which Accounts are eligible to be considered in the calculation of Receivables Availability ("Eligible Accounts"). In ----------------- addition, without limiting the Agent's discretion, the following Accounts are not Eligible Accounts: (i) Accounts which remain unpaid ninety (90) days after the original date of the applicable invoice; (ii) all Accounts owing by a single Account Debtor, including a currently scheduled Account, if twenty-five percent (25%) or more of the balance owing by such Account Debtor to Borrower or Kilovac remains unpaid ninety (90) days after the original date of the applicable invoice or invoices; (iii) Accounts with respect to which the Account Debtor is a director, officer, employee, Subsidiary or Affiliate of Borrower, Holdings, CII Mexico or Kilovac; (iv) Accounts with respect to which the Account Debtor is the United States of America or any department, agency or instrumentality thereof unless such Account has been assigned to the Agent in accordance with the terms and conditions of the Federal Assignment of Claims Act and subsection 3.5(B) but only to the extent that (A) notice of Assignment in the - ----------------- form of Exhibit C-2 hereto with respect to such Account has been executed by ----------- each government officer and other Person required under the Assignment of Claims Act to do so and a copy of such Notice of Assignment has been delivered to the Agent; and (B) the contract pursuant to which such Account arises contains a standard "no offset clause" (except in the case of such contracts acquired pursuant to the Hartman Purchase Agreement which need not contain such clauses as of the date hereof but must be later amended to include such clauses pursuant to subsection 3.5(B) hereof); (v) Accounts with respect to which the ----------------- Account Debtor is not a resident of the United States, unless the Account Debtor has supplied Borrower or Kilovac, as applicable, with an irrevocable letter of credit, issued by a financial institution satisfactory to the Agent, sufficient to cover such Account in form and substance satisfactory to the Agent and such letter of credit has been assigned to the Agent in a manner acceptable to the Agent; (vi) Accounts to the extent to which the Account Debtor has asserted a counterclaim or has a right of -24- setoff; (vii) Accounts for which the prospect of payment or performance by the Account Debtor is or will be impaired as determined by the Agent in the exercise of its reasonable discretion and in accordance with the Agent's customary business practices; (viii) Accounts with respect to which the Agent does not have a first and valid fully perfected security interest; (ix) Accounts with respect to which the Account Debtor is the subject of bankruptcy or a similar insolvency proceeding or has made an assignment for the benefit of creditors of whose assets have been conveyed to a receiver or trustee; (x) Accounts with respect to which the Account Debtor's obligation to pay the Account is conditional upon the Account Debtor's approval or is otherwise subject to any repurchase obligation or return right, as with sales made on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval (except with respect to Accounts in connection with which Account Debtors are entitled to return Inventory on the basis of the quality of such Inventory) or consignment basis; (xi) Accounts to the extent that the Account Debtor's indebted ness to Borrower exceeds a credit limit determined by the Agent in the exercise of reasonable discretion and in accordance with the Agent's customary business practices; and (xii) Accounts with respect to which the Account Debtor is located in the State of New Jersey or the State of Minnesota unless Borrower has duly qualified to do business as a foreign corporation in the State of New Jersey or the State of Minnesota, as applicable, or filed a Notice of Business Activities Report with the appropriate office in the State of New Jersey or the State of Minnesota, as applicable, for the then current year. 3.3 Account Warranties. With respect to Accounts scheduled, listed ------------------ or referred to or the initial Accounts Trial Balance or on any subsequent Accounts Trial Balance, Borrower warrants and represents to the Agent and the Lenders that: (i) they are genuine, are in all respects what they purport to be, and are not evidenced by a judgment; (ii) they represent undisputed, bona fide transactions completed in accordance with the terms and provisions contained in the documents delivered to the Agent and the Lenders with respect thereto; (iii) the amounts shown on the respective Accounts Trial Balance, Borrower's or Kilovac's books and records and all invoices and statements which may be delivered to the Agent and the Lenders with respect thereto are actually and absolutely owing to Borrower or Kilovac, as applicable, and are not in any way contingent; (iv) no payments have been or shall be made thereon except payments immediately delivered to the Agent and the Lenders pursuant to this Agreement; (v) there are no setoffs, counterclaims or disputes existing or asserted with respect thereto, except as reflected in such schedule and neither Borrower nor Kilovac has made any agreement with any Account Debtor for any deduction therefrom except a discount or allowance allowed by Borrower or Kilovac in the ordinary course of its business for prompt payment; (vi) there are no facts, events or occurrences which in any way impair the validity or enforcement thereof or tend to reduce the amount payable thereunder as shown on the respective Accounts Trial Balance, Borrower's or Kilovac's books and records and all invoices and statements delivered to the Agent and the Lenders with respect thereto; (vii) to the best of Borrower's knowledge, all Account Debtors have the capacity to contract and are solvent; (viii) the services furnished and/or goods sold giving rise thereto are not subject to any lien, claim, encumbrance or security interest except that of the Agent and except as specifically permitted below; (ix) Borrower has no knowledge of any fact or circumstance which would impair the validity or collectibility thereof; (x) to the best of Borrower's knowledge, THERE ARE no proceedings or actions which are threatened or pending against any Account Debtor which might result in any material adverse change in such Account -25- Debtor's financial condition; and (xi) Borrower and Kilovac have complied with the provisions of subsection 3 5(B) and no Accounts are classified as Eligible Accounts with respect to which Borrower or Kilovac have not fully complied with the provisions of subsection 3.5(B). ----------------- 3.4 Verification of Accounts. The Agent shall have the right, at ------------------------ any time or times hereafter, in the Agent's name or in the name of a nominee of the Agent, to verify the validity, amount or any other matter relating to any Account. by mail telephone telegraph or otherwise. 3.5 Account Covenants. (A) Borrower shall, and shall cause Kilovac ----------------- to, promptly upon Borrower's or Kilovac's learning thereof: (i) inform the Lenders in writing of any material delay in Borrower's or Kilovac's performance of any of its obligations to any Account Debtor or of any assertion of any claims, offsets or counterclaim by any Account Debtor; (ii) furnish to and inform the Lenders of all material adverse information relating to the financial condition of any Account Debtor; and (iii) notify the Lenders in writing if any of its then existing Accounts scheduled to the Lenders with respect to which the Lenders have made advances are no longer Eligible Accounts. (B) Borrower shall promptly following its entering into a contract with an agency or instrumentality of the government of the United States which is assignable to the Agent pursuant to the Assignment of Claims Act and its regulations in effect at such time (and, with respect to each such contract acquired by the Borrower pursuant to the Hartman Purchase Agreement, shall as soon as practicable after the date hereof and in any event on or prior to September 2, 1996), (i) deliver to the Agent a true and correct copy of such contract in complete and fully-executed form, (ii) prepare, execute and deliver to the Agent a Government Contract Assignment in substantially the form attached as Exhibit C-l hereto, with such changes to such form as may be necessary to ----------- comply with the Assignment of Claims Act and its regulations in effect at such time and with such duplicates hereof as may be required to comply with the Assignment of Claims Act and its regulations in effect at such time, (iii) arrange for the execution and delivery of a Notice of Assignment, in substantially the form attached as Exhibit C-2 hereto, all other documentation ----------- which is necessary, or desirable in the Agent's sole but reasonable discretion, to effectively assign the related Account to the Agent pursuant to the Assignment of Claims Act and its regulations in effect at such time and to ensure that such Account has been properly assigned and is enforceable against the contracting governmental agency by the Agent (including, without limitation, legal opinions from Borrower's or Agent's counsel). In addition, as soon as practicable after the date hereof and in any event on or prior to September 2, 1996, and prior to the Borrower's assignment of the United States governmental contracts acquired under the Hartman Purchase Agreement, the Borrower shall (A) obtain novation agreements with respect to each such contract thereby replacing the Seller as contractor with respect thereto and (B) the borrower shall obtain amendments adding standard U.S. Department of Defense "no offset clauses" to each such agreement which, as such date, does not include such a provision. 3.6 Collection of Accounts and Payments; Blocked Accounts. (A) ----------------------------------------------------- Borrower shall continue to maintain and cause Kilovac to continue to maintains a special bank account (collectively, the "Assignee Deposit Accounts") with the ------------------------- Agent or such other bank or financial -26- institution as the Agent shall consent to, over which the Agent alone has power of withdrawal, into which all Account Debtors shall directly remit all payments on Accounts except to the extent such payments are remitted to a "Blocked Account" (as such term is defined below). Borrower acknowledges that the maintenance of the Assignee Deposit Accounts is solely for the convenience of the Agent in facilitating the administration of the credit and neither Borrower nor Kilovac shall have any right, title or interest in the Assignee Deposit Accounts or in the amounts at any time appearing to the credit thereof. Said payments shall be applied on account of the Liabilities (i) for purposes of determining availability for advances or Letters of Credit under subsections 2.1 (A) and (B) hereof, respectively, on the first Business Day - ------------------- --- after receipt thereof by the Agent, on behalf of the Lenders and (ii) for purposes of calculating interest hereunder, on the second Business Day after receipt thereof by the Agent, on behalf of the Lenders, provided that no such payment shall constitute final payment to the Lenders unless and until such item of payment has actually been collected in immediately available funds. Borrower, Kilovac, and any Affiliates, Subsidiaries, shareholders, directors, officers, employees, agents or those Persons acting for or in concert with Borrower or Kilovac shall, acting as trustee for the Agent and the Lenders, receive, as the sole and exclusive property of the Lenders, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Accounts, other Collateral or the Real Property which come into the possession or under the control of Borrower, Kilovac, or any Affiliates, Subsidiaries, shareholders, directors, officers, employees, agents or those Persons acting for or in concert with Borrower or Kilovac and immediately upon receipt thereof, Borrower, or Kilovac, as applicable, shall deposit the same or cause the same to be deposited into the applicable Assignee Deposit Account. (B) Borrower has established, has caused Kilovac to establish, will establish with respect to the Hartman Division's operations not later than the date specified therefor in Schedule A hereto, blocked accounts ("Blocked ---------- ------- Accounts") with such banks as are acceptable to the Agent ("Collecting Banks") - -------- ---------------- to which all Account Debtors shall directly remit all payments on Accounts, except to the extent that such payments are remitted directly to the Assignee Deposit Accounts. The Collecting Banks shall, to the extent the Collecting Banks have not already done so, acknowledge and agree, in a manner satisfactory to the Agent, that all payments made to the Blocked Accounts are the sole and exclusive property of the Agent, for the benefit of the Lenders, that the Collecting Banks have no right to setoff(other than as Lenders pursuant and subject to this Agreement) against the Blocked Accounts and that the Collecting Banks will wire, or otherwise transfer in immediately available funds in a manner satisfactory to the Agent, funds deposited into the Blocked Accounts to the Agent on a daily basis as soon as such funds are collected. Borrower hereby agrees that all payments made to such Blocked Accounts or otherwise received by the Agent, whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of the Agent, on behalf of the Lenders, and will be applied on account of the Liabilities as set forth in subsection 3.6(A) ----------------- above. Borrower agrees to pay, and to cause Kilovac to pay, to the Agent, or such Lender, any and all fees, costs and expenses which the Agent or any Lender incurs in connection with opening and maintaining the Blocked Accounts and depositing for collection by the Agent or such Lender any check or item of payment received and/or delivered to the Collecting Bank, the Agent or such Lender on account of the Liabilities, and Borrower agrees to reimburse the Agent or such Lender for any amounts paid to any Collecting Bank arising out of the Agent's or any Lender's indemnification of such -27- Collecting Bank against damages incurred by the Collecting Bank in the operation of a Blocked Account. 3.7 Appointment of the Agent as Borrower's Attorney-in-Fact. ------------------------------------------------------- Borrower has irrevocably designated, made, constituted and appointed the Agent (and all persons designated by the Agent) as Borrower's true and lawful attorney-in-&ct (and hereby reaffirms such designation, making, constitution, and appointment), and has authorized (and hereby reaffirms such authorization to) the Agent, in Borrower's or the Agent's name, to (and hereby agrees, upon request by the Agent, to cause Kilovac to make an identical appointment of the Agent with respect to Kilovac's Accounts): (a) following the occurrence of a Default (i) demand payment of Accounts; (ii) enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise all of Borrower's and Kilovac's rights and remedies with respect to proceedings brought to collect an Account; (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Agent deems advisable; (v) settle, adjust, compromise, extend or renew an Account; (vi) discharge and release any Account; (vii) prepare, file and sign Borrower's or Kilovac's name on any proof of claim in bankruptcy or other similar document against an Account Debtor; (viii) notify the post office authorities to change the address for delivery of Borrower's or Kilovac's mail to an address designated by the Agent, and open and deal with all mail addressed to Borrower or Kilovac; and (ix) do all acts and things which are necessary, in the Agent's sole discretion, to fulfill Borrower's obligations under this Agreement and under the other Financing Agreements and (b) at any time (i) take control in any manner of any item of payment or proceeds thereof, (ii) have access to any lockbox or postal box into which Borrower's or Kilovac's mail is deposited; (iii) endorse Borrower's or Kilovac's name upon any items of payment or proceeds thereof and deposit the same in the Agent's account, for the benefit of the Lenders, on account of the Liabilities; (iv) endorse Borrower's or Kilovac's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto; and (v) sign Borrower's or Kilovac's name on any verification of Accounts and notices thereof to Account Debtors. 3.8 Instruments and Chattel Paper. Immediately upon Borrower's or ----------------------------- Kilovac's receipt thereof, Borrower shall deliver or cause to be delivered to the Agent, with appropriate endorsement and assignment to vest title, with full recourse to Borrower or Kilovac, as the case may be, and possession in the Agent, all chattel paper and instruments which Borrower or Kilovac now owns or may at any time or times hereafter acquire, to the extent the Borrower or Kilovac has not already endorsed and delivered such items. 3.9 Notice to Account Debtors. The Agent may, in the exercise of ------------------------- its reasonable discretion and in accordance with the Agent's customary business practices, at any time or times, and without prior notice to Borrower or Kilovac, notify any or all Account Debtors that the Accounts have been assigned to the Agent and that the Agent has a security interest therein. The Agent may direct any or all Account Debtors to make all payments upon the Accounts directly to the Agent. The Agent shall promptly furnish Borrower with a copy of such notice. -28- 3.10 Eligible Inventory. The Agent shall have the sole right in its ------------------ reasonable discretion to determine which Inventory is eligible to be considered in the calculation of Inventory Availability ("Eligible Inventory"). Without ------------------ limiting the Agent's discretion, the following Inventory is not Eligible Inventory: (i) Inventory which is obsolete, not in good condition, or not currently usable or currently salable in the ordinary course of Borrower's or Kilovac's business; (ii) Inventory which the Agent determines, in the exercise of its reasonable discretion and in accordance with the Agent's customary business practices, to be unacceptable due to age, type, category and/or quantity; (iii) Inventory which is not located in the United States or at CII Mexico's Juarez, Mexico facility (provided, however, that in no event shall such -------- ------- Inventory located in Juarez, Mexico be deemed Eligible Inventory to the extent the portion of Inventory Availability otherwise representing Inventory located in Juarez, Mexico would exceed $1,500,000) on premises owned or leased by Borrower, CII Mexico or Kilovac; (iv) Inventory located on premises leased by the Borrower, CII Mexico, or Kilovac to the extent that Agent has requested, but the lessor of such premises has not executed, a landlord waiver and consent in form and substance satisfactory to the Agent, and (v) Inventory with respect to which the Agent does not have a first and valid fully perfected security interest; provided, however, that, without limiting the Agent's discretion under -------- ------- this subsection, Inventory which is in transit from the seller of such Inventory to the Borrower and which is not of the type described in clauses (i) or (ii) ----------- ---- may be considered by the Agent as Eligible Inventory if (a) such Inventory is in transit in the ordinary course of the Borrower's business and in possession of a common carrier or other bailee acceptable to the Agent, (b) the Agent has a senior, perfected security interest in such Inventory or in a negotiable bill of lading with respect to such Inventory and, in the latter case, has physical possession of such negotiable bill of lading, (c) such Inventory and negotiable bill of lading (if in existence) is free and clear of all liens and security interests of other Persons, (d) such Inventory has arrived at one of the locations described on Schedule 3.11 hereto within twenty-one (21) days ------------- following the Agent's delivery to or on behalf of the Borrower of a negotiable bill of lading covering such Inventory and (e) the purchase price for such Inventory will be satisfied by the payment by the Agent of amounts drawn under a documentary Letter of Credit. 3.11 Inventory Warranties. With respect to Inventory scheduled, --------------------- listed or referred to in any Monthly Report or Daily Report, Borrower warrants that (i) it is located on the premises listed on Schedule 3.11 hereto and is not ------------- in transit (other than Inventory scheduled to the Lenders pursuant to Section ------- 3.1); (ii) it is not subject to any lien or security interest whatsoever except - ---- for the security interest granted to the Agent hereunder and except as specifically permitted below; and (iii) it is of good and merchantable quality, free from any defects which would affect the market value of such Inventory. 3.12 Inventory Covenants. ------------------- (A) Borrower has established, shall maintain, and shall cause its Subsidiaries to establish, a system satisfactory to the Agent for the maintenance of an inventory, which shall keep correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory and of Eligible Inventory, Borrower's cost therefor and withdrawals therefrom and additions thereto, which records shall be available during Borrower's or Kilovac's usual business hours at the request of any of the Agent's or Lenders' officers, employees or agents. Borrower -29- shall conduct, and shall cause Kilovac to conduct, a physical count of the Inventory at least once each year and promptly following such physical inventory shall supply the Lenders with a report in a form and with such specificity as may be satisfactory to the Agent concerning such physical count of the Inventory. (B) Upon the request of the Agent, the Borrower shall, and shall cause CII Mexico, to the extent it has not already done so, take such actions, including, without limitation the establishment of a field warehousing system, the execution of security agreements and the filing of notices and other required documents in public filing offices, as the Agent deems necessary or desirable in its sole but reasonable discretion, to perfect the security interest of the Agent in Borrower's Inventory located in Juarez, Mexico. (C) Borrower shall, and shall cause Kilovac, to promptly upon Borrower's or Kilovac's learning thereof, notify the Lenders in writing if any of its then existing Inventory scheduled to the Lenders with respect to which the Lenders have made advances is no longer Eligible Inventory. 3.13 Safekeeping of Inventory and Inventory Covenants. Neither the ------------------------------------------------ Agent nor the Lenders shall be responsible for: (i) the safekeeping of the Inventory; (ii) any loss or damage to the Inventory; (iii) any diminution in the value of the Inventory; or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency or any other Person. As among Borrower, Kilovac, the Agent and the Lenders, all risk of loss, damage, destruction or diminution in value of the Inventory shall be borne by Borrower or Kilovac, as the case may be. Except as otherwise set forth in the Monthly Reports, no Inventory shall be at any time or times hereafter stored with a bailee, warehouseman, consignee or similar third party without the Agent's prior written consent. Borrower shall not, and shall cause Kilovac not to, sell any Inventory to any customer on consignment, approval, sale or return or any other basis which entitles the customer to return or may obligate Borrower or Kilovac to repurchase or retake delivery of such Inventory. 3.14 Equipment Warranties. With respect to all Equipment, Borrower -------------------- warrants that (i) it is owned by Borrower or a Subsidiary and is located on the premises listed on Schedule 3.11 hereto (other than Equipment which is in the ------------- process of being repaired or which consists of tooling located at Borrower's or a Subsidiary's suppliers), (ii) it is not subject to any lien or security interest whatsoever except for the security interest granted to the Agent hereunder and except as specifically permitted below; and (iii) except for Equipment which Borrower or a Subsidiary is permitted to sell, lease, transfer or otherwise dispose of pursuant to subsection 8.7(ii) hereof, it is in good ------------------ condition and repair and is currently used or usable in Borrower's or a Subsidiary's business. 3.15 Equipment Records. Borrower shall at all times keep current and ----------------- accurate records, and shall cause each of its Subsidiaries to at all times keep current and accurate records, itemizing and describing the kind, type, age and condition of Equipment, Borrower's or such Subsidiary's cost therefor, accumulated depreciation thereof, and retirements, sales, or other dispositions thereof, all of which records shall be available during Borrower's or such Subsidiary's -30- usual business hours on demand to the Agent, any of the Lenders, or their officers, employees or agents. 3.16 Safekeeping of Equipment and Real Property. Neither the Agent ------------------------------------------ nor the Lenders shall be responsible for: (i) the safekeeping of the Equipment; (ii) any loss or damage to the Equipment; (iii) any diminution in the value of the Equipment; or (iv) any act or default of any repairman, bailee or any other Person with respect to the Equipment. As among Borrower, its Subsidiaries, the Agent and the Lenders, all risk of loss, damage, destruction or diminution in value of the Equipment shall be borne by Borrower and its Subsidiaries. Except for normal wear and tear and incidental damage and destruction, Borrower agrees, and agrees to cause its Subsidiaries (i) not to abandon the Real Property; (ii) to keep the Real Property in good, safe and insurable condition and repair and not to commit or suffer waste; (iii) to refrain from impairing or diminishing the value of the mortgages granted by Borrower and its Subsidiaries to the Agent; and (iv) neither to make nor to permit structural or other substantial alterations in the buildings or any substantial construction on the Real Property without the prior consent of the Agent. 3.17 Real Property Warranties. The legal description contained in ------------------------ Exhibit D correctly describes all of the Land which is a part of the Real - --------- Property and owned by the Borrower in fee simple as of the Closing Date. Borrower has good and marketable title in fee simple (or its equivalent under applicable law) to such Real Property free from liens, claims and encumbrances not permitted by this Agreement. No Subsidiary of Borrower owns any Real Property in fee simple as of the Closing Date. 4. CONDITIONS TO LOANS AND ISSUANCE OF LETTERS OF CREDIT; TO --------------------------------------------------------- EFFECTIVENESS OF THIS AGREEMENT. - ------------------------------- 4.1 Conditions to All Advances and Issuance of Letters of Credit. ------------------------------------------------------------ Notwithstanding any other provisions contained in this Agreement, the making of each additional Revolving Loan or Term Loan advance provided for in this Agreement and the issuance of each additional Letter of Credit hereunder shall be conditioned upon the following: (A) in the case of each advance provided for in this Agreement, the Agent and the Lenders shall have received, by 11:00 a.m. (Chicago time) on the day such advance is to be made, (i) a telephonic request (promptly thereafter confirmed by Borrower in writing) from an authorized officer of Borrower for an advance in a specific amount, (ii) a Monthly Report from Borrower dated no more than forty-five (4S) days prior to the date of such advance, (iii) copies of all other documents required to be delivered to the Lenders under subsection 7.1 hereof and (iv) all Weekly and Daily -------------- Reports required as set forth in subsection 3.1 hereof; -------------- (B) in the case of each additional Letter of Credit provided for in this Agreement, the Agent and the Lenders shall have received, at least five (5) Business Days prior to the day on which such Letter of Credit is to be issued (i) a letter of credit application and such other documentation as the Agent shall reasonably request in -31- connection with such Letter of Credit, in each case in form and substance reasonably satisfactory to the Agent, (ii) a Monthly Report from Borrower dated no more than forty-five (45) days prior to the date of issuance of such Letter of Credit, (iii) copies of all other documents required to be delivered to the Lenders under subsection 7.1 hereof and (iv) all Weekly -------------- and Daily Reports required as set forth in subsection 3.1 hereof. -------------- (C) No material adverse change, as determined by the Agent in its sole discretion, in the condition (financial or otherwise), operations or prospects of Borrower or Kilovac shall have occurred at any time or times subsequent to the date hereof; (D) Neither a Default nor an Event of Default shall have occurred and be continuing; and (E) The Agent shall have received, in form and substance reasonably satisfactory to the Agent, all certificates, orders, authorities, consents, legal opinions, affidavits, schedules, instruments, security agreements, financing statements, mortgages and other documents which are provided for hereunder, or which the Agent may at any time reasonably request. 4.2 Conditions Precedent to Effectiveness of this Agreement. This ------------------------------------------------------- Agreement shall be deemed to have become effective as of the date hereof, but such effectiveness shall be expressly conditioned upon the satisfaction of each of the conditions set forth in subsection 4.1 above and of each of the following -------------- conditions: (A) the Agent shall have received this Agreement, the Substituted Term Note and each of the other Current Financing Agreements and other agreements, documents, instruments, opinions, certificates, lien search reports, financing statements and endorsements described on the List of Closing Documents attached hereto as Schedule A, and made a part hereof, in ---------- each case, where applicable, executed and delivered by each of the Persons designated as signatories thereto or issuer thereof, and in each case in form and substance satisfactory to the Agent and the Lenders, provided, -------- however, that certain items may be delivered subsequent to the Closing Date ------- and within the respective time periods specified on Schedule A hereto (and ---------- Borrower hereby further agrees to deliver, or to cause its applicable Subsidiary to deliver, such items within the respective time periods specified on Schedule A hereto); ---------- (B) Perfection of Liens. The Agent shall have received evidence ------------------- satisfactory to it that all financing statements and other perfection documents relating to the Collateral have been filed or recorded or arrangements acceptable to the Agent for the filing and recording thereof have been made, such title insurance endorsements as are acceptable to the Agent and have been issued to the Agent, for the benefit of the Agent and the Lenders, and all title charges, recording fees and filing taxes have been paid or adequate provisions for the payment of such charges, fees and taxes have been made. -32- (C) Sufficient Availability. The Agent shall be satisfied that, as ----------------------- of the Closing Date, and after giving effect to the additional Revolving Loans and additional Term Loans to be made on the Closing Date, the consummation of the Acquisition and all related transactions and the payment of all fees, expenses and charges due and payable on the Closing Date, the Borrower will have Excess Availability of not less than $1,000,000. (D) The Acquisition. The Lenders shall be satisfied in all material --------------- respects (i) with the terms of the Hartman Purchase Agreement, including, without limitation, the resolutions with respect to the Acquisition enacted by the respective Boards of Directors of the Borrower and Seller, (ii) that the parties to the Hartman Purchase Agreement have complied with all applicable laws and regulatory approval requirements and all contractual approval and consent requirements and (iii) that, upon the Lenders' funding the initial Revolving Loans and Term Loans hereunder and application of the proceeds thereof, all conditions precedent to the Acquisition pursuant to the Hartman Purchase Agreement will have been satisfied (or waived with the prior written consent of the Agent), and no material breach of any term or provision of the Hartman Purchase Agreement has occurred. (E) Audit. The Agent shall have completed its due diligence audit ----- of the business, operations and assets of Borrower, the Hartman Division and each of the Subsidiaries, the results of which shall have provided the Agent and each Lender with results and information which, in the judgment of such Persons, are satisfactory in all respects. (F) No Legal Impediments. No law, regulation, order, judgment or -------------------- decree of any governmental authority shall, and the Agent shall not have received any notice that litigation is pending or threatened which is likely to (i) enjoin, prohibit or restrain (a) the making of the initial Revolving Loans and Term Loans on the Closing Date, (b) the consummation of the Acquisition or (c) the making of any of the payments, or applications of payments, contemplated to be made on the Closing Date by this Agreement or the Hartman Purchase Agreement or (ii) impose or result in the imposition of a material adverse effect upon Borrower, the Hartman Division, Kilovac or any of the Borrower's Affiliates (G) Labor Relations. The Agent shall be satisfied (i) with the --------------- collective bargaining or other organized labor agreements to which the Borrower, Kilovac, the Hartman Division or any of the Subsidiaries are a party and (ii) that, before and after the Acquisition is consummated, neither the Borrower, Kilovac, the Hartman Division nor any of the Subsidiaries has encountered or will encounter any materially adverse labor union organizing activity, employee strike, work stoppage, shutdown or lockout. (H) No Change in Condition. No change in the business, assets, ---------------------- management, operations, financial condition or prospects of the Borrower, Kilovac, the Hartman Division or any of the Subsidiaries shall have occurred since December 31, 1995, which change, in the judgment of the Agent, will have or is reasonably likely to have a material -33- adverse effect upon the business, operations, financial condition or prospects of Borrower, Kilovac, the Hartman Division or any of the Borrower's Affiliates. (I) No Loss of Material Agreements and Licenses. Since December 31, ------------------------------------------- 1995, no agreement or license which, in the judgment of the Agent is material to the business, operations or employee relations of the Borrower, the Hartman Division, Kilovac or any of the Subsidiaries shall have been terminated, modified, revoked, breached or declared to be in default. (J) No Default. No Default or Event of Default shall have occurred ---------- and be continuing or would result from the making of the initial Revolving Loans and Term Loans hereunder or the consummation of the Acquisition. (K) Representations and Warranties. All of the representations and ------------------------------ warranties contained in Section 6 and in each of the other Financing --------- Agreements shall be true and correct in all material respects on and as of the Closing Date. (L) Fees and Expenses Paid. There shall have been paid to the ---------------------- Agent, for the accounts of the Lenders and the Agent, as applicable, all fees, charges and expenses due and payable to the Agent or Lenders on or before the Closing Date pursuant to this Agreement or the other Financing Agreements. 5 COLLATERAL. ---------- 5.1 Security Interest. To secure payment and performance of the ----------------- Liabilities, Borrower has granted, and hereby reaffirms such grant previously made pursuant to the 1993 Agreement and the 1995 Agreement, and hereby further grants, to the Agent, for the benefit of itself and the Lenders, a right of setoff against and a continuing security interest in and to the following property and interests in property, whether now owned or hereafter acquired by Borrower and wheresoever located: (i) Borrower's Accounts, contract rights, General Intangibles, tax refunds, chattel paper, instruments, investment property, notes, letters of credit, documents, documents of title, and investment property; (ii) Borrower's Inventory; (iii) Borrower's Equipment; (iv) all of Borrower's deposit accounts (general or special) with and credits and other claims against any Lender, or any other financial institution with which Borrower maintains deposits; (v) all of Borrower's now owned or hereafter acquired monies, and any and all other property and interests in property of Borrower now or hereafter coming into the actual possession, custody or control of the Agent, any Lender or any agent or affiliate of the Agent or any Lender in any way or for any purpose (whether for safekeeping, deposit, custody, pledge, transmission, collection or otherwise); (vi) all insurance proceeds of or relating to any of the foregoing; (vii) all insurance proceeds relating to any key man life insurance policy covering the life of any officer or director of Borrower, if any; (viii) all of Borrower's books and records relating to any of the foregoing; and (ix) all accessions and additions to, substitutions for, and replacements, products and proceeds of any of the foregoing. In addition, concurrently with the execution of this Agreement, Borrower shall execute and deliver to the Agent, on behalf of the -34- Lenders, landlord's waivers and consents in form and substance acceptable to the Agent relating to each of Borrower's, the Hartman Division's and Kilovac's leased premises described on Schedule 6.5(B) hereto to the extent not previously --------------- delivered to, and deemed acceptable by, the Agent. Borrower agrees that it shall grant, and cause each of its Subsidiaries to grant, to the Agent, as security for the Liabilities, a senior mortgage lien on all Real Property in which Borrower or any Subsidiary has or acquires a fee simple interest after the date hereof. 5.2 Preservation of Collateral and Perfection of Security Interests --------------------------------------------------------------- Therein. Borrower shall execute and deliver to the Agent, and cause each of its - ------- Subsidiaries to execute and deliver, concurrently with the execution of this Agreement, and at any time or times hereafter at the request of the Agent, all financing statements or other documents (and pay the cost of filing or recording the same in all public offices deemed necessary by the Agent), as the Agent may request, in a form satisfactory to the Agent, to perfect and keep perfected the security interest in the Collateral or to otherwise protect and preserve the Collateral and the Agent's security interest therein or to enforce Lender's security interests in the Collateral. Should Borrower fail to do so, the Agent is authorized to sign any such financing statements as Borrower's or such Subsidiary's agent. Borrower further agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. 5.3 Loss of Value of Collateral or Real Property. Borrower shall -------------------------------------------- immediately notify the Agent, on behalf of the Lenders, of any material loss or depreciation in the value of the Collateral or the Real Property. 5.4 Cash Collateral. In the event that the Agent has issued any --------------- Letters of Credit for the account of Borrower, the Lenders and the Agent may, at any time after (i) the occurrence of a Default or an Event of Default, (ii) demand by the Lenders for payment of the Liabilities as provided in subsection ---------- 9.1 hereof, (iii) there exists no unpaid principal balance of the Liabilities, - --- (iv) this Agreement shall terminate for any reason pursuant to subsection 2.7 -------------- above or (v) at any time the sum of (a) the outstanding principal balance of the Revolving Loan and (b) the aggregate undrawn face amount of all outstanding Letters of Credit shall exceed the Borrowing Base, request of Borrower, and Borrower shall thereupon deliver to the Agent, cash collateral for all Letters of Credit issued for the account of Borrower. If Borrower fails to deliver such cash collateral to the Agent promptly upon Agent's or the Lenders request therefor, the Lenders and the Agent may, without limiting any of their rights or remedies arising from such failure to deliver cash, retain, as cash collateral, cash proceeds of Borrower's Collateral or Real Property in an amount equal to the aggregate undrawn face amount of all Letters of Credit then outstanding. The Agent and the Lenders may at any time apply any or all of such cash and cash collateral to the payment of any or all of Borrower's Liabilities hereunder, including, without limitation, to the payment of any or all of Borrower's reimbursement obligations with respect to any Letter of Credit. Pending such application, the Agent may (but shall not be obligated to) (i) invest the same in a savings account, under which deposits are available for immediate withdrawal, with the Agent, any Lender or such other bank as the Agent may, in its sole discretion select, or (ii) hold the same as a credit balance in an account with the Agent or any Lender in Borrower's name. Interest payable on any such savings account described in the foregoing sentence shall be collected by the Agent and shall be paid to Borrower as it is received by the Agent, less any fees -35- owing by Borrower to the Agent and the Lenders with respect to any Letter of Credit and less any amounts necessary to pay any of Borrower's liabilities which may be due and payable at such time. Neither the Agent nor any Lender shall have any obligation to pay interest on any credit balances in any account opened for Borrower pursuant to this Agreement. 6. WARRANTIES. ---------- Borrower represents and warrants that as of the date of the execution of this Agreement, on the Closing Date after giving effect to the consummation of the Acquisition and all related transactions contemplated hereby and by the Hartman Purchase Agreement, and continuing thereafter for so long as any Liabilities remain outstanding, and (even if there shall be no Liabilities outstanding) for so long as this Agreement remains in effect: 6.1 Corporate Existence. Borrower is a corporation duly organized ------------------- and in good standing under the laws of the State of North Carolina. CII Mexico is a corporation duly organized and in good standing under the laws of the Mexico. Each of Kilovac and Kilovac International is a corporation duly organized and in good standing under the laws of the State of California. Kilovac Jamaica is a corporation duly organized and in good standing under the laws of Jamaica. Each of Borrower and its Subsidiaries is duly qualified as a foreign corporation and in good standing in all states where the nature and extent of the business transacted by it or the ownership of its assets makes such qualification necessary, except for those jurisdictions in which the failure so to qualify would not, in the aggregate, have a material adverse effect on Borrower's or its Subsidiaries' financial condition, results of operations or business. 6.2 Corporate Authority. The execution and delivery by Borrower and ------------------- its Subsidiaries of this Agreement, all of the other Current Financing Agreements and the Hartman Purchase Agreement, and the performance of Borrower's obligations hereunder, thereunder, and under the Original Financing Agreements, as reaffirmed and modified by the Current Financing Agreements, as applicable: (i) are within Borrower's and such Subsidiary's corporate powers; (ii) are duly authorized by Borrower's and such Subsidiary's Board of Directors and, if necessary, Borrower's and such Subsidiary's stockholders; (iii) are not in contravention of the terms of Borrower's and such Subsidiary's Articles of Incorporation, By-Laws, or of any indenture, agreement or undertaking to which Borrower or such Subsidiary is a party or by which Borrower, such Subsidiary, or any of their property is bound; (iv) do not, as of the execution hereof, require any governmental consent, registration or approval; (v) do not contravene any contractual or governmental restriction binding upon Borrower or such Subsidiary except to the extent the violation, or the results of the violation, of such restriction would not have a material adverse effect on the financial condition, results of operations or business of Borrower or such Subsidiary; and (vi) will not, except as contemplated herein, result in the imposition of any lien, charge, security interest or encumbrance upon any property of Borrower or any Subsidiary under any existing indenture, mortgage, deed of trust, loan or credit agreement or other material agreement or instrument to which Borrower or such Subsidiary is a party or by which it or any of its property may be bound or affected. -36- 6.3 Binding Effect. This Agreement and all of the other Financing -------------- Agreements to which Borrower or any Subsidiary is a party (except the 1993 Agreement and 1995 Agreement, which are superseded hereby) are the legal, valid and binding obligations of Borrower or such Subsidiary, as applicable, and are enforceable against Borrower or such Subsidiary, as applicable, in accordance with their respective terms. 6.4 Financial Data. Borrower has furnished to the Lenders a pro -------------- forma balance sheet of Borrower dated as of the Closing Date and a pro forma consolidated balance sheet of Kilovac dated as of the Closing Date (collectively, the "Pro Formas") and respectively attached hereto as Exhibits ---------- -------- E1-A and E1-B. Each Pro Forma fairly presents as of the date hereof on a pro - ---- ---- forma basis Borrower's or Kilovac's consolidated, as the case may be, assets, liabilities and financial condition after giving effect to the transactions described in this Agreement, the Current Financing Agreements and the Hartman Purchase Agreement; there are no omissions from either Pro Forma or other facts and circumstances not reflected in either Pro Forma which are or may be material in accordance with standards of materiality as determined in accordance with generally accepted accounting principles. The "Fair Salable Value Balance Sheets" attached hereto as Exhibits E2-A and E2-B respectively set forth the ------------- ---- fair salable value of each of Borrower's and Kilovac's consolidated assets and contains a complete statement of Borrower's and Kilovac's consolidated liabilities (including contingent liabilities), in each case as of the date hereof, after giving effect to the transactions described in this Agreement, the Current Financing Agreements and the Hartman Purchase Agreement and have been prepared based on reasonable assumptions, including, without limitation, the following: (i) Accounts have been valued at face value less reserves for uncollectible Accounts and expenses of collection based on previous history assuming a collection period not exceeding six months; (ii) Inventory has been valued at the lower of cost or market according to the books and records of Borrower or Kilovac, as applicable, (iii) intangible assets (other than Accounts and contribution rights arising under the Contribution Agreement) have been valued at zero, and (iv) fixed assets (including the Real Property) have been valued at book value, estimated fair market value, or to the extent available, current appraised fair market values (in which case, copies of such appraisals have been delivered to the Lenders). The historical financial statements furnished and to be furnished to the Lenders in accordance with subsection 7.1 -------------- hereof, and the pro forma historical financial statements of the Hartman Division for the months of May and June, 1996 and delivered to the Borrower in pursuant to the Hartman Purchase Agreement are respectively in accordance with the books and records of Borrower, Kilovac or the Hartman Division, as the case may be, and fairly represent the financial condition of Borrower, Kilovac or the Hartman Division, as the case may be, at the dates thereof and the results of operations for the periods indicated (subject, in the case of unaudited financial statements, to normal year-end adjustments), and such financial statements have been and will be prepared in conformity with generally accepted accounting principles, to the extent that preparation in accordance with generally accepted accounting principles is possible, (except that (i) in the case of unaudited financial statements, no footnotes shall be required, (ii) such statements may be condensed, (iii) the statements may exclude or combine as a single line item the effects (including additional depreciation, costs of sales and any amortization) of purchase accounting adjustments and (iv) the statements may exclude the effects of EITF No. 88 16 "Basis in Leveraged Buyout Transactions", FASB No. 109 "Accounting for Income Taxes", FASB No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" and -37- any expense relating to the Success Fee), consistently applied throughout the periods involved, except for changes therein with which the certified public accountants issuing the opinion on the financial statements delivered pursuant to subsection 7.1(B) hereof have concurred. All information, reports and other ----------------- papers and data furnished to the Lenders are or will be, at the time the same are so furnished to the Lenders, accurate and correct in all material respects and complete insofar as completeness may be necessary to give the Lenders a true and accurate knowledge of the subject matter thereof. No material adverse change has occurred in the property, business, operations, or conditions (financial or otherwise) of the Borrower or Kilovac since December 31, 1995. 6.5 Collateral and Real Property; Leased Premises. (A) Except (i) --------------------------------------------- as disclosed on Schedule 6.5(A) hereto and (ii) as permitted in subsection 8.1 --------------- -------------- hereof, all of the Collateral and Real Property is and will continue to be owned by Borrower, Holdings or Borrower's Subsidiaries, as applicable, has been fully paid for and is free and clear of all security interests, liens, claims, and encumbrances. (B) Schedule 6.5(B) hereto sets forth all of Borrower's and its --------------- Subsidiaries' leased premises together with the respective lessors thereof 6.6 Solvency and Other Matters. (a) Each of Borrower and Kilovac is -------------------------- solvent, is able to pay its debts as they become due and has capital sufficient to carry on its business and all businesses in which it is about to engage, and now owns property having a value both at fair valuation and at present fair salable value greater than the amount required to pay its debts. Neither Borrower nor Kilovac will be rendered insolvent by the execution and delivery of this Agreement or any of the other Current Financing Agreements (or by the performance of the Original Financing Agreements) or by the transactions contemplated hereunder, thereunder or under the Hartman Purchase Agreement. (b) This Agreement and each of the other Financing Agreements to be executed by Borrower or any Subsidiary of Borrower have been executed and delivered by Borrower or such Subsidiary, as the case may be, to the Agent and the Lenders in good faith and in exchange for reasonably equivalent value. (c) Neither Borrower nor Kilovac intends to incur debts beyond its ability to pay them as they mature and the aggregate of Borrower's property at a fair valuation is sufficient in amount to pay Borrower's debts, and the aggregate of Kilovac's property at a fair valuation is sufficient in amount to pay Kilovac's debts. (d) The funds obtained by Borrower from the Lenders pursuant to the Financing Agreements will be used for proper corporate purposes in accordance with the terms thereof and applicable law. 6.7 Chief Place of Business. As of the Closing Date, the principal ----------------------- place of business and chief executive office of Borrower is located at P.O. Box 520, Highway 74 East, 1396 Charlotte Highway, Fairview, North Carolina 28730 and the principal place of business and -38- chief executive office of Kilovac is located at 550 Linden Avenue, Carpinteria, California 93013 If any change in either such location occurs, Borrower shall notify the Agent and the Lenders thereof in accordance with subsection 8.11 --------------- hereof. As of the execution hereof, the respective books and records of Borrower and Kilovac and all chattel paper and all records of account are located at such respective addresses, and if any change in either such location occurs, Borrower shall notify the Agent and the Lenders thereof in accordance with subsection ---------- 8.11 hereof. - ---- 6.8 Other Corporate Names. Except as disclosed on Schedule 6.8 --------------------- ------------ hereto, neither Borrower nor any of its Subsidiaries have used any corporate or fictitious name other than the corporate names set forth on the Articles of Incorporation of such Person. 6.9 Tax Liabilities. Borrower and each of its Subsidiaries has --------------- filed all federal, state, provincial and local tax reports and returns required by any law or regulation to be filed by it except for extensions duly obtained, and have either duly paid all taxes, duties and charges indicated due on the basis of such returns and reports, or made adequate provision for the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected. Either the federal income tax returns of Borrower have been audited by the Internal Revenue Service and such audits have been closed, or the period during which any assessments may be made by the Internal Revenue Service has expired without waiver or extension. The reserves for taxes reflected on the balance sheets of Borrower and its Subsidiaries submitted to the Agent and the Lenders in accordance with the terms of subsection 7.1 below will be adequate in amount in accordance with generally -------------- accepted accounting principles for the payment of all liabilities for all taxes (whether or not disputed) of Borrower and its Subsidiaries accrued through the date of such balance sheet. There are no material unresolved questions or claims concerning any tax liability of Borrower or its Subsidiaries. 6.10 Loans; Bank Accounts. Except as set forth on Schedule 6.10 -------------------- ------------- hereof and for trade payables arising in the ordinary course of Borrower's and its Subsidiaries businesses, neither Borrower and nor any of its subsidiaries have any loans or other indebtedness for borrowed money. Other than as set forth on Schedule 6.10 hereof, Borrower and its Subsidiaries have no deposit, ------------- collection, disbursement or checking accounts with any financial institution. 6.11 Margin Security. Neither Borrower nor any of its Subsidiaries --------------- owns any margin security and none of the loans advanced hereunder will be used for the purpose of purchasing or carrying any margin securities or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase any margin securities or for any other purpose not permitted by Reg,ulation U of the Board of Governors of the Federal Reserve System. 6.12 Survival of Warranties. All representations and warranties ---------------------- contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement. Immediately prior to the effectiveness of this Agreement, no "Default" or "Event of Default" had occurred and was continuing under and as defined in the 1995 Agreement, except for those which are waived upon the effectiveness of this Agreement pursuant to subsection ---------- 10.22 hereof. - ----- -39- 6.13 Subsidiaries. As of the Closing Date, Borrower has no ------------ Subsidiaries other than CII Mexico, Kilovac, Kilovac Jamaica and Kilovac International, Kilovac has no Subsidiaries other than Kilovac International and Kilovac Jamaica; and neither Kilovac International, Kilovac Jamaica, nor CII Mexico has any Subsidiaries. 6.14 Litigation and Proceedings. Except as disclosed on Schedule -------------------------- -------- 6.14 hereto, no judgments are outstanding against Borrower or any of its - ---- Subsidiaries nor is there now pending or, to the best of Borrower's knowledge after diligent inquiry, threatened, any litigation, investigations, contested claim, or governmental proceeding by or against Borrower or any of its Subsidiaries except judgments and pending or threatened litigation, investigations, contested claims and governmental proceedings which are not, in the aggregate, material to the Borrower's financial condition. results of operations or business. 6.15 Other Agreements. Neither Borrower nor any of its Subsidiaries ---------------- is in default under any material contract, lease, or commitment to which it is a party or by which it is bound. Borrower knows of no dispute regarding any contract, lease, or commitment which is material to the continued financial success and well-being of Borrower or any of its Subsidiaries. 6.16 Labor Contracts; Employee Controversies. There are no --------------------------------------- controversies pending or, to the best of Borrower's knowledge after diligent inquiry, threatened between Borrower, any of its Subsidiaries and any of their respective employees, other than employee grievances arising in the ordinary course of business which are not, in the aggregate, materially adverse to the continued financial success and well-being of Borrower or its Subsidiaries. 6.17 Compliance with Laws and Regulations; Environmental Matters. ----------------------------------------------------------- (A) General Compliance. The execution and delivery by Borrower of ------------------ this Agreement and the execution and delivery by Borrower and each of its Subsidiaries of all of the other Current Financing Agreements to which they are parties and the performance of Borrower's obligations hereunder, and of Borrower's and each such Subsidiaries' performance thereunder, and under the Original Financing Agreements to which they are parties are not in contravention of any law or laws. Each of Borrower and its Subsidiaries is in compliance with all laws, orders, regulations and ordinances of all federal, foreign, provincial, state and local governmental authorities relating to the business operations and the assets of Borrower and each of its Subsidiaries except for laws, orders, regulations and ordinances the violation of which would not, in the aggregate, have a material adverse effect on Borrower's or any Subsidiaries' financial condition, results of operations or business. (B) Environmental Compliance. Except as set forth on Schedule 6.17 ------------------------ ------------- hereof, the operations of Borrower and each of its Subsidiaries comply in all material respects with all applicable federal, state, provincial or local environmental, health and safety statutes and regulations. Except as set forth on Schedule 6.17 hereof, none of the ------------- operations of Borrower or any of its Subsidiaries is subject to any judicial or administrative proceeding alleging the violation of any federal, state, provincial or local environmental, health or safety statute or regulation. Except as set forth on Schedule 6.17, none of the operations of Borrower or any ------------- of its -40- Subsidiaries is the subject of federal, state or provincial investigation evaluating whether any remedial action is needed to respond to a release of any hazardous or toxic waste, substance or constituent, or other substance into the environment. Except as set forth on Schedule 6.17, neither Borrower nor any of ------------- it Subsidiaries has filed any notice under any federal, provincial or state law indicating past or present treatment, storage or disposal of a hazardous waste or reporting a spill or release of a hazardous or toxic waste, substance or constituent, or other substance into the environment. Except as set forth on Schedule 6.17, neither Borrower nor any of its Subsidiaries has any contingent - -------------- liability of which Borrower has knowledge or reasonably should have knowledge in connection with any release of any hazardous or toxic waste, substance or constituent, or other substance into the environment. 6.18 Patents. Trademarks and Licenses. Borrower and each of its -------------------------------- Subsidiaries possesses adequate assets, licenses, permits, patents, patent application, copyrights, service marks, trademarks, trade names, government approvals or other authorizations and other rights that are necessary for Borrower and its Subsidiaries to conduct their respective businesses. 6.19 ERISA. (A) Neither Borrower nor any ERISA Affiliate maintains ----- or contributes to any Plan other than a Plan listed on Schedule 6.19 hereto. ------------- Each Plan which is intended to be a qualified plan has been determined by the Internal Revenue Service to be qualified under Section 401 (a) of the Internal Revenue Code as currently in effect and each trust related to any such Plan has been determined to be exempt from federal income tax under Section 501(a) of the Internal Revenue Code. Neither Borrower nor any Affiliate maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA. Neither Borrower nor any ERISA Affiliate has breached any of the responsibilities, obligations or duties imposed on it by ERISA or regulations promulgated thereunder with respect to any Plan. No accumulated funding deficiency (as defined in Section 302(a)(2) of ERISA and Section 412(a) of the Internal Revenue Code) exists in respect to any Benefit Plan, whether or not waived. Neither Borrower nor any ERISA Affiliate nor any fiduciary of any Plan which is not a Multiemployer Plan (i) has engaged in a nonexempt "prohibited transaction" described in Section 406 of ERISA or Section 4975 of the Internal Revenue Code or (ii) has taken or failed to take any action which would constitute or result in a Termination Event with respect to any Plan. Neither Borrower nor any ERISA Affiliate has incurred any liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. Schedule B to the most recent annual report filed with the Internal Revenue Service with respect to each Benefit Plan and furnished to the Agent and the Lenders is complete and accurate; since the date of each such Schedule B, there has been no adverse change in the funding status or financial condition of the Benefit Plan relating to such Schedule B. (B) Neither Borrower nor any ERISA Affiliate has (i) failed to make a required contribution or payment to a Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from Multiemployer Plan. Neither Borrower nor any ERISA Affiliate has failed to make a required installment under subsection (m) of Section 412 of the Internal Revenue Code or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment. Neither -41- Borrower nor any ERISA Affiliate is required to provide security to a Plan under Section 401(a)(29) of the Internal Revenue Code due to a Plan amendment that results in an increase in current liability for the plan year. (C) Borrower has given to the Agent and the Lenders copies of all of the following: each Benefit Plan and related trust agreement (including all amendments to such Plan and trust) in existence or committed to as of the Closing Date and the most recent summary plan description, actuarial report, determination letter issued by the IRS and Form 5500 filed in respect of each such Benefit Plan in existence; a listing of all of the Multiemployer Plans with the aggregate amount of the most recent annual contributions required to be made by the Borrower and all ERISA Affiliates to each such Multiemployer Plan, any information which has been provided to Borrower or an ERISA Affiliate regarding withdrawal liability under any Multiemployer Plan and the collective bargaining agreement pursuant to which such contribution is required to be made; each employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA, the most recent summary plan description for such plan and the aggregate amount of the most recent annual payments made to terminated employees under each such Plan. 7. AFFIRMATIVE COVENANTS. --------------------- Borrower covenants and agrees that, for so long as any Liabilities remain outstanding, and (even if there shall be no Liabilities outstanding) for so long as this Agreement remains in effect: 7.1 Financial Statements. Borrower shall keep, and cause each -------------------- Subsidiary to keep, proper books of record and account (consistent with the provisions of subsection 3.12) in which full and true entries will be made of --------------- all dealings or transactions of or in relation to the business and affairs of Borrower and its Subsidiaries, and which will permit the preparation of financial statements in accordance with generally accepted accounting principles consistently applied to the extent possible, and Borrower shall cause to be furnished to the Lenders: (A) Monthly. As soon as practicable after the end of each month ------- and in any event within twenty-five (25) days after the end of such month (or, if such twenty-fifth day is not a Business Day, by the next immediate Business Day): (i) consolidated statements of income, retained earnings and cash flow of Borrower and its Subsidiaries for such month and for the period from the beginning of the then current fiscal year to the end of such month and a consolidated balance sheet of Borrower and its Subsidiaries as of the end of such month, setting forth in each case in comparative form, figures for the corresponding periods in the preceding fiscal year and as of a date one year earlier, all in reasonable detail and certified as accurate by the chief financial officer or -42- treasurer of Borrower, subject to changes resulting from normal year- end adjustments; and (ii) (a) a copy of Borrower's consolidated operating statement for such month prepared by Borrower and its Subsidiaries for their internal use, including, without limitation, statements of cash flow, purchases and sales of inventory and other similar data as the Agent or any Lender may reasonably request and (b) a comparison of actual cash flow and capital expenditures with amounts budgeted for such month. (B) Annual. As soon as practicable and in any event within ninety ------ (90) days after the end of each fiscal year of Borrower (or, if such ninetieth day is not a Business Day, by the next immediate Business Day), consolidated statements of income, retained earnings and cash flow of Borrower and its Subsidiaries for such year, and a consolidated balance sheet of Borrower and its Subsidiary as of the end of such year, setting forth in each case in comparative form, corresponding figures for the preceding fiscal year and as of the end of the preceding fiscal year, all in reasonable detail and satisfactory in scope to the Agent and each Lender and examined by independent certified public accountants selected by Borrower and reasonably satisfactory to the Agent, whose opinion shall be in scope and substance satisfactory to the Agent and each Lender. (C) Budget. As soon as practicable and in any event within thirty ------ (30) days after the end of each fiscal year of Borrower (or, if such thirtieth day is not a Business Day, by the next immediate Business Day), an annual budget of Borrower and its Subsidiaries for the succeeding fiscal year in reasonable detail, including a cash flow budget of Borrower and its Subsidiaries for the succeeding fiscal year, and within thirty (30) days after the close of each calendar month during such fiscal year (or, if such thirtieth day is not a Business Day, by the next immediate Business Day), a statement in which the actual results of such month are compared with the corresponding projections in such annual budget (each annual budget shall include a statement of anticipated profit and loss and a balance sheet as of the end of the annual budget period, in each case in the same format as the audited statement of profit and loss and the audited balance sheet). (D) Letters from Accountants and Consultants. As soon as ----------------------------------------- practicable and in any event within ten (10) days of delivery to Borrower (or, if such tenth day is not a Business Day, not later than the next immediate Business Day), a copy of (i) the "Management Letter" prepared by Borrower's independent certified public accountants prepared in connection with the financial statements referred to in subsection 7.1(B) above and ----------------- (ii) to the extent that such letters may from time to time be issued by Borrower's independent certified public accountants or other management consultants, any letter issued by Borrower's independent certified public accountants or other management consultants with respect to recommendations relating to the financial or accounting systems or controls of Borrower or any of its Subsidiaries. -43- (E) Default Notices. As soon as practicable (but in any event not --------------- more than one (1) day (or, if such day is not a Business Day, not later than the next immediate Business Day) after the president or chief financial officer of Borrower or any Subsidiary obtains knowledge of the occurrence of an event or the existence of a circumstance giving rise to an Event of Default or a Default), notice of any and all Events of Default or Defaults hereunder; (F) Account Debtors List. At the request of the Agent, names and -------------------- addresses of Borrower's and Kilovac's Account Debtors. (G) Other Information. With reasonable promptness, such other ----------------- business or financial data as the Agent or any Lender may reasonably request. All financial statements delivered to the Agent and the Lenders pursuant to the requirements of subsections 7.1 (A) and (B) above (except where ------------------- --- otherwise expressly indicated) shall be prepared in accordance with generally accepted accounting principles (to the extent possible and except that (i) in the case of unaudited financial statements, no footnotes shall be required, (ii) such statements may be condensed, (iii) the statements may exclude or combine as a single line item the effects (including additional depreciation, costs of sales and any amortization) of purchase accounting adjustments and (iv) the statements may exclude the effects of EITF No. 88-16 "Basis in Leveraged Buyout Transactions", FASB No. 109 "Accounting for Income Taxes", FASB No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" and any expense relating to the Success Fee or fees payable pursuant to subsection ---------- 2.5(B), consistently applied, except for changes therein with which the - ------- certified public accountants issuing the opinion on the financial statements delivered pursuant to subsection 7.1 (B) have concurred. Together with each ---------- ------ delivery of financial statements required by subsections 7.1 (A) and (B) above, ------------------- --- Borrower shall deliver to the Agent and each Lender a certificate of the chief financial officer or treasurer of Borrower in the form attached hereto as Exhibit B-1 setting forth in such detail as is acceptable to the Agent and each - ----------- Lender calculations with respect to Borrower's compliance with each of the financial covenants contained in this Agreement and stating that there exists no Default or Event of Default, or, if any Default or Event of Default exists, specifying the nature and the period of existence thereof and what action Borrower proposes to take with respect thereto. Together with each delivery of financial statements required by subsection 7.1 (B) above, Borrower shall ------------------ deliver to the Agent and each Lender a report of the accountants who performed the audit in connection with such statements stating that in making the audit necessary to the issuance of a report on such financial statements, they have obtained no knowledge of any Default or Event of Default, or, if such accountants have obtained knowledge of a Default or Event of Default, specifying the nature and period of existence thereof. Such accountants shall not be liable by reason of any failure to obtain knowledge of any Default or Event of Default which would not be disclosed in the ordinary course of an audit. The Agent and each Lender shall exercise reasonable efforts to keep such information, and all information acquired as a result of any inspection conducted in accordance with subsection 7.2 hereof, confidential, provided that -------------- Agent or any Lender may communicate such information (a) to any other Person in accordance with the customary practices of -44- commercial banks relating to routine trade inquiries, (b) to any regulatory authority having jurisdiction over the Agent or such Lender, (c) to any other Person in connection with any such Lender's sale of any participations in, or assignments of, the Liabilities, or (d) to any other Person in connection with the exercise of the Agent's or any Lender's rights hereunder or under any of the other Financing Agreements. Borrower authorizes the Agent and each Lender to discuss the financial condition of Borrower and its Subsidiaries with Borrower's independent certified public accountants and agrees that such discussion or communication shall be without liability to either the Agent, any such Lender or Borrower's independent certified public accountants. 7.2 Inspection. The Agent, any Lender, or any Person designated by ---------- the Agent or any Lender in writing, shall have the right, from time to time hereafter, to call at the place or places of business (or any other place where the Collateral or any information relating thereto is kept or located) of Borrower and its Subsidiaries during reasonable business hours, and, without hindrance or delay, (i) to inspect, audit, check and make copies of and extracts from Borrower's or its Subsidiaries' books, records, journals, orders, receipts and any correspondence and other data relating to the business of Borrower or any of its Subsidiaries or to any transactions between the parties hereto, (ii) to make such verification concerning the Collateral as the Agent or any Lender may consider reasonable under the circumstances, and (iii) to discuss the affairs, finances and business of Borrower and its Subsidiaries with any officers, employees or directors of Borrower or its Subsidiaries. Borrower shall pay on demand all photocopying expenses incurred by the Agent or any Lender under this subsection 7.2. Prior to the occurrence of a Default Borrower shall --------------- be obligated to pay the Agent's audit fees and expenses as described in subsection 2.5(D) for one audit per quarter. After the occurrence and during the - ---------- ----- continuation of a Default, there shall be no limitation on Borrower's obligation to pay the Agent's or any Lender's audit fees and expenses. Borrower agrees that Agent shall have the right to obtain a new appraisal (or update of an existing appraisal) at any time (a) when, in the Agent's reasonable judgment, such an appraisal is warranted due to the Agent's internal evaluation of the extensions of credit contemplated by this Agreement (but not less than once every three (3) years) and (b) to comply with statutes, rules, regulations or directives of governmental agencies having jurisdiction over the Agent. Borrower agrees to pay to Agent, upon demand, all appraiser's fees and related expenses incurred by the Agent from time to time in obtaining appraisal reports. 7.3 Conduct of Business. Except as contemplated herein, Borrower ------------------- and each of its Subsidiaries shall maintain its corporate existence, shall maintain in full force and effect all licenses, bonds, franchises, leases, patents, permits, contracts and other rights necessary or desirable to the profitable conduct of its business, shall continue in, and limit its operations to, the same general lines of business as those presently conducted by it and shall comply with all laws, orders, regulations and ordinances of any federal, foreign, state or local governmental authority, except for such laws, orders, regulations and ordinances the violation of which would not, in the aggregate, have a material adverse effect on Borrower's, or any Subsidiary's financial condition, results of operations or business or Borrower's or any Subsidiary's ability to perform its obligations hereunder or under any of the other Financing Agreements. 7.4 Claims and Taxes. Borrower agrees to indemnify and hold the ----------------- Agent, each Lender and each of their respective officers, directors, employees, attorneys and agents harmless from and against any and all claims, demands, liabilities, losses, damages, penalties, costs, and -45- expenses (including, without limitation, reasonable attorney's and consultant's fees) relating to or in any way arising out of the possession, use, operation or control of any of Borrower's or any of its Subsidiaries' assets, except for any such claims, demands, liabilities, losses, damages, penalties, costs and expenses caused by and resulting from the Agent's or such Lender's willful misconduct or gross negligence. Borrower shall pay or cause to be paid all license fees, bonding premiums and related taxes and charges, and shall pay or cause to be paid all of Borrower's and its Subsidiaries' real and personal property taxes, assessments and charges and all of Borrower's and its Subsidiaries' franchise, income, unemployment, use, excise, old age benefit, withholding, sales and other taxes and other governmental charges assessed against Borrower or any of its Subsidiaries, or payable by Borrower or any of its Subsidiaries, at such times and in such manner as to prevent any penalty from accruing or any lien or charge from attaching to its property, provided that Borrower or the applicable Subsidiary shall have the right to contest in good faith, by any appropriate proceedings, promptly initiated and diligently conducted, the validity, amount or imposition of any such tax, assessment or charge, and upon such good faith contest to delay or refuse payment thereof, if (i) Borrower or such Subsidiary establishes adequate reserves to cover such contested taxes, assessments or charges, and (ii) such contest does not have a material adverse effect on the financial condition of Borrower or any of its Subsidiaries, the ability of Borrower to pay any of the Liabilities, or the priority or value of the Agent's security interest in the Collateral or the Agent's liens upon the Real Property. 7.5 Agent's Closing Costs and Expenses. 13orrower shall reimburse ---------------------------------- the Agent on demand for all reasonable expenses and fees paid or incurred in connection with the documentation, negotiation, restatement, modification and closing of the credit facilities described herein, including, without limitation, lien search, filing and recording fees and the reasonable fees and expenses of the Agent's attorneys and paralegals, whether such expenses and fees are incurred prior to or after the date hereof. In addition, Borrower shall reimburse the Agent for the costs of appraisals done, if any, with respect to Borrower's and its Subsidiaries' Real Property and Equipment. 7.6 Borrower's Liabilitv Insurance. Borrower shall maintain, and ------------------------------ shall cause each subsidiary to maintain, at its expense, such public liability and third party property damage insurance in such amounts and with such deductibles as is acceptable to the Agent. Borrower has, and to the extent necessary, shall, make arrangements with its and its Subsidiaries' liability insurers to note the Agent as an additional insured with respect to the Borrower's and its Subsidiaries' its liability insurance policies. 7.7 Borrower's Property Insurance. Borrower shall, and shall cause ------------------------------ its Subsidiaries to, at its expense, keep and maintain its assets and the Collateral insured against loss or damage by fire, theft, burglary, pilferage, loss in transit, explosion, spoilage and all other hazards and risks ordinarily insured against by other owners or users of such properties in similar businesses, including flood, if the same is required pursuant to a designation of the area in which the Real Property is located as flood prone or a flood risk area, as defined by the Flood Disaster Protection Act of 1973, as amended, in an amount at least equal to the lesser of (i) the outstanding principal balance of the liabilities or (ii) the full insurable value of all such property. All such policies of insurance shall be in form and substance satisfactory to the Agent. To the extent Borrower has not alreadv done so in connection with the 1995 Agreement and the Original -46- Financing Agreements, Borrower shall deliver to the Agent the original (or a certified) copy of each policy of insurance and evidence of payment of all premiums therefor. Such policies of insurance shall contain a Loss Payable Endorsement. Borrower has directed and shall cause each Subsidiary to direct, and hereby reaffirms such direction to, all insurers under such policies of insurance to pay all proceeds of insurance policies directly to the Agent. Borrower has, and has caused each of its Subsidiaries to, irrevocably made, constituted and appointed the Agent, and all officers, employees or agents designated by the Agent, (and hereby reaffirms such making, constitution and appointment) as Borrower's and its Subsidiaries' true and lawful attorney-in- fact for the purpose of making, settling and adjusting claims under all such policies of insurance, endorsing the name of Borrower, the applicable Subsidiary, or any other Person on any check, draft, instrument or other item of payment received by Borrower, a Subsidiary, the Agent or any Lender pursuant to any such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. If Borrower, at any time or times hereafter, shall fail to obtain or maintain any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, then the Agent and the Lenders, without waiving or releasing any obligation or Default by Borrower hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain, or fail to cause any Subsidiary to obtain or maintain, such policies of insurance and pay such premiums and take any other action with respect thereto which the Agent and the Lenders deem advisable. 7.8 ERISA. (A) Borrower shall deliver to the Lenders, at Borrower's ----- expense, such information and at such times as provided below: (i) as soon as possible, and in any event within ten (10) days (or, if such tenth day is not a Business Day, by the next immediate Business Day) after Borrower or an ERISA Affiliate knows or has reason to know that a Termination Event has occurred, a written statement of the chief executive officer of Borrower describing such Termination Event and the action, if any, which Borrower or such ERISA Affiliate has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the Internal Revenue Service ("IRS"), DOL or PBGC with respect thereto; (ii) as soon as possible and in any event within ten (10) days (or, if such tenth day is not a Business Day, by the next immediate Business Day) after Borrower or an ERISA Affiliate knows or has reason to know that a prohibited transaction (as defined in Section 406) of ERISA and Section 4975 of the Internal Revenue Code) has occurred, a statement of the chief executive officer of Borrower describing such transaction and the action which Borrower or any ERISA Affiliate has taken, is taking or proposes to take, with respect thereto; (iii) promptly after the filing thereof with the DOL, IRS or PBGC, copies of each annual report, including schedule B thereto, filed with respect to each Benefit Plan; (iv) promptly after the filing thereof with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by Borrower or an ERISA Affiliate with respect to such request; -47- (v) promptly upon the occurrence thereof, notification of any increases in the benefits of any existing Benefit Plan or the establishment of any new Plan or the commencement of contributions to any Plan to which Borrower or an ERISA Affiliate was not previously contributing; (vi) promptly upon, and in any event within three (3) Business Days after, receipt by Borrower or an ERISA Affiliate of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice; (vii) promptly upon, and in any event within three (3) Business Days after, receipt by Borrower or an ERISA Affiliate of an unfavorable determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the Internal Revenue Code copies of each such letter; (viii) promptly upon, and in any event within three (3) Business Days after receipt by Borrower or an ERISA Affiliate of a notice from a Multiemployer Plan regarding the imposition of withdrawal liability, copies of each such notice; (ix) promptly upon, and in any event within three (3) Business Days after, either Borrower or an ERISA Affiliate failing to make a required installment under subsection (m) of Section 412 of the Code or any other payment required under Section 412 on or before the due date for such installment or payment, a notification of such failure; (x) within five (5) Business Days after receipt by Borrower or any ERISA Affiliate of each actuarial report for any Benefit Plan or Multiemployer Plan and each annual report for any Multiemployer Plan, copies of each such report; within five (5) Business Days after Borrower or any ERISA Affiliate knows or has reason to know (a) a Multiemployer Plan has been terminated, (b) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan. For purposes of this subsection 7.8, Borrower and any ERISA Affiliate -------------- shall be deemed to know all facts known by the Administrator of any Plan of which Borrower or any ERISA Affiliate is the plan sponsor. (B) Borrower shall establish, maintain and operate all Plans to comply in all material respects with the provisions of ERISA, IRC, and all other applicable laws, and the regulations and interpretations thereunder. 7.9 Notice of Suit or Adverse Change in Business. Borrower shall, -------------------------------------------- as soon as possible, and in any event within five (5) days (or, if such fifth day is not a Business Day, by the next immediate Business Day) after Borrower learns of the following, give written notice to the Agent, on behalf of the Lenders, of (i) any material proceeding(s) (including, without limitation, litigation, investigations, arbitration or governmental proceedings) being instituted or threatened to be instituted by or against Borrower or any of its Subsidiaries in any federal, state, provincial, -48- local or foreign court or before any commission or other regulatory body (federal, state, local or foreign) and (ii) any material adverse change in the business, assets or condition, financial or otherwise, of Borrower or any of its Subsidiaries. 7.10 Supervening Illegality. If, at any time or times hereafter, ---------------------- there shall become effective any amendment to, deletion from or revision, modification or other change in any provision of any statute, or any rule, regulation or interpretation thereunder or any similar law or regulation affecting the Lenders' extension of credit described in this Agreement and/or the selling of participations therein or assignments thereof, Borrower shall, at Borrower's option, either (i) pay to the Agent, for the benefit of the Lenders, the then outstanding balance of the Liabilities, and hold the Agent and the Lenders harmless from and against any and all obligations, fees, liabilities, losses, penalties, costs, expenses and damages, of every kind and nature, imposed upon or incurred by Borrower by reason of the Agent or the Lender's failure or inability to comply with the terms of this Agreement or any of the other Financing Agreements, or (ii) indemnify and hold the Agent and the Lenders harmless from and against any and all obligations, fees, liabilities, losses, penalties, costs, expenses and damages, of every kind and nature, imposed upon or incurred by the Agent or the Lenders by reason if such amendment, deletion, revision, modification, or other change. 7.11 Environmental Laws. Borrower will use its best efforts, and ------------------ will use its best efforts to cause each of its Subsidiaries, to conduct its business so as to comply in all material respects with all federal, state, provincial or local environmental laws and regulations, including, without limitation, any remediation efforts ordered by any such governmental authorities and any environmental, land use, occupational safety or health laws, rules, regulations, requirements or permits in all jurisdictions in which they, respectively, are or may at any time be doing business, provided, however, that --------- ------- nothing contained in this subsection 7.11 shall prevent Borrower or any of its --------------- Subsidiaries from contesting, in good faith by appropriate legal proceedings, promptly initiated and diligently conducted, any such law, regulation, interpretation thereof or application thereof, provided, further, that Borrower -------- ------- or any of its Subsidiaries, as applicable, shall comply with the order of any court or other governmental body of applicable jurisdiction relating to such laws unless Borrower or any such Subsidiary shall currently be prosecuting an appeal or proceedings for review and shall have secured a stay of enforcement or execution or other arrangement postponing enforcement or execution pending such appeal or proceedings for review. If Borrower or any of its Subsidiaries shall (a) receive notice that any violation of any federal, state, provincial or local environmental law or regulation may have been committed or is about to be committed by Borrower or any of its Subsidiaries, (b) receive notice that any administrative or judicial complaint or order has been filed or is about to be filed against Borrower or any of its Subsidiaries alleging violations of any federal, state or local environmental law or regulation or requiring Borrower or any of its Subsidiaries to take any action in connection with the release of toxic or hazardous substances into the environment, (c) receive any notice from a federal, state, or local governmental agency or private party alleging that Borrower or any of its Subsidiaries may be liable or responsible for costs associated with a response to or cleanup of a release of a toxic or hazardous substance into the environment or any damages caused thereby, or (d) notice that any properties or assets of Borrower or any of its Subsidiaries are subject to an Environmental Lien, Borrower shall provide the Lenders with a copy of such notice within fifteen (15) days (or, if such fifteenth day is not a Business Day, by the next immediate -49- Business Day) of Borrower's receipt thereof. Within fifteen (15) days (or, if such fifteenth day is not a Business Day, by the next immediate Business Day) of Borrower having learned of the enactment or promulgation of any federal, state, provincial or local environmental law/or regulation which may result in any material adverse change in the condition, financial or otherwise, of Borrower or any of its Subsidiaries, Borrower shall provide the Agent, on behalf of Lenders with notice thereof. 7.12 Leasehold Assignments; Landlord Consents and Waivers. With ---------------------------------------------------- respect to each lease of premises entered into after the date hereof, upon Agent's request, Borrower shall, or shall use its best efforts to cause its Subsidiary to, as applicable, deliver to the Agent a collateral assignment of lease or leasehold mortgage together with a landlord waiver (including a consent to such collateral assignment of lease or leasehold mortgage) executed by Borrower, or such Subsidiary, as applicable, and the lessor of such leased premises. Each collateral assignment of lease or leasehold mortgage and related landlord waived so delivered shall be in form and substance acceptable to the Agent. 7.13 Destruction and Condemnation. In case of any damage to or loss ---------------------------- or destruction of the Collateral or any part thereof (each, a "Destruction"), ----------- Borrower shall promptly send to the Agent, on behalf of the Lenders, a notice setting forth the nature and extent of such Destruction. The proceeds of any insurance payable in respect of such Destruction have been assigned (and such assignment is hereby reaffirmed) and shall be paid to the Agent. All such proceeds, less the amount of any expenses incurred in litigating, arbitrating, compromising or settling any claim arising out of such Destruction ("Net --- Proceeds"), shall be applied in accordance with the provisions of this - -------- subsection 7.13. In the event of any taking of the Real Property, or any part - --------------- thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reason of the temporary requisition of the use or occupancy of the Real Property, or any part thereof, by any governmental authority, civil or military (each, a "Taking"), Borrower shall immediately ------ notify the Agent, on behalf of the Lenders, upon receiving notice of such Taking or commencement of proceedings therefor. All proceeds and any award or payment in respect of any Taking are hereby assigned (and Borrower shall cause each applicable Subsidiary to assign to the Agent pursuant to agreements and instruments acceptable to the Agent) and shall be paid to the Agent, on behalf of the Lenders, and Borrower shall take all steps necessary to notify, or cause the applicable Subsidiary to notify, the condemning authority of such assignment. Such award or payment, less the amount of any expenses incurred in litigating, arbitrating, compromising or settling any claim arising out of such Taking ("Net Award"), shall be applied in accordance with the provisions of this --------- subsection 7.13. In the event of a Taking or Destruction, Borrower shall be - --------------- required to restore or rebuild, or cause the applicable Subsidiary to restore or rebuild ("Restoration") any Collateral that is damaged, taken or destroyed under ----------- the terms and provisions hereinafter provided unless (i) the Net Proceeds or Net Award received in connection with such Taking or Destruction are less than $10,000 in amount, and Borrower elects to apply, or to cause to be applied, such Net Proceeds or Net Award to reduce the outstanding principal balance of the Liabilities, or (ii) such Net Proceeds or Net Award are greater than $250,000 in amount, and the Lenders elect to apply, or to cause to be applied, such Net Proceeds or Net Award to Borrower's Liabilities as provided below. Net Awards and Net Proceeds shall be paid to the Agent, on behalf of the Lenders; provided, however, that so long as no Event of Default or Default shall have occurred and be continuing, and unless Borrower has elected to apply, or to -50- cause to be applied, such mounts to the Liabilities, Net Proceeds and Net Awards in amounts less than $10,000 per occurrence shall be delivered to Borrower or the applicable Subsidiary to pay for the Restoration. With respect to occurrences giving rise to Net Proceeds or Net Awards in excess of $250,000, all such Net Proceeds or Net Awards may be applied by the Lenders, in their discretion, to the payment of Borrower's Liabilities. In the event any Net Proceeds or Net Award in excess of $250,000 is used for Restoration, the Agent shall not release any part of such Net Award or Net Proceeds except in accordance with the following provisions: (i) at the time of any requested release of funds, no Event of Default or Default shall have occurred and be continuing; (ii) the Restoration shall be reasonably anticipated to be completed prior to the termination of this Agreement; and (iii) each release of funds shall be conditioned upon receipt by the Agent of such documentation as the Agent may reasonably request. 8. NEGATIVE COVENANTS. ------------------ Borrower covenants and agrees that so long as any Liabilities remain outstanding, and (even if there shall be no Liabilities outstanding) so long as this Agreement remains in effect (unless the Lenders shall give their prior written consent thereto): 8.1 Encumbrances. Except as set forth on Schedule 6.5(A) hereto, ------------- --------------- Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien or other encumbrance of any nature whatsoever on any of its assets, including, without limitation, the Collateral and the Real Property, other than: (i) liens securing the payment of taxes, either not yet due or the validity of which is being contested in good faith by appropriate proceedings, promptly initiated and diligently conducted, and as to which Borrower or such Subsidiary shall, if appropriate under generally accepted accounting principles, have set aside on its books and records adequate reserves other than liens which might subject the Collateral or the Real Property to foreclosure or other action affecting title; (ii) deposits under workmen's compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business; (iii) the liens and security interests in favor of the Agent; (iv) liens which arise by operation of law, other than Environmental Liens and liens in favor of the PBGC; (v) processor's liens; and (vi) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of the Real Property and scheduled on the Agent's commitments for title insurance relating thereto. -51- 8.2 Indebtedness. Except as otherwise set forth on Schedule 6.10 ------------ ------------- hereof, Borrower shall not, and shall not permit any of its Subsidiaries to, incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any obligations or indebtedness, except (i) the Liabilities, (ii) trade obligations and normal accruals in the ordinary course of business not yet due and payable, or with respect to which the Borrower or such Subsidiary, as applicable, is contesting in good faith the amount or validity thereof by appropriate proceedings, promptly initiated and diligently conducted, and then only to the extent that Borrower or such Subsidiary has set aside on its books adequate reserves therefor, if appropriate under generally accepted accounting principles, and (iii) the Subordinated Convertible Demand Note, but only to the extent the same has been endorsed to the order of the Agent as additional Collateral. Borrower hereby further agrees that it shall not and shall not permit Kilovac to amend or otherwise modify the terms and provisions of the Subordinated Convertible Demand Note in any respect without the prior written consent of the Requisite Lenders. Other than the Liabilities, Borrower shall not pay, or permit any Subsidiary to pay, any obligations or indebtedness before the same is due. 8.3 Consolidations, Mergers or Acquisitions. Except for the --------------------------------------- transactions contemplated under the Kilovac Purchase Agreement to occur on or after the Closing Date, neither Borrower nor any of its Subsidiaries shall recapitalize or (except for financial reporting purposes) consolidate with, merge with, or otherwise acquire all or substantially all of the assets or properties of any other Person; provided that any Subsidiary of Borrower may merge with and into Borrower in accordance with applicable law. 8.4 Investments or Loans. Borrower shall not, and shall not permit -------------------- any of its Subsidiaries to, make or permit to exist investments or loans in or to any other Person, except (i) investments in short-term direct obligations of the United States Government, (ii) investments in negotiable certificates of deposit issued by the Agent, any Lender or an affiliate of the Agent or any Lender or by any other bank satisfactory to the Agent, in its reasonable discretion, payable to the order of Borrower or to bearer and delivered to the Agent, (iii) investments in commercial paper rated "Al" or "Pl," (iv) advances for travel and expenses to Borrower's officers, directors and employees in the ordinary course of business, (v) investments and loans to CII Mexico not to exceed $100,000 in the aggregate at any time (vi) loans to management to purchase the common stock of Holdings not to exceed $100,000 at any time outstanding and (vii) loans and capital contributions evidenced by or made pursuant to the Subordinated Convertible Demand Note, but only to the extent that any resulting shares of stock upon conversion thereof shall have been pledged to the Agent on behalf of the Lenders. 8.5 Guarantees. Except as otherwise expressly contemplated herein, ---------- Borrower shall not, and shall not permit any of its Subsidiaries to, guarantee, endorse or otherwise in any way become or be responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person or through the purchase of goods, supplies or services, or maintenance of working capital or other balance sheet covenants or conditions, or by way of stock purchase, capital contribution, advance or loan for the purpose of paying or discharging any indebtedness or obligation of such other Person or otherwise, except endorsements of negotiable instruments for collection in the ordinary course of business. -52- 8.6 Inventory Covenants. Except as otherwise disclosed to Agent, ------------------- Borrower shall not, and shall not permit any of its Subsidiaries to, sell any of the Inventory on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval or consignment basis or any other basis subject to a repurchase obligation or return right. No Inventory delivered to third parties on any basis as described in the immediately preceding sentence shall be Eligible Inventory or, until unconditionally sold, give rise to Eligible Accounts. 8.7 Disposal of Property. Borrower shall not, and shall not permit -------------------- any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties, assets and rights to any Person except for (i) sales of Inventory to customers in the ordinary course of business and (ii) the sale, lease, transfer or other disposition of equipment no longer used or useful in the ordinary course of Borrower's or any such Subsidiary's business. Except as set forth on Schedule 6.5(A) hereto, Borrower shall not, and shall not permit --------------- any of its Subsidiaries to, without the Lenders' prior written consent, sell, lease, grant a security interest in or otherwise dispose of or encumber the equipment, or any part thereof; provided that Borrower and its Subsidiaries may sell surplus equipment so long as the proceeds of such sales by Borrower are delivered to the Agent for application to the Liabilities. In the event any of the Equipment of Borrower or its Subsidiaries is sold, transferred or otherwise disposed of as herein provided, (i) and (a) such sale, transfer or disposition is effected without replacement of the Equipment so sold, transferred or disposed of or (b) such Equipment is replaced by Equipment leased by Borrower, Borrower shall, subject to the prior rights, if any, of the Persons listed on Schedule 6. 5(A) hereto, deliver, or cause to be delivered, all of the cash - ---------------- proceeds of any such sale, transfer or disposition to the Agent, which proceeds shall be applied to the repayment of the Liabilities, or (ii) such sale, transfer or disposition is made in connection with the purchase by Borrower or its Subsidiary of replacement Equipment, Borrower shall, subject to the prior rights, if any, of the Persons listed on Schedule 6.5(A) hereto, use the --------------- proceeds of such sale, transfer or disposition, or cause such proceeds to be used, to finance the purchase by Borrower or its Subsidiary of replacement Equipment and shall deliver to the agent written evidence of the use of the proceeds for such purchase. All replacement Equipment purchased by Borrower or its Subsidiary shall be free and clear of all liens, claims and encumbrances, except for the Agent's security interest, liens, claims and encumbrances. 8.8 (INTENTIONALLY LEFT BLANK) 8.9 Dividends and Stock Redemptions. Except for fees payable on the ------------------------------- date hereof which are described on Schedule 8.9 hereto, Borrower shall not, and ------------ it shall cause each of its Subsidiaries not to, without the prior written consent of the Agent, directly or indirectly, (i) redeem, purchase or otherwise retire any shares of the capital stock of Borrower or any Subsidiary, (ii) declare or pay any dividends in any fiscal year on any class or classes of any stock, (iii) return the capital of Borrower or any such Subsidiary to its stockholders or (iv) make any other distribution on or in respect of any shares of any class of capital stock of Borrower or any such Subsidiary; provided, -------- however, that if no Default or Event of Default shall have occurred and be - ------- continuing (and shall not occur after giving effect thereto), Borrower may pay dividends to Holdings in amounts sufficient to enable Holdings (i) to purchase its own capital stock pursuant to the Management Subscription Agreements in an aggregate amount not to exceed $200,000 in any fiscal year of Borrower, (ii) to make regularly scheduled interest payments (on or after the date -53- such payment is due) on the Holdings Subordinated Debt in an aggregate amount not to exceed $689,125 in any fiscal year of Borrower, (iii) to pay regularly scheduled dividends (on or after the date such payment is due) on the Preferred Stock in an aggregate amount not to exceed $370,000 in any fiscal year of Borrower and (iv) to pay management fees to Stonebridge Partners in an aggregate amount not to exceed $150,000 in any fiscal year of Borrower; provided that to -------- the extent Borrower has incurred Clean-up Costs which have not been reimbursed by a Person other than Borrower and its Subsidiaries at the time any payment described in clauses (i) through (iii) is due and payable, Borrower shall set- off, defer or accrue such payment or a portion thereof to the extent of such unreimbursed Clean-up Costs and provided further that to the extent Borrower has -------- ------- Excess Availability of not less than $1,500,000 immediately prior and after giving effect to any such payment, Borrower may make the payments described in clauses (i) through (iii), or any deferred or accrued amount thereof, without regard to the immediately preceding proviso. 8.10 Issuance of Stock. Borrower shall not, and shall not permit any ----------------- Subsidiary to, issue or distribute any capital stock or other securities for consideration or otherwise (other than pursuant to the Kilovac Purchase Agreement). 8.11 Amendment of Articles of Incorporation, By-Laws, or Stock --------------------------------------------------------- Purchase Agreements; Corporate Name; Places of Business. Borrower shall not, and - ------------------------------------------------------- shall not permit any Subsidiary to, amend its Articles of Incorporation or By- Laws, except that Borrower or such Subsidiary may amend its Articles of Incorporation to effect a change in its corporate name, provided that Borrower furnishes, or causes the applicable Subsidiary to furnish, to the Agent such financing statements executed by Borrower or such Subsidiary which the Agent may request prior to the filing of such amendment and furnishes to the Agent a copy of such amendment, certified by the Secretary of State (or similar agency) of Borrower's or such Subsidiary's jurisdiction of organization within ten (10) days (or, if such tenth day is not a Business Day, by the next immediate Business Day) of the date such amendment is filed with such Secretary of State (or similar agency). Borrower shall not make, or permit any Subsidiary to make, any change in the location of its principal place of business or chief executive office unless prior to the effective date of such change in location, Borrower delivers, or causes such applicable Subsidiary to deliver, to the Agent such financing statements executed by Borrower, or such Subsidiary, which the Agent may request to reflect such change in location. Borrower shall deliver or cause to be delivered such other documents and instruments as the Agent may request in connection with such change in name or location within ten (10) days (or, if such tenth day is not a Business Day, by the next immediate Business Day) of the effectiveness of such change or the Agent's request therefor. Borrower shall not amend or modify, nor consent to any amendment or modification of, the Kilovac Purchase Agreement or the Hartman Purchase Agreement without the prior written consent of the Requisite Lenders. 8.12 Transactions with Subsidiaries and Affiliates. Borrower will --------------------------------------------- not, and will not permit any Subsidiary to, enter into any transaction including, without limitation, the purchase, sale or exchange of property or the rendering of any service to any Subsidiary or Affiliate except in the ordinary course of and pursuant to the reasonable requirements of Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to Borrower or such Subsidiary than Borrower or such Subsidiary would obtain in a comparable arm's length transaction with an unaffiliated Person or corporation. -54- 8.13 Lease Limitations. Borrower's and all of its Subsidiaries' ----------------- aggregate annual consolidated financial obligations whether for rental payments, principal payments, interest payments, service charges or otherwise, under all leases, lease purchase agreements, conditional sales contracts, purchase money security arrangements and other similar agreements, other than any of the foregoing that are recorded or are required, under generally accepted accounting principles, to be recorded on Borrower's or any such Subsidiary's balance sheet, shall not exceed $1, 130,000. 8.14 ERISA. Borrower shall not: ----- (A) engage, or permit an ERISA Affiliate to engage, in any prohibited transaction described in Section 406 of ERISA or Section 4975 of the Internal Revenue Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the DOL; (B) permit to exist any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code). whether or not waived; (C) fail, or permit an ERISA Affiliate to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Plan; (D) terminate, or permit an ERISA Affiliate to terminate, any Benefit Plan which would result in any liability of Borrower or an ERISA Affiliate under Title IV of ERISA; (E) fail, or permit an ERISA Affiliate to fail, to pay any required installment under section (m) of Section 412 of the Internal Revenue Code or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment; (F) amend, or permit an ERISA Affiliate to amend, a Plan resulting in an increase in current liability for the plan year such that either Borrower or an ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Internal Revenue Code; and (G) fail to make any contribution or payment to any Multiemployer Plan which Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto. 8.15. Financial Covenants. Borrower shall not permit: ------------------- (A) Borrower's Interest Coverage Ratio to be less than (i) 2.5 to 1 for the quarter ending on September 30, 1996; (ii) 2.71 to 1 for the consecutive two quarter period ending on December 31, 1996, the consecutive three quarter period ending on March 31, 1997 and the consecutive four quarter period ending on October 1, 1996 and -55- ending on September 30, 1997; (iii) 3.0 to 1 for each consecutive four quarter period ending during the period beginning on October 1, 1997 and ending on December 31, 1998; (iv) 3.25 to 1 for each consecutive four quarter period ending during the period beginning January 1, 1999 and ending on December 31, 1999; and (v) 3.5 to 1 for each consecutive four quarter period ending after December 31, 1999. (B) Borrower's Net Worth, at any time, to be less than (i) $12,500,000 during the period beginning on December 31, 1996 and ending on December 30, 1997; (ii) $16,500,000 during the period beginning on December 31, 1997 and ending on December 30, 1998; (iii) $20,000,000 during the period beginning on December 31, 1998 and ending on December 30, 1999; (iv) $25,000,000 during the period beginning on December 31, 1999 and ending on December 30, 2000; and (v) $30,000,000 from and after December 31, 2000. (C) Borrower's Leverage Ratio to be more than (i) 3.9 to 1 for the quarter ending on September 30, 1996; (ii) 3.8 to 1 for the consecutive two quarter period ending on December 31, 1996; (iii) 3.0 to 1 for the consecutive three quarter period ending March 31, 1997 and each consecutive four quarter period ending during the period beginning on April 1, 1997 and ending on December 31, 1997; (iv) 2.8 to 1 for each consecutive four quarter period ending during the period beginning on January 1, 1998 and ending on December 31, 1998; (v) 2.75 to 1 for each consecutive four quarter period ending during the period beginning on January 1, 1999 and ending on December 31, 1999; and (vi) 2.00 to 1 for each consecutive four quarter period ending after December 31, 1999. (D) Borrower's Fixed Charge Coverage Ratio to be less than (i) 1.2 to 1 for the consecutive two quarter period ending on December 31, 1996 the consecutive three quarter period ending March 31, 1997 and the consecutive four quarter period ending on June 30, 1997; (ii) 1.25 to 1 for the consecutive four quarter period ending on September 30, 1997, (iii) 1.3 to 1 for each consecutive four quarter period ending during the period beginning on October 1, 1997 and ending on June 30, 1998; (iv) 1.4 to 1 for the consecutive four quarter period ending on September 30, 1998; (v) 1.5 to 1 for each consecutive four quarter period ending during the period beginning on October 1, 1998 and ending on June 30, 1999; (vi) 1.6 to 1 for the consecutive four quarter period ending on September 30, 1999; (vii) 1.7 to 1 for each consecutive four quarter period ending during the period beginning on October 1, 1999 and ending on June 30, 2000; (viii) 1.8 to 1 for the consecutive four quarter period ending on September 30, 2000; (ix) 1.9 to 1 for each consecutive four quarter period ending during the period beginning on October 1, 2000 and ending on March 31, 2001; and (x) 2.0 to 1 for each consecutive four quarter period ending after March 31, 2001. (E) Notwithstanding anything to the contrary contained herein, Borrower's compliance with subsections 8.15(A), (B), (C) and (D) hereof ------------------- --- --- --- shall be determined without giving effect to (i) any reductions in earnings or Net Worth resulting from any allocation of the purchase price for the (a) transactions evidenced by the Original Stock Purchase Agreement (the "Original Acquisition") or (b) the transactions evidenced by the Kilovac -------------------- -56- Purchase Agreement or the Hartman Purchase Agreement, each in accordance with APB Opinion No. 16 "Business Combinations" and APB Opinion No. 17 "Intangible Assets" including, without limitation, additional depreciation or cost of sales resulting from asset step-ups and any amortization of goodwill, intangible assets, non-compete agreements or deferred financing costs, (ii) any reduction in Net Worth (to reflect common stock issued to management at its predecessor basis or to treat a portion of the cost of the Original Acquisition as a deemed dividend) pursuant to the provisions of EITF No. 88-16 "Basis in Leveraged Buyout Transactions", (iii) adjustments resulting from the application of FASB Statement No. 109 "Accounting for Income Taxes" or FASB Statement No. 106 "Employer's Accounting for Postretirement Benefits Other Than Pensions," (iv) any expense related to the Success Fee and (v) in the case of the numerator of each of Borrower's Interest Coverage Ratio and Borrower's Fixed Charge Coverage Ratio, for fiscal quarters ending during fiscal 1995, up to $1,050,000 (after tax) of start-up expenses associated with Borrower's acquisition of assets from Deutsch Relays, Inc. and Hi-G Company, Inc., and (vi) in the case of Borrower's Net Worth and the denominator of Borrower's Leverage Ratio, up to $1,050,000 (after tax) of start-up expenses associated with Borrower's acquisition of assets from Deutsch Relays, Inc. and Hi-G Company, Inc. With each Monthly Report required under Section 7.1 ----------- hereof for the months of June, September, December and March, Borrower shall submit to the Lenders a schedule setting forth the calculations necessary to demonstrate Borrower's compliance or noncompliance with the financial covenants set forth in subsections (A) through (D) above. 8.16 Capital Investment Limitations. Except with respect to ------------------------------ transactions contemplated under the Kilovac Purchase Agreement or the Hartman Purchase Agreement, Borrower and its Subsidiaries shall not purchase, invest in or otherwise acquire, including by capital leases, additional real estate, machinery, equipment or other fixed assets, which, in the aggregate (all such expenditures being collectively referred to herein as "Capital Expenditures"), -------------------- cost Borrower and its Subsidiaries more than $2,000,000 during any fiscal year of Borrower. 9. DEFAULT; RIGHTS AND REMEDIES OF THE AGENT AND THE LENDERS. --------------------------------------------------------- 9.1 Defaults. If any of the following events ("Defaults") shall -------- -------- occur: (a) Borrower fails to make any payment of the Liabilities when such payment is due or is declared due; or (b) (i) Borrower fails to deliver to the Agent or any Lender any financial information or notice as required hereunder, or breached any other affirmative covenant contained in this Agreement or otherwise fails to comply with the provisions of this Agreement, and such failure, breach or failure to comply shall continue for a period of fifteen (15) days following notice thereof to Borrower, or (ii) Borrower shall breach any negative covenant contained in this Agreement; or -57- (c) any warranty or representation now or hereafter made by Borrower or any guarantor in connection with this Agreement or any of the other Financing Agreements is untrue or incorrect in any material respect when made or deemed made or any schedule, certificate, statement, report, financial data, notice, or writing furnished at any time by Borrower to the Agent or any Lender is untrue or incorrect in any material respect, on the date as of which the facts set forth therein are stated or certified; or (d) a judgment or order requiring payment in excess of $150,000 shall be rendered against Borrower or Kilovac and such judgment or order shall remain unsatisfied or undischarged and in effect for thirty (30) consecutive days without a stay of enforcement or execution, provided that this subsection 9.1 (d) shall not apply to any judgment for which Borrower ------------------ or Kilovac, as applicable, is fully insured and with respect to which the insurer has admitted in writing its liability for the full amount thereof; or (e) a notice of lien, levy, or assessment is filed or recorded with respect to all or a substantial part of the assets of Borrower or any of its Subsidiaries, by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipality or other governmental agency or any taxes or debts owing at any time or times hereafter to any one or more of such governmental entities shall become a lien upon all or a substantial part of the Collateral or the Real Property, and such lien, levy or assessment is not discharged or released within ten (10) days (or, if such tenth day is not a Business Day, by the next immediate Business Day) of the notice or attachment thereof, provided that this subsection 9.1 (e) shall not apply to any liens, levies, or ----------------- assessments which relate to current taxes not yet due and payable; or (f) there shall occur any loss, theft, substantial damage or destruction of any item or items of the Collateral or of the Real Property ("Loss") if the amount of such Loss, together with the amount of all other ---- Losses occurring in the same fiscal year, exceeds $250,000 and, in the Agent's reasonable opinion, has a material adverse impact on Borrower's or Kilovac's operations or its business; or (g) all or any part of the Collateral or the Real Property is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and, on or before the sixtieth (60th) day thereafter (or, if such sixtieth day is not a Business Day, by the next immediate Business Day), such assets are not returned to Borrower, or Kilovac, as applicable, and/or such writ, distress warrant or levy is not dismissed, stayed or lifted; or (h) a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed by or against Borrower or Kilovac, Borrower or Kilovac makes an assignment for the benefit of creditors, or Borrower or Kilovac takes any corporate action to authorize any of the foregoing; or -58- (i) a proceeding under any bankruptcy reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed by or against any guarantor (other than Kilovac) of any of the Liabilities, any such guarantor of any of the Liabilities makes an assignment for the benefit of creditors, or any such guarantor of any of the Liabilities takes any corporate action to authorize any of the foregoing, or (j) either Borrower or Kilovac voluntarily or involuntarily dissolves or is dissolved, terminates or is terminated; or (k) either Borrower or Kilovac becomes insolvent or fails generally to pay its debts as they become due; or (l) either Borrower or Kilovac is enjoined, restrained, or in any way prevented by the order of any court or any administrative or regulatory agency from conducting all or any material part of its business affairs; or (m) a breach by Borrower, Holdings or any Subsidiary of Borrower shall occur under any of the other Financing Agreements and such breach continues for more than the applicable grace period, if any, contained therein; or (n) a breach by Borrower shall occur under any material agreement, document or instrument (other than an agreement, document or instrument evidencing the lending of money), whether heretofore, now or hereafter existing between Borrower or Kilovac and any other Person, and such breach continues unwaived for more than thirty (30) days after such breach first occurs, provided that such grace period shall not apply, and a Default shall be deemed to have occurred promptly upon such breach, if such breach may not, in the Agent's reasonable determination, be cured by Borrower or Kilovac during such thirty (30) days grace period; or (o) Borrower or Kilovac shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) on, or shall fail or neglect to perform, keep or observe or otherwise breach any of the covenants, conditions, representations, warranties or agreements in connection with, any obligation for borrowed money and the effect of such failure or breach or neglect is to accelerate, or to permit the acceleration of, the maturity of such indebtedness; or any such indebtedness shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or (p) any guarantor of the Liabilities shall terminate or revoke any of its obligations under the applicable guarantee agreement or breach any of the terms of such guarantee agreement; or (q) the general partner(s) of the Partnership shall cease to be one or more of Michael S. Bruno, Jr., David A. Zackrison, Daniel A. Dye or Harrison M. Wilson, any other Person shall become a general partner of the Partnership, the Partnership shall cease to own at least fifty-one percent (51%) of the outstanding capital stock of Holdings, -59- Holdings shall cease to own one hundred percent (100%) of the issued and outstanding capital stock of Borrower, or Borrower shall cease to own at least eighty percent (80%) of Kilovac; or (r) the plan administrator of any Plan applies under Section 412(d) of the Internal Revenue Code for a waiver of the minimum funding standards of Section 412(a) of the Internal Revenue Code and the Agent in good faith believes that the approval of such waiver could subject either Borrower or an ERISA Affiliate to material liability; or (s) a Termination Event occurs which the Agent in good faith believes could subject either Borrower or an ERISA Affiliate to material liability; or (t) a material adverse change shall occur in Borrower's or Kilovac's condition (financial or otherwise), operations, or the value of the Collateral or the Real Property. then the Lenders may, upon notice to Borrower (i) terminate the Lenders' obligation to make advances to Borrower pursuant to subsection 2.1 (A) hereof ------------------ and/or (ii) terminate the obligation of the Agent to issue Letters of Credit pursuant to subsection 2.1 (B) hereof and/or (iii) declare all of the ------------------ Liabilities, including, without limitation, all of Borrower's contingent liabilities with respect to any Letters of Credit, to be immediately due and payable, whereupon all of the Liabilities, including, without limitation, all of Borrower's contingent liabilities with respect to any Letters of Credit, shall become immediately due and payable, except that in the event a Default described in subsection 9.1(h) above shall exist or occur, all of the Liabilities, ----------------- including, without limitation, all of Borrower's contingent liabilities with respect to any Letters of Credit, shall automatically, without notice of any kind, be immediately due and payable. 9.2 Rights and Remedies Generally. In the event of a Default, the ----------------------------- Agent and the Lenders shall have, in addition to any other rights and remedies contained in this Agreement or in any of the other Financing Agreements, all of the rights and remedies of a secured party under the Code or other applicable laws, all of which rights and remedies shall be cumulative, and none exclusive, to the extent permitted to law. In addition to all such rights and remedies, the sale, lease or other disposition of the Collateral, or any part thereof, by the Agent or the Lenders after Default may be for cash, credit or any combination thereof, and the Agent or any Lender may purchase all or any part of the Collateral at a public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price, may set-off the amount of such purchase price against the Liabilities then owing. Any sales of the Collateral may be adjourned from time to time with or without notice. The Agent and the Lenders may, in their sole discretion, cause the Collateral to remain on Borrower's premises, at Borrower's expense, pending sale or other disposition of the Collateral. The Agent and the Lenders shall have the right to conduct such sales on Borrower's premises, at Borrower's expense, or elsewhere, on such occasion or occasions as the Agent and the Lenders may see fit. 9.3 Entry Upon Premises and Access to Information. In the event of --------------------------------------------- a Default, the Agent and the Lenders shall have the right to enter upon the premises of Borrower where the Collateral is located (or is believed to be located) without any obligation to pay rent to Borrower, or any other place or places where the Collateral is believed to be located and kept, and render the -60- Collateral unusable or remove the Collateral therefrom to the premises of the Agent, any Lender or any agent of the Agent or any Lender, for such time as the Agent or any such Lender may desire, in order effectively to collect or liquidate the Collateral, and/or the Agent and the Lenders may require Borrower to assemble the Collateral and make it available to the Agent and the Lenders at a place or places to be designated by the Agent. In the event of a Default, the Agent and the Lenders shall have the right to obtain access to Borrower's data processing equipment, computer hardware and software relating to the Collateral and to use all of the foregoing and the information contained therein in any manner the Agent and the Lenders deem appropriate; and the Agent and the Lenders shall have the right to notify post office authorities to change the address for delivery of Borrower's mail to an address designated by the Agent or the Lenders and to receive, open and deal with all mail addressed to Borrower. 9.4 Sale or Other Disposition of Collateral by the Agent or any ----------------------------------------------------------- Lender. Any notice required to be given by the Agent or the Lenders of a sale, - ------ lease or other disposition or other intended action by the Agent or the Lenders with respect to any of the Collateral which is deposited in the United States mails, postage prepaid and duly addressed to Borrower at the address specified in subsection 10.18 of this Agreement, at least ten (10) Business Days prior to ---------------- such proposed action shall constitute fair and reasonable notice to Borrower of any such action. The net proceeds realized by the Agent and the Lenders upon any such sale or other disposition, after deduction for the expense of retaking, holding, preparing for sale, selling or the like and the reasonable attorneys' fees and legal expenses incurred by the Agent and the Lenders in connection therewith, shall be applied as provided herein toward satisfaction of the Liabilities including, without limitation, the Liabilities described in subsections 7.5 and 10.2 of this Agreement. The Agent and the Lenders shall - --------------- ---- account to Borrower for any surplus realized upon such sale or other disposition, and Borrower shall remain liable for any deficiency. The commencement of any action, legal or equitable, or the rendering of any judgment or decree for any deficiency shall not affect the Agent's security interest in the Collateral until the Liabilities are fully paid. Borrower agrees that the Agent and the Lenders have no obligation to preserve rights to the Collateral against any other parties. The Agent and the Lenders are hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to the Agent and the Lenders' benefit until the Liabilities are paid. 9.5 Waiver of Demand. Demand, presentment, protest and notice of ---------------- nonpayment are hereby waived by Borrower. Borrower also waives the benefit of all valuation, appraisal and exemption laws. -61- 10. MISCELLANEOUS. ------------- 10.1 Amendments and Waivers. No amendment or modification of any ---------------------- provision of this Agreement, any Term Note, revolving loan note (if any) or any other Financing Agreement shall be effective without the written agreement of the Requisite Lenders and the Borrower and no termination or waiver of any provision of this Agreement, or consent to any departure by Borrower therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders; except that any waiver of any payment default hereunder, any forgiveness of any principal due hereunder, any reduction in the amount of interest or fees payable hereunder, any increase in the amount of the Maximum Revolving Facility, any extension of the term of this Agreement beyond the date specified in Section 2.7 hereof or any extension of a scheduled principal ----------- payment with respect to the Term Loans shall be effective only if evidence by a writing signed by or on behalf of all Lenders. No amendment, modification, termination or waiver of any provision of Section 11 hereof shall be effective ---------- without the written concurrence of the Agent and the Requisite Lenders. The Agent may, but shall, have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. Any amendment modification, termination; waiver or consent effected in accordance with this subsection 10.1 shall be binding --------------- upon each Lender and, if signed by Borrower, on Borrower. 10.2 Costs and Attorneys Fees. If at any time or times hereafter the ------------------------ Agent or any Lender employs counsel in connection with protecting or perfecting the Agent's security interest in the Collateral or the liens upon the Real Property or in connection with any matters contemplated by or arising out of this Agreement or any of the other Financing Agreements, whether (a) to prepare, negotiate or execute (i) any amendment to, modification of or extension of this Agreement, any other Financing Agreements or any instrument, document or agreement executed by any Person in connection with the transactions contemplated by this Agreement, (ii) any new or supplemental Financing Agreements, or any instrument, document or agreement to be executed by any Person in connection with the transactions contemplated by this Agreement, or (iii) any instrument, document or agreement in connection with any sale or attempted sale of any interest herein to any participant, (b) to commence, defend, or intervene in any litigation or to file a petition, complaint, answer, motion or other pleadings, (c) to take any other action in or with respect to any suit or proceeding (bankruptcy or otherwise), (d) to consult with officers of the Agent or any Lender to advise the Agent or any Lender, (e) to protect, collect, lease, sell, take possession of, release or liquidate any of the Collateral or Real Property, or (f) to attempt to enforce or to enforce any security interest in any of the Collateral of Liens upon the Real Property or to enforce any rights of the Agent or any Lender hereunder, including, without limitation, the Agent's and the Lenders' rights to collect any of the Liabilities, then in any of such events, all of the reasonable attorneys' fees arising from such services, and any expenses, costs and charges relating thereto, including, without limitation, all reasonable fees of all paralegals and other staff employed by such attorneys, together with interest at the rate described in subsection 2.5(A) above, shall be part of the Liabilities, payable ----------------- on demand and secured by the Collateral and the Real Property. -62- 10.3 Expenditures by the Agent and the Lenders. In the event ----------------------------------------- Borrower shall fail to pay taxes, insurance, assessments, costs or expenses which Borrower is, under any of the terms hereof, required to pay, or fails to keep the Collateral or the Real Property free from other security interests, liens or encumbrances, except as permitted herein, the Agent and the Lenders may, in their sole discretion, subject to subsection 2.1 (A) hereof, make ------------------ expenditures for any or all of such purposes, and the amount so expended, together with interest thereon at the rate prescribed in subsection 2.5 (A) ------------------ above, shall be part of the Liabilities, payable on demand and secured by the Collateral and the Real Property. 10.4 Custody and Preservation of Collateral. The Agent and the -------------------------------------- Lenders shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral in its possession if it takes such action for that purpose as Borrower shall request in writing, but failure by the Agent or any Lender to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure by the Agent or any Lender to preserve or protect any right with respect to such Collateral against prior parties, or to do any act with respect to the preservation of such Collateral not so requested by Borrower, shall of itself be deemed a failure to exercise reasonable care in the custody or preservation of such Collateral. 10.5 Reliance by the Agent and the Lenders. All covenants, ------------------------------------- agreements, representations and warranties made herein by Borrower shall, notwithstanding any investigation by the Agent and the Lenders, be deemed to be material to and to have been relied upon by the Agent and each Lender. 10.6 Parties; Assignments and Participations. --------------------------------------- (A) Whenever in this Agreement there is reference made to any of the parties hereto, such reference shall be deemed to include, wherever applicable, a reference to the successors and assigns of Borrower and the successors and assigns of the Agent and each of the Lenders. Notwithstanding anything herein to the contrary, Borrower may not assign or otherwise transfer its rights or obligations under this Agreement without the prior written consent of the Agent and the Lenders. (B) Any Lender may, at any time assign and delegate to one or more commercial banks or other financial institutions (each Person to whom such assignment and delegation is to be made being herein referred to as an "Assignee"), a portion of such Lender's advances, participation interests in -------- Letters of Credit and commitments hereunder (which assignment and delegation shall be of a constant, and not a varying, percentage of such assigning Lender's under the Revolving Loan, its Term Loan, participation interests in Letters of Credit and Commitments hereunder) in a minimum aggregate amount of $3,000,000 (measured on the date of such assignment); provided that Borrower and the Agent -------- shall be entitled to continue to deal solely and directly with such assigning Lender in connection with the interests so assigned and delegated until such assigning Lender or such Assignee shall have: (i) completed, executed and delivered an Assignment and Acceptance in the form attached as Exhibit F hereto; --------- -63- (ii) provided evidence satisfactory to Borrower and the Agent that, as of the date of such assignment and delegation, Borrower will not be required to pay any costs, fees, taxes or other amounts of any kind or nature with respect to the interest assigned in excess of those payable by Borrower with respect to such interest prior to such assignment; and (iii) paid to the Agent (for the account of the Agent) a processing fee of $2,500. Upon receipt of the foregoing items (and, if requested by Borrower or the Agent, after execution of one or more agreements supplemental to this Agreement among the assigning Lender, the Assignee, Borrower and the Agent), (x) the Assignee shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee shall have the rights and obligations of a Lender hereunder and under the other instruments and documents executed in connection herewith, and (y) the assigning Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it, shall be released from its obligations hereunder. Any attempted assignment and delegation not made in accordance with this subsection 10.6 shall be null and void. - --------------- (C) Any Lender may at any time sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Participant") participating interests in any of its advances under the Revolving Loan, its Term Loan, its participation interest in Letters of Credit, its commitment or any other interest of such Lender hereunder; provided, -------- however, that - ------- (a) no participation contemplated in this subsection 10.6 shall --------------- relieve such Lender from its commitment hereunder or its other obligations hereunder; (b) such Lender shall remain solely responsible for the performance of its commitments hereunder and such other obligations; (c) Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement; (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type requiring the consent of all of the Lenders pursuant to subsection 10.1 hereof; --------------- (e) Borrower shall not be required to pay any amount under subsection 10.21 that is greater than the amount which Borrower would have ---------------- been required to pay had no participating interest been sold; (f) no Participant may further participate any interest hereunder (and each participation agreement shall contain a restriction to such effect); and -64- (g) any Lender selling a participating interest shall promptly give notice to Borrower of such sale and the name and address of the Participant. Borrower acknowledges and agrees that, to the extent permitted by applicable law, each Participant shall be considered a Lender for purposes of subsection 2.10. --------------- 10.7 Severability. Wherever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement. 10.8 CHOICE OF LAW. THE AGENT, EACH LENDER AND BORROWER HEREBY ------------- ACCEPT THIS AGREEMENT AT CHICAGO, ILLINOIS BY SIGNING AND DELIVERING THEM THERE. ANY DISPUTE BETWEEN THE AGENT, ANY LENDER AND BORROWER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS AND NOT THE CONFLICTS OF LAW PROVISIONS OF THE STATE OF ILLINOIS. 10.9 PERSONAL JURISDICTION. --------------------- (a) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION ---------------------- ---------- 10.9(b) BELOW, THE AGENT, EACH LENDER AND BORROWER AGREE THAT ALL DISPUTES - ------------- BETWEEN THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, ILLINOIS, BUT THE AGENT, EACH LENDER AND BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS. BORROWER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (b) OTHER JURISDICTIONS. BORROWER AGREES THAT THE AGENT AND THE ------------------- LENDERS SHALL HAVE THE RIGHT TO PROCEED AGAINST BORROWER OR ITS PROPERTY ("PROPERTY") IN A COURT IN ANY LOCATION TO ENABLE THE AGENT AND THE LENDERS TO -------- REALIZE ON THE COLLATERAL (INCLUDING, WITHOUT LIMITATION, THE REAL PROPERTY) OR ANY OTHER SECURITY FOR OR GUARANTY OF THE LIABILITIES, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENT AND THE LENDERS. BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE AGENT OR THE LENDERS TO REALIZE ON PROPERTY, COLLATERAL (INCLUDING, WITHOUT -65- LIMITATION, THE REAL PROPERTY) OR ANY OTHER ANY SECURITY1TY FOR THE LIABILITIES, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE AGENT OR ANY LENDER. BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT OR ANY LENDER RAMS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION. 10.10 SERVICE OF PROCESS. BORROWER WAIVES PERSONAL SERVICE OF ANY ------------------ PROCESS UPON IT AND, AS ADDITIONAL SECURITY FOR THE LIABILITIES, IRREVOCABLY APPOINTS THE PRENTICE-HALL CORPORATION SYSTEM, INC., 33 NORTH LASALLE STREET, CHICAGO, ILLINOIS 60602 AS BORROWER'S REGISTERED AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS ISSUED BY ANY COURT. 10.11 WAIVER OF JURY TRIAL. BORROWER, THE AGENT AND EACH LENDER EACH -------------------- WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE AGENT, ANY LENDER AND BORROWER ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO. EACH OF BORROWER, THE AGENT AND LENDER HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT EITHER MAY FILE AN ORIGINAL COUNTERPART OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 10.12 WAIVER OF BOND. BORROWER WAIVES THE POSTING OF ANY BOND -------------- OTHERWISE REQUIRED OF THE AGENT OR ANY LENDER IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH, OR LEVY UPON COLLATERAL (INCLUDING, WITHOUT LIMITATION, THE REAL PROPERTY) OR ANY OTHER SECURITY FOR THE LIABILITIES, TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENT OR ANY LENDER, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN THE AGENT, ANY LENDER AND BORROWER. 10.13 ADVICE OF COUNSEL. BORROWER REPRESENTS TO THE AGENT AND THE ----------------- LENDERS THAT IT HAS DISCUSSED EACH OF THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREUNDER WITH BORROWER'S COUNSEL. -66- 10.14 Application of Payments. Notwithstanding any contrary provision ----------------------- contained in this Agreement or in any of the other Financing Agreements, Borrower irrevocably waives the right to direct the application of any an all payments at any time or times hereafter received by the Agent or any Lender from Borrower or with respect to any of the Collateral or Real Property, and Borrower does hereby irrevocably agree that the Agent and the Lenders shall have the continuing exclusive right to apply and reapply any and all payments received at any time or times hereafter, whether with respect to the Collateral or Real Property or otherwise, against the Liabilities in such manner as the Agent and the Lenders may deem advisable, notwithstanding any entry by the Agent or any Lender upon any of their respective books and records. 10.15 Marshaling; Payments Set Aside. The Agent and the Lenders ------------------------------ shall be under no obligation to marshall any assets in favor of Borrower or any other party or against or in payment of any or all of the Liabilities. To the extent that Borrower makes a payment or payments to the Agent or any Lender or the Agent or any Lender enforces its security interests or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 10.16 Section Titles. The section titles contained in this Agreement -------------- shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties. 10.17 Continuing Effect. This Agreement, the Agent's security ----------------- interests in the Collateral and liens upon the Real Property, and all of the other Financing Agreements shall continue in full force and effect so long as any Liabilities shall be owed to the Agent or the Lenders and (even if there shall be no Liabilities outstanding so long as this Agreement has not been terminated as provided in subsection 2.7 hereof (Pounds) -------------- 10.18 Notices. Except as otherwise expressly provided herein, any ------- notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (i) the earlier of actual receipt or three (3) days after deposit in the United States mails, with proper postage prepaid, (ii) when sent after receipt of confirmation or answerback if sent by telecopy, telex or other similar facsimile transmission, (iii) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid or (iv) when delivered, if hand-delivered by messenger, all of which shall be properly addressed to the party to be notified and sent to the address or number indicated as follows: -67- (i) If to the Agent at: Bank of America Illinois 231 South LaSalle Street Chicago, Illinois 60697 Attn: Peter J Gates, Jr. Telecopy: 312/828-1974 with a copy to: Sidley & Austin One First National Plaza Chicago, Illinois 60603 Attn: H Bruce Bernstein. Esq. Telecopy. 312/853-7036 (ii) If to any Lender at the address set forth on the signature pages hereto. (iii) If to Borrower at: Communications Instruments, Inc. P.O. Box 520 Highway 74 East 1396 Charlotte Highway Fairview, North Carolina 28730 Attn: Ramzi Dabbagh Telecopy: 704/628-1439 with copies to: Stonebridge Partners 50 Main Street White Plains, New York 10606 Attn: Michael S. Bruno Telecopy: 914/682-0834 and Simpson, Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attn: Richard C. Weisberg, Esq. Telecopy: 212/455-2502 or to such other address or number as each party designates to the other in the manner herein prescribed. -68- 10.19 Equitable Relief. Borrower recognizes that, in the event ---------------- Borrower fails to perform observe or discharge any of its obligations or liabilities under this Agreement, any remedy at law may prove to be inadequate relief to the Agent and the Lenders; therefore, Borrower agrees that the Agent and the Lenders, if the Agent or any Lender so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. 10.20 Indemnification. Borrower agrees to defend, protect, indemnify --------------- and hold harmless the Agent, each Lender and each of their respective officers, directors, employees, attorneys, consultants and agents (collectively called the "Indemnitees") from and against any and all liabilities, obligations, losses, ----------- damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for and consultants of such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), which may be imposed on, incurred by, or asserted against such Indemnitees (whether direct, indirect, or consequential and whether based on any federal or state laws or other statutory regulations, including, without limitation, securities, environmental and commercial laws and regulations, under common law or at equitable cause or on contract or otherwise) in any manner relating to or arising out of this Agreement, the other Financing Agreements, issuance of any Letters of Credit, the Kilovac Purchase Agreement, the Hartman Purchase Agreement, or any act, event or transaction related or attendant thereto, the agreements of Agent and the Lenders contained herein, the making of the Revolving Loan or the Term Loans, the management of the Revolving Loan, the Term Loans or the Collateral, or Real Property (including any liability under federal, state or local environmental laws or regulations) or the use or intended use of the proceeds of the advances hereunder (collectively, the "Indemnified Matters"); provided, however, that Borrower shall have no ----------- ------- -------- ------- obligation to any Indemnitee hereunder with respect to Indemnified Matters caused by or resulting from the willful misconduct or gross negligence of such Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. 10.21 Capital Adequacy. If any Lender shall reasonably determine ---------------- that the application or adoption of any law, rule, regulation, directive, interpretation, treaty or guideline regarding capital adequacy, or any change therein or in the interpretation or administration thereof, whether or not having the force of law (including, without limitation, application of changes to Regulation H and Regulation Y of the Federal Reserve Board issued by the Federal Reserve Board on January 19, 1989 and regulations of the Comptroller of the Currency, Department of the Treasury, 12 CFR Part 3, Appendix A, issued by the Comptroller of the Currency on January 27, 1989) increases the amount of capital required or expected to be maintained by such Lender or any Person controlling such Lender, and such increase is based upon the existence of such Lender's obligations hereunder and other commitments of this type, then from time to time, within ten (10) days (or, if such tenth day is not a Business Day, by the next immediate Business Day) after demand from such Lender, Borrower shall pay to such Lender such amount or amounts as will compensate such Lender or such controlling Person, as the case -69- may be, for such increased capital requirement. The determination of any amount to be paid by Borrower under this subsection 10.21 shall take into consideration ---------------- the policies of any Lender or any Person controlling Lender with respect to capital adequacy and shall be based upon any reasonable averaging, attribution and allocation methods. A certificate of the Lender setting forth the amount or amounts as shall be necessary to compensate such Lender as specified in this subsection 10.21 shall be delivered to Borrower and shall be conclusive in the - ---------------- absence of manifest error. 10.22 Existing Violations of 1995 Agreement: Waiver. Prior to the --------------------------------------------- effectiveness of the this Agreement, the Borrower violated certain of the financial covenants set forth in subsection 8.15 of the 1995 Agreement with --------------- respect to its fiscal quarters ended March 3 1, 1996 and April 30, 1996, in each case as specifically identified in Schedule 10.22 hereof, which schedule -------------- includes a calculation of each financial ratio or other financial test proscribed by such subsection based on the Borrower's actual financial performance. The Borrower hereby represents and warrants that such calculations are true and accurate in all material respects based upon the Borrower's books and records in existence as of the Closing Date. Upon the effectiveness of this Agreement, the Agent and Lenders hereby waive such violations with respect to such periods to the extent such calculations are true and accurate. 11. THE AGENT. --------- 11.1 Powers. Each Lender has irrevocably appointed and authorized ------ (and hereby reaffirms such appointment and authorization of) the Bank of America Illinois to act as its contractual representative under this Agreement and the other Financing Agreements. The Agent shall have and may exercise such powers under this Agreement and the other Financing Agreements as are specifically delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto. Notwithstanding the use of the term "Agent" or "agent" in any Financing Agreement, the Agent shall have no duties or responsibilities except those expressly set forth in the applicable Financing Agreement and shall not by reason of the Financing Agreements have a fiduciary relationship with any Lender or Borrower. 11.2 Agent in its Capacity as a Lender. With respect to Revolving ---------------------------------- Loans made by it, the Agent shall have the same rights and powers under this Agreement and the other Financing Agreements as any Lender and may exercise the same as though it were not Agent, and the terms "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its capacity as a Lender hereunder. The Agent, any Lender and their respective Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking or trust business with the Borrower, or Affiliates of the Borrower, as if it were not Agent or as if it or they were not a Lender and without any duty to account therefor to the other parties to this Agreement; provided that except -------- ---- with respect to payments made in connection with interest rate protection agreements, after the Agent or any Lender has actual knowledge of the occurrence of a Default, all payments received by Agent or such Lender must be applied first to the payment of the Liabilities until all of the Liabilities shall have been fully satisfied before the Agent or such Lender may apply any payment to any other loan made by any or such Lender to Borrower. -70- 11.3 Independent Credit Analysis. Each Lender agrees that it has, --------------------------- independently and without reliance upon the Agent, any other Lender, or the directors, officers, agents, attorneys or employees of Agent or of any other Lender, and instead in reliance upon information supplied to it by or on behalf of the Borrower, and upon such other information as it has deemed appropriate, made its own independent credit analysis and decision to enter into this Agreement, and that it shall independently and without reliance upon the Agent, any other Lender, or the directors, officers, agents, attorneys or employees of the Agent or of any other Lender, continue to make its own independent credit analyzes and decisions in acting or not acting under the Financing Agreements. The Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, litigation, liabilities, or business of the Borrower which may at any time come into the possession of the Agent (or any of its Affiliates). In the event such information is furnished to any Lender by the Agent, the Agent shall have no duty to confirm or verify its accuracy or completeness and shall have no liability whatsoever with respect thereto. 11.4 General Immunity. Neither the Agent nor any of its directors, --------------- officers, agents, attorneys or employees shall be liable to any Lender for any action taken or omitted to be taken by it or them under the Financing Agreements or in connection therewith except for its or their own willful misconduct or gross negligence. Without limitation on the generality of the foregoing, the Agent: (i) shall not be responsible to Lenders for any recitals, statements, warranties or representations under the Financing Agreements or any agreement or document relative thereto or for the financial condition of the Borrower (ii) shall not be responsible for the authenticity, accuracy, completeness, value, validity, effectiveness, due execution, legality, genuineness, enforceability or sufficiency of the Financing Agreements or any other agreements or any assignments, certificates, requests, financial statements, projections, notices, schedules or opinions of counsel executed and delivered pursuant thereto, (iii) shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, covenants or conditions of the Financing Agreements on the part of the Borrower or of any of the terms of any such agreement by any party thereto and shall have no duty to inspect the property (including the books and records) of the Borrower, (iv) shall incur no liability under or in respect of the Financing Agreements or any other document or collateral by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable or telex) believed by the Agent to be genuine and signed or sent by the proper party, and (v) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by the Agent and shall not be liable for any action taken or omitted to be taken in good faith in accordance with the advice of such counsel, accountants or experts. 11.5 Right to Indemnity. Agent shall be fully justified in failing ------------------ or refusing to take any action under the Financing Agreements or in relation thereto unless it shall first be indemnified (upon requesting such indemnification) to its satisfaction by Lenders against any and all liability and expense which it may incur by reason of taking or continuing to take any such action. Lenders further agree to indemnify the Agent ratably in accordance with their Pro Rata Shares for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Financing Agreements or the transactions contemplated thereby, or the enforcement of any of the terms -71- thereof or of any documents, provided no such liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement results from Agent's gross negligence or willful misconduct. Each Lender agrees to reimburse Agent in the amount of its Pro Rata Share of any out-of-pocket expenses which the Agent is entitled to receive, but has not received, reimbursement pursuant to this Agreement. 11.6 Action by Agent. --------------- (A) Actual Knowledge. The Agent may assume that no Event of Default ---------------- or Default has occurred and is continuing, unless Agent has actual knowledge of the Event of Default or Default, has received notice from the Borrower or any of their independent certified public accountants stating the nature of the Event of Default or Default, or has received notice from a Lender stating the nature of the Event of Default or Default and that Lender considers the Event of Default or Default to have occurred and to be continuing. (B) Agent's Obligations. The Agent has only those obligations under ------------------- the Financing Agreements that are expressly set forth therein as obligations. No duty to act, or refrain from acting, and no other obligation whatsoever, shall be implied on the basis of or imputed in respect of any right, power or authority granted to the Agent or shall become effective in the event of any temporary or partial exercise of such rights, power or authority. (C) Discretion to Act. Except for any obligation expressly set ----------------- forth in the Financing Agreements the Agent may, but shall not be required to, exercise its discretion to act or not act, except that Agent shall be required to act or not act upon the instructions of the Requisite Lenders (or by all of the Lenders with respect to actions which require the consent of all of the Lenders hereunder) and those instructions shall be binding upon Agent and all Lenders, provided that Agent shall not be required to act or not act if to so would expose Agent to liability, would be inconsistent with the Agent's practice in similar situations when acting solely for its own account, or would be contrary to any Financing Agreements or to applicable law. 11.7 Exercise of Rights and Remedies. In the event any remedy may -------------------------------- be exercised with respect to the Financing Agreements or the Collateral, the Agent shall pursue remedies designated by the Requisite Lenders subject to the proviso set forth in subsection 11.6(C). Each Lender agrees that no Lender shall ------------------ have any right individually to realize upon the security created by the Financing Agreements or otherwise enforce any provision thereof, or make demand thereunder, it being understood and agreed that such rights and remedies maybe exercised by the Agent for the ratable benefit of Lenders upon the terms of this Agreement. Each Lender agrees that it shall not exercise any of its rights of set-off, offset or banker's lien, whether arising under subsection 2.10 of this --------------- Agreement or otherwise with respect to the Borrower, without the prior written consent of the Agent or the Requisite Lenders. To the extent specifically requested by the Agent or the Lenders, each Lender hereby agrees to exercise any or all of its rights of setoff, offset or banker's lien, whether arising under subsection 2.10 of this Agreement or otherwise with respect to the Borrower. - --------------- Nothing set forth in this subsection 11.7 shall confer any rights or benefit on --------------- Borrower or on any other Person except the Lenders and the Agent. -72- 11.8 Agent's Resignation. The Agent may resign at any time by giving ------------------- at least thirty (30) days' prior written notice of its intention to do so to each Lender and to Borrower, upon any such notice, the Requisite Lenders shall have the right to appoint a successor Agent; provided that if such successor shall not be a signatory to this Agreement, such appointment shall be subject to the consent of Borrower, which consent shall not be unreasonably withheld. If no successor Agent shall have been so appointed and shall have accepted such appointment within twenty (20) days (or, if such twentieth day is not a Business Day, by the next immediate Business Day) after the Agent's giving of such notice of resignation, then the resigning Agent may, with the consent of Borrower, which consent shall not be unreasonably withheld, appoint a successor Agent. After any resigning Agent's resignation hereunder as Agent, it shall be discharged from its duties and obligations under this Agreement but the provisions of this Section 11 shall continue to inure to its benefit as to any ---------- actions taken or omitted to be taken by it while it as Agent hereunder. Upon appointment of a successor Agent, the term "Agent" shall for all purposes of this Agreement thereafter mean such successor. 11.9 Disbursement of Proceeds of Loans and Other Advances. ---------------------------------------------------- (A) Each Lender severally agrees that it shall, not later than 12:00 noon (Chicago time) on the date of each Revolving Loan, make available to the Agent, in lawful money of the United States of America and in same day funds, an amount equal to such Lender's Pro Rata Share of the Loan to be made to the Borrower; provided that such Lender shall have received notice of such Revolving Loan before 10:00 A.M. (Chicago time). The Agent shall make such funds available to the Borrower, in same day funds in accordance with the provisions of this Agreement. The proceeds of Revolving Loans requested by the Borrower pursuant to subsection 2.1 (A) of this Agreement, or otherwise disbursed ------------------ pursuant to the terms of this Agreement, shall be disbursed by the Agent on behalf of each Lender. (B) The Agent may, but shall have no duty (and is hereby irrevocably authorized by the Lenders), to make such other disbursements and advances on behalf of the Lenders, including without limitation the making of advances as Revolving Loans to Borrower subsequent to the occurrence of a Default, which the Agent, in its sole discretion, deems necessary or desirable to preserve or protect the Collateral, or any portion thereof, or to enhance the likelihood of. or maximize the amount of, repayment by the Borrower of the Liabilities. (C) The Agent's use of its own checks upon its funds or the Agent's transfer of its own funds, by wire or otherwise, to an account of the Borrower shall be deemed to be disbursements made by each Lender under this Agreement and pursuant to the Financing Agreements. 11.10 Participation in Letters of Credit. Immediately upon the ----------------------------------- issuance by Agent of any Letter of Credit, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Agent, without recourse or warranty, an undivided interest and participation, to the extent of such Lender's Pro Rata Share, in such Letter of Credit and any security therefore and any guaranty pertaining thereto. Agent shall promptly upon receipt thereof, remit to the Lenders, in accordance with their respective Pro Rata Shares, all L/C Fees received by Lender under subsection 2.5. In the event -------------- Agent makes any payment to any Person with -73- respect to any Letter of Credit, Agent shall promptly notify the other Lenders with a participating interest in such Letter of Credit specifying the amount reimbursable by Borrower thereunder. If such reimbursement is not made by Borrower on the day then due the amount of such reimbursement obligation shall be deemed to be a Revolving Loan made pursuant to subsection 2.1(A) with respect ----------------- to which each Lender shall be obligated to immediately fund its Pro Rata Share to the Agent. 11.11 Apportionment of Payments. Except as provided in subsection ------------------------- ---------- 2.2(A) hereof, aggregate principal and interest payments shall be apportioned - ------ among all outstanding Liabilities to which such payments relate and payments of aggregate fees to Lenders (other than the Success Fee and the fees described in subsection 2.5(B) shall be apportioned ratably among Lenders in each case - ----------------- according to the payments remitted to the Agent and all their Pro Rata Shares. All amounts received by the Agent shall be applied first to pay any fees, expenses or indemnities then due the Agent, second to pay any fees then due the Lenders, third to pay interest due with respect to the Liabilities, fourth to pay or prepay principal of the Revolving Loan, and fifth to pay any other obligations to any and all of the Lenders allocated, if sufficient funds are not available to pay all such Liabilities, to the Lenders in proportion to their Pro Rata Shares. 11.12 Agent's Periodic Settlements With Lenders. ----------------------------------------- (A) The Agent and the Lenders acknowledge and agree that the Agent may from time to time pursuant to the provisions of this Agreement and the other Financing Agreements (i) make advances under the Revolving Loan, Overdraft Loans and Over Advances to Borrower for the account of the Lenders in accordance with their respective Pro Rata Shares, (ii) honor drawings under the Letters of Credit for the account of the Lenders in accordance with their participation interests therein and (iii) receive payments of advances under the Revolving Loan, Overdraft Loans and Over Advances from the Borrower, on a non-pro rata basis pending the occurrence of a Settlement Date. Each such advance shall be credited, and each such payment shall be credited to Bank of America Illinois' loan account, and each of the Lenders agrees that to the extent that Bank of America Illinois' resulting share of the outstanding principal advances under the Revolving Loan and the outstanding principal balance of the Overdraft Loans and over Advances is greater than or less than Bank of America Illinois' Pro Rata Share, each other Lender shall be deemed to have purchased a participation interest in Bank of America Illinois' advances under the Revolving Loan, Overdraft Loans and Over Advances or Bank of America Illinois shall be deemed to have purchased a participation interest in the other Lenders, advances under the Revolving Loan, Overdraft Loans and Over Advances, as appropriate, in an amount which will cause each Lender's Pro Rata Share (including both direct and participation interests) in the Liabilities and the Letters of Credit to be equal, in each case, to such Lender's Pro Rata Share; provided, however that (i) no Lender shall be obligated to remit any funds to any other Lender in respect of the purchase of a participation interest pursuant to this sentence until the occurrence of a Settlement Date and (ii) notwithstanding any such purchase of a participation interest, each Lender shall receive interest on its advances under the Revolving Loan, Overdraft Loans and Over Advances based upon the amount of funds actually advanced by such Lender to Borrower from time to time -74- (B) On each Settlement Date, the Agent shall deliver a report (each a "Report") to each Lender setting forth, among other things, the outstanding principal amount of all advances under the Revolving Loan, the Overdraft Loans and the Over Advances and the amount of all unreimbursed payments made under any Letters of Credit which have not been repaid by advances under the Revolving Loan (collectively, the "Outstanding Revolving Credit Liabilities"), in each ----------------------------------------- case as of the close of business on the preceding Business Day (or if the Agent or the Requisite Lenders shall so request in respect of any Settlement Date described in clause (ii) or (iii) of the definition of "Settlement Date" in subsection (C) below, as of a specified time prior to noon on such Settlement Date). Concurrently with or promptly after delivery of each such Report, each Lender shall remit to the Agent (for the account of Bank of America Illinois) or the Agent shall remit to each Lender (on behalf of Bank of America Illinois), as appropriate, the amount necessary to cause Each Lender's Pro Rata Share of all Outstanding Revolving Credit Liabilities to be equal to such Lender's Pro Rata Share. Each Report shall in the absence of manifest error, be conclusive and binding upon each Lender. (C) For purposes of this Agreement, a "Settlement Date" shall be --------------- each of (i) the first Business Day following the occurrence of any "Calculation Date" (as defined below), (ii) any Business Day on which, as of the close of the Agent's business on the immediately preceding Business Day (or if the Agent or the Requisite Lenders shall so request, as of a specified time prior to noon on such Business Day), the Outstanding Revolving Credit Liabilities are more than $2,000,000 more or less than such sum as shown on the Report prepared by the Agent with respect to the immediately preceding Settlement Date and (iii) any other Business Day designated by the Agent. For purposes of the foregoing, "Calculation Date" shall be the Wednesday of each week (or if any such day is ---------------- not a Business Day, the immediately succeeding Business Day). (D) Promptly (and in any event no later than 1:00 p.m., Chicago time on the next Business Day) upon receipt of any payment of any interest on the Liabilities or any fees payable hereunder, the Agent shall remit to each Lender its share of such payment received in collected funds by Agent. (E) If the Agent or any tender shall fail to make full payment when due of any amount required to be remitted pursuant to this subsection 11.12, ---------------- the party failing to make such payment shall, upon demand by the party entitled to receive such payment, pay such amount together with interest thereon at the "Federal Funds State" (as defined below). The "Federal Funds Rate" means for any ------------------ Business Day the weighted average of the rates on overnight Federal Funds transactions, with members of he Federal Reserve System, arranged by Federal funds brokers applicable to Federal Funds transactions on that date. The Federal Funds Rate shall be determined by the Agent on the basis of reports by Federal Funds brokers to, and published daily by, the Federal Reserve Bank of New York in the Composite Closing Quotations for U. S. Government Securities. If such publication is unavailable or the Federal Funds Rate is not set forth therein, the Federal Funds Rate shall be determined on the basis of any other source reasonably selected by the Agent. In the case of a day which is not a Business Day, the Federal Funds Rate shall be the Federal Funds Rate for the immediately preceding Business Day. -75- 11.13 Obligation of the Lenders to Fund ---------------------------------- (A) Each of the Lenders hereby severally agrees for the benefit of the Agent that, unless such Lender otherwise provides the Agent with five (5) Business Days prior written notice, the provisions of Section 9 shall not --------- relieve such Lender of its obligation, and such Lender shall, as between such Lender and the Agent, be obligated to fund its Pro Rata Share of any advance under the Revolving Loan, any Overdraft Loan and any Over Advance and to participate in any Letter of Credit as long as (a) the Liabilities have not been declared due and payable pursuant to Section 9 hereof and (b) immediately after --------- giving effect thereto, except for Over Advances and Overdraft Loans permitted under this subsection 11.13, the outstanding principal balance of the Revolving ---------------- Loan does not exceed the availability formula set forth in subsection 2.1(A) ----------------- hereof. This subsection 11.13 shall not, as between the Borrower and any Lender, ---------------- be the basis for any claim that a Lender failed to make an advance under the Revolving Loan. (B) Notwithstanding the provisions of subsection 2.1(A) and ----------------- subsection 2.9, the Agent will not (unless authorized to do so by all of the - --------------- Lenders) (i) make any Overdraft Loan or Over Advance or issue any Letter of Credit if, after giving effect thereto, the aggregate amount of all Overdraft Loans and Over Advances (other than those described in clauses (a), (b) or (c) below) would exceed $1,000,000 or (y) make any further advances under the Revolving Loan or issue any Letter of Credit if, after giving effect thereto, any Over Advance or Overdraft Loan (other than those described in clauses (a), (b) or (c) below) would then be outstanding for more than five Business Days; provided, however, that the Agent shall not be deemed to have violated the foregoing limitation on its discretion, and shall be permitted, to make or permit to exist Overdraft Loans and Over Advances or to make advances under the Revolving Loan or to issue Letters of Credit if (a) at the time of making or permitting the applicable Overdraft Loan, Over Advance or advance under the Revolving Loan or issuing the Letter of Credit, the Agent had a reasonable good faith belief that no Over Advance or Overdraft Loan in excess of the amount the Agent may otherwise permit hereunder existed or would result therefrom, (b) the applicable Over Advance or Overdraft Loan results from a decrease in the value of Collateral used to determine the Borrowing Base or from a determination by the Agent or the Requisite Lenders that certain Collateral should not be eligible or (c) the Agent permits an Over Advance, makes an Overdraft Loan, makes an advance under the Revolving Loan or issues a Letter of Credit in a manner and under circumstances which the Agent reasonably and in good faith determines to be prudent in the circumstances and consistent with prudent asset- based lending practices applicable in administering loans of similar type and character (including, without limitation, advances for the purpose of preserving or protecting Collateral or the Real Property or the ability to obtain payment of the Liabilities. -76- IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first shave written. BANK OF AMERICA ILLINOIS, as Agent By: [SIGNATURE ILLEGIBLE] ----------------------------------- Name [SIGNATURE ILLEGIBLE] --------------------------- Title: ____________________________ Pro Rata Share: 100% Notice Address: Bank of America Illinois 231 South LaSalle Street Chicago, Illinois 60697 Attn: Peter J. Gates, Jr. Telecopy: 3 12/828-1974 BANK OF AMERICA ILLINOIS, as Lender By: [SIGNATURE ILLEGIBLE] ----------------------------------- Name: [SIGNATURE ILLEGIBLE] ---------------------------- Title: VICE PRESIDENT ----------------------------- COMMUNICATIONS INSTRUMENTS, INC. By: [SIGNATURE ILLEGIBLE] ----------------------------------- Name: S. Daniel Taylor ---------------------------- Title: SECRETARY ----------------------------- -77- EXHIBIT A TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 FORM OF SUBSTITUTED AND AMENDED TERM NOTE $24.000.000.00 July 2, 1996 FOR VALUE RECEIVED, the undersigned, COMMUNICATIONS INSTRUMENTS, INC., a North Carolina corporation (the "Borrower"), HEREBY IRREVOCABLY PROMISES TO PAY to the order of Bank of America Illinois (the "Bank") pursuant to the "Loan Agreement" referred to and defined below, the original principal sum of Twenty-Four Million and No/100 DOLLARS ($24,000,000.00). The Borrower also agrees to pay interest on the average daily outstanding principal balance hereof at the rates and on the dates provided in the Loan Agreement referred to below and applicable to the Term Loans from the date the Loan Agreement becomes effective until payment in full thereof. The Borrower shall repay such principal (i) in ten (10) consecutive calendar quarterly installments of $1,125,000 each on the last day of each calendar quarter beginning on October 31, 1996 and continuing through and including January 31, 1999, (ii) in five (5) consecutive calendar quarterly installments of $1,250,000 each on the last day of each calendar quarter beginning on April 30, 1999 and continuing through and including April 30,2000, (iii) in four (4) consecutive calendar quarterly installments of $1,500,000 each on the last day of each calendar quarter beginning on July 31, 2000 and continuing through and including April 30, 2001 and (iv) in a final installment on June 30, 2001 in an amount equal to the then outstanding principal balance hereof. Any accrued and unpaid interest shall be payable on such dates as is required by the terms and provisions of the Loan Agreement as the pertain to the Term Loans. This Substituted and Amended Term Note ("Note") re-evidences in its entirety the indebtedness of the Borrower to the Bank under the "1995 Agreement" (as defined in the Loan Agreement) and heretofore evidenced by that certain Substituted and Amended Term Note dated October 11, 1995 executed and delivered by the Borrower and made payable to the order of the Bank in the original principal amount of $16,500,000.00 (the "Original Note"). This Note is being issued in substitution of the Original Note, and not in payment, discharge, or satisfaction of any indebtedness heretofore evidenced by the Original Note, and shall in no way constitute a novation of any such indebtedness heretofore evidenced by the Original Note. This Note is a "Substituted Term Note", as referred to, defined in, and entitled to the benefits of, that certain Second Amended and Restated Loan and Security Agreement of even date herewith among the Bank, certain other financial institutions from time to time party thereto, the Borrower and Bank of America Illinois in its separate capacity as contractual representative for the Lenders (the "Agent"). Such Second Amended and Restated Loan and Security Agreement, as the same may hereafter be further modified, amended, restated or supplemented from time to time, is referred to herein as the "Loan Agreement". Undefined capitalized terms which are used in this Note shall have the meanings ascribed to such terms in the Loan Agreement. Reference is made to the Loan Agreement for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may or must be repaid or prepaid or its maturity date accelerated. Both principal and interest are payable in immediately available and lawful funds of the United States of America to the Agent at its address at 231 South LaSalle Street, Chicago, Illinois 60697. In no contingency or event whatsoever shall interest charged hereunder, however such interest may be characterized or computed, exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that the Bank has received interest hereunder in excess of the highest rate applicable hereto, any such excess interest collected by the Bank shall be deemed to have been a repayment of principal and shall be so applied. THIS NOTE SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS, AND NOT THE CONFLICTS OF LAW PROVISIONS. OF THE STATE OF ILLINOIS. COMMUNICATIONS INSTRUMENTS, INC. By: _________________________ Ramzi A. Dabbagh President - 2 - EXHIBIT B TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 FORM OF CERTIFICATE TO ACCOMPANY MONTHLY REPORTS Certificate of of ----------------------------------- For the Period Ended --------------------------- The undersigned, _______________________________, hereby certifies to the "Lenders" party to that certain Second Amended and Restated Loan and Security Agreement dated as of July 2, 1996 (the "Loan Agreement") among Communications Instruments, Inc., a North Carolina corporation ("Borrower"), Bank of America Illinois, as contractual representative ("Agent"), and certain financial institutions ("Lenders"), that the accompanying: 1. Aged Trial Balance of Accounts dated as of _______________, ___; 2. Schedule of Inventory and Eligible Inventory dated as of ____________, _____; 3. Schedule of Inventory held by bailees, warehousemen or processors dated as of _____________, _____; 4. Schedule of in transit Inventory dated as of ___________, ___; 5. Copy of disbursement account(s) monthly statement dated as of _________________, ___; 6. Statement of Outstanding Principal Balance of Loans and Undrawn Face Amount of Letters of Credit dated as of ___________, ____; 7. Statement of Kilovac Accounts and Inventory dated as of ________, ____; 8. [describe other reports] dated as of __________, ___; are true and complete copies of the aforesaid, which constitute part of the customary books and records of Borrower and its Subsidiaries and accurately reflect the financial condition of Borrower and its Subsidiaries, as of the respective dates and for the respective periods indicated and that, as of the date hereof, there exist no facts or circumstances which would materially and adversely affect or vary the information contained in any of the aforesaid. The undersigned hereby further certifies to the Agent that no "Equipment" or "Real Property" (as such terms are defined in the Loan Agreement) has been sold since [insert date of most recent monthly certificate delivered to the Agent] and there has been no change in the most recent schedule of Equipment owned by Borrower delivered to the Agent other than _________________, _______________________________ [signature] _______________________________ [title] _______________________________ Dated _________________________ - 2 - EXHIBIT B-1 TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 FORM OF CERTIFICATE TO ACCOMPANY MONTHLY AND ANNUAL REPORTS Certificate of of ------------------------------------ For the Period Ended ---------------------------- The undersigned,______________________________, hereby certifies to the "Lenders" party to that certain Second Amended and Restated Loan and Security Agreement dated as of July 2, 1996 (the "Loan Agreement") among Communications Instruments, Inc., a North Carolina corporation ("Borrower"), Bank of America Illinois, as contractual representative ("Agent"), and certain financial institutions ("Lenders") as follows: (i) that the accompanying [monthly] [annual] financial statements dated as of__________, ____, delivered pursuant to subsection 7.1 -------------- [(A)][(B)] of the Loan Agreement are true and complete copies of such ---------- financial statements, which accurately reflect the financial condition of Borrower and its Subsidiaries, as of the respective dates and for the respective periods indicated and that, as of the date hereof, there exist no facts or circumstances which would materially and adversely affect or vary the information contained therein; (ii) that no "Default" or "Event of Default" (as each such terms are defined in the Loan Agreement) has occurred [except: describe the nature of each Default and/or Event of Default, the period of existence thereof and the action taken or proposed to be taken with respect thereto]; (iii) that all of the representations and warranties contained in the Loan Agreement are true, correct and accurate as of the date hereof as if made on the date hereof; and (iv) that following are the calculations required to establish whether Borrower was in compliance with each of the financial covenants set forth in the Loan Agreement: (A) _________________________; (B) _________________________; (C) _________________________; and (D) _________________________; _______________________________ [signature] _______________________________ [title] _______________________________ Dated:_________________________ - 2 - EXHIBIT C-1 TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 FORM OF GOVERNMENT CONTRACT ASSIGNMENT -------------------------------------- Pursuant to that certain Second Amended and Restated Loan and Security Agreement of even date herewith (as the same may hereafter be further modified, amended, restated or supplemented from time to time, the "Loan Agreement" among Communications Instruments, Inc., a North Carolina corporation (the "Borrower"), Bank of America Illinois ("BAI") and certain other lending institutions from time to time a party thereto (collectively, the "Lenders" and each individually as a "Lender") and BAI in its separate capacity as contractual representative for the Lenders (the "Agent"), and pursuant to the provisions of the Assignment of Claims Act of 1940, as amended, the Borrower does hereby convey, assign, transfer and set over unto the Agent all of Borrower's right, title and interest which it now has or may have in and to all moneys due or to become due from the United States of America or from any agency of department thereof (the "Government") under that certain contract between the Borrower and the Government described in Attachment A hereto. Further, the Borrower does hereby authorize the Agent to receive and collect any amount or amounts due or to become due under the aforesaid contract, and to receive and collect the same as fully and to the same extent as if said moneys were the Agent's own funds and to apply said moneys first to repayment of any loan or loans now or hereafter existing between the Borrower and the Lender and to the interest thereon, and to any other indebtedness of the Borrower to the any Lender or the Agent now existing or which hereafter may be incurred. Further, the Borrower hereby agrees that after the date hereof it will (i) hold in trust for the benefit of the Agent all sums which may be collected or received by it pursuant to the contract described in Attachment A hereto and (ii) at the request of the Agent perform such as acts or execute such further instruments as shall reasonably be required to enable the Agent to collect and receive all sums due or to become due under or in connection with such contract. The term "contract", as used in this Assignment, means the contract and/or purchase order described in Attachment A hereto, including all modifications and amendments thereto, whether or not performance and payment have been completed and releases executed so long as the Government or the Borrower has any remaining rights, duties, or obligations under such contract. IN WITNESS WHEREOF, the Borrower has caused this Assignment to be duly executed and delivered this ____ day of ______________, ___, (Corporate Seal) COMMUNICATIONS INSTRUMENTS, INC. ATTEST: _____________________ By:_____________________________ Secretary Title:_______________________ - 2 - ATTACHMENT A ------------ (i) Name and Address of Agency: ________________________ ________________________ ________________________ ________________________ (ii) Contract Number: ________________________ (iii) Contract Date: ________________________ (iv) Contract Item(s): ________________________ (v) Contract Amount: $_______________________ (vi) Name and Address of ________________________ Contracting Officer ________________________ and/or Head of ________________________ Applicable Agency: ________________________ (vii) Name and Address of ________________________ Disbursing Officer(s) ________________________ Designated in the ________________________ Contract to Make Payment: ________________________ (viii) Name and Address of Any Surety on Any Bond Applicable to the Contract: None (ix) Prohibition on Assignment: No (x) No-offset Provision: Yes - 3 - EXHIBIT C-2 TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 FORM OF GOVERNMENT CONTRACT NOTICE OF ASSIGNMENT ------------------------------------------------ TO: [Address to one of the parties specified in 32.802(e)] This has reference to Contract No. ________________ dated __________________, entered into between [contractor's name and address] and ____________________________________ [government agency, name of office, and ______________________ address], for [described nature of contract]. Moneys due or to become due under the contract described above have been assigned to the undersigned under the provisions of the Assignment of Claims Act of 1940, as amended, 31 U.S.C. 3727, 41 U.S.C. 15. A true copy of the instrument of assignment executed by the Contractor on ____________________ [date], is attached to the original notice. Payments due or to become due under this contract shall be made to the undersigned assignee. Please return to the undersigned the three enclosed copies of this notice with appropriate notations showing the date and hour of receipt, and signed by the person acknowledging receipt on behalf of the addressee. Very truly yours, __________________________________ Name of Assignee By:_______________________________ [Signature of Signing Officer] Title:____________________________ [title of signing officer] __________________________________ __________________________________ [address of assignee] ACKNOWLEDGMENT -------------- Receipt is acknowledged of the above notice and a copy of the instrument of assignment. They were received at _______ (a.m.) (p.m.) on ______________________, ____. _____________________________________________ [Signature] _____________________________________________ [Title] On behalf of ______________________________________________ [Name of addressee of this notice] - 2 - EXHIBIT D TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 REAL PROPERTY Attached. BEGINNING at an iron pin in the North margin of U.S. Highway #74, the Southwest corner of that tract conveyed by C. M. McCracken and wife, to S.H. Mesbitt by deed recorded in the Office of the Register of Deeds of Buncombe County, M.C., in Deed Book 220 at Page 433 and at the Southeast corner of the lands of Southern Bell Telephone and Telegraph Company, and runs thence from said beginning point thus established North 3 deg. 38 min. 42 seconds East 18.35 feet to a concrete monument; thence North 3 deg. 38 min. 42 seconds East 1419.46 feet to a concrete monument; thence North 3 deg. 38 min. 42 seconds East 176.51 feet to an iron pin; thence North 85 deg. 38 min. 38 seconds West 278.94 feet to a 4- inch cast iron pipe; thence North 3 deg. 57 min. 50 seconds East 599.49 feet to a 4-inch cast iron pipe; thence North 64 deg. 43 min. 53 seconds East 552.77 feet to a concrete monument; thence North 64 deg. 43 min. 53 seconds East 13.23 feet to an iron pin; thence South 38 deg. 26 min. 7 seconds East 107.60 feet to an iron pin in Miller Road; thence South 48 deg. 44 min. 45 seconds East 164.57 feet to a concrete monument; thence South 24 deg. 43 min. 49 seconds East 125 feet to a point in Cane Creek; thence South 32 deg. 6 min. 31 seconds East 341.05 feet to a point in Cane Creek; thence South 42 deg. 9 min. 38 seconds East 160 feet to a point in Cane Creek; thence South 76 deg. 20 min. 11 seconds East 197 feet to an iron pin; thence South 54 deg. 30 min. 11 seconds East 56.60 feet to an iron pin; thence South 0 deg. 7 min. 49 seconds West 94.90 feet to 4- inch cast iron pipe; thence South 84 deg. 5 min. 11 seconds East 691.44 feet to an iron pin which is located North 84 deg. 5 min. 11 seconds West 1 foot from a 4-inch cast iron pip; thence South 5 deg. 32 min. 15 seconds West 1264.78 feet to a 4-inch cast iron pipe; thence North 63 deg. 15 min 32 seconds East 404.25 feet to a twelve inch black oak tree: thence South 64 deg. 20 min. East 320.33 feet to a 4-inch cast iron pipe; thence South 56 deg. 48 min 27 seconds West 807.66 feet to a 4-inch cast iron pipe; thence South 66 deg. 14 min. I second West 389.38 feet to a 28 inch white oak tree: thence North 82 deg. 32 min. 9 seconds West 91.79 feet to an iron pin; thence North 82 deg. 32 min. 9 seconds West 40.21 feet to an iron pi; thence North 7 deg. 41 min. 52 seconds East 229 feet to an iron pin: thence North 11 deg 24 min. 2 seconds East 234 feet to an iron pin; thence North 18 deg. 27 min. 54 seconds East 321.84 feet to an iron pin; thence North 76 deg. 46 min. 55 seconds West 720 feet to a concrete monument; thence South 16 deg. 8 min. 5 seconds West 648 feet to an iron pin; thence South 16 deg. 8 min. 5 seconds West 50 feet to an iron pin in the North margin of U.S. Highway #74; thence with the North margin of U.S. Highway #74 North 80 deg. 14 min. 52 seconds West 512 feet to the place and point of BEGINNING. EXHIBIT E1-A TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 PRO FORMA BALANCE S1EIEET OF BORROWER Attached. COMMUNICATIONS INSTRUMENTS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS BALANCE SHEET QUARTER ENDING MARCH 31, 1996 (000'S)
HARTMAN CII PRO FORMA PRO FORMA COMPANY HARTMAN ADJ. COMBINED ------- ------- ---- -------- CURRENT ASSETS: CASH 73 18 (19) 73 ACCOUNTS RECEIVABLE 7,885 2,596 10,481 INVENTORIES 10,963 6,973 989 18,925 DEFERRED INCOME TAX 1,453 1,453 OTHER CURRENT ASSETS 1,150 16 47 1,212 TOTAL CURRENT ASSETS 21,524 9,603 1,017 32,144 PROPERTY, PLANT AND EQUIPMENT 13,004 1,407 1,689 16,100 OTHER ASSTES: CASH RESTRICTED FOR ENVIRON- MENTAL REMEDIATION 1,304 1,304 ENVIRONMENTAL SETTLEMENT RECEIVABLE 1,062 1,062 EXCESS OF PURCHASE PRICE OVER FAIR VALUE ASSIGNED TO NET ASSETS 7,662 4,028 11,690 INVESTMENTS 139 139 INTANGIBLE AND OTHER NONCURRENT 0 ASSETS 3,145 1,460 (1,227) 3,378 TOTAL 47,840 12,470 5,507 65,817 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: ACCOUNTS PAYABLE & ACCRUED EXP. 6,968 6,829 (1,702) 12,095 ACCRUED INTEREST 193 193 CURRENT PORTION OF LONG TERM DEBT 3,037 3,037 CURRENT PAYABLE DUE TO MINORITY 0 SHAREHOLDERS OF SUBSIDIARY 708 708 TOTAL CURRENT LIABILITIES 10,906 6,829 (1,702) 16,033 LONG TERM DEBT 19,517 12,850 32,367 NOTES PAYABLE TO SHAREHOLDERS 0 ACCRUED ENVIRONMENTAL COST 3,052 3,052 DEFERRED INCOME TAXES & OTHER LIAB. 2,877 494 (494) 2,877 NONCURRENT PAYABLE DUE TO MINORITY 0 SHAREHOLDERS 865 865 MINORITY INTEREST IN SUBSIDIARY 51 51 STOCKHOLDERS' EQUITY COMMON STOCK 9 9 ADDITIONAL PAID IN CAPITAL 758 758 DEFICIT 9,841 5,147 (5,147) 9,841 CURRENCY TRANSLATION LOSS (36) (36) TOTAL STOCKHOLDERS' EQUITY 10,572 5,147 (5,147) 10,572 TOTAL 47,840 12,470 5,507 65,817
CII TECNOLOGIES INC. - PRO FORMA - WITH KILOVAC FULL YEAR KILOVAC-AFTER ADJUSTMENTS 01-Jul-96
TOTAL TRADE SALES 14,709 INTERCOMPANY 0 NET SALES 14,709 COST OF SALES 8,133 GROSS PROFIT 6,576 GROSS PROFIT % OF NET SALES 44.7% OPERATING EXPENSES: SELLING 1,763 GENERAL & ADMINISTRATIVE 1,698 RESEARCH & DEVELOPMENT 729 AMORTIZATION OF GOODWILL AND 346 OTHER INTANGIBLE ASSETS ENVIRONMENTAL COSTS 0 ACQUISITION RELATED COST 72 COMPENSATION COSTS 0 OPERATING INCOME 1,968 INTEREST EXPENSE 1,287 OTHER (INCOME) EXPENSE (9) MINORITY INTEREST IN NET INCOME 0 OF SUBSIDIARIES INCOME (LOSS) BEFORE TAXES 647 TAXES ON INCOME 297 NET INCOME 350 OPERATING INCOME BEFORE 2,040 ENVIRONMENTAL & ACQUISITION COST & COMPENSATION COSTS % OF NET SALES 13.9%
EXHIBIT E1-B TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 PRO FORMA CONSOLIDATED BALANCE SHEET OF KILOVAC Attached. COMMUNICATIONS INSTRUMENTS, INC. KILOVAC BALANCE SHEET MARCH 31, 1996 (000'S) 24-Apr-96
*** CURRENT MONTH *** PRIOR ACTUAL PLAN YEAR ------ ---- ---- ASSETS: CURRENT ASSETS: CASH 13 (1) 0 ACCOUNTS RECEIVABLE 1,983 2,385 0 INVENTORY 2,285 1,782 0 DEFERRED INCOME TAXES 536 536 0 OTHER CURRENT ASSETS 901 934 0 TOTAL CURRENT ASSETS 5,718 5,676 0 FIXED ASSETS: COST 2,166 2,260 0 ACCUMULATED DEPRECIATION 133 138 0 NET BOOK VALUE 3,017 2,112 0 INTERCOMPANY (9,372) (10,041) 0 GOODWILL 6,875 6,886 0 INTANGIBLE ASSETS & OTHER 3,052 3,944 0 TOTAL ASSETS 9,290 8,577 0 LIABILITIES: CURRENT LIABILITIES: ACCOUNTS PAYABLE 817 709 0 ACCRUED EXPENSES 1,671 1,071 0 CURRENT PORTION OF LTD 0 0 0 PAYABLE DUE TO SHAREHOLDERS 708 753 0 TOTAL CURRENT LIABILITIES 3,196 2,533 0 NON-CURRENT LIABILITIES: LONG-TERM DEBT 0 0 DEFERRED TAXES & OTHER LIABILITIES 972 947 0 NOTE PAYABLE TO SHAREHOLDERS 865 865 0 TOTAL NON-CURRENT LIABILITIES 1,837 1,812 0 TOTAL LIABILITIES 5,033 4,345 0 OWNERS' EQUITY COMMON STOCK & PAID-IN CAPITAL 4,000 4,000 0 RETAINED EARNINGS 174 174 0 NET INCOME 83 58 0 CURRENCY TRANSLATION GAIN (LOSS) 0 0 0 OTHER 0 0 0 TOTAL OWNERS' EQUITY 4,257 4,232 0 TOTAL LIABILITIES & OWNERS' EQUITY 9,290 8,577 0
?? TECHNOLOGIES INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA).
KLOVAC KLOVAC HARTMAN COMPANY 1-1-05 THRU PRO FORMA PRO FORMA PRO FORMA PRO FORMA HISTORICAL 10:11:95 ADJ. HARTMAN ADJ. COMBINED AS ADJ. ---------- -------- ---- ------- ---- -------- ------- NET SALES 39,915 11,??? 17,451 ??,408 88,??? COST OF SALES 2?,687 ?,453 (17,?) 11,411 '95 46,578 48,59? GROSS PROFIT 11,231 4,576 174 6,045 ('95) 21,830 21,??? OPERATING ESPENSES: SELLING ?,229 1,287 445 4,981 4,95? GENERAL AND ADMINISTRATIVE 3,334 1,240 2,753 (1,54?) ?/?? ?,745 RESEARCH AND DEVELOPEMENT 301 ??? ?15 '453 1,457 AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS 261 270 134 655 408 SPECIAL COMPENSATION CHARGE 1,300 1,300 0 ENVIRONMENTAL COST 951 500 (500) 951 0 ACQUISITION RELATED COST 2,084 2,064 0 OPERATING INCOME (LOSS) (199) 1,582 (95) 1,731 1,751 4,091 ?,??? INTEREST EXPENSE 2,987 35 1,403 10 1,300 6,387 48 OTHER (INCOME) EXPENSE (2) (5) 12 81 51 INCOME (LOSS) BEFORE TAXES (?,184) 1,476 (1,???) 1,640 450 (777) ?,708 INCOME TAX EXPENSE (BENEFIT) (1,07?) 561 (402) 634 150 (???) 3,825 INCOME APPLICABLE TO MAJORITY INTEREST 3? 100 (14?) 38 0 NET INCOME (LOSS) (2,153) 732 (505) ??? 270 (752) 5,063 NET INCOME PER COMMON SHARE AVERAGE SHARES OUTSTANDING SUPPLEMENTAL PRO FORMA STATEMENT OF OPERATIONS DATA [?] OPERATING INCOME NET INCOME NET INCOME PER COMMON SHARE AVERAGE SHARES OUTSTANDING
EXHIBIT E2-A TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 FAIR SALABLE VALUE BALANCE SHEET OF BORROWER Attached. Exhibit E2-A COMMUNICATIONS INSTRUMENTS, INC. PRO FORMA CONSOLIDATED FAIR SALABLE VALUE BALANCE SHEET (1) Receivables $10,481 Inventory 18,925 Other current assets 1,285 Property, Plant & Equipment (2) 23,225 ------ Total Assets $53,916 Accounts Payable and Accruals 12,288 Payable to Minority Shareholders 1,573 Environmental Cost 3,052 Bank Debt 35,404 ------ Net Assets $1,599 ======
(1) Balance sheet amounts except for Property, Plant and Equipment derived from Pro Forma Consolidation Closing Balance Sheet included as Exhibit E1-A. (2) Property, Plant and Equipment based upon September 1995 appraisal for machinery, equipment, and leasehold improvement ($18,709) and historical cost for land ($281) and building ($1,139) for CII excluding Hartman and June 1996 appraised value for Hartman of $3,096 EXHIBIT E2-B TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 FAIR SALABLE VALUE BALANCE SHEET OF KILOVAC Attached. Exhibit E2-B KILOVAC CORPORATION ------------------- PRO FORMA FAIR SALABLE VALUE ---------------------------- BALANCE SHEET (1)(2) -------------------- Accounts Receivable $1,983 Inventory 2,285 Other Current Assets 914 Property, Plant and Equipment 2,017 ------ Total Assets $7,199 Accounts Payable and Accruals $2,488 Amount Due Former Shareholders 1,573 ------ Net Assets $3,138 ======
(1) Amount derived from balance sheet included as Exhibit E1-B. (2) Liabilities exclude convertible demand note as they are considered converted into equity for purposes of this balance sheet. EXHIBIT F TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULV 2, 1996 FORM OF ASSIGNMENT AND ACCEPTANCE --------------------------------- ASSIGNMENT AND ACCEPTANCE dated _____________, 19__, between Bank of America Illinois (the "Assignor") and (the "Assignee"). PRELIMINARY STATEMENT A. Reference is made to that certain Second Amended and Restated Loan and Security Agreement dated as of July 2, 1996 (as the same may be further amended, supplemented, restated or otherwise modified from time to time, the "Loan Agreement") among Communications Instruments, Inc. (the "Borrower"), the financial institutions party thereto (individually, a "Lender" and collectively the "Lenders") and Bank of America Illinois, as contractual representative (the "Agent") for the Lenders. Capitalized terrns used herein and not otherwise defined herein are used as defined in the Loan Agreement. B. The Assignor is a Lender under the Loan Agreement and desires to sell and assign to the Assignee, and the Assignee desires to purchase and assume from the Assignor, on terrns and conditions set forth below, a percent %) interest in the outstanding principal balance of each of the Assignor's Terrn Loans and Revolving Loans to the Borrower and obligations with respect to outstanding Letters of Credit ("Assigned Loan Percentage") and a percent %) interest in the Assignor's comrnitment to make Revolving Loans to the Borrower or issue or participate in Letters of Credit for the account of the Borrower ("Assigned Commitment Percentage"; together with the Assigned Loan Percentage, the "Assigned Percentage") from the Assignor, together with the Assignor's rights and obligations under the Loan Agreement with respect to the Assigned Percentage other than with respect to the Success Fee. NOW, THEREFORE, the Assignor and the Assignee hereby agree as follows: 1. In consideration of the Assignee's payment of $_____________, the Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, the Assigned Percentage, together with the Assignor's rights and obligations under the Loan Agreement and all of the other Financing Agreements with respect to the Assigned Percentage as of the date hereof (after giving effect to any other assignrnents thereof made prior to the date hereof, whether or not such assignrnents have become effective, but without giving effect to any other assignrnents thereof also made on the date hereof), including, without limitation, the obligation to make Revolving Loans and the obligation to participate in Revolving Loans and Letters of Credit, as applicable, but specifically excluding Assignor's rights and claims with respect to the Success Fee and the Financing Agreements evidencing such Success Fee. 2. The Assignor (i) represents and warrants that as of the date hereof its commitment to make Revolving Loans and to issue or participate in Letters of Credit is ______________ and its Pro Rata Share is _______ percent (_____) (in each case, after giving effect to any other assignments thereof made prior to the date hereof, whether or not such assignments have become effective, but without giving effect to any other assignments thereof made as of the date hereof); (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Agreement or any of the other Financing Agreements or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement or any of the other Financing Agreements or any other instrument or document furnished pursuant thereto; and (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any of its Subsidiaries or the performance or observance by the Borrower or such Subsidiary of any of their respective obligations under the Loan Agreement or any of the other Financing Agreements or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (ii) confirms that it has received a copy of the Loan Agreement, together with copies of such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (iii) agrees that it shall have no recourse against the Assignor with respect to any matter relating to the Loan Agreement, any of the other Financing Agreements, or this Assignment and Acceptance (except with respect to the representations and warranties made by the Assignor in clauses (i) and (ii) of paragraph 2 above); ----------- ---- (iv) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Agreement; (v) appoints and authorizes the Agent to take such action as contractual representative on its behalf and to exercise such powers under the Loan Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (vi) agrees that it will perforrn in accordance with their terms all of the obligations which by the terrns of the Loan Agreement are required to be performed by it as a Lender; and (vii) specifies as its address for notices the office set forth beneath its name on the signature pages hereof. 4. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Agent specified on the signature page hereof (the "Effective Date"). -2- 5. As of the Effective Date, (i) the Assignee shall be a party to the Loan Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Agreement with respect to the Assigned Percentage. 6. From and after the Effective Date, the Agent shall make all payments under the Loan Agreement and the Substituted Notes in respect of the Assigned Percentage (including, without limitation, all payments of principal, interest and fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Loan Agreement and the Substituted Notes for periods prior to the Effective Date directly hetween themselves. 7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS. 8. This Assignment and Acceptance may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. -3- IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective officers thereunto duly authorized, as of the date first above written. BANK OF AMERICA ILLINOIS By______________________ Title: Adjusted commitment for Revolving Loans: $__________ Adjusted Percentage:________% [ASSIGNEE] By______________________ Title: Address for notices: Commitment for Revolving Loans: $________ Percentage: ________% Acknowledged and agreed as of this _____ day of _____, 199_ BANK OF AMERICA ILLINOIS, as Agent By:____________________________ Title:_________________________ -4- SCHEDULE 3.11 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 Location of Collateral ---------------------- 1. Communications Instruments, Inc. 1396 Charlotte Highway P.O. Box 520 Highway 74 East Fairview, NC 28730 2. 3165 Sweeten Creek Road Ashville, NC 28803 3. #9-B2 Butterfield Trail Boulevard El Paso, Texas 79906 4. Antonio J. Bermudez Industrial Park Boulevard Tomas Fernandez No. 7930 Juarez, Chihuahua, Mexico 32470 5. c/o Stonebridge Partners 50 Main Street White Plains, New York 10606 6. Kilovac Corporation 550 Linden Avenue Carpinteria, California 93013 7. Kilovac Corporation 5737B 6th Street Carpinteria, California 93013 8. Hartman Electrical Manufacturing 175 North Diamond Street Mansfield, Ohio 44902 9. Hartman 714 Vermont Avenue Anaheim California 92803 SCHEDULE 6.5(A) To SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 Liens ----- I. UCC filings against COMMUNICATIONS INSTRUMENTS, INC. as Debtor: A. Central Carolina Bank & Trust Co. National Association as Lessor: * 1. JURISDICTION: Buncombe County, North Carolina FILE NUMBER: 90-1531 FILING DATE: June 25, 1990 COLLATERAL: Certain leased equipment B. Hewlett Packard Company as Secured Party: 1. JURISDICTION: Secretary of State of North Carolina FILE NUMBER: 0988722 FILING DATE: April 16, 1993 COLLATERAL:. Certain equipment 2. JURISDICTION: Buncombe County, North Carolina FILE NUMBER: 93-0745 FILING DATE: April 6, 1993 COLLATERAL: Certain equipment 3. JURISDICTION: Buncombe County, North Carolina FILE NUMBER: 88- 1656 FILING DATE: May 2, 1988 COLLATERAL: Certain equipment C. AT&T Credit Corporation as Lessor: 1. JURISDICTION: Secretary of State of North Carolina FILE NUMBER: 1072507 FILING DATE: January 27, 1994 COLLATERAL: Certain leased equipment 2. JURISDICTION: Buncombe County, North Carolina * FILE NUMBER: FILING DATE: COLLATERAL: D. C Leasing Company, a Division of Prices's Producers, Inc. as Lessor: 1. JURISDICTION: Secretary of State of Texas FILE NUMBER: 94-032791 FILING DATE: February 22, 1994 COLLATERAL: Certain leased equipment II. UCC filings against MIDTEX RELAYS, INC. as Debtor: A. BCI Holdings, Inc. (formerly known as, and financing statement originally filed on November 30, 1992 as Hase Products, Inc.) as Secured Party: 1. JURISDICTION: Secretary of State of Texas FILE NUMBER: 95-706346 FILING DATE: September 7, 1995 COLLATERAL: Certain equipment III. State Tax liens against MIDTEX RELAYS, INC. as Debtor: A. State of Texas 1. JURISDICTION: El Paso County, Texas FILE NUMBER: 087212 FILING DATE: August 24, 1993 AMOUNT: $5,281.51 (as of July 1, 1993) 2. JURISDICTION: El Paso County, Texas FILE NUMBER: 097727 FILING DATE: October 8, 1993 AMOUNT: $5,446.91 (as of September 28, 1993) 3. JURISDICTION: E1 Paso County, Texas FILE NUMBER: 017134 FILING DATE: December 30, 1993 AMOUNT: $2,588.43 (as of October 22, 1993) IV. Judgment liens against MIDTEX RELAYS, INC. D/B/A MIDTEX, as Judgment Debtor: A. City of E1 Paso, Texas as Judgment Creditor: 1. JURISDICTION: El Paso County, Texas SUIT NUMBER: 95-11960 JUDGMENT DATE: June 11, 1996 AMOUNT: $27,139.41 * These jurisdictions have not been reviewed, as their search reports have not yet been received. - 2 - SCHEDULE 6.5 (B) TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 Leased Premises --------------- 1. 3615 Sweeten Creek Road (Hickory Printing Ashville, North Carolina 28803 Group, Inc.) 2. #9-B2 Butterfield Trail Boulevard (Innovative El Paso, Texas 79906 Applications Corp.) 3. Antonio J. Bermudez Industrial Park (Parque Industrial Boulevard Tomas Fernandez No. 7930 Antonia J. Bermudez) Juarez, Chihuahua, Mexico 32470 4. Kilovac Corporation (Vern Caldwell) 550 Linden Avenue Carpinteria, California 93013 5. Kilovac Corporation (Vern Caldwell) 5737B 6th Street Carpinteria, California 93013 6. Hartman Electrical Manufacturing (Figgie Properties, 175 North Diamond Street Inc.) Mansfield, Ohio 44902 SCHEDULE 6.8 TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 Other Corporate Names --------------------- Midtex Relays Hartman Division of CII Technologies, Inc. Hartman Electrical Manufacturing SCHEDULE 6.10 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 Other Loans and Bank Accounts -----------------------------
BANK USE ACCOUNT # - ---- --- --------- FAIRVIEW - -------- FIRST CITIZENS BANK LOCAL OPERATING 6931007220 FIRST CITIZENS BANK PAYROLL 6931007212 FIRST CITIZENS BANK HEALTH CARE 693100386 MIDTEX - ------ CONTINENTAL BANK DORMANT 91375 TEXAS COMMERCE BANK LOCAL OPERATING 1500202430 INVERLAT BANK (MEXICO) DOLLAR ACCT 2016605 INVERLAT BANK (MEXICO) PESO ACCOUNT 159026 BANCO MERCANTILE (MEXICO) DOLLAR ACCOUNT 103124875 BANCO MERCANTILE (MEXICO) PESO ACCOUNT 204001375 BANCO MERCANTILE (MEXICO) PAYROLL 204000336 KILOVAC - ------- BANK OF AMERICA-CALIF FSC 1447150242
SCHEDULE 6.14 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 Litigation ---------- None, except with respect to the matters described on Schedule 6.17 hereof. 7 SCHEDULE 6.17 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 Environmental ------------- I. THE BORROWER Matters disclosed in the Site Assessment of the Communications Instruments, Inc. Facility at 1396 Charlotte Highway, Fairview, NC, dated May 10, 1993, prepared by Tighe & Bond, which document is attached as a schedule to the original Loan Agreement dated May 11, 1993. II. KILOVAC CORPORATION Matters disclosed in Phase I and Phase II reports and work done by Tighe & Bond, copies of which reports have been provided to the Agent. One or more of Kilovac's environmental permits may be subject to termination on the occurrence of a change of control of Kilovac. Kilovac may need to obtain a permit to treat hazardous waste in connection with its monitoring vault. Documents disclosing this discussion with the State of California are file and have been reviewed by the Agent and Tighe & Bond. Review of Kilovac's air pollution permits is scheduled for later this year and a number of changes will need to be made in that permit. Materials of environmental concern are disclosed in Kilovac's environmental permits, which have been provided to the Agent. Kilovac has also separately provided a list of amounts and locations of all hazardous materials disposed of since 1980. The only spill in recent history was that of nickel plating solution during a fire in 1990. Reports on this spill have been made available during review of Kilovac's file at the Santa Barbara County Environmental Health by the Agent's representative. PCB's have been on the site in old transformers, all removed and disposed of many years ago. Asbestos has been on the site in the form of work gloves and fireproofing. All known asbestos has been removed and disposed of. The property may 8 occupy an area that was formerly a wet land and was filled some time prior to 1925 (est). Kilovac purchases, stores (in drums), handles, uses and disposes of a number of environmentally hazardous chemicals which, if mishandled, could cause a hazardous spill and/or cleanup. These chemicals have been fully documented in the environmental materials provided to the Agent and its representatives. Matters disclosed by the letter of M.F. Strange & Associates to Kilovac Corporation dated October 3, 1995. III. HARTMAN Matters disclosed in the Environmental Remediation And Escrow Agreement. 9 SCHEDULE 6.19 To AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 ERISA ----- 1. CII's 401K Plan, actuarial reports and latest IRS Form 5500. 2. CII's Section 125 Cafeteria plan. 3. The following benefit plans of Kilovac Corporation: Employee Stock Bonus Plan ("ESBP") Health and Welfare Plans (health, dental, life, accidental death and dismemberment and long-term disability) Cafeteria Plan Director and officer liability insurance Educational Reimbursement Plan 401k Plan Incentive Compensation Plan ("ICP") Mad Money Plan Safety Incentive Plan Stock Option Plans: 1994 Nonqualified Stock Option Plan No.1 1992 Nonqualified Stock Option Plan No.2 1992 Nonqualified Stock Option Plan No.1 1991 Nonqualified Stock Option Plan No.1 1990 Nonqualified Stock Option Plan No.1 1989 Nonqualified Stock Option Plan No.2 1989 Nonqualified Stock Option Plan No.1 1988 Nonqualified Stock Option Plan No.2 1988 Nonqualified Stock Option Plan No.1 1987 Nonqualified Stock Option Plan No.2 1987 Nonqualified Stock Option Plan No.1 1987 Incentive Stock Option Plan No.2 1987 Incentive Stock Option Plan No.1 10 SCHEDULE 8.9 To AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF JULY 2, 1996 Fees Payable on the Closing Date -------------------------------- (Attached Flow of Funds Memo) 11 SCHEDULE A ---------- BANK OF AMERICA ILLINOIS $39,000,000 RESTATED CREDIT FACILITY to COMMUNICATIONS INSTRUMENTS, INC. JULY 2, 1996 LIST OF CLOSING DOCUMENTS I. LOAN AND SECURITY DOCUMENTS --------------------------- 1. Second Amended and Restated Loan and Security Agreement dated as of July 2, 1996 (the "Loan Agreement") among Communications Instruments, Inc., a North Carolina corporation ("Borrower"), Bank of America Illinois ("BAI") and certain other lending institutions from time to time a party thereto (BAI and such other institutions being hereinafter collectively referred to as the "Lenders" and each individually as a "Lender"), and BAI is its separate capacity as contractual representative for the Lenders (the "Agent"), providing for a $15,000,000 revolving loan and letter of credit facility, and a $24,000,000 term loan facility, in each case secured by a senior security interest in and lien on substantially all of Borrower's real and personal property. Undefined capitalized terms which are used herein shall have the meanings ascribed to such terms in the Loan Agreement. 2. Substituted and Amended Term Note in an aggregate principal amount of $24,000,000, executed by Borrower and made payable to BAI. 3. Master Reaffirmation and Modification Agreement executed and delivered by Borrower, Electro-Mech, S.A. de C.V., a Mexican corporation ("CII Mexico"), Kilovac Corporation, a California corporation ("Kilovac"), and CII Technologies Inc. (formerly known as Communications Instruments Holdings, Inc.), a Delaware corporation ("Holdings"), in favor of the Agent and the Lenders, with respect to each of the "Reaffirmed Documents" referred to or identified in such agreement. 4. Assignment of Representations, Warranties and Covenants executed by the Borrower, in favor of the Agent evidencing the collateral assignment by the Borrower to the Agent of all of its rights and remedies under that certain Asset Purchase Agreement dated as of June 27, 1996 (the "Acquisition Agreement") by and among the Borrower and Figgie International Inc., a Delaware corporation (the "Seller"), pursuant to which Acquisition Agreement the Borrower acquired substantially all of the assets of the Seller's Hartman Electrical Manufacturing Division (the "Division"), together with the Seller's acknowledgment to such assignment. 5. Federal Assignment of Claims Act Assignments and Notices of Assignment with respect to all assignable government contracts of the Division which are acquired by the Borrower as of the Closing Date, together with copies of each such government contract and evidence satisfactory to the Agent that the assignment of each such contract from the Division to the Borrower has been approved in writing by the applicable governmental agencies respectively party to such government agreements or that such agreements have been novated in favor of the Borrower. /1/ 6. Amendment to Patent Security Agreement executed by the Borrower in favor of the Agent pursuant to which the Borrower agrees to specifically include the patents and patent applications it acquires pursuant to the Acquisition Agreement within the collateral covered by that certain Patent Security Agreement dated as of May 1 1, 1993 between the Borrower and the Agent. 7. Amendment to Trademark Security Agreement executed by the Borrower in favor of the Agent pursuant to which the Borrower agrees to specifically include the trademarks and trademark applications it acquires pursuant to the Acquisition Agreement within the collateral covered by that certain Trademark Security Agreement dated as of May 11, 1993 between the Borrower and the Agent. II. REAL ESTATE DOCUMENTS --------------------- 8. Reaffirmation and Modification of Deed of Trust, between the Borrower and the Agent ("Deed of Trust Modification") with respect to that certain Deed of Trust, Security Agreement, Financing Statement and Assignment of Rents and Leases dated as of May 1 1, 1993 executed by the Borrower with respect to the Borrower's real property located in Fairview, North Carolina. as previously reaffirmed and modified (the "North Carolina Property"). 9. Title insurance endorsement, relating to the North Carolina Property and the Borrower's execution and delivery of the Deed of Trust Reaffirmation. /2/ 10. Landlord Waiver with respect to the Division's leased premises located in Mansfield, Ohio. III. CORPORATE DOCUMENTS ------------------- 11. Certificates respectively executed by the Secretary of each of the Borrower, Kilovac, Holdings and CII Mexico (collectively, the "Loan Parties" and each individually a "Loan Party") certifying (i) the name(s), incumbency and true signature(s) of the officer(s) of such Loan Party which are authorized to execute and deliver the Current Financing Agreements to which ______________________ /1/ To be delivered to the Agent and the Lenders on or before September 2, 1996; each novation agreement shall include an amendment adding a no-offset clause (except for those contracts already including such a clause). /2/ To be delivered to the Agent on or before July 15, 1996. -2- such Loan Party is named a signatory and, in the case of each of the Borrower, the Acquisition Agreement, and all other agreements, instruments and agreements to be issued or executed by such Loan Party in connection with and of the foregoing; (ii) the By-laws of such Loan Party as in effect on the date of such certification, (iii) the resolutions adopted by the Board of Directors of such Loan Party approving and authorizing, among other things, the execution and delivery of the documents described in clause (i) above which are being executed and delivered by such Loan Party; and (iv) the currency of such Loan Party's Articles of Incorporation or other comparable charter documents. 12. Articles of Incorporation or other comparable charter documents of each Loan Party certified by such Loan Party's jurisdiction of organization. 13. Certificate of Good Standing of each Loan Party certified by such Loan Party's jurisdiction of organization and by each other jurisdiction in which, by the nature of such Loan Parties' business or properties, requires such Loan Party to qualify as a foreign corporation doing business in such jurisdiction, as more particularly set forth in Schedule I hereto. ---------- IV. LIEN SEARCHES AND FINANCING STATEMENTS -------------------------------------- 14. Pre-filing UCC, tax lien and judgment search reports from Lexis Document Services against the Loan Parties', the Seller's and the Division's names and in the jurisdictions set forth in Schedule 2 hereto. ---------- 15. UCC-1 Financing Statements and UCC-2 Fixture Filings filed against the Loan Parties' names and in the jurisdictions set forth in Schedule 3 hereto. ---------- 16. UCC-3 Statements of Amendment indicating the Holdings' name change from "Communications Instruments Holdings, Inc." to "CII Technologies Inc. " with respect to existing filings in the jurisdictions set forth in Schedule 4 ---------- hereto. 17. Post-filing UCC Lien Search Reports of filings against the names in the jurisdictions described in the two immediately preceding sections. V. OTHER DOCUMENTS --------------- 18. Opinion Letter addressed to the Agent, the Lenders and Sidley & Austin from counsel TO THE LOAN PARTIES: Simpson, Thacher & BARTLETT; IN FORM and substance acceptable to the Agent. 19. Opinion Letter addressed to the Agent, the Lenders and Sidley & Austin from special North Carolina counsel to Borrower: McGuire, Wood & Bissette; in form and substance acceptable to the Agent. -3- 20. Letter from Illinois Corporation Service Company confirming appointment of such entity as Borrower's agent for service of process in the State of Illinois. 21. Notice of Borrowing, executed by Borrower and addressed to Lender, together with disbursement direction and authorization and flow of funds memorandum. 22. Loss payable endorsement in favor of the Agent with respect to the Loan Parties' property and casualty insurance covering the Division's assets, together with a certificate of insurance with respect to such insurance naming the Agent as certificate holder. 23. Certificate of insurance with respect to the general liability insurance coverage the Division naming the Agent as certificate holder and as "additional insured". 24. Consolidated fair salable value balance sheets and GAAP pro forma balance sheets of Borrower and its subsidiaries, and Kilovac and its subsidiaries, in each case after giving effect to consummation of the transactions contemplated by the Acquisition Agreement, and the application of all proceeds thereof (the "Restructuring Transactions"). 25. Consolidated projected financial statements (including cash flow projections) of Loan Parties and their Subsidiaries for the years 1996 through 2001, after giving effect to the Restructuring Transactions. 26. Letter regarding transfer of ownership to the Borrower of the Division's lockbox with the Agent. VI. REAFFIRMATION OF SUBORDINATED DEBT DOCUMENTS -------------------------------------------- 27. Reaffirmation of Subordination executed by CII Associates, L.P., a Delaware limited partnership (the "Partnership"), with respect to (i) the Subordinated Note dated May 11, 1993 executed by Holdings and made payable to the Partnership in the original principal amount of $4,000,000 and (ii) the Subordinated Note dated October 11, 1995 executed by Holdings and made payable to the Partnership in the original principal amount of $2,000,000. 28. Reaffirmation of Subordination executed by each holder of those certain Subordinated Notes dated May 11, 1993 and October 11, 1995 executed by Holdings and made payable to the former shareholders of the Borrower in the aggregate original principal amount of $2,000,000. 29. Reaffirmation of Subordination executed by the Borrower with respect to that certain Subordinated Convertible Demand Note dated as of October 11, 1995 executed by Kilovac and made payable to the Borrower in the original principal amount of $10,000,000. -4- VII. ACQUISITION AND MERGER DOCUMENTS -------------------------------- 30. Acquisition Agreement, together with the disclosure schedules 31. Bills of Sale and Assignment and other title transfer instruments with respect to the transferred property, including, without limitation, with respect to the assigned or novated government contracts/3/ and registered intellectual property. 32. Assumption Agreement with respect to the assumed liabilities under the Acquisition Agreement. 33. Environmental Remediation and Escrow Agreement among the Seller, the Borrower and Bank One Trust Company, N.A., as escrow Agent. 34. Lease Agreement with respect to the Mansfield, Ohio property between the Borrower and Figgie Properties, Inc., a Delaware corporation. 35. Tighe & Bond environmental assessment with respect to the Mansfield, Ohio property. 36. Borrower's and Sellers' closing certificates and opinion letters. 37. General Release Agreement and UCC-3 Partial Release Statements from General Electric Capital Corporation with respect to the "Assets" transferred pursuant to, and as defined in, the Acquisition Agreement. ________________________ /3/ Assignment or novation agreements are to be delivered on or before September 2, 1996. -5- SCHEDULE 1 GOOD STANDING CERTIFICATES Borrower: North Carolina Ohio Texas/4/ Illinois Minnesota New Jersey Kilovac: California Holdings: Delaware CII Mexico: Mexico _____________________ /4/ Includes both foreign qualification of the Borrower under its own name and an assumed name qualification under the name, "Hartman Electrical Manufacturing" (post-closing; application delivered at closing). SCHEDULE 2 LIEN SEARCHES DEBTOR NAMES: Communications Instruments, Inc. Communications Instruments Holdings, Inc. CII Technologies Inc/5/ Midtex Relays Kilovac Corporation UCC JURISDICTIONS: Secretary of State of North Carolina Secretary of State of Texas Secretary of California Register of Deeds of Buncombe County, North Carolina FIXTURE JURISDICTIONS: Register of Deeds of Buncombe County, North Carolina Recorder of Deeds Santa Barbara County, California Recorder of Santa Clara County, California Clerk of El Paso County, Texas TAX LIEN AND JUDGMENT JURISDICTIONS: Secretary of State of North Carolina Secretary of State of Texas Secretary of State of California Superior Court Clerk of Buncombe County, North Carolina Clerk of El Paso County, Texas Recorder of Deeds Santa Barbara County, California Recorder of Santa Clara County, California ___________________ /5/ Searched North Carolina jurisdictions only. SEARCHES RELATING TO THE ACQUISITION (UCC, tax liens and judgments) NAMES: Figgie International Inc. Hartman Electrical Manufacturing JURISDICTIONS: Secretary of State of California/6/ Secretary of State of Ohio Clerk of Lake County, Ohio Clerk of Richfield County, Ohio Recorder of Deeds of Orange County, California/7/ ___________________________ /6/ Post-closing. /7/ Post-closing. -2- SCHEDULE 3 SUPPLEMENTARY UCC- 1 AND UCC-2 FILINGS A. Communications Instruments Inc.: ------------------------------- Secretary of State of Ohio Clerk of Richfield County, Ohio Clerk of Richfield County, Ohio (UCC-2) B. Hartman Electrical Manufacturing (a/k/a Communications Instruments, Inc.): ------------------------------------------------------------------------- Secretary of State of Ohio Clerk of Richfield County, Ohio Clerk of Richfield County, Ohio (UCC-2) C. CII Technologies Inc.: --------------------- Secretary of State of Illinois Secretary of State of North Carolina Secretary of State of Texas Department of State of New York Register of Deeds of Buncombe County, North Carolina Register of Westchester County, New York Secretary of State of Ohio Clerk of Richfield County, Ohio Secretary of State of California SCHEDULE 4 UCC-3 NAME CHANGE AMENDMENTS FOR CII TECHNOLOGIES INC. Secretary of State of Illinois Secretary of State of North Carolina Secretary of State of Texas Department of State of New York Register of Deeds of Buncombe County, North Carolina Register of Westchester County, New York SCHEDULE 10.22 [LETTERHEAD OF COMMUNICATIONS INSTRUMENTS, INC. APPEARS HERE] May 29, 1996 TO: PETER GATES ----------- BANK OF AMERICA ILLINOIS ------------------------ FORM: GARY MCGILL SUBJECT: COVENANTS --------- Attached are covenant calculations for MARCH 31, 1996. PAGE 2 shows net worth numbers are within covenant limits. PAGES 3, 5, AND ------ --------------- 7 show calculations of interest coverage, leverage, and fixed charge coverage - - ratios as defined in the agreement. These schedules show that we are not in compliance with those covenants. PAGES 4, 6 and 8 show calculations of the same ---------------- three covenants with adjustments to Q4-95 relating to remediation expenses of $686K, stock compensation charges of $1.500K and acquisition costs (SAM METTI - ----- ------- CONTRACT) of $725k. ----- We are in compliance with all covenants when these "special" adjustments are considered. Please let me or Dave know if you have any questions. Best Regards, /s/ Gary L. McGill Gary L. McGill Controller /ss petergat. COMMUNICATIONS INSTRUMENTS, INC. ADJUSTMENTS TO BANK COVENANTS (RECORDED AS PER BOOKS) 31-May-96
ASSETS LIABILITIES EQUITY EBIT INT TAXES OTHER ------ ----------- ------ ---- --- ----- ----- STEP-UP-DEPRECIATION - -------------------- 1993 PURCH AJE 18 552.053 552.053 553.053 1996 PURCH AJE 2 1.197.515 1.197.515 1.197.515 1995 THRU AUGUST 884.800 884.800 884.800 SEPT 108.100 108.100 108.100 OCT 108.100 108.100 108.100 NOV 108.100 108.100 108.100 DEC 64.221 64.221 64.221 KILOVAC (24.264) (24.264) (24.264) 01-58 FVM 342.000 342.000 342.000 KILOV (19.000) (19.000) (19.000) AMORTIZATION OF DEBT ISSUANCE COST - ---------------------------------- 1993 PURCH AJE 14 78.210 78.210 78.210 1994 PURCH AJE 16 90.372 90.372 90.372 1995 THRU AUGUST 75.818 75.818 75.818 SEPT 9.502 9.502 9.502 OCT 9.502 9.502 9.502 NOV 9.502 9.502 9.502 DEC 9.502 9.502 9.502 KILOVAC 22.397 22.397 22.397 01-96 FVW 29.806 29.806 29.806 KILOV 25.185 25.185 25.185 AMORTIZATION OF GOODWILL - ------------------------ 1993 PURCH AJE 18 27.549 27.549 27.549 1994 PURCH AJE 17 25.578 25.578 25.578 1995 THRU AUGUST 15.928 15.928 15.928 SEPT 1.991 1.991 1.991 OCT 1.991 1.991 1.991 NOV 1.991 1.991 1.991 DEC 1.991 1.991 1.991 KILOVAC 52.549 52.549 52.549 01-96 FVW 5.973 5.973 5.973 KILOVAC 58.043 58.043 58.043 NON COMPLETE AGREEMENTS - ----------------------- 1993 72.675 72.675 72.675 1994 132.283 132.283 132.283 1995 THRU AUGUST 111.392 111.392 111.392 SEPT 9.757 9.757 9.757 OCT 9.757 9.757 9.757 NOV 9.757 9.757 9.757 DEC (7.664) (7.664) (7.664) 01-95 FVW 28.999 28.999 28.999 LICENSING AGREEMENTS - -------------------- 1993 12.750 12.750 12.750 1994 18.715 18.715 18.715 1995 10.000 10.000 10.000 PATENTS TRADEMARKS & ORG EXP - ---------------------------- 1995 KILOVAC 24.183 24.183 24.183 01-95 KILOVAC 27.172 27.172 27.172 SUCCESS FEE - ----------- 1993 1994 AUO AJE 21 (48.500) 48.500 48.500 1995 (340.000) 340.000 340.000 01-96 FVW (30.000) 30.000 30.000 BUSINESS DEVELOPMENT-ORUSTSCH & H??? - ------------------------------------ 1994 21.643 21.643 21.643 1995 THRU AUGUST 1,015,509 1,015,509 1,015,509 SEPT 117,649 117,649 117,649 OCT 88,842 88,842 88,842 NOV 85,449 85,449 85,449 DEC 27,409 27,409 27,409 INVENTORY WRITE-UP AND WRITE-OFF - -------------------------------- GII-PURCH AJE 7 986,358 986,358 986,358 KILOVAC 189,000 189,000 189,000 RECLASSIFY BALANCE IN DEFERRED INCOME - ------------------------------------- TAX LIABILITY TO ASSETS (3,519,588) (3,519,588) - ----------------------- TAX (INCOME)/EXPENSE FOR ABOVE - ------------------------------ 38.5% TAX RATE (2,837,457) (2,837,457) (2,837,457) BTF 88-18 - --------- BEG BAL ADJ.PURCH AJE 10 843,040 843,040 843,040 ADJUSTMENTS FROM BOOKS TO BANK - ------------------------------ COVENANTS 1339,513 (4035,389) 5276,502 8597,345 777,674 (2,837,457) 843,040 --------- ======== ======== ======== ======== ======= ========== =======
COMMUNICATIONS INSTRUMENTS, INC. BANK COVENANTS MARCH 96 in (000's)
ADJUSTMENTS TO BALANCE SHEET ASSETS PER INTERIM FINANCIAL STATEMENT 50,026 ADJUSTMENTS 1,340 ----- ASSETS FOR COVENANT CALCULATION 51,366 - ------------------------------------ ------ LIABILITIES PER INTERIM FINANCIAL STATEMENT 39,454 ADJUSTMENTS (4,036) ------- LIABILITIES FOR COVENANT CALCULATION 35,418 - ----------------------------------------- ------ EQUITY PER INTERIM FINANCIAL STATEMENT 10,572 ADJUSTMENTS 5,376 ----- EQUITY FOR COVENANT CALCULATION 15,948 ------------------------------- ------ NET WORTH ADJUSTED ASSETS 51,365 LESS: ADJUSTED LIABILITIES 35,418 ------ CALCULATED NET WORTH 15,948 ------ MINIMUM NET WORTH 14,000 ------
COMMUNICATIONS INSTRUMENTS, INC. BANK COVENANTS MARCH 1996 in (000's) INTEREST COVERAGE RATIO
Q2-95 Q3-95 Q4-95 Q1-96 TOTAL ----- ----- ----- ----- ----- NET INCOME 193 175 -2128 308 -1452 ADJUSTMENTS: - ------------ ADD: AMORTIZATION 58 51 91 121 321 DEPRECIATION 529 536 595 601 2261 INTEREST 429 421 1088 670 2606 TAXES 164 79 -1052 210 -599 MINORITY INTEREST 0 0 35 16 51 KILOVAC ADD'L COS 0 0 189 0 189 BUSS DEV-HI-G & DRI 349 221 202 0 772 LESS: CAPITAL EXPENDITURES 679 153 121 380 1333 --- --- --- --- ---- ADJUSTED INCOME 1,043 1,330 (1,103) 1,546 2,816 ----- ----- ------- ----- ----- INTEREST EXPENSE 429 421 1,086 670 2,606 LESS: SUCCESS FEE 0 0 340 30 370 DEBT ISSUANCE 29 29 51 54 163 -- -- -- -- --- ADJUSTED INTEREST 400 392 695 586 2,073 --- --- --- --- ----- INTEREST COVERAGE RATIO 2.61 3.39 (1.59) 2.64 MINIMUM REQUIRED RATIO
COMMUNICATIONS INSTRUMENTS, INC. BANK COVENANTS (WITH ADJ) MARCH 1996 in (000's) INTEREST COVERAGE RATIO
Q2-95 Q3-95 Q4-95 Q1-96 TOTAL ----- ----- ----- ----- ----- NET INCOME 193 175 -2128 308 -1452 ADJUSTMENTS: - ------------ ADD: AMORTIZATION 58 51 91 121 321 DEPRECIATION 529 536 595 601 2261 INTEREST 429 421 1086 670 2606 TAXES 164 79 -1052 210 -599 MINORITY INTEREST 0 0 35 16 51 KILOVAC ADD'L COS 189 189 BUSS DEV HI-G & DRI 349 221 202 772 REMEDIATION EXPENSE 951 951 STOCK COMPENSATION 1300 1300 ACQ. COSTS(METTI) 725 725 LESS: CAPITAL EXPENDITURES 679 153 121 380 1333 --- --- --- --- ---- ADJUSTED INCOME 1,043 1,330 1,873 1,546 5,792 ----- ----- ----- ----- ----- INTEREST EXPENSE 429 421 1,086 670 2,606 LESS: SUCCESS FEE 0 0 340 30 370 DEBT ISSUANCE 29 29 51 54 163 -- -- -- -- --- ADJUSTED INTEREST 400 392 695 586 2,073 --- --- --- --- ----- INTEREST COVERAGE RATIO 2.61 3.39 2 69 2.64 2.79 MINIMUM REQUIRED RATIO 2.50 ----
COMMUNICATIONS INSTRUMENTS, INC BANK COVENANTS MARCH 1996 in(000's) LEVERAGE RATIO OUTSTANDING PRINCIPLE BALANCE 22,708 ------ ADJUSTED EARNINGS 2,816 ----- LEVERAGE RATIO MAXIMUM ALLOWED RATIO
COMMUNICATIONS INSTRUMENTS, INC BANK COVENANTS (WITH ADJ) MARCH 1996 in(000's) LEVERAGE RATIO OUTSTANDING PRINCIPLE BALANCE 22,708 ------ ADJUSTED EARNINGS 5,792 ----- LEVERAGE RATIO 3.9 MAXIMUM ALLOWED RATIO 4.5
COMMUNICATIONS INSTRUMENTS, INC. BANK COVENANTS MARCH 1996 in(000's) FIXED CHARGE COVERAGE RATIO
Q2-95 Q3-95 Q4-95 Q1-96 TOTAL ----- ----- ----- ----- ----- ADJUSTED INCOME 1043 1330 -1103 1546 2816 PRINCIPLE PAYMENTS 400 400 133 750 1683 INTEREST EXPENSE 400 392 695 586 2073 --- --- --- ---- TOTAL 800 792 828 1336 3756 FIXED CHARGE RATIO 1.30 1.68 (1.33) 1.16 MINIMUM ALLOWED RATIO
COMMUNICATIONS INSTRUMENTS, INC. BANK COVENANTS (WITH ADJ) MARCH 1996 in(000's) FIXED CHARGE COVERAGE RATIO
Q2-95 Q3-95 Q4-95 Q1-96 TOTAL ----- ----- ----- ----- ----- ADJUSTED INCOME 1043 1330 1873 1546 5792 ---- ---- ---- ---- ---- PRINCIPLE PAYMENTS 400 400 133 750 1683 INTEREST EXPENSE 400 392 695 586 2073 --- --- --- --- ---- TOTAL 800 792 828 1336 3756 --- --- --- ---- ---- FIXED CHARGE RATIO 1.30 1.68 2.26 1.16 1.54 MINIMUM ALLOWED RATIO 1.10
EX-10.12 11 ASSET PURCHASE AGREEMENT Exhibit 10.12 ASSET PURCHASE AGREEMENT BY AND BETWEEN FIGGIE INTERNATIONAL INC. AND COMMUNICATIONS INSTRUMENTS, INC. RELATING TO THE ACQUISITION OF SUBSTANTIALLY ALL THE ASSETS OF HARTMAN ELECTRICAL MANUFACTURING DATED AS OF JUNE 27, 1996 TABLE OF CONTENTS
SECTION HEADING PAGE NO. - --------------- -------- ARTICLE I - PURCHASE AND SALE............................................. 1 1.1 Sale and Purchase of Assets....................................... 1 1.2 Purchase Price.................................................... 3 1.3 Allocation of Purchase Price...................................... 3 1.4 Assumption of Liabilities......................................... 4 ARTICLE II - CLOSING, ITEMS TO BE DELIVERED, FURTHER ASSURANCES AND THIRD PARTY CONSENTS.................................... 5 2.1 Closing........................................................... 5 2.2 Items to be Delivered at Closing.................................. 5 2.3 Further Assurances............................................... 10 2.4 Third Party Consents............................................. 10 2.5 Accounting Systems............................................... 11 ARTICLE III - REPRESENTATIONS AND WARRANTIES............................. 11 3.1 Representations and Warranties of Seller......................... 11 3.1.1 Corporate Existence.................................... 11 3.1.2 Corporate Power; Enforceable Obligations............... 12 3.1.3 No Violation........................................... 12 3.1.4 No Consent Required.................................... 12 3.1.5 Balance Sheet.......................................... 12 3.1.6 Title to Assets........................................ 13 3.1.7 Absence of Changes..................................... 13 3.1.8 Leases................................................. 13 3.1.9 Litigation............................................. 13 3.1.10 Licenses and Permits................................... 14 3.1.11 Material Agreements.................................... 14 3.1.12 Compliance with Laws; Etc.............................. 15 3.1.13 Employee Benefit Plans................................. 16 3.1.14 Brokerage.............................................. 16 3.1.15 Government Contracts................................... 16 3.1.16 Inventory.............................................. 17 3.1.17 Accounts Receivable.................................... 17 3.1.18 Ordinary Course........................................ 17 3.2 Representations and Warranties of Buyer.......................... 17 3.2.1 Corporate Existence.................................... 17 3.2.2 Corporate Power; Enforceable Obligations............... 17 3.2.3 No Violation........................................... 18
-i- 3.2.4 No Consent Required..................................... 18 3.2.5 Brokerage............................................... 18 3.2.6 No Knowledge of Breach.................................. 18 3.2.7 No Involvement in Business.............................. 19 3.3 No Other Warranties.............................................. 19 3.4 Survival of Representations and Warranties....................... 19 ARTICLE IV - COVENANTS PENDING CLOSING................................... 19 4.1 Agreements of Seller............................................. 19 4.1.1 Business in the Ordinary Course........................... 19 4.1.2 Preservation of Assets.................................... 20 4.1.3 Employees and Business Relations.......................... 20 4.1.4 Consents and Approvals.................................... 20 4.1.5 No Negotiations........................................... 20 4.1.6 Access.................................................... 20 4.1.7 Best Efforts.............................................. 21 4.1.8 Environmental Matters..................................... 21 4.2 Agreements of Buyer.............................................. 22 4.2.1 Articles of Incorporation and By-laws..................... 22 4.2.2 Consents and Approvals.................................... 22 4.2.3 Best Efforts.............................................. 22 ARTICLE V - OTHER AGREEMENTS............................................. 22 5.1 Confidentiality.................................................. 22 5.2 Financing........................................................ 22 5.3 Investigation and Evaluation..................................... 23 5.4 Forecasts; Projections; Etc...................................... 23 5.5 Employment of Employees.......................................... 24 5.6 Publicity........................................................ 24 5.7 Access........................................................... 24 5.8 Product Recall; Jetstream Warranty Work.......................... 25 5.9 No Union Agreements.............................................. 26 5.10 Cooperation..................................................... 27 5.11 Equipment Lease................................................. 29 ARTICLE VI - CONDITIONS PRECEDENT TO THE CLOSING......................... 29 6.1 Conditions Precedent of Buyer.................................... 29 6.1.1 Representations and Warranties True on Closing Date....... 29 6.1.2 Performance by Seller..................................... 30 6.1.3 Injunction................................................ 30 6.2 Conditions Precedent of Seller................................... 31 6.2.1 Representations and Warranties True on Closing Date....... 31 6.2.2 Performance by Buyer...................................... 31 ................................................................ 31
-ii- 6.2.3 Injunction................................................ 31 ARTICLE VII - INDEMNIFICATION............................................. 32 7.1 Indemnification.................................................. 32 7.2 Third Party Claims............................................... 34 7.3 Exclusivity...................................................... 35 ARTICLE VIII - MISCELLANEOUS............................................. 35 8.1 Termination...................................................... 35 8.2 Effect of Termination............................................ 35 8.3 Sales, Transfer and Documentary Taxes; Etc....................... 37 8.4 Expenses......................................................... 37 8.5 Bulk Sales Laws.................................................. 37 8.6 Contents of Agreement; Amendment................................. 37 8.7 No Assignment.................................................... 37 8.8 Waiver........................................................... 38 8.9 Notices.......................................................... 38 8.10 Ohio Law to Govern.............................................. 39 8.11 No Benefit to Others............................................ 39 8.12 Headings........................................................ 40 8.13 Schedules and Exhibits.......................................... 40 8.14 Severability.................................................... 40 8.15 Counterparts.................................................... 40 8.16 Dispute Resolution.............................................. 40
-iii- ASSET PURCHASE AGREEMENT ------------------------ THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as of the 27th day of June, 1996, by and between Figgie International Inc., a Delaware corporation ("Seller"), and Communications Instruments, Inc., a North Carolina corporation ("Buyer"). Seller is in the business of manufacturing high current electromechanical relays for applications in military and commercial aerospace markets (the "Business") through its Hartman Electrical Manufacturing division (the "Division"). Seller desires to sell and Buyer desires to purchase substantially all of the assets used solely in the conduct of the Business pursuant to the terms and conditions of this Agreement for the purchase price provided herein. NOW, THEREFORE, in consideration of the premises and of the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I - PURCHASE AND SALE 1.1 Sale and Purchase of Assets. At the Closing described in Section --------------------------- 2.1, Seller will grant, sell, assign and transfer to Buyer, and Buyer will purchase and accept from Seller, upon and subject to the terms and conditions of this Agreement: (a) all of Seller's right, title and interest in and to all of the personal assets, properties and rights of Seller used solely in the conduct of the Business of every kind and description, tangible and intangible, wherever situated, including without limitation: (i) all accounts receivable, prepaid expenses, machinery, equipment, inventory, work-in-process, office furniture, computer software and hardware, tools, dies, maintenance and other supplies, stationery, catalogs, product literature and books and records of Seller used solely in the conduct of the Business, (ii) those personal assets and properties reflected on the May Balance Sheet (as defined in Section 3.1.5), with only such changes therein as shall have occurred since May 31, 1996 in the regular and ordinary course of the Business consistent with past practice, (iii) all patents, trademarks and other proprietary rights of Seller used solely in the conduct of the Business and the goodwill associated therewith, (iv) all rights of Seller to the Hartman Electrical Manufacturing name and derivatives thereof, and (v) all rights of Seller under all agreements, contracts, purchase orders, commitments, leases (including without limitation operating leases with respect to various items of machinery, equipment and tooling), designs, plans, drawings, bids, quotations, proposals, licenses, permits, authorizations, instruments and other documents relating solely to the conduct of the Business, and (b) the Business as a going concern and its goodwill. The assets, properties, rights and Business being sold hereunder are herein sometimes collectively called the "Assets." Notwithstanding the foregoing, the Assets do not include (w) the corporate seal, certificate of incorporation, minute books, stock books, tax returns or other records having to do with the corporate organization of Seller, (x) the rights which accrue or will accrue to Seller under this Agreement, (y) any assets, properties or rights that do not solely relate to the -2- conduct of the Business or (z) the assets, properties or rights listed on Exhibit A (the foregoing collectively, the "Excluded Assets"). 1.2 Purchase Price. The purchase price to be paid at the Closing by -------------- Buyer to Seller for the Assets shall be $12,000,000 (the "Purchase Price"), payable in cash as follows: (a) The $50,000 deposit paid by Buyer to Seller on May 24, 1996 (the "Deposit") shall be applied by Seller to the Purchase Price, (b) $11,435,000 shall be delivered to Wilmington Trust, Wilmington, Delaware by wire transfer of immediately available funds for credit to Seller's account, Account No. 23177-5, at such bank, and (c) $515,000 shall be delivered by wire transfer of immediately available funds to the escrow agent (the "Escrow Agent") designated in an environmental remediation and escrow agreement to be entered into at the Closing in substantially the form of Exhibit B (the "Escrow Agreement") among Seller, Buyer and the Escrow Agent, and shall be held and disbursed by the Escrow Agent in accordance with the Escrow Agreement. 1.3 Allocation of Purchase Price. After the Closing the parties ---------------------------- shall allocate the Purchase Price and the Assumed Liabilities (as defined in Section 1.4(a)) among the Assets to be acquired hereunder. Neither Buyer nor Seller shall take a position on any income tax return, before any governmental agency charged with the collection of any income tax or in any judicial proceeding that is in any way inconsistent with such allocation. If Buyer and Seller cannot agree on a mutually acceptable allocation of the Purchase Price and the Assumed Liabilities among the Assets, Buyer and Seller shall each determine such allocation in the manner it considers appropriate. Buyer and Seller each agree to prepare and file Internal Revenue Service Form 8594 -3- in a timely fashion in accordance with the rules under section 1060 of the Internal Revenue Code of 1986, as amended. 1.4 Assumption of Liabilities. ------------------------- (a) At the Closing, Buyer shall assume and agree to pay, discharge or perform, as appropriate, the following liabilities and obligations of Seller in respect of the Business: (i) all liabilities and obligations of Seller of the type reflected on the May Balance Sheet (as defined in Section 3.1.5), (ii) all liabilities and obligations of Seller of a commercial nature arising in the ordinary course of its business between May 31, 1996 and the Closing Date (as defined in Section 2.1), (iii) the agreements, contracts, customer purchase orders, commitments, leases, designs, plans, drawings, bids, quotations, proposals, licenses, permits, authorizations, instruments and other documents included in the Assets, (iv) warranty and service claims (including without limitation product recalls), and (v) those liabilities set forth in Section 5.5. The liabilities and obligations to be assumed by Buyer at the Closing are herein sometimes collectively called the "Assumed Liabilities." Notwithstanding the foregoing, the Assumed Liabilities do not include any liabilities or obligations in respect of (s) part numbers A2104 and A2105 (and all revisions thereto prior to Closing) sold by the Division to Allied Signal ("Allied Signal") for delivery to Jetstream Aircraft Limited ("Jetstream"), (t) Seller other than those referred to in clauses (i)-(vi) above, (u) the Excluded Assets, (v) any intercompany liabilities and -4- obligations for taxes or professional fees, (w) any product liability claims pending or which may be filed after the Closing Date relating to any product manufactured and shipped before the Closing Date, (x) any claim by any employee of the Division whose employment was or is terminated prior to the Closing Date, (y) any claim by any employee of the Division on the Closing Date except for claims which relate to liabilities assumed pursuant to Sections 1.4(a)(i), 1.4(a)(ii) and 5.5, or (z) any of the items listed on Exhibit C (the foregoing collectively, the "Excluded Liabilities"). (b) After the Closing, Seller will remain responsible for, and shall indemnify Buyer for, the Excluded Liabilities. Except as specifically provided in Section 1.4(a), Buyer shall not assume or be responsible for any liabilities or obligations of Seller of any nature whatsoever. ARTICLE II - CLOSING, ITEMS TO BE DELIVERED, FURTHER ASSURANCES AND THIRD PARTY CONSENTS 2.1 Closing. Subject to the termination rights set forth in Section ------- 8.1, the closing (the "Closing") of the sale and purchase of the Assets shall take place at the offices of Benesch Friedlander Coplan & Aronoff, 2300 BP America Building, 200 Public Square, Cleveland, Ohio 44114-2378 commencing at 10:00 A.M., local time, on July 3, 1996, or at such other date, time or place as may be agreed upon in writing by the parties hereto. The date of the Closing is sometimes herein referred to as the "Closing Date." 2.2 Items to be Delivered at Closing. At the Closing: -------------------------------- (a) Seller shall deliver to Buyer the following: (i) a duly executed Bill of Sale and Assignment in substantially the form of Exhibit D, -5- (ii) a duly executed Lease Agreement in substantially the form of Exhibit E (the "Lease") regarding the Division's Mansfield, Ohio facility (the "Mansfield Facility"), (iii) a duly executed Escrow Agreement, (iv) a certificate of the President or a Vice President of Seller, dated the Closing Date, certifying that (A) the representations and warranties of Seller contained in this Agreement or in any certificate or document delivered by Seller to Buyer pursuant to the provisions hereof are in all material respects true with the same effect as though such representations and warranties were made as of such date except for changes contemplated or permitted by this Agreement and (B) Seller has performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by Seller prior to or at the Closing, (v) an opinion dated the Closing Date of Seller's General Counsel to the effect that: (A) Seller has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby to be performed by it, including without limitation to transfer title to the Assets to Buyer, (B) this Agreement has been duly authorized, executed and delivered by Seller and is the legal, valid and binding obligation of Seller, except as may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws affecting the enforcement of creditors' rights in general, -6- and except that the enforceability of the Agreement is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and (C) all consents, approvals and authorizations of regulatory authorities and governmental agencies required in connection with the execution and delivery by Seller of this Agreement and the consummation by Seller of the transactions contemplated hereby to be performed by it have been obtained. In rendering such opinion, such General Counsel may rely (1) as to factual matters upon certificates and other documents furnished by Seller, by officers or directors of Seller or by governmental officials and (2) upon such other documents and information as such counsel may deem appropriate and reasonable as a basis for such opinion. Such opinion may also be limited to the laws of the state of Ohio, the federal laws of the United States and the General Corporation Law of the state of Delaware, (vi) a copy of Seller's certificate of incorporation and all amendments thereto, certified to be complete and correct on the Closing Date by the Secretary or an Assistant Secretary of Seller, (vii) an incumbency certificate for Seller dated the Closing Date, including specimen signatures, (viii) a copy of the resolution adopted by Seller's board of directors relating to the transactions contemplated by this Agreement, certified on the Closing Date to be complete and correct by the Secretary or an Assistant Secretary of Seller, and -7- (ix) an unaudited balance sheet of the Division dated as of June 30, 1996 (the "June Balance Sheet"). (b) Buyer will deliver to Seller the following: (i) $11,950,000 cash by wire transfers of immediately available funds as provided in Sections 1.2(b) and 1.2(c), (ii) a duly executed Assumption Agreement in substantially the form of Exhibit F, (iii) a duly executed Lease, (iv) a duly executed Escrow Agreement, (v) a certificate of the President or a Vice President of Buyer, dated the Closing Date, certifying that (A) the representations and warranties of Buyer contained in this Agreement or in any certificate or document delivered by Buyer to Seller pursuant to the provisions hereof are in all material respects true with the same effect as though such representations and warranties were made as of such date except for changes contemplated or permitted by this Agreement and (B) Buyer has performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by Buyer prior to or at the Closing, (vi) an opinion dated the Closing Date of one or more counsel to Buyer, to the effect that: (A) Buyer has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby to be performed by it, -8- (B) this Agreement has been duly authorized, executed and delivered by Buyer and is the legal, valid and binding obligation of Buyer, except as may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws affecting the enforcement of creditors' rights in general, and except that the enforceability of the Agreement is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and (C) All consents, approvals and authorizations of regulatory authorities and governmental agencies required in connection with the execution and delivery by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby to be performed by it have been obtained. In rendering such opinion, such special counsel may rely (1) as to factual matters upon certificates and other documents furnished by Buyer, by officers or directors of Buyer or by governmental officials and (2) upon such other documents and information as such counsel may deem appropriate and reasonable as a basis for such opinion. Such opinion may also be limited to the laws of the states of Ohio and North Carolina, the federal laws of the United States and the General Corporation Law of the state of Delaware, (vii) a copy of Buyer's articles of incorporation and all amendments thereto, certified to be complete and correct on the Closing Date by the Secretary or an Assistant Secretary of Buyer, -9- (viii) an incumbency certificate for Buyer dated the Closing Date, including specimen signatures, (ix) a copy of all resolutions adopted by Buyer's board of directors relating to the transactions contemplated by this Agreement, certified on the Closing Date to be complete and correct by the Secretary or an Assistant Secretary of Buyer and (x) an Ohio sales tax resale certificate. 2.3 Further Assurances. Seller from time to time after the Closing, ------------------ at Buyer's request and expense, will execute, acknowledge and deliver to Buyer such other instruments of conveyance and transfer and will take such other actions and execute and deliver such other documents, certifications and further assurances as Buyer may reasonably request in order to vest more effectively in Buyer, or to put Buyer more fully in possession of, any of the Assets, or to better enable Buyer to pay, perform or discharge any of the Assumed Liabilities. 2.4 Third Party Consents. To the extent that Seller's rights under -------------------- any agreement, contract, purchase order, commitment, lease, plan, drawing, bid, quotation, proposal, license, permit, authorization, instrument or other similar Asset to be assigned to Buyer hereunder may not be assigned without the consent of another person which has not been obtained, neither this Agreement, the Bill of Sale, nor any other instrument or document delivered by Seller at the Closing shall constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful. If any such consent shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer's rights under the instrument in question so that Buyer would not in effect acquire the benefit of all such rights, Seller, to the maximum extent permitted by law and the instrument, shall act as Buyer's agent in order to -10- obtain for it the benefits thereunder and shall cooperate, to the maximum extent permitted by law and the instrument, with Buyer in any other reasonable arrangement designed to provide such benefits to Buyer, in each case at Buyer's expense. 2.5 Accounting Systems. Buyer and Seller agree that, effective as of the ------------------ Closing, the accounting systems of the Division shall be transferred from Seller to Buyer as of 12:00 midnight, June 30, 1996. ARTICLE III - REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Seller. For purposes of this ---------------------------------------- Section 3.1 and, to the extent applicable, any other portion of this Agreement, "knowledge of Seller" or "best knowledge of Seller" and each phrase having equivalent meaning (e.g., "known to Seller") shall be conclusively deemed to be only the conscious awareness of facts or other information of Steven L. Siemborski, James R. Mikesell or Joseph R. Murach after having made reasonable inquiry of senior management of the Division, but without such persons being obligated or deemed obligated to conduct or to have conducted any special investigation or other inquiry into the affairs or business of Seller. Seller shall not be deemed to have knowledge, actual, constructive or otherwise, of any fact, circumstance or occurrence known (or deemed to be known) to any person other than as set forth in the preceding sentence. Seller hereby represents and warrants to Buyer as follows: 3.1.1 Corporate Existence. Seller is a corporation duly organized, ------------------- validly existing and, except as set forth in Schedule 3.1.1, in good standing under the laws of the state of Delaware. Seller is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the character of the properties owned or leased by it or the nature of -11- the business transacted by it requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a material and adverse effect on the Assets or the Business. 3.1.2 Corporate Power; Enforceable Obligations. Seller has all ---------------------------------------- requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby to be performed by it. This Agreement has been duly authorized, executed and delivered by Seller and is the legal, valid and binding obligation of Seller, except as may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws affecting the enforcement of creditors' rights in general, and except that the enforceability of the Agreement is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.1.3 No Violation. The execution, delivery and performance of this ------------ Agreement by Seller do not violate (a) any law, rule or regulation to which Seller is subject, (b) any judgment, order or injunction binding upon Seller or (c) the certificate of incorporation or by-laws of Seller or any securities issued by Seller. 3.1.4 No Consent Required. Except as set forth in Schedule 3.1.4, no ------------------- consent, approval or authorization of any regulatory authority or governmental agency is required in connection with the execution and delivery by Seller of this Agreement or the consummation by Seller of the transactions contemplated hereby to be performed by it. 3.1.5 Balance Sheet. Seller has delivered to Buyer and Schedule ------------- 3.1.5 contains an unaudited balance sheet of the Division as of May 31, 1996 (the "May Balance Sheet"). Except as may otherwise be indicated therein or in Schedule 3.1.5, the May Balance Sheet has -12- been derived from the books and records of the Division and fairly presents in all material respects the assets and liabilities of the Division as of the date thereof in accordance with the accounting practices used by the Division. 3.1.6 Title to Assets. Seller has good, valid and marketable title --------------- to all of the Assets, free and clear of liens, pledges, security interests and other encumbrances of every kind, except for (a) those items set forth in Schedule 3.1.6, (b) liens for taxes and assessments not yet delinquent, (c) liens for taxes, assessments and other charges, if any, the validity of which Seller is contesting in good faith by appropriate action (all of which are listed on Schedule 3.1.6), (d) liens of employees and laborers for current wages not yet due and (e) restrictions not materially affecting the present use of the Assets. Seller has previously delivered to Buyer a list of substantially all of the fixed assets of the Division as of the date thereof. 3.1.7 Absence of Changes. Except as set forth in Schedule 3.1.7, ------------------ since May 31, 1996, there has not been, occurred or arisen any material and adverse change in the Assets or the Business. 3.1.8 Leases. Each lease of personal property included in the Assets ------ to which Seller is a party as lessee is identified in Schedule 3.1.8 and is in full force and effect; and true and correct copies of all such leases have been provided to or made available to Buyer. In the case of each such lease, there is no existing material default or material event of default by Seller as lessee, nor does there exist any event or condition which, with notice or lapse of time or both, would constitute a material default or material event of default by Seller as lessee. 3.1.9 Litigation. Except as set forth in Schedule 3.1.9, there is no ---------- litigation, arbitration, investigation or other proceeding of or before any court, arbitrator or governmental, -13- regulatory or administrative official, body or authority pending, or to the knowledge of Seller threatened, which would have a material and adverse effect on the Assets or the Business. 3.1.10 Licenses and Permits. Seller has all material licenses, -------------------- permits and other governmental authorizations and approvals required for the operation of the Business and the use of the Assets as currently operated and used, except where the failure to have such licenses and permits would not have a material and adverse effect on the Assets or the Business. 3.1.11 Material Agreements. Schedules 3.1.8 and 3.1.11 contain a ------------------- complete and correct list, as of the date of this Agreement, of all written agreements included in the Assets of the following types: (a) employment contracts involving annual compensation in excess of $100,000 with respect to any employee, (b) collective bargaining agreements, (c) loan agreements, notes, mortgages, indentures, security agreements and other agreements and instruments relating to the borrowing of money by the Division, (d) material franchise or license agreements between the Division and any person, other than agency, sales representative and distributorship agreements and usage licenses granted in connection with the sale of the Division's products or the conduct of the Business entered into in the ordinary course of business, (e) partnership or joint venture agreements of any kind, (f) purchase orders and other agreements to supply products of the Division involving in any one case in excess of $100,000, and -14- (g) other agreements requiring payments by the Division in excess of $100,000 during the remainder of any of their terms. To the best knowledge of Seller, all of the agreements referred to in Schedule 3.1.11 are legally binding and in full force and effect; and true and correct copies of all such agreements have been provided to or made available to Buyer. In the case of each such agreement, except as set forth in Schedule 3.1.11 (i) there is no existing material default or material event of default by Seller nor (ii) does there exist any event or condition which, with notice or lapse of time or both, would constitute a material default or material event of default by Seller. Except as set forth in Schedule 3.1.8 or Schedule 3.1.11 hereto, no consent of any party to the consummation of the transactions contemplated by this Agreement is required under any of the agreements listed on such Schedules, except for such consents the failure of which to obtain would not have a material adverse effect on the Assets or the Business. 3.1.12 Compliance with Laws; Etc. Except as set forth in Schedule -------------------------- 3.1.12, Seller in the conduct of the Business is not in violation of, and has not received any written notice claiming that it is in violation of, (a) any term of its certificate of incorporation or by-laws, (b) to the best knowledge of Seller, any material agreement, contract, purchase order, commitment, lease, plan, drawing, bid, quotation, proposal, license, permit, authorization, instrument or other agreement included in the Assets, where in any of such cases violation thereof would have a material and adverse effect on the Assets or the Business, or (c) any judgment, order, ruling, law or governmental regulations applicable to the Business or any of the Assets, where in any of such cases violation thereof would have a material and adverse effect on the Assets or the Business. -15- 3.1.13 Employee Benefit Plans. Except as listed on Schedule 3.1.13, ---------------------- Seller in the conduct of the Business does not sponsor, maintain or support, nor is it otherwise a party to or have any liability under, any plan, fund, policy, program, contract, arrangement, understanding or commitment, whether qualified or not qualified for federal income tax purposes, whether formal or informal, whether for the benefit of a single individual or more than one individual, which is in the nature of (a) an "employee pension plan" (as defined in section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (b) an "employee welfare benefit plan" (as defined in section 3(1) of ERISA) or (c) an incentive, current or deferred compensation, or other benefit or compensation arrangement for employees, former employees, their dependents or their beneficiaries (each such plan and arrangement, a "Benefit Plan"). 3.1.14 Brokerage. No broker or finder has acted directly or --------- indirectly for Seller in connection with this Agreement or the transactions contemplated hereby, and no broker or finder is entitled to any brokerage or finder's fee or other commission in respect thereof based in any way on agreements, arrangements or understandings made by or, to the knowledge of Seller, on behalf of Seller, except for Carleton, McCreary, Holmes & Co. whose fees for services in connection with this transaction will be paid by Seller. 3.1.15 Government Contracts. Seller is not in material default under -------------------- any government contract or subcontract to which Seller is a party. To the best of Seller's knowledge, all of Seller's government contracts and subcontracts are valid and enforceable and there are no outstanding claims by the government or any prime contractors against Seller under such contracts. To the best of Seller's knowledge, there are no facts or conditions under Seller's -16- control that would prevent these contracts and subcontracts from being novated or assigned to Buyer, as appropriate. 3.1.16 Inventory. All inventory of Seller reflected on the May --------- Balance Sheet, and all inventory of Seller acquired since the date thereof, was acquired and has been maintained in accordance with the regular business practices of Seller, and with the exception of certain items contained within the inventory that may not be useable or saleable in the future conduct of the Business, consists of items useable or saleable in the ordinary course of business of Seller consistent with past practice. The quantities reflected in the perpetual inventory of the Division are substantially correct in all material respects, and the standard costs set forth therein for such items generally reflect historical material costs thereof and are generally based on current labor and overhead rates of the Division. 3.1.17 Accounts Receivable. All accounts receivable reflected on the ------------------- May Balance Sheet, and all accounts receivable arising subsequent to May 31, 1996 have arisen in the ordinary course of business consistent with past practice. 3.1.18 Ordinary Course. Since May 31, 1996, the Business has been --------------- conducted in the ordinary course consistent with past practice. 3.2 Representations and Warranties of Buyer. Buyer hereby represents --------------------------------------- and warrants to Seller as follows: 3.2.1 Corporate Existence. Buyer is a corporation duly organized, ------------------- validly existing and in good standing under the laws of the state of North Carolina. 3.2.2 Corporate Power; Enforceable Obligations. Buyer has all ---------------------------------------- requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions -17- contemplated hereby to be performed by it. This Agreement has been duly authorized, executed and delivered by Buyer and is the legal, valid and binding obligation of Buyer, except as may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws affecting the enforcement of creditors' rights in general, and except that the enforceability of the Agreement is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.2.3 No Violation. The execution, delivery and performance of this ------------ Agreement by Buyer do not violate (a) any law, rule or regulation to which Buyer is subject, (b) any judgment, order or injunction binding upon Buyer or (c) the articles of incorporation or by-laws of Buyer or any securities issued by Buyer. 3.2.4 No Consent Required. Except as set forth in Schedule 3.2.4, no ------------------- consent, approval or authorization of any regulatory authority or governmental agency is required in connection with the execution and delivery by Buyer of this Agreement or the consummation by Buyer of the transactions contemplated hereby to be performed by it. 3.2.5 Brokerage. Except for Naylor Capital Corporation, the fees of --------- which are the sole responsibility of Buyer, no broker or finder has acted directly or indirectly for Buyer in connection with this Agreement or the transactions contemplated hereby, and no broker or finder is entitled to any brokerage or finder's fee or other commission in respect thereof based in any way on agreements, arrangements or understandings made by or, to the knowledge of Buyer, on behalf of the Buyer. 3.2.6 No Knowledge of Breach. Except as disclosed on Schedule 3.2.6, ---------------------- neither Buyer nor its counsel, accountants or other representatives are aware of any misrepresentation or -18- breach of warranty, or any basis therefor, by Seller in connection with the transactions contemplated by this Agreement. 3.2.7 No Involvement in Business. Prior to the Closing, Buyer has -------------------------- not and will not exercise any control or have any right, responsibility or involvement with the operation of Seller's Mansfield operations, its employees or the direction of its employees. 3.3 No Other Warranties. EXCEPT AS OTHERWISE PROVIDED IN SECTIONS ------------------- 3.1 AND 3.2, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES THAT APPLY TO BUYER, SELLER, THE DIVISION, THE BUSINESS, THE ASSETS, THE ASSUMED LIABILITIES OR THE CONSUMMATION BY BUYER OR SELLER OF THE TRANSACTIONS CONTEMPLATED HEREBY. SELLER SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY AND ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. 3.4 Survival of Representations and Warranties. All ------------------------------------------ representations and warranties made by each party in this Article III or in any certificate delivered at the Closing shall survive the Closing for a period of one year only, after which no claim may be made based upon any such representation or warranty. ARTICLE IV - COVENANTS PENDING CLOSING 4.1 Agreements of Seller. Seller covenants and agrees that, pending -------------------- the Closing: 4.1.1 Business in the Ordinary Course. The Business shall be ------------------------------- conducted in the ordinary course consistent with past practice, and Seller in the conduct of the Business shall not (a) enter into any material new contracts or incur any material new obligations (including without limitation any collective bargaining agreements, employment contracts or employee benefit plans), -19- (b) materially increase the salary of any employee of the Division, or (c) sell or otherwise dispose of a material portion of the assets of the Division outside the ordinary course of business. 4.1.2 Preservation of Assets. Seller shall not, without the prior ---------------------- written consent of Buyer, mortgage, pledge or subject to any new lien, security interest or other encumbrance securing a monetary obligation, any of the Assets. 4.1.3 Employees and Business Relations. Seller will use its -------------------------------- reasonable best efforts to keep available the services of the present employees and agents of the Division and to maintain its relations and good will with suppliers, customers, distributors and any others having business relations with the Business. 4.1.4 Consents and Approvals. Seller shall use its reasonable best ---------------------- efforts to obtain or make, at the earliest practicable date and in any event before the Closing, all consents or filings necessary to the consummation by Seller of the transactions contemplated hereby or which are reasonably requested by Buyer. 4.1.5 No Negotiations. Seller shall not, directly or indirectly, in --------------- any way contact, initiate, enter into or conduct any discussions or negotiations, or enter into any agreements, whether written or oral, with any person with respect to the sale of all or part of the Division, the Business or the Assets, except for transactions in the ordinary course of the Business. 4.1.6 Access. Prior to the Closing, Seller will give to Buyer's ------ officers, employees, counsel, accountants and other representatives, during normal business hours and after reasonable notice to Seller, free and full access to and the right to inspect all of the premises, properties, assets, records, contracts, business plans and other documents relating solely to the Business for the purpose of making such investigation of the Business as Buyer reasonably shall -20- desire to make, provided that such investigation shall not unreasonably interfere with the operations of the Business, and Seller will cause its accountants to provide to Buyer's officers, employees, counsel, accountants and other representatives, during normal business hours and after reasonable notice to Buyer, access to each such accountant's workpapers relating solely to the Business for the purpose of making an investigation as Buyer reasonably shall desire to make, provided that such access shall not unreasonably interfere with the operations of such accountant's business. 4.1.7 Best Efforts. Seller shall use its reasonable best efforts to ------------ fulfill the conditions set forth in Section 6.1 and to cause the representations and warranties set forth in Section 3.1 to remain true and correct in all material respects. 4.1.8 Environmental Matters. Seller shall use its reasonable best --------------------- efforts: (a) to have Tighe & Bond complete the Phase II environmental assessment of the Mansfield Facility specified (under the caption Site Environmental ------------------ Status) in that firm's April 30, 1996 letter to Seller, and (b) with the - ------ assistance of Tighe & Bond, to bring the ongoing operations of the Business into material compliance with applicable federal, state and local environmental laws, rules and regulations. The fees and expenses of Tighe & Bond prior to the Closing shall paid as follows: Up to $50,000 Seller pays 100% From $50,000 to $75,000 Buyer pays 100% In excess of $75,000 Seller & Buyer each pay 50% Arrangements regarding responsibility for the cost of the foregoing remediation and compliance activities after the Closing are set forth in the Lease and the Escrow Agreement. -21- 4.2 Agreements of Buyer. Buyer covenants and agrees that, pending ------------------- the Closing: 4.2.1 Articles of Incorporation and By-laws. No change shall be made ------------------------------------- in the articles of incorporation or the by-laws of Buyer. 4.2.2 Consents and Approvals. Buyer shall use its reasonable best ---------------------- efforts to obtain or make, at the earliest practicable date and in any event before the Closing, all consents or filings necessary to the consummation by Buyer of the transactions contemplated hereby or which are reasonably requested by Seller. 4.2.3 Best Efforts. Buyer shall use its reasonable best efforts to ------------ fulfill the conditions set forth in Section 6.2 and to cause the representations and warranties set forth in Section 3.2 to remain true and correct in all material respects. ARTICLE V - OTHER AGREEMENTS 5.1 Confidentiality. Each of Buyer and Seller shall, and shall cause --------------- its officers, counsel, agents and other representatives to, hold in strict confidence, and not use or disclose to any other person without the prior written consent of the other party hereto, all information obtained from such other party in connection with the transactions contemplated by this Agreement, except such information may be disclosed (a) where necessary to any regulatory authorities or governmental agencies, (b) if required by court order or decree or applicable law, (c) if it is publicly available as the result of a previous authorized disclosure, (d) to a purchaser or prospective purchaser of Seller or (e) if it is otherwise contemplated hereby. 5.2 Financing. Buyer (a) shall keep Seller apprised of the status of --------- Buyer's financing with Bank of America for the transactions contemplated by this Agreement, (b) at Seller's reasonable request, shall provide Seller with access to all appropriate representatives of -22- Bank of America for purposes of allowing Seller to evaluate the status of such financing, and (c) shall use its reasonable best efforts to obtain such financing. 5.3 Investigation and Evaluation. Buyer acknowledges that (a) Buyer ---------------------------- is experienced in the operation of the type of business conducted by the Division, (b) Buyer and its directors, officers, attorneys, accountants and advisors have been given the opportunity to examine to the full extent deemed necessary and desirable by Buyer all books, records and other information with respect to the Division, the Business, the Assets and the Assumed Liabilities, (c) Buyer has taken full responsibility for determining the scope of its investigations of the Division, the Business, the Assets and the Assumed Liabilities, and for the manner in which such investigations have been conducted, and has examined the Division, the Business, the Assets and the Assumed Liabilities to Buyer's full satisfaction, (d) Buyer is fully capable of evaluating the adequacy and accuracy of the information and material obtained by Buyer in the course of such investigations and (e) Buyer has not relied on Seller with respect to any matter in connection with Buyer's evaluation of the Division, the Business, the Assets and the Assumed Liabilities, other than the representations and warranties of Seller specifically set forth in Section 3.1. 5.4 Forecasts; Projections; Etc. Buyer acknowledges that (a) Buyer --------------------------- has taken full responsibility for evaluating the adequacy, completeness and accuracy of various forecasts, projections, opinions and similar material heretofore furnished by Seller or its representatives to Buyer in connection with Buyer's investigations of the Division, the Business, the Assets and the Assumed Liabilities and (b) there are uncertainties inherent in attempting to make projections and forecasts and render opinions, Buyer is familiar with such uncertainties, and Buyer is not relying on any projections, forecasts or opinions furnished to it by Seller or any of its representatives. -23- 5.5 Employment of Employees. The parties understand that Buyer has ----------------------- not agreed in this Agreement to hire any employees presently employed by the Division ("Division Employees"), that Buyer may determine which of Seller's employees it wants to hire following the transfer of the Assets, and that following the transfer of Assets Buyer will establish the initial wages, hours, terms and conditions of employment for Buyer's employees both within and outside the bargaining unit presently represented by the Union (as hereinafter defined). Buyer shall pay each Division Employee, in accordance with the customary practices and procedures of the Division, all commissions, bonuses and vacation pay earned by such Division Employee, but unpaid, through the Closing Date. Buyer, and not Seller, shall be fully responsible for, and Buyer shall indemnify Seller for, all severance matters and for all matters that may arise under the Federal Worker Adjustment and Retraining Notification Act relating to the Division Employees. 5.6 Publicity. Neither Buyer nor Seller shall issue any press --------- release or otherwise make any public statement (except for releases and public statements required or advisable under federal securities laws) with respect to the transactions contemplated hereby without first consulting with and obtaining the approval of Buyer, in the case of Seller, or without first consulting with and obtaining the approval of Seller, in the case of Buyer. 5.7 Access. After the Closing, Seller shall have access at all ------ reasonable times to those files and records which are part of the Assets and shall have the right to make copies thereof at its expense. Buyer agrees to maintain such files and records in accordance with appropriate record retention procedures, but such obligation shall expire seven years after the Closing. -24- 5.8 Product Recall; Jetstream Warranty Work. --------------------------------------- (a) A "Product Recall" is for the purposes of this Agreement an action initiated post Closing by Buyer on behalf of Seller which is intended to retrieve from a customer or customers specific products or lots of products manufactured and shipped by Seller prior to the Closing Date (collectively, "Products"), for which Buyer (i) has obtained knowledge that any such Product contains one or more defects, (ii) has determined in good faith that such defect(s) cause the Products to (A) pose a material health and safety risk to the customer or customers to whom such Products were sold and shipped by Seller based on the intended use of such Products by said customer or customers or (B) materially fail to perform the function or functions for which such Products were designed, and (iii) has determined in good faith that there is no practical way to effectively remedy any such defect(s) in the Products other than through a retrieval by Buyer of the Products for repair or replacement, as necessary, to properly remedy the defect(s) in question. (b) Buyer shall notify Seller in advance of any proposed Product Recall (a "Product Recall Notification"). The Product Recall Notification shall set forth in reasonable detail (i) the identity of the Product to be recalled, (ii) the nature of the defect(s) in question including an explanation as to why such defect(s) give rise to the need for a Product Recall and the proposed remedy to such defect(s), (iii) the reason Buyer believes such defect(s) cannot be remedied through any means other than through a Product Recall, and (iv) the identity of the customers subject to the Product Recall. Buyer shall be deemed authorized to proceed with the Product Recall 14 days following the date that Buyer has delivered to Seller the Product Recall Notification, provided Seller has not notified Buyer within such 14 day period of Seller's intention to independently investigate the Product Recall (a "Seller's Recall Objection"). Should -25- Buyer receive a Seller's Recall Objection, Buyer shall not proceed with the Product Recall until Seller has satisfied itself that a Product Recall is required and delivers written authorization to Buyer that Buyer may proceed with the Product Recall as described in the Product Recall Notification. In no case shall Seller unreasonably withhold authorization for a Product Recall. (c) After the Closing, Seller shall reimburse Buyer for the repair or replacement of the Products subject to a Product Recall at Buyer's (i) 115% of actual cost for products and parts, (ii) prevailing labor rates and (iii) direct and indirect overhead at 300% of direct labor costs. Seller shall make such reimbursement payments within 30 days after receipt of invoices therefor. (d) After the Closing, Buyer shall perform all warranty and service work requested by Seller with respect to Products sold directly or indirectly by the Division to Jetstream prior to the Closing Date, and Seller shall reimburse Buyer for the repair or replacement of the Products and Buyer's (i) 115% of actual cost for products and parts, (ii) prevailing labor rates and (iii) direct and indirect overhead at 300% of direct labor costs. Buyer shall invoice Allied Signal for such warranty and service work. If Allied Signal does not pay Buyer for the work subject to the invoice, Seller shall reimburse Buyer for such work within 30 days after receipt of notice from Buyer that Allied Signal has failed to make payment for such work. 5.9 No Union Agreements. Prior to and after the Closing, Seller ------------------- agrees not to conduct or enter into any discussions, negotiations or agreements (whether written or oral) with the International Union of Electronics, Electrical, Salaried, Machine and Furniture Workers, AFL-CIO and its Amalgamated Local 708 (the "Union") (a) that would have a material adverse effect -26- on Buyer or (b) with respect to a modification of the terms of the Division's collective bargaining agreement with the Union, that adversely affects Buyer's obligations or rights with respect to the Union and its members. Prior to and after the Closing, Seller agrees to keep Buyer apprised of all material developments between Seller and the Union, where such developments indicate that Seller will enter into any agreement with the Union. 5.10 Cooperation. ----------- (a) After the Closing, Seller and Buyer shall fully cooperate with each other in the defense or prosecution of any litigation or other proceeding against or by the other party relating to or arising out of, in whole or in part, the Business prior to, on or after the Closing (other than litigation and other proceedings arising out of this Agreement or the transactions contemplated hereby). The party requesting such cooperation shall pay the reasonable out-of- pocket expenses incurred in providing such cooperation (including without limitation attorneys' fees and expenses) by the other party and its officers, directors, employees and agents, but shall not be responsible for reimbursing such persons for time spent in connection with such cooperation. (b) After the Closing, Buyer and Seller shall each (i) provide the other with such assistance as may reasonably be requested by the other in connection with the preparation of any tax return, audit or other examination by any taxing authority or judicial or administrative proceedings or determination relating to liability for taxes, (ii) retain and provide the other with any records or other information which may be relevant to such tax return, audit or examination, proceeding or determination, and (iii) provide the other with any final determination of any such audit or examination, proceeding or determination that affects any amount required to be shown -27- on any tax return of the other for any period. Without limiting the generality of the foregoing, (A) with respect to any portion of a taxable period in 1996 prior to the Closing Date, for which a tax return is required to be filed after the Closing Date and is required to include taxable income or other financial information of the Business, Buyer shall prepare on a basis consistent with Seller's past practices, under Seller's direction, all tax information materials of the Business and furnish the same (including without limitation schedules and work papers) to Seller no later than January 1, 1997 or at least 90 days prior to the due date for the filing thereof, whichever occurs earlier; and (B) Seller and Buyer shall retain, until the applicable statutes of limitations (including without limitation any extensions) have expired, copies of all tax returns, supporting work schedules and other records or information which may be relevant to such returns for all tax periods or portions thereof ending before or including the Closing Date and shall not destroy or otherwise dispose of any such records without first providing Buyer (in the case of Seller) or Seller (in the case of Buyer) with a reasonable opportunity to review and copy the same. (c) Upon receipt by Buyer of notice, whether written or otherwise, of any pending or threatened tax audits of or assessments against Buyer for taxes allocable to Seller, or upon receipt by Buyer or Seller of a written notice of any pending or threatened tax audits of or assessments against Seller for taxes allocable to Seller or Buyer, Buyer (or Seller, as the case may be) shall notify the other party reasonably promptly (and in any event within 15 business days of the receipt of any notice). (d) Buyer shall be responsible for filing tax returns in respect of sales and use taxes of the Business for periods ending on or after the Closing Date and for any periods ending -28- prior to the Closing Date for which the deadline (including without limitation extensions) for filing such tax returns occurs after the Closing Date. 5.11 Equipment Lease. At the Closing, Seller shall lease to Buyer --------------- and Buyer shall let from Seller the equipment located at the Division and described on the attached Exhibit G ("Leased Equipment") on terms and conditions and utilizing the form of Master Lease Agreement attached as Exhibit H (the "Equipment Lease"). Buyer acknowledges that Seller intends to assign its interest in the Equipment Lease to a third party financial institution. Buyer shall reasonably assist Seller in such assignment, including, without limitation, promptly providing to Seller and such prospective assignees reasonable access to the Division premises for the purpose of inspecting the Leased Equipment, copies of Buyer's latest annual report and audited financial statements, unaudited financial statements, and all other information concerning Buyer or Buyer's business as is reasonably requested by Seller or such third parties for the purpose of underwriting the Equipment Lease or otherwise required in connection with completing the assignment of the Equipment Lease. ARTICLE VI - CONDITIONS PRECEDENT TO THE CLOSING 6.1 Conditions Precedent of Buyer. The obligation of Buyer to ----------------------------- consummate the transactions contemplated by this Agreement is subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent: 6.1.1 Representations and Warranties True on Closing Date. The --------------------------------------------------- representations and warranties of Seller contained in this Agreement or in any certificate or document delivered by Seller to Buyer pursuant to the provisions hereof shall be in all material respects true on the -29- Closing Date with the same effect as though such representations and warranties were made as of such date except for changes contemplated or permitted by this Agreement. 6.1.2 Performance by Seller. Seller shall have performed and --------------------- complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with prior to or at the Closing. 6.1.3 Injunction. No injunction, writ, temporary restraining order ---------- or other order shall be in effect which restrains or prohibits the transactions contemplated by this Agreement. 6.1.4 Jetstream Products. Seller shall have manufactured and shipped ------------------ all products of the Division subject to purchase orders with Allied Signal for delivery to Jetstream, and neither Seller nor Buyer shall have any further obligation to manufacture or ship part number A2104 or A2105 (and all revisions thereto prior to Closing) to Allied Signal for delivery to Jetstream. Notwithstanding the foregoing, should any purchase orders with Allied Signal for delivery of product to Jetstream remain uncompleted as of the Closing Date, Buyer and Seller will agree to an appropriate arrangement to exclude the assets utilized by the Division in connection with the completion of such purchase order(s) from the Assets being conveyed to Buyer at Closing, and such arrangement will further provide that all such excluded assets will be conveyed to Buyer at a later date when all of the open Allied Signal purchase orders have been fully completed. Buyer may in its sole discretion determine to accept purchase orders for part numbers A2104 and A2105 (and all revisions thereto prior to Closing) following the Closing Date. Should Buyer accept post Closing purchase orders for part numbers A2104 and/or A2105 (and all revisions thereto prior to Closing), the parties acknowledge that all matters relating to these items will be the sole responsibility of Buyer. -30- 6.1.5 June Balance Sheet Approval. Buyer shall be satisfied that --------------------------- there exists no material difference in the categorization of liabilities appearing on the June Balance Sheet versus the categorization of liabilities appearing on the May Balance Sheet. 6.2 Conditions Precedent of Seller. The obligation of Seller to ------------------------------ consummate the transactions contemplated by this Agreement is subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent: 6.2.1 Representations and Warranties True on Closing Date. The --------------------------------------------------- representations and warranties of Buyer contained in this Agreement or in any certificate or document delivered by Buyer to Seller pursuant to the provisions hereof shall be in all material respects true on the Closing Date with the same effect as though such representations and warranties were made as of such date except for changes contemplated or permitted by this Agreement. 6.2.2 Performance by Buyer. Buyer shall have performed and complied -------------------- in all material respects with all agreements and conditions required by this Agreement to be performed or complied with prior to or at the Closing. 6.2.3 Injunction. No injunction, writ, temporary restraining order ---------- or other order shall be in effect which restrains or prohibits the transactions contemplated by this Agreement. 6.2.4 Jetstream Products. Seller shall have manufactured and shipped ------------------ all products of the Division subject to purchase orders with Allied Signal for delivery to Jetstream, and neither Seller nor Buyer shall have any further obligation to manufacture or ship part number A2104 or A2105 to Allied Signal for delivery to Jetstream. Notwithstanding the foregoing, should any purchase orders with Allied Signal for delivery of product to Jetstream remain uncompleted as of the Closing Date, Buyer and Seller will agree to an appropriate arrangement to exclude the -31- assets utilized by the Division in connection with the completion of such purchase order(s) from the Assets being conveyed to Buyer at Closing, and such arrangement will further provide that all such excluded assets will be conveyed to Buyer at a later date when all of the open Allied Signal purchase orders have been fully completed. Buyer may in its sole discretion determine to accept purchase orders for part numbers A2104 and A2105 following the Closing Date. Should Buyer accept post Closing purchase orders for part numbers A2104 and/or A2105, the parties acknowledge that all matters relating to these items will be the sole responsibility of Buyer. 6.2.5 Schedule 3.2.6 Approval. Seller shall be satisfied with the ----------------------- content of Schedule 3.2.6. Should Seller elect to consummate the sale of the Assets to Buyer as provided for in this Agreement, Seller shall indemnify Buyer for those items set forth on Schedule 3.2.6. ARTICLE VII - INDEMNIFICATION 7.1 Indemnification. --------------- (a) Subject to the limitations set forth in Sections 7.1(b) and 7.1(c), Buyer and Seller agree that from and after the Closing, each shall indemnify and hold harmless the other (the "Indemnified Party") against any loss, liability or expense (including reasonable attorneys' fees and expenses) caused by or resulting from (i) the failure by the party against whom indemnification is sought (the "Indemnifying Party") to perform any covenant or agreement which it is obligated to perform pursuant to this Agreement or (ii) any misrepresentation or breach of warranty made by the Indemnifying Party in this Agreement or in any certificate rendered by it pursuant hereto. -32- (b) No Indemnified Party shall make any claim against an Indemnifying Party for indemnification under this Article VII with respect to a misrepresentation or breach of warranty unless and until the aggregate amount of all such claims against such Indemnifying Party exceeds $350,000 (the "Threshold Amount") whereupon the Indemnified Party may claim indemnification for the amount of such claims, or portion thereof, in excess of such Threshold Amount; provided, however, that neither party may recover in the aggregate an amount greater than $3,000,000 from the other pursuant to this Article VII. In determining the amount of claims against an Indemnifying Party hereunder, the amount of any tax benefit (federal, state or local) or insurance proceeds to be realized or received by the Indemnified Party by reason of such claims shall be deducted from the amount to be paid by the Indemnifying Party. Seller shall not be liable under this Article VII for any loss, liability or expense (and no such loss, liability or expense shall be counted against the Threshold Amount) if it relates to any breach of the representation and warranty of Buyer set forth in Section 3.2.6. The Indemnified Party shall promptly notify the Indemnifying Party of any claim hereunder (including without limitation items that would be claims if they were not below the Threshold Amount) and shall provide to the Indemnifying Party as soon as practicable thereafter all information and documentation necessary to support and verify the claim asserted (or which would be asserted in not below the Threshold Amount), and the Indemnifying Party shall be given access to all books and records in the possession or control of the Indemnified Party which the Indemnifying Party reasonably determines to be related to such claim. -33- (c) The indemnification provided for in this Article VII, to the extent it relates to any matter other than compliance with a covenant or agreement to be performed after the Closing, shall be limited to claims asserted within one year after the Closing Date. 7.2 Third Party Claims. If any legal proceedings are instituted or ------------------ any claim or demand is asserted by any person in respect of which Buyer or Seller may seek indemnification from the other pursuant to the provisions of Section 7.1, the Indemnified Party shall promptly cause written notice of the assertion of any such claim or demand to be made to the Indemnifying Party. The Indemnifying Party shall have the right at any time, at its option and expense, to defend against, negotiate or settle any such claim, and in such case the Indemnifying Party shall not be liable for the fees and expenses of counsel employed by the Indemnified Party. Buyer and Seller shall cooperate fully with each other in connection with the defense, negotiation and settlement of any such legal proceeding, claim or demand. If at any time any such claim or demand seeks material prospective relief which would have a materially adverse effect on the Business, the Indemnified Party shall have the right to control or assume (as the case may be) the defense of any such claim or demand; if the Indemnified Party should elect to exercise such right, the Indemnifying Party shall have the right to participate in, but not control, the defense of such claim or demand at the sole cost and expense of the Indemnifying Party, and the Indemnified Party may not agree to any settlement without the prior consent of the Indemnifying Party, which consent shall not be unreasonably withheld. The Indemnifying Party shall be subrogated to all rights and remedies of the Indemnified Party. -34- 7.3 Exclusivity. This Article VII sets forth the only responsibility ----------- of each party to indemnify or otherwise protect the other party against any loss, liability or expense arising out of or related to the transactions contemplated by this Agreement. ARTICLE VIII - MISCELLANEOUS 8.1 Termination. This Agreement may be terminated by written notice ----------- of termination only as follows: (a) by mutual consent of Buyer and Seller, (b) by either Buyer or Seller if the Closing has not occurred on or before July 15, 1996, unless the reason that the Closing has not occurred shall be the failure of the party seeking to terminate this Agreement to fulfill its obligations hereunder, or (c) by either Buyer or Seller if there has been a material misrepresentation or material breach on the part of the other party in the representations, warranties, covenants or agreements contained herein which is not cured within ten business days after such other party has been notified of the nature of such breach and the intent to terminate this Agreement pursuant to this Section 8.1(c). 8.2 Effect of Termination. --------------------- (a) Except as provided in Section 8.2(b), in the event of the termination hereof as expressly permitted under Section 8.1, this Agreement shall forthwith become void and have no effect (except for Sections 5.1 and 8.4) and there shall be no liability in respect of this Agreement on the part of any of Buyer or Seller or their respective officers, directors, or shareholders except as provided in Sections 5.1 and 8.4. Notwithstanding the foregoing, if such termination is due to the knowing material non-fulfillment of any covenant or agreement herein -35- by either party hereto or the knowing material misrepresentation or knowing material breach of warranty on the part of either such party, such party shall be fully liable to the other party hereto for all costs and expenses (including reasonable attorneys' fees and expenses) actually incurred in good faith by such other party in connection with this Agreement and the transactions contemplated hereby and for all damages sustained or incurred by such other party as a result thereof. In the event of termination hereunder without Closing, each party hereto shall return promptly to the other party hereto or destroy (and certify such destruction to the other party in writing) all documents, work papers and other material of the other party furnished or made available to such party or its representatives or agents, and all copies thereof, and agrees that no information received by it or its representatives or agents shall be revealed by it or its representatives or agents to any third party or used for the advantage of such party or any other person, except such information may be disclosed (a) where necessary to any regulatory authorities or governmental agencies, (b) if required by court order or decree or applicable law or (c) if it is publicly available as a result of a previous authorized disclosure. Furthermore, in the event of termination hereunder without Closing, Buyer covenants and agrees that, for a period of two years following the date of such termination, it will not offer employment to any employee of the Division. (b) Notwithstanding the foregoing, (i) if Buyer terminates this Agreement under Section 8.1(c) as a result of Seller's material misrepresentation or breach of warranty, Seller shall promptly return the Deposit to Buyer and (ii) if the Agreement is terminated for any other reason Seller shall be entitled to retain the Deposit. -36- 8.3 Sales, Transfer and Documentary Taxes; Etc. Seller shall pay all ------------------------------------------- sales, transfer and documentary taxes, if any, due as a result of the transfer of the Assets to Buyer and Buyer shall pay all affidavit, filing and acknowledgment fees and other fees directly relating to the transfer of the Assets. 8.4 Expenses. The parties hereto shall pay their own expenses -------- incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement and the consummation of the transactions contemplated hereby. 8.5 Bulk Sales Laws. Buyer hereby waives compliance with the bulk --------------- sales law and any other similar laws in any applicable jurisdiction in respect of the transactions contemplated by this Agreement, and Seller shall indemnify Buyer for any damages suffered by reason of such non compliance. 8.6 Contents of Agreement; Amendment. This Agreement sets forth the -------------------------------- entire understanding of the parties hereto with respect to the transactions contemplated hereby. It shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any and all previous agreements and understandings between the parties regarding the subject matter hereof, whether written or oral (and including without limitation the Letter of Intent dated May 10, 1996 between Seller and Buyer), are superseded by this Agreement. 8.7 No Assignment. This Agreement may not be assigned by either ------------- party hereto without the prior written consent of the other party, provided that Seller may assign this Agreement to any successor or successor-in-business without such consent (whether by operation of law or otherwise) in any transaction involving the sale or transfer of control of Seller or substantially all of its business (whether by merger, tender, sale of assets or otherwise), and -37- provided further that Buyer may assign this Agreement to any wholly owned subsidiary of Buyer without such consent; however, Buyer shall remain fully responsible under this Agreement notwithstanding any such assignment. 8.8 Waiver. No waiver by either party hereto, whether express or ------ implied, of any right under any provision of this Agreement shall constitute a waiver of such party's rights under any other provision of this Agreement, nor shall any such waiver constitute a waiver of such party's right at any other time or unless it is made in writing and signed by the party waiving the condition. No failure by either party hereto to take any action with respect to any breach of this Agreement or default by the other party shall constitute a waiver of such party's right to enforce any provision of this Agreement against such other party or to take action with respect to such breach or default or of any subsequent breach or default by such other party. 8.9 Notices. Any notice, request, demand, waiver, consent, approval ------- or other communication which is required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, telefaxed with receipt acknowledged (and with a confirmation copy also sent by registered or certified mail return receipt requested), delivered by a recognized commercial courier service with receipt acknowledged, or mailed by registered or certified mail return receipt requested, as follows: If to Buyer, to: Communications Instruments, Inc. P.O. Box 520 Highway 74 East Fairview, NC 28730 Attention: Ramzi Dabbagh Chairman and Chief Executive Officer Telefax No.: 704-628-1439 -38- with a required copy to: Simpson, Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: Richard Chadbourn Weisberg, Esq. Telefax No.: 212-455-2502 If to Seller, to: Figgie International Inc. 4420 Sherwin Road Willoughby, OH 44094 Attention: General Counsel Telefax No.: 216-953-2859 with a required copy to: Morgan, Lewis & Bockius LLP 2000 One Logan Square Philadelphia, PA 19103 Attention: Timothy Maxwell, Esq. Telefax No.: 215-963-5299 or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date so delivered, telefaxed or mailed. 8.10 Ohio Law to Govern. This Agreement shall be governed by and ------------------ interpreted and enforced in accordance with the laws of the state of Ohio, including without limitation all matters of construction, validity and performance. 8.11 No Benefit to Others. The representations, warranties, -------------------- covenants and agreements contained in this Agreement are for the sole benefit of the parties hereto and their -39- permitted successors and assigns, and they shall not be construed as conferring any rights on any other persons. 8.12 Headings. All section headings contained in this Agreement are -------- for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 8.13 Schedules and Exhibits. All Schedules and Exhibits referred to ---------------------- herein are intended to be and hereby are specifically made a part of this Agreement. 8.14 Severability. If any provision of this Agreement or the ------------ application thereof to any person or circumstance is held invalid or unenforceable in any jurisdiction, the remainder of this Agreement, and the application of such provision to such person or circumstance in any other jurisdiction or to other persons or circumstances in any jurisdiction, shall not be affected thereby, and to this end the provisions of this Agreement shall be severable. 8.15 Counterparts. This Agreement may be executed in any number of ------------ counterparts and any party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become binding when one or more counterparts taken together shall have been executed and delivered by the parties. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 8.16 Dispute Resolution. Claims, disputes or other matters in ------------------ question between the parties to this Agreement arising out of or relating to this Agreement or breach thereof shall be subject to and decided by arbitration in accordance with the rules of the American Arbitration -40- Association currently in effect, unless the parties mutually agree otherwise, and in accordance with the following: (a) Demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. A demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statutes of limitations. (b) Any arbitration arising out of or relating to this Agreement shall include, by consolidation, joinder or joint filing, any additional persons or entities not parties to this Agreement to the extent reasonably necessary to the final resolution of the matter in controversy. (c) All arbitration proceedings shall be heard and decided by three (3) arbitrators, one selected by each party and the third selected by the first two arbitrators who shall be experienced in matters similar to the subject of the arbitration. Each party shall be responsible for payment of its own arbitrator's fees and each party shall pay one-half (1/2) of the fee for the third arbitrator. (d) Each party shall be responsible for its own costs and expenses incurred in connection with the arbitration including, without limitation, attorney's fees. (e) Unless the parties otherwise agree, pre-hearing discovery shall be limited to production of documents and other things, as contemplated by Rule 34(a) of the Federal Rules of Civil Procedure. -41- (f) In arbitration proceedings, the award of the arbitrators shall not be limited to a single dollar amount, but (i) shall indicate the arbitrators' decision with respect to the various claims, disputes or other matters in question presented by each party and (ii) shall contain a brief statement of the reasons supporting the arbitrators' decision. (g) The award rendered by the arbitrator or arbitrators shall be final and binding upon all parties, judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. (h) The location for arbitration and any and all claims, controversies or disputes arising out of or relating to this Agreement or any breach thereof shall be Cleveland, Ohio. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. FIGGIE INTERNATIONAL INC. By:____________________________________ As its:__________________________ COMMUNICATIONS INSTRUMENTS, INC. By:____________________________________ As its:__________________________ -42- EXHIBIT A EXCLUDED ASSETS --------------- 1. Cash, checks and equivalents 2. Prepaid insurance 3. All real property interests, and the improvements and fixtures thereon and thereto, relating to the Mansfield Facility 4. Assets financed under two capital leases with IBM Credit Corporation (supplement #s 174947 and C00232814) 5. Labor Agreement, entered into March 10, 1995, between the Division and the International Union of Electronics, Electrical, Salaried, Machine and Furniture Workers (AFL-CIO), and its Amalgamated Local 708 6. Equipment assets (which are not recorded as assets of the Division) at Interstate Electronics Corporation of approximately $100,100 that relate to the manufacture of the Boeing 777 Electrical Load Management System and are listed as Attachment C to Appendix E to the ELMS Purchase Order dated May 9, 1996 EXHIBIT B ENVIRONMENTAL REMEDIATION AND ESCROW AGREEMENT ---------------------------------------------- EXHIBIT C EXCLUDED LIABILITIES -------------------- 1. Capital Leases with IBM Credit Corporation (supplement Nos. 174947 and C00232814) 2. Any Benefit Plans, except for claims which relate to liabilities assumed pursuant to Sections 1.4(a)(i), 1.4(a)(ii) and 5.5 3. Sections 601-608 of ERISA (COBRA) EXHIBIT D BILL OF SALE AND ASSIGNMENT --------------------------- Bill of Sale and Assignment, dated ________, 1996, from Figgie International Inc., a Delaware corporation ("Seller"), to Communications Instruments, Inc., a North Carolina corporation ("Buyer"). W I T N E S S E T H: ------------------- WHEREAS, by an Asset Purchase Agreement dated as of June 27, 1996 (the "Agreement") between Seller and Buyer, Seller has agreed to sell to Buyer the assets, properties, rights and business described and referred to in Section 1.2 of the Agreement (collectively, the "Assets"); and WHEREAS, Seller is currently executing and delivering this Bill of Sale and Assignment to Buyer for the purpose of selling and assigning to Buyer all of Seller's right, title and interest in and to the Assets; NOW, THEREFORE, in consideration of the purchase price provided in the Agreement and other good and valuable consideration, and intending to be legally bound, Seller hereby grants, sells, assigns and transfers to Buyer, its successors and assigns all of Seller's right, title and interest in and to all of the Assets, TO HAVE AND TO HOLD the same, including the appurtenances thereof, unto Buyer, its successors and assigns forever, to its and their own proper use and behalf; and Seller hereby warrants title to such Assets unto Buyer, its successors and assigns to the full extent warranted in the Agreement. 1. Nothing in this instrument, express or implied, is intended or shall be construed to confer upon or give to any person, firm or corporation other than Buyer, its successors and assigns any remedy or claim under or by reason of this instrument or any term, covenant, condition, promise or agreement hereof, and all of the terms, covenants, conditions, promises and agreements contained in this instrument shall be for the sole and exclusive benefit of Buyer, its successors and assigns. 2. Neither the making nor the acceptance of this instrument shall enlarge, restrict or otherwise modify the terms of the Agreement or constitute a waiver or release by Seller or Buyer of any liabilities, duties or obligations imposed upon them by the terms of the Agreement, including without limitation the representations, warranties, covenants, agreements and other provisions of the Agreement. 3. This instrument is being executed by Seller and shall be binding upon Seller, its successors and assigns for the uses and purposes set forth and referred to above, and shall be effective the date hereof. 4. This instrument shall be governed by and enforced in accordance with the laws of the state of Ohio. IN WITNESS WHEREOF, Seller has caused this Bill of Sale and Assignment to be duly executed on the date first above written. FIGGIE INTERNATIONAL INC. By:________________________________ As its:______________________ RECEIPT OF THE FOREGOING BILL OF SALE AND ASSIGNMENT ACKNOWLEDGED ON ________, 1996 COMMUNICATIONS INSTRUMENTS, INC. By:________________________________ As its:______________________ D-2 EXHIBIT E LEASE AGREEMENT --------------- EXHIBIT F ASSUMPTION AGREEMENT -------------------- Assumption Agreement, dated ________, 1996, from Communications Instruments, Inc., a North Carolina corporation ("Buyer"), to Figgie International Inc., a Delaware corporation ("Seller"). W I T N E S S E T H: ------------------- WHEREAS, by an Asset Purchase Agreement dated as of June 27, 1996 (the "Agreement") between Seller and Buyer, Seller has agreed to sell to Buyer the assets, properties, rights and business described and referred to in Section 1.2 of the Agreement (collectively, the "Assets"); and WHEREAS, Buyer has agreed in Section 1.4 of the Agreement that at the closing for the purchase and sale of the Assets it would assume and agree to pay, discharge or perform, as appropriate, certain liabilities and obligations of Seller (the "Assumed Liabilities"); and WHEREAS, Buyer wishes to provide by this instrument for such assumption of the Assumed Liabilities; NOW, THEREFORE, in consideration of the terms and conditions of the Agreement and other good and valuable consideration, and intending to be legally bound, Buyer hereby assumes and agrees to pay, discharge or perform, as appropriate, the Assumed Liabilities only to the extent and as provided in Section 1.4 of the Agreement. 1. Nothing in this instrument, express or implied, is intended or shall be construed to confer upon or give to any person, firm or corporation other than Seller, its successors and assigns any remedy or claim under or by reason of this instrument or any term, covenant, condition, promise or agreement hereof, and all of the terms, covenants, conditions, promises and agreements contained in this instrument shall be for the sole and exclusive benefit of Seller, its successors and assigns. 2. Neither the making nor the acceptance of this instrument shall enlarge, restrict or otherwise modify the terms of the Agreement or constitute a waiver or release by Seller or Buyer of any liabilities, duties or obligations imposed upon them by the terms of the Agreement, including without limitation the representations, warranties, covenants, agreements and other provisions of the Agreement. 3. This instrument is being executed by Buyer and shall be binding upon Buyer, its successors and assigns for the uses and purposes set forth and referred to above, and shall be effective the date hereof. 4. This instrument shall be governed by and enforced in accordance with the laws of the state of Ohio. IN WITNESS WHEREOF, Buyer has caused this Assumption Agreement to be duly executed on the date first above written. COMMUNICATIONS INSTRUMENTS, INC. By:__________________________________ As its:________________________ RECEIPT OF THE FOREGOING ASSUMPTION AGREEMENT ACKNOWLEDGED ON ________, 1996 FIGGIE INTERNATIONAL INC. By:__________________________________ As its:________________________ F-2 EXHIBIT G EQUIPMENT TO BE LEASED FROM SELLER AT THE CLOSING ------------------------------------------------- EXHIBIT H MASTER LEASE AGREEMENT ---------------------- ASSET PURCHASE AGREEMENT between FIGGIE INTERNATIONAL INC. and COMMUNICATIONS INSTRUMENTS, INC. Dated as of June 27, 1996 EX-10.13 12 ENVIRONMENTAL REMEDIATION AND ESCROW AGREEMENT EXHIBIT 10.13 ENVIRONMENTAL REMEDIATION AND ESCROW AGREEMENT ---------------------------------------------- THIS ENVIRONMENTAL REMEDIATION AND ESCROW AGREEMENT ("Agreement") is made as of July 2, 1996, by and among Figgie International Inc., a Delaware corporation ("Seller"), Communications Instruments, Inc., a North Carolina corporation ("Buyer"), and Bank One Trust Company, NA (the "Escrow Agent"). RECITALS: -------- A. Pursuant to the Lease, dated as of July 2, 1996 (the "Lease") by and between a subsidiary of each of Seller and Buyer, a subsidiary of Seller agreed to lease to a subsidiary of Buyer certain real property (the "Site"). B. Seller agrees to put Five Hundred Fifteen Thousand Five Hundred Dollars ($515,500) in escrow for the payment of certain Remediation Costs (defined below) relating to the real property leased to Buyer or one of its subsidiaries by Seller or one of its subsidiaries pursuant to the Lease (the "Escrow Fund"). C. To secure the payment of the Remediation Costs, Seller has agreed to deliver to and deposit with the Escrow Agent the Escrow Fund, which shall be held by the Escrow Agent pursuant to the terms of this Agreement. D. Capitalized terms used herein, unless otherwise indicated, have the same meaning given to them in the Lease. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises contained herein, the parties agree as follows: 1. Appointment of Escrow Agent. Seller and Buyer hereby appoint Bank One --------------------------- Trust Company, NA to be the Escrow Agent and to hold the Escrow Funds in accordance with the terms of this Agreement. 2. Delivery of Funds. Seller shall deposit, or cause to be deposited, the Escrow Funds with the Escrow Agent, on the date of this Agreement, to secure payment of the Remediation Costs. 3. Term. The Escrow Funds shall be held in escrow for a term beginning ---- with the date of this Agreement and ending with the earlier of: (i) the expiration or termination of the Lease; or (ii) the delivery of all of the Escrow Funds, as the case may be, in accordance with the terms of this Agreement (the "Escrow Period"). 4. Disbursement of Escrow Funds. The Escrow Agent shall release and ---------------------------- disburse the Escrow Funds: (i) for the purpose of the payment of the costs of conducting any remedial activities incurred by Seller pursuant to the requirements of Exhibit A attached hereto and made a part hereof ("Remediation Costs"); and (ii) in accordance with Section 7 hereof. Remediation Costs shall include all environmental consulting fees, engineering fees, costs of testing, sampling and laboratory work, contractor's fees, legal fees, and all other costs associated with the planning and implementation of work performed pursuant to Exhibit A. 2 5. Remediation. ----------- (a) From and after the date of the Lease, Seller shall diligently pursue to completion the remedial activities identified in Exhibit A (the "Remediation") in accordance with all applicable Environmental Laws. Such process shall include, but not necessarily be limited to, the following: (1) developing a plan or plans of remediation to address the Remediation, which plan or plans (individually, a "Remediation Plan" and collectively "Remediation Plans") shall be acceptable to Seller and Buyer; and (2) implementing each Remediation Plan. (b) A Remediation Plan shall be deemed to have been completed upon the first to occur of any of the following events: (i) Buyer approves, in writing, the completion of such work; (ii) Seller's environmental consultant states in good faith and in exercise of a reasonable degree of professional competence that in its professional opinion, the work required by the Remediation Plan has been satisfactorily completed and requires no further action; or (iii) the expiration or termination of the Lease. If Buyer disagrees with Seller's environmental consultant's opinion concerning the completion of the Remediation Plan, then the propriety of the consultant's opinion on this issue shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association before a single arbitrator who is a "Certified Professional" environmental consultant pursuant to Ohio Revised Code Chapter 3746.01(E) and who is appointed in accordance with the Commercial Arbitration Rules. The award of the arbitrator shall be limited to (i) confirming Seller's environment consultant's opinion, or 3 (ii) requiring Seller to conduct further Remediation pursuant to the terms of this Agreement, and (a) shall indicate the arbitrator's decision respecting the matters in question presented by each party, and (b) shall contain a brief statement of the reasons supporting the arbitrator's decision. A judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Such arbitration proceeding shall be conducted in Cleveland, Ohio. The pendency of a demand for arbitration or any arbitration proceedings hereunder shall not, in and of itself, discharge or excuse continuing performance by the parties of their obligations and duties under this Agreement or under the Lease. Any arbitration arising out of or relating to this Agreement shall include, by consolidation, joinder or joint filing, any additional persons or entities not parties to this Agreement to the extent reasonably necessary to the final resolution of the matter in controversy. Once the Remediation Plan or Remediation Plans have been completed or the Lease expires or is terminated, the Remediation shall for all purposes of this Agreement be deemed completed, the Escrow Agent shall disburse any remaining Escrow Funds in accordance with Section 9 and this Agreement shall terminate. (c) As between Seller and Buyer, the work to be performed pursuant to this Section 5 shall be supervised and controlled by Seller. Seller shall contact, consult and otherwise deal with all governmental authorities in connection therewith; provided that Seller shall afford Buyer, and Buyers' legal and technical consultants, a reasonable opportunity to review all final Remediation Plan(s) and will use its best efforts to cause to be considered and incorporated in any proposals or plans any comments or suggestions that Buyers' or its consultants may request. 4 (d) In the conduct of the Remediation, Seller agrees to use only URS Consultants or another environmental consulting firm that has as a member of its firm a "Certified Professional" pursuant to Ohio Revised Code Chapter 3746.01(E). (e) The costs of the Remediation to be performed pursuant to this Section 5 shall be paid for and discharged first from the Escrow Funds as evidence of such costs is from time to time submitted by Seller to the Escrow Agent for payment. Any costs of Remediation in excess of the Escrow Funds shall be paid by Seller; provided, however, that Seller shall not be required to expend more than $12.0 million for Remediation Costs by the terms of this Agreement. (f) Buyer hereby grants entry and access to the Site to Seller and/or Seller's agents, employees, representatives and contractors, as necessary to conduct the Remediation pursuant to this Agreement. Buyer shall not materially interfere with Seller's conduct of the Remediation and Seller shall use reasonable care in its conduct of the Remediation to not materially interfere with Buyer's normal business operations at the Site. Seller shall have no liability to Buyer for any loss, damage, expense or other liability arising as a result of interference with Buyer's normal business operations at the Site in the conduct of the Remediation by Seller, if Seller has used reasonable best efforts to minimize disturbance of Buyer's ability to conduct business at the Site. 6. Investment of Funds. The Escrow Agent shall act as custodian of the ------------------- Escrow Funds and shall invest the Escrow Funds in any of the following: (a) direct obligations of (including obligations issued or held in book entry form on the books of the Department of Treasury of the United States of America), or 5 obligations the principal of and interest on which are unconditionally guaranteed by the United States of America; (b) bonds, debentures or notes or other evidence of indebtedness payable in cash and issued or guaranteed by any one or a combination of any federal agencies whose obligations represent the full faith and credit of the United States of America; (c) certificates of deposit properly secured at all times, by collateral security described in (a) and (b) above, (which agreements are only acceptable with commercial banks, savings and loan associations and mutual savings banks); (d) the following investments fully insured by the Federal Savings and Loan Insurance Corporation: (i) certificates of deposit (ii) savings accounts (iii) deposit accounts (iv) depository receipts of banks, savings and loan associations and mutual savings banks; (e) commercial paper rated in one of the two highest rating categories by at least one nationally recognized rating agencies or commercial paper backed by a letter of credit or line of credit rated in one of the two highest rating categories; (f) investments in a money market fund, including the Escrow Agent or any of its affiliates, rated AAAM or AAAM-G by Standard & Poor's Corporation, the assets of which consist of either tax-exempt obligations or direct obligations of the United States of America. 6 The Escrow Agent shall have the power to sell or liquidate the foregoing investments whenever the Escrow Agent is required to release all or any portion of the Escrow Funds pursuant to this Agreement. Any interest or income earned on such investment and reinvestment of the Escrow Funds shall become part of the Escrow Funds. The Escrow Agent shall have no liability for any investment losses resulting from the investment reinvestment, sale or liquidation of the Escrow Funds, which losses shall be the sole responsibility of Seller, except in the case of negligence or willful misconduct of the Escrow Agent. 7. Fees and Expenses of Escrow Agent. All costs and expenses of the --------------------------------- Escrow Agent shall be paid out of the Escrow Fund. In the event that such costs and expenses exceed the amount in the Escrow Fund, the Seller agrees to pay such excess costs and expenses. 8. Liability of Escrow Agent. The duties and obligations of the Escrow ------------------------- Agent hereunder shall be determined solely by the provisions of this Agreement and the Escrow Agent shall be under no obligation to refer to any other documents between or among the parties it being specifically understood that the following provisions are accepted by all parties hereto: (a) The Escrow Agent shall not be liable to anyone by reason of any error of judgment or for any act done or step taken or omitted by it in good faith or for any mistake of fact or law for anything which it may do or refrain from doing in connection herewith unless caused by or arising out of its gross negligence or willful misconduct. Seller shall indemnify and hold the Escrow Agent harmless from any and all liability and expense which may arise out of any action taken or omitted by it as Escrow Agent in accordance with this Agreement, as the same may be amended, modified or supplemented, except such liability and expense as may result from the gross negligence or willful 7 misconduct of the Escrow Agent. This indemnification shall survive the release, discharge, termination, and/or satisfaction of the Agreement. The Escrow Agent may act upon advice of counsel of its own choosing and shall be fully protected in acting or refraining from acting in good faith and in accordance with the opinion of such counsel in reference to any matter connected herewith and shall not be liable for any action taken or omitted in accordance with such advice. Without limiting the foregoing, the Escrow Agent shall in no event be liable in connection with its investment or reinvestment of any cash held by it hereunder in good faith, in accordance with the terms hereof, including, without limitation, any liability for any delays (not resulting from its negligence or willful misconduct) in the investment or reinvestment of the Escrow Funds, or any loss of interest incident to any such delays. (b) If the Escrow Agent is entitled to receive, pursuant to this Agreement, any amount in indemnification, then, Seller will be responsible for such amount. (c) In the event any demand, direction, instruction or request, not contemplated by the terms of this Agreement, is made upon Escrow Agent, then Buyer and Seller hereby jointly and severally authorize Escrow Agent, at its election, to hold any funds deposited hereunder until an action shall be brought in a court of competent jurisdiction to determine the rights of Buyer and Seller or to interplead such parties by an action brought in any such court. Deposit by Escrow Agent of such funds with such court, or holding such funds until such court determines their disposition, after deducting therefrom its expenses incurred in connection with any such court action, shall relieve Escrow Agent of all liability and responsibility hereunder. 8 9. Balance of Escrow Funds. Upon the termination of the escrow in ----------------------- accordance with the provisions of Section 3, the Escrow Agent shall distribute the remaining Escrow Funds and any interest earned thereon to Seller and Seller shall have no further obligation of any kind to Buyer or the Escrow Agent under this Agreement. 10. Notices. Notice of any submission or other communication to the ------- Escrow Agent by the Seller seeking the disbursement of funds shall be given to the Buyer within three (3) business days of such submission or communication. Notice of any disbursement from the Escrow Funds shall be given to the Buyer within three (3) business days of such disbursement. Any notice to be given hereunder shall be deemed given if in writing and delivered personally or mailed by certified mail, postage prepaid, return receipt requested, or by courier, fee prepaid, guaranteeing overnight delivery, and to the party to receive notice at the following address or such address as any party may designate by notice to the other: If to Seller: Figgie International Inc. 4420 Sherwin Road Willoughby, Ohio 44094 Attn: Steven L. Siemborski Fax: (216) 951-1724 with a copy to: Benesch, Friedlander, Coplan & Aronoff 2300 BP America Building 200 Public Square Cleveland, Ohio 44114-2378 Attn: Chairperson, Real Estate Dept. Fax: (216) 363-4588 If to Buyer: Communications Instruments, Inc. POB 520 1396 Charlotte Highway Fairview, North Carolina 28730 Attn: Dan Taylor Fax: (704) 628-1439 9 with a copy to: Parker, Poe, Adams & Bernstein One Exchange Plaza POB 389 Raleigh, North Carolina 27603 Attn: John T. Butler Fax: (919) 834-4564 If to the Escrow Agent: Bank One Trust Company, NA 100 East Broad Street Columbus, Ohio 43271-0181 Attn: Michael Dockman Fax: 612-248-5195 11. Authorized Persons. The Escrow Agent is authorized to disregard any ------------------ notices or instructions given by any party hereto or by any other person, firm or corporation, except only such notices or instructions as are herein provided for and given by the individuals listed on Exhibit B attached hereto and made a part hereof ("Authorized Person(s)"). Exhibit B may be amended from time to time by Seller or Buyer with respect to each of such party's Authorized Persons. The Escrow Agent may rely, and shall be protected in acting or refraining from acting, upon any instrument furnished to it hereunder and believed by it, in good faith, to be genuine and have been signed by an Authorized Person. 12. Resignation of Escrow Agent. It is understood that the Escrow Agent --------------------------- reserves the right to resign as Escrow Agent at any time by giving no less than thirty (30) days written notice of its resignation, specifying the effective date thereof, to each other party hereto. Within thirty (30) days after receiving the aforesaid notice, the other party or parties hereto shall appoint a successor Escrow Agent to which the Escrow Agent may distribute the property then held hereunder, less its fees, costs and expenses (including counsel fees and expenses) which may remain unpaid at that time. If a successor Escrow Agent has not been appointed and has not accepted such appointment by the end of such thirty (30) day period, the Escrow Agent may 10 apply to a court of competent jurisdiction for the appointment of a successor Escrow Agent and the fees, costs and expenses (including counsel fees and expenses) which it incurs in connection with such a proceeding shall be paid from the Escrow Fund. 13. Miscellaneous. ------------- (a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Ohio applicable to agreements made and to be entirely performed within such state. (b) This Agreement, the Asset Purchase Agreement and the Lease set forth the entire agreement and understanding of the parties in respect to this transaction and supersedes all prior agreements, arrangements and understandings relating to the subject matter hereof. (c) All the terms and conditions of this Agreement shall be binding upon, and inure to the benefit of and be enforceable by, the parties hereto and their respective successors and assigns. (d) Except for Exhibit B which may be amended by either party from time to time pursuant to Section 11 hereof, this Agreement may be amended, modified, superseded or cancelled, and any of the terms or conditions hereof may be waived, only by a written instrument executed by each party hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provisions hereof will in no manner affect the right at a later time to enforce the same. No waiver by any party of any condition, or of the breach of any term contained in this Agreement whether by conduct or otherwise, in any one or more 11 instances shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition of or the breach of any other term of this Agreement. (e) This Agreement shall be construed as if jointly prepared by Seller and Buyer. 12 (f) This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. FIGGIE INTERNATIONAL INC. By:______________________________ Name:____________________________ Title:___________________________ "Seller" COMMUNICATIONS INSTRUMENTS, INC. By:______________________________ Name:____________________________ Title:___________________________ "Buyer" BANK ONE TRUST COMPANY, NA By:______________________________ Name:____________________________ Title:___________________________ "Escrow Agent" 13 EX-10.14 13 LEASE AGREEMENT EXHIBIT 10.14 LEASE AGREEMENT --------------- THIS LEASE AGREEMENT ("Lease"), made at Cleveland, Ohio as of the 2nd day of July, 1996, by and between FIGGIE PROPERTIES, INC., a Delaware corporation ("Landlord"), and COMMUNICATIONS INSTRUMENTS, INC. dba HARTMAN DIVISION OF CII TECHNOLOGIES, INC., a North Carolina corporation ("Tenant"). W I T N E S S E T H: - - - - - - - - - - ARTICLE 1 --------- DEMISED PREMISES ---------------- Landlord hereby leases and lets to Tenant, and Tenant hereby takes and hires from Landlord upon and subject to the terms, conditions, covenants and provisions hereof, the building containing approximately 53,092 square feet of floor space located at the northeast corner of North Main Street and Fifth Street situated in the City of Mansfield, County of Richland and State of Ohio, together with approximately 2.5 acres of land, and more particularly described on Exhibit "A" annexed hereto and made a part hereof, together with any and all improvements, appurtenances, rights, privileges and easements benefiting, belonging or pertaining thereto, and any right, title and interest of Landlord in and to: (i) any public park or the like adjoining said tract, piece or parcel of land; (ii) any land lying in the bed of any street, road or highway (open, proposed, vacated or abandoned), in front of, beside or adjoining said tract, piece or parcel of land; and (iii) the fixtures and items of personal property listed on Exhibit "B" annexed hereto and made a part hereof which are part of the real estate and will remain as the property of Landlord upon the termination of this Lease; subject to easements, conditions, reservations, restrictions and other matters of record listed on Exhibit "C" annexed hereto and made a part hereof (the "Approved Title Exceptions") (all of the foregoing being hereinafter referred to as the "Demised Premises"). ARTICLE 2 --------- TERM ---- 2.1. The term of this Lease shall commence on July 2, 1996 ("Commencement Date") and shall continue through June 30, 2006 unless sooner terminated as herein provided (the "Term"). 2.2. The term "Lease Year" as used herein shall mean for (i) the first Lease Year, the period from July 2, 1996 to June 30, 2006 and (ii) for any subsequent Lease Year, the one (1) year period commencing on the date following the expiration of the preceding Lease Year and ending on the anniversary of the last day of the preceding Lease Year. ARTICLE 3 --------- RENT ---- 3.1. During the Term Tenant shall pay Base Annual Rent to Landlord without previous notice or demand which shall be payable in equal monthly installments. Each installment shall be due and payable in advance on the first (1st) day of each month during the Term. 3.2. There shall be no Base Annual Rent for the first Lease Year. 3.3. The Base Annual Rent for each of the Lease Years two through five shall be in the amount of One Hundred Six Thousand One Hundred Eighty-four Dollars ($106,184.00) and shall be due and payable in equal monthly installments of Eight Thousand Eight Hundred Forty-eight Dollars and Sixty-six Cents ($8,848.66) each. 3.4. The Base Annual Rent for each of the Lease Years six through ten shall be in the amount of One Hundred Fifty-nine Thousand Two Hundred Seventy- six Dollars ($159,276.00) and shall be due and payable in equal monthly installments of Thirteen Thousand Two Hundred Seventy-three Dollars ($13,273.00) each. 3.5. All Base Annual Rent payable hereunder shall be paid without notice, demand, counterclaim, offset, reduction or abatement and shall be payable at Landlord's address as set forth in Article 25 hereof or at such other address as Landlord may designate. The parties specifically agree that this Lease is a "triple net lease", so that except as may be otherwise specifically provided herein, all costs, expenses and obligations of every kind and nature whatsoever relating to the Demised Premises, including without limitation, all repair, replacement, maintenance, taxes, utilities and insurance, shall be paid by Tenant, without any cost or expense to Landlord, in addition to the Base Annual Rent. ARTICLE 4 --------- SECURITY DEPOSIT ---------------- As security for the full and faithful performance of Tenant hereunder, Tenant shall deposit with Landlord, upon the execution hereof the sum of $40,000. Landlord shall have the right, but not the obligation, to use all or any part of such deposit to satisfy any default by Tenant hereunder, and in the event Landlord uses such deposit as aforesaid, Tenant agrees to deliver to Landlord, on demand, an amount equal to the amount so expended by Landlord plus such additional amount (if any) as may be necessary to restore such deposit to its full amount. Tenant shall not be entitled to any interest on the security deposit. Upon the termination of the Term of this Lease (other than by reason of default of Tenant not timely cured) the amount of such deposit remaining shall be returned to the Tenant. In the event of termination of this Lease by reason of default by Tenant, not timely cured, Landlord may apply the security deposit to any damages which Landlord may be entitled pursuant to law and/or the terms of this Lease. -2- ARTICLE 5 --------- USE OF DEMISED PREMISES ----------------------- 5.1. Tenant shall use and occupy the Demised Premises for manufacturing, merchandising and warehousing activities as well as for offices incidental thereto and for no other purpose. Landlord represents that the Demised Premises can be used as of the Commencement Date for substantially the same purposes for which the Demised Premises are now being used by Hartman Electrical Manufacturing Co. ("Hartman"). 5.2. Tenant shall not do or suffer to occur upon the Demised Premises any act or omission which violates the provision of any easement, condition, limitation, deed or other restriction of record affecting the Demised Premises affecting the Demised Premises. ARTICLE 6 --------- TAXES AND UTILITY EXPENSES -------------------------- 6.1. (a) Except as provided in 6.1(b), Tenant shall, during the Term of this Lease, as additional rent, pay and discharge punctually as and when the same shall become due and payable, any and all special and general taxes, special and general assessments, and any and all other governmental impositions and charges of every kind and nature whatsoever, extraordinary as well as ordinary, including taxes on the rental hereunder ("Taxes"), and each and every installment thereof which shall or may during the Term of this Lease be charged, levied, laid, assessed, imposed, become due and payable, or liens upon or for or with respect to the Demised Premises or any part hereof, or any buildings, appurtenances, personal property or equipment thereon or therein or any part thereof, together with all interest and penalties thereon, under or by virtue of all present or future laws, ordinances, requirements, orders, directives, rules or regulations of the Federal, State, County and City Governments and of all other governmental authorities whatsoever and all sewer rents and charges for water, steam, heat, gas, hot water, electricity, light and power, and any and all other service or services, furnished to the Demised Premises during the Term of this Lease ("Utility Expenses"). All Utility Expenses being charged to Landlord shall be transferred to Tenant on the Commencement Date and Landlord will cooperate with Tenant to effect same. (b) Tenant shall pay, in advance, to Landlord, each month as additional rent, a portion of the Taxes which amount shall be determined by the following formula: Monthly payment = 1.1 X (Most current annual real estate tax ------------------------------------------ bill) ----- 12 -3- For example, if the most current annual tax bill was $1,000.00, the monthly real estate tax payment would be (1.1 X $1,000.00) divided by 12, which equals monthly real estate payments of $91.70. To the extent funds have been received by Landlord from Tenant for Taxes, the Landlord shall cause the semi-annual tax payments to be paid. The amount paid by Tenant will be credited against the actual amount of the real estate taxes paid upon receipt by Landlord of the annual real estate tax bill. If the amount of the actual tax bill exceeds the amount paid by Tenant, Tenant shall immediately upon demand by Landlord, pay to Landlord an amount equal to the difference between the actual tax bill and the amount paid by Tenant. If the amount paid by Tenant exceeds the amount of the actual tax bill, the amount of the overpayment paid by Tenant to Landlord will be credited against the next monthly real estate tax payment due from Tenant. (c) To the extent that the same may be permitted by law, Tenant shall have the right to apply for the conversion of any assessment for local improvements assessed during the Term of this Lease in order to cause the same to be payable in lawful installments, and upon such conversion Tenant shall punctually pay and discharge said installments as they shall become due and payable during the Term of this Lease. Landlord agrees to permit the application for the foregoing conversion to be filed in Landlord' name, if necessary, and, without cost to Landlord, Landlord shall execute any and all documents reasonably requested by Tenant to accomplish the foregoing result. (d) Landlord shall pay the Taxes levied or assessed, laid and imposed payable for the second half of 1995 as and when the same are due and payable and Tenant shall pay any and all Taxes due and payable thereafter. (e) Tenant shall be deemed to have complied with the covenants of this Article if payment of such Taxes shall have been made either within any period allowed by law or by the governmental authority imposing the same during which payment is permitted without penalty or interest or before the same shall become a lien upon the Demised Premises, whichever is later, and Tenant shall produce and exhibit to Landlord evidence of such payment, if Landlord shall demand the same in writing, and Tenant shall defend, indemnify and hold harmless Landlord from and against any and all Taxes, penalties and/or interest. 6.2. All Taxes, including assessments which have been converted into installments as set forth in the preceding paragraph 6.1, which shall become payable during each of the calendar or fiscal tax years, as the case may be, in which the Term of this Lease terminates, shall be apportioned pro rata between Landlord and Tenant in accordance with the respective portions of such year during which the Term hereof shall terminate so that, for example, if the Lease terminates on June 30, 2006 then Tenant shall bear the Taxes payable for the last half of 2005 and the first half of 2006 and upon said termination, Tenant shall be entitled to a credit and Landlord shall be charged an amount equal to the amount of real estate taxes and assessments, both general and special, paid by Tenant for the first half of 1996. -4- 6.3. (a) Tenant shall have the right to contest or review all Taxes by legal proceedings, or in such other manner as it may deem suitable (which, if instituted, Tenant shall conduct promptly at its own cost and expense, and free of any expense to Landlord, and, if necessary, in the name of and with the cooperation of Landlord; and Landlord shall execute all documents necessary to accomplish the foregoing). Notwithstanding the foregoing, Tenant shall promptly pay all Taxes if at any time the Demised Premises or any part thereof shall then be immediately subject to forfeiture, or if Landlord shall be subject to any criminal penalty or liability, arising out of the nonpayment thereof. (b) The legal proceedings referred to in the preceding subparagraph 6.3(a) shall include appropriate administrative and court proceedings and appeals from orders therein and appeals from any judgments, decrees or orders. In the event of any reduction, cancellation or discharge, Tenant shall pay the amount finally levied or assessed against the Demised Premises or adjudicated to be due and payable on any such contested Taxes. 6.4. Landlord covenants and agrees that if there shall be any refunds or rebates on account of the Taxes paid by Tenant under the provisions of this Lease, such refund or rebate shall belong to Tenant. Any such refunds received by Landlord shall be deemed trust funds and as such are to be received by Landlord in trust and paid to Tenant forthwith. If there shall be any refunds or rebates on account of the Taxes paid by Landlord under paragraph 6.1(c) of this Lease, or otherwise, such refund or rebate shall belong to Landlord and any such refunds received by Tenant shall be deemed trust funds and as such are to be received by Tenant in trust and paid to Landlord forthwith. 6.5. Nothing herein or in this Lease otherwise contained shall be construed to require Tenant to pay any inheritance, estate, succession, transfer, gift, franchise, income, sales, profit or other taxes that are or may be imposed upon Landlord, its successors or assigns, provided that if and to the extent any such taxes shall be imposed upon Tenant in reduction of or in substitution for any other taxes payable by Tenant under this Lease, Tenant shall also pay such substituted taxes as herein provided. ARTICLE 7 --------- OPTION TO PURCHASE ------------------ 7.1. Provided Tenant is not in default of performance under this Lease beyond any applicable grace period, if any, at the time when Tenant elects to exercise the option to purchase the Demised Premises, herein granted, Tenant shall have the exclusive right, privilege and option to purchase ("option") the Demised Premises at the purchase price and during those parts of the Term herein set forth. 7.2. The option shall be exercisable at any time during the Term, but in any event no later than 90 days prior to the expiration of the Term hereof. The option shall be exercisable only by written notice from Tenant, to be delivered personally, or by certified or registered mail, -5- to Landlord. If delivery is by certified mail, the option shall be deemed to have been timely exercised if the notice thereof is posted no later than midnight of the last day on which the option is exercisable. If the last day of the option period shall fall on a Saturday, Sunday, or legal holiday, then the option period shall be extended to the next day which is not a Saturday, Sunday or legal holiday. 7.3. The purchase price ("Purchase Price") for the Demised Premises shall be the sum of Five Hundred Thousand Dollars ($500,000.00) if the option is exercised prior to the end of the third Lease Year. If the option is exercised after the end of the third Lease Year, the Purchase Price shall be the Fair Market Value of the Demised Premises, determined by appraisal, as hereinafter provided. 7.4. In the event the option is appropriately and timely exercised, all documents pertaining to the purchase of the Demised Premises shall be deposited in escrow with Chicago Title Insurance Company, Cleveland, Ohio or such other bank or title company in Cleveland, Ohio as Tenant may designate, as escrow agent, ("Escrow Agent"), on or before the Closing hereinafter defined. All funds pertaining to the purchase of the Demised Premises shall be deposited in escrow by Closing. Closing of said transaction shall take place, provided all the terms and conditions of this Article 7 have been completed as provided for in this Article 7, sixty (60) days after the date of the exercise of the option or on such earlier or later date as Tenant and Landlord may mutually agree. The term "Closing" means the date upon which the Purchase Price shall be paid to Landlord and the deed conveying title to the Demised Premises recorded. 7.5. The Purchase Price shall be payable either in cash or, by wire transfer of good funds. 7.6. This Article shall serve as escrow instructions, subject to the Escrow Agent's usual conditions of acceptance where not contrary to any of the terms hereof. The Escrow Agent is hereby authorized to close the transaction and make all prorations and allocations which, in accordance with this Article, are to be made between the parties hereto. 7.7. On or before the Closing, Landlord shall deposit with the Escrow Agent (i) a limited warranty deed which when recorded will convey to Tenant fee simple ownership of the Demised Premises (as the same may then be subject to Articles 15 and/or 16 hereof), free and clear of all liens and encumbrances whatsoever, except: zoning ordinances then in effect; the Approved Title Exceptions; all real estate taxes and assessments, both general and special, levied on and/or assessed against the Demised Premises; any encroachments, boundary line disputes, overlaps and any other matters whether or not of record as would be disclosed by an accurate survey and inspection; any liens or encumbrances created by Tenant and/or asserted against the Demised Premises by, through, or under Tenant; and any mortgage or related liens placed upon the Demised Premises by Landlord and assumed by Tenant in accordance with Article 17 hereof; and (ii) a good and sufficient bill of sale conveying to Tenant the ownership of any personal property included within the definition of the Demised Premises, free and clear of all liens and encumbrances whatsoever, except as aforesaid. Landlord shall execute any further deeds, bills -6- of sale or other instruments of conveyance reasonably required in order to convey title to the Demised Premises to Tenant in accordance herewith. 7.8. Landlord shall cause Chicago Title Insurance Company or other title company selected by Tenant to issue an ALTA Owner's Policy of Title Insurance (the "Title Policy") in the amount of the Purchase Price insuring that title to the Demised Premises as required to be conveyed hereunder is good in Tenant. Landlord and Tenant shall deliver to the Escrow Agent such affidavits as the Escrow Agent may require in order for the Escrow Agent to cause all mechanics lien exceptions to be deleted from the Policy of Title Insurance. 7.9. There shall be no proration of taxes and assessments at Closing, provided, however, that Tenant shall be entitled to a credit and Landlord shall be charged an amount equal to the amount of real estate taxes and assessments, both general and special, paid by Tenant for the first half of 1995. 7.10. If after Tenant has exercised the option to purchase granted it under Article 7 hereof, but prior to the date of transfer of title, the Demised Premises or any portion thereof are damaged or destroyed by fire or other cause, or title to or temporary use of the Demised Premises or any portion thereof is taken by exercise of condemnation or eminent domain or by amicable acquisition in lieu thereof, then, in such event, Tenant shall complete the purchase without any reduction in the Purchase Price and the entire Purchase Price shall be paid in a lump sum, in cash. In such event, the entire insurance proceeds payable on account of such damage or destruction or the Net Proceeds payable for such taking (as hereinafter defined) shell be paid over to Landlord to the extent of the full Purchase Price for the Demised Premises with any balance to be paid to Tenant. 7.11. Escrow Agent shall charge Tenant with: all recording fees and one- half (1/2) of the escrow fee. Landlord shall be charged with: one-half (1/2) of the escrow fee; the conveyance fee required by law to be paid at the time of the filing of the deed, provided, however, that if such conveyance fee shall be payable more than thirty-six (36) months after the date hereof, then such fee shall be limited to the amount thereof that would be payable as of the date of execution of this Lease; the cost of the Title Policy; and the cost of cancelling of record any mortgage or related liens of Landlord not assumed or taken subject to by Tenant in the manner provided in Article 17 hereof. 7.12. This Lease shall terminate as of the Closing, and both parties hereto shall be released of all further obligations hereunder except for all obligations which may have accrued prior thereto. Base Annual Rent payable hereunder shall be prorated as of the Closing. At the request of Tenant, Landlord and Tenant shall execute a mutual termination of Lease in recordable form, effective as of the Closing Date, and deliver same to the Escrow Agent for recording on the Closing Date. 7.13. (a) The Fair Market Value of the Demised Premises shall be the fair market value of the Demised Premises, as mutually agreed upon by Landlord and Tenant within 30 days after the option is exercised. In the event that within said 30 day period, -7- Landlord and Tenant fail to so agree to such value, then the amount of the Fair Market Value shall be determined by an appraiser chosen by Landlord and Tenant who shall render his decision within 60 days after the option is exercised such decision shall be final binding and conclusive on both Landlord and Tenant and judgment thereon may be entered in any court of competent jurisdiction in the State of Ohio. In the event Landlord and Tenant fail to designate an appraiser within 30 days after the option is exercised, then the determination of Fair Market Value shall be submitted to arbitration to, and in accordance with the rules of, the American Arbitration Association. In the event of such arbitration, Tenant shall select one (1) arbitrator from a list of arbitrators to be submitted by the American Arbitration Association, Landlord shall select one (1) arbitrator from said list, and the two arbitrators so selected shall select the third (3rd) arbitrator from such list as hereinafter provided. The three (3) arbitrators shall then determine the fair market value of the Demised Premises and such determination shall be binding upon Landlord and Tenant. (b) As used in this Lease, the phrases "fair market value for the Demised Premises" or "Fair Market Value" shall mean the fair market value of the Demised Premises as if the same were unencumbered by this Lease and at the highest and best use of the Demised Premises. (c) The arbitration shall be conducted as follows: (i) The arbitration hearings shall be held in Cleveland, Ohio. (ii) The arbitrators shall be persons who have had at least ten (10) years of experience as a real estate broker, appraiser or the like in the Mansfield State of Ohio area. In the event that either Tenant or Landlord fails to appoint an arbitrator within sixty (60) days after the expiration of the 30 day period provided for the Tenant and the Landlord to reach agreement on the Fair Market Value or to select a single appraiser, then the arbitrator of the Tenant or the Landlord, or both, as the case may be, shall be appointed by the American Arbitration Association from its qualified panel of arbitrators who meet the qualifications required of such arbitrators provided in this Subsection 7.13(c)(ii). (iii) In the event that the two arbitrators selected by Tenant and Landlord or by the American Arbitration Association in accordance with the provisions hereof shall fail to appoint a third arbitrator within twenty (20) days after their appointment, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators who meet the requirements for qualification provided under Subsection 7.13(c)(ii) hereof. The third arbitrator shall act as chairman of the arbitration panel for purposes of conducting the arbitration hearing. (iv) The hearing to be held by the arbitrators shall be held within seventy (70) days after their appointment and their decision shall be rendered -8- within thirty (30) days after the conclusion of such hearings. Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to each of the parties hereto. The award of the arbitrators shall be binding, final and conclusive on the parties and judgment thereon may be entered in any court of competent jurisdiction in the State of Ohio. (v) The fees of the arbitrators and the expenses incident to the proceedings shall be borne equally by Landlord and Tenant. The fees of respective counsel engaged by the parties and the fees of expert witnesses and other witnesses called for by the parties shall be paid by the respective party engaging such counsel or calling or engaging such witnesses. ARTICLE 8 --------- IMPROVEMENTS, REPAIRS, ADDITIONS & REPLACEMENTS ----------------------------------------------- 8.1. Tenant acknowledges that it takes and accepts the Demised Premises under this Lease in its "as is" condition provided, however, that Landlord shall pay the sum of Forty Thousand Dollars ($40,000.00) to Tenant for repairs to the roof of the West Building to be promptly undertaken and completed by Tenant even if the cost thereof is more or less than Forty Thousand Dollars ($40,000.00). Landlord will pay such Forty Thousand Dollars ($40,000.00) to Tenant upon completion of such work and payment to the roof contractor. Tenant acknowledges that it has not relied upon any representation or statement of Landlord (or any person acting for Landlord), oral or written, as to the physical condition of the Premises or the suitability thereof for the operation permitted on the Demised Premises by this Lease except any representations or statements of Landlord expressly set forth in this Lease. Tenant, prior to the execution of this Lease, has thoroughly examined the Demised Premises and has found them to be suitable for Tenant's operations hereunder. 8.2. Tenant shall, at all times during the Term of this Lease, and at its own cost and expense, keep and maintain or cause to be kept and maintained in repair and good condition, including making all replacements to keep in good condition, the Demised Premises and shall repair any waste, damage or injury to all buildings and improvements on the Demised Premises. 8.3. Tenant shall have the right, at its own cost and expense, at any time and from time to time, to make such alterations, changes, replacements and improvements in, to or on any part or all of the Demised Premises, as it may deem desirable after first obtaining Landlord's written consent thereto, for those which cost more than Twenty-five Thousand Dollars ($25,000.00) each, except for emergencies. Landlord's consent or approval under this paragraph 8.3 shall not be unreasonably withheld. 8.4. Tenant covenants and agrees to yield and deliver peaceably to Landlord possession of the Demised Premises on the date of any termination and/or expiration of this Lease, promptly and in good operating condition, and all of the Demised Premises and all personal property used -9- in connection therewith and all buildings, structures, improvements and fixtures shall then be free and clear of all liens, encumbrances and security interests whatsoever, except any created solely by Landlord. ARTICLE 9 --------- REQUIREMENTS OF PUBLIC AUTHORITY -------------------------------- 9.1. During the Term of this Lease, Tenant shall, at its own cost and expense, observe and comply with all present and future laws, ordinances, requirements, orders, directives, rules and regulations of the Federal, State, County, and City Governments and of all other governmental authorities affecting the Demised Premises or appurtenances thereto or any part thereof whether the same are in force at the commencement of the Term of this Lease or may in the future be passed, enacted or directed. The Demised Premises are currently being operated by Hartman for the purpose Landlord expects Tenant to operate the Demised Premises. Landlord represents to Tenant that it has no knowledge of any material matter, except as set forth in Article 26 hereof, which would prevent Tenant from operating the Demised Premises in substantially the same manner as same are being operated by Hartman at the date hereof. 9.2. Tenant shall have the right, at Tenant's sole cost and expense, to contest by appropriate legal proceedings diligently conducted in good faith, in the name of the Tenant, or Landlord (if legally required), or both (if legally required), the validity or application of any law, ordinance, rule, regulation or requirement of the nature referred to in paragraph 9.1, and Landlord shall execute and deliver any appropriate documents, consents or other instruments, prepared by Tenant at Tenant's sole cost and expense, which may be reasonably necessary and proper to contest the same, and, if by the terms of any such law, ordinance, order, rule, regulation or requirement, compliance therewith may legally be delayed pending the prosecution of any such proceedings, Tenant may delay compliance therewith until the final determination of such proceeding, provided, however, that Tenant shall defend, indemnify and hold harmless Landlord from and against any and all loss, cost, expense, liability, penalty or judgments, including attorney fees, arising from Tenant's exercise of any aforesaid right. ARTICLE 10 ---------- COVENANT AGAINST LIENS ---------------------- 10.1. If any mechanic's lien or other lien, charge or order for the payment of money shall be filed against all or any portion of the Demised Premises, Tenant shall, at its own cost and expense, cause the same to be discharged of record, by bonding or otherwise, within ninety (90) days after written notice from Landlord or other notice to Tenant of the filing thereof, and Tenant shall defend, indemnify and hold harmless Landlord and the Demised Premises against and from any and all claims, demands, suits, liabilities, penalties, costs and expenses, including attorney fees and court costs on account thereof. -10- 10.2. If Tenant shall fail to satisfy and discharge of record the liens described in Section 10.1 within the aforesaid ninety (90) day period, then Landlord shall, in addition to any other rights and/or remedies, available to Landlord under Article 19 hereof, have the right to cause the same to be discharged of record, by bonding or otherwise. All amounts paid by Landlord to cause such liens to be discharged shall constitute additional rent payable by Tenant to Landlord on the date of the next monthly installment of Base Annual Rent due hereunder. 10.3. If, because of any act or omission of Landlord, any mechanic's lien or other lien, charge or order for the payment of money shall be filed against all or any portion of the Demised Premises, Landlord shall, at its own cost and expense, cause the same to be discharged of record, by bonding or otherwise, within ninety (90) days after written notice from Tenant or other notice to Landlord of the filing thereof, and Landlord shall defend, indemnify and hold harmless Tenant and the Demised Premises against and from any and all claims, demands, suits, liabilities, penalties, costs and expenses, including attorney fees and court costs on account thereof. 10.4. If Landlord shall fail to cause the liens described in Section 10.3 to be discharged or bonded within the aforesaid ninety (90) day period, then Tenant shall have the right to cause the same to be discharged. All amounts paid by Tenant to cause such liens to be discharged may be deducted by Tenant from the next subsequent installment of Base Annual Rent payable hereunder. ARTICLE 11 ---------- ASSIGNMENT AND SUBLETTING ------------------------- 11.1 Tenant shall not hypothecate this Lease. Tenant shall not assign this Lease nor sublet nor otherwise transfer its interest in all or any part of the Premises by merger or other operation of law, or otherwise, without the prior written consent of Landlord, which consent may be withheld or delayed by Landlord in its sole discretion. If Tenant wishes to assign this Lease or sublet or otherwise transfer all or any part of the Demised Premises, it shall give notice in writing (by certified mail or by personal delivery) of such desire to Landlord for Landlord's approval or disapproval, as the case may be. If assignment or subletting is so approved and the rents under the sublease are greater than the rents provided for herein, then Landlord shall have the further option either: (a) to accept such sublease as a prime lease or to accept such assignee as a direct tenant of Landlord, and receive all of the rents, in which case Tenant will be relieved of further liability hereunder, (b) to require Tenant to remain liable under this Lease, and Tenant shall be entitled only to that portion of the amount of rent received from the sublessee or assignee which is not in excess of the amount of rent payable under the terms of this Lease, the balance of rent to be paid to Landlord or to -11- (c) terminate this Lease in which case Tenant shall be relieved of further liability hereunder. Except, as provided in Article 11.2, in the event Tenant is a corporation or other entity the transfer or the sale or sales, during the term hereof, aggregating fifty (50) percent or more of the outstanding shares of stock or other interests of Tenant or any other change in control of management of Tenant, shall be deemed to be an assignment of this Lease within the meaning of this Article. 11.2 Notwithstanding the provisions of Article 11 above, so long as the Demised Premises continue to be used for substantially the same purposes as same are now used by Hartman, the Tenant may assign this Lease to a successor ("Successor") which acquires all of the assets of Tenant, into which Tenant merges (or which merges into Tenant) or to which the stock of Tenant is sold on and subject to the following conditions: (a) Tenant shall first have delivered to Landlord at least thirty (30) days prior to such assignment the name, address, business experience and complete financial statements of said Successor; (b) In the event of the sale of the assets of Tenant or merger, the Successor shall have a net worth at least as great as the net worth of Tenant prior to such sale or merger, and (c) In any such event, Tenant shall remain fully liable under all of the terms, covenants and conditions of this Lease unless Landlord consents to release Tenant which Landlord shall be required to do only if Landlord is reasonably satisfied that the obligations hereunder can be performed by the Successor in the future. ARTICLE 12 ---------- INDEMNITY --------- 12.1. In addition to the indemnification obligations provided in Section 26.6, Tenant shall defend, indemnify and hold harmless Landlord, its property, its successors and assigns from and against any loss, damage and liabilities, including attorney fees and court costs, from any suit or claim, demand of third persons including, but not limited to, those for death, for personal injuries, property damage, loss of income or moving expenses arising out of any default of Tenant in performing or observing any term or provision of this Lease, or arising out of the use or occupancy of the Demised Premises by Tenant, or others with or without its consent, or out of the acts or omissions of Tenant, its employees, agents, contractors, customers, guests, invitees and other persons who are doing business with Tenant or who are at the Demised Premises with or without their consent where such acts or omissions are on the Demised Premises, or arising out of any acts or omissions of Tenant, its partners, employees, agents and independent contractors. The foregoing indemnity shall include claims made against Landlord by reason of -12- any contracts, agreements, dealings or Tenant Leases to which Tenant is a party, by assignment or otherwise, arising out of events occurring after the Commencement Date or covered by insurance to be maintained by Tenant under this Lease. 12.2. In addition to the indemnification obligations provided in Section 26.2, Landlord shall indemnify and save harmless Tenant from and against any and all liability, damage, penalties or judgments rendered against Tenant arising from injury to person or property sustained by third persons at the Demised Premises prior to the Commencement Date, resulting from any act or acts or omission or omissions of Landlord or Landlord's officers, agents, servants or employees, and not covered by insurance to be maintained by Tenant under this Lease. ARTICLE 13 ---------- INSURANCE --------- 13.1. Tenant shall provide or cause to be provided at its expense, and keep in force during the Term of this Lease, comprehensive general liability insurance in an insurance company or companies licensed to do business in the State of Ohio, selected by Tenant, and shall name Tenant and Landlord (and Landlord's mortgagee, if any) as insured parties thereunder, in the amount of at least Three Million Dollars ($3,000,000.00) with respect to injury or death in any one accident or other occurrence and up to but in no event and under any circumstances less than full insurable replacement value with respect to damage to property. Tenant agrees to deliver certificates of such insurance to Landlord as of the Commencement Date and thereafter not less than 30 days prior to the expiration of any such policy. Such insurance shall be noncancelable without 30 days written notice to Landlord. 13.2. Tenant shall provide or cause to be provided at its expense, and keep in force during the Term of this Lease, for the benefit of Tenant and Landlord (and Landlord's mortgagee, if any) all risk fire and extended coverage insurance, including coverage for vandalism and malicious mischief, covering the full replacement cost of all buildings and improvements (including boilers and related machinery) located on or being a part of the Demised Premises, with an agreed value endorsement, in such amounts as will avoid the coinsurance provisions of any such insurance and rental loss insurance to cover the rental due hereunder for a 12 month period following the first lease year. Tenant agrees to deliver certificates of such insurance to Landlord as of the Commencement Date and thereafter not less than 30 days prior to the expiration of any such policy. Such insurance shall be noncancelable without 30 days written notice to Landlord. 13.3. All insurance proceeds from or under the aforesaid insurance policies provided by Tenant, except as to such policy of insurance required under paragraph 13.1, shall be payable to Tenant and/or Landlord as the case may be pursuant to the provisions of Article 15 hereof. -13- ARTICLE 14 ---------- WAIVER OF SUBROGATION --------------------- 14.1. All insurance policies required to be carried by Tenant hereunder or otherwise covering the Demised Premises, including, but not limited to contents, fire and casualty insurance, shall expressly waive any right on the part of the insurer against the Landlord. Tenant agrees that its policies will include such waiver clause or endorsement and if extra cost shall be charged therefor, Tenant shall pay such extra cost. 14.2. Both Landlord and Tenant waive any and all right of recovery, claim, action or cause of action, against the other, their agents, officers and employees for any loss or damage that may occur to the Demised Premises, the contents thereof, or any improvements thereof, by reason of fire, the elements or any other cause which is insured against under the terms of the all risk fire and extended coverage insurance policy or policies required to be maintained hereunder, regardless of cause or origin, including the negligence of the Tenant or Landlord as the case may be, their agents, officers and employees. ARTICLE 15 ---------- REPAIR AND RESTORATION; DAMAGE OR DESTRUCTION --------------------------------------------- 15.1. In the event that, at any time during the Term of this Lease, the buildings and improvements on the Demised Premises shall be destroyed or damaged by fire or other cause, either in whole or in part, then, except as hereinafter provided, Tenant shall restore, repair, replace and rebuild the improvements on the Demised Premises to an architectural whole unit. In such event, the insurance proceeds shall be paid to and held in trust by Landlord for the benefit of Tenant and Landlord, as their respective interests may appear, and shall be paid over to Tenant during the course of said restoration and repair to the extent necessary to pay the cost of said restoration and repair. Any balance remaining after payment of such cost of restoration and repair shall belong to Tenant. If there are less than two years remaining under the Term of this Lease and the cost to restore, repair, replace and rebuild the same is One Hundred Thousand Dollars ($100,000.00) or more, then this Lease shall terminate and all proceeds of insurance shall be paid to and shall be the sole property of Landlord. 15.2. In the event that the buildings and improvements on the Demised Premises shall be destroyed or damaged in whole or paid by fire or other cause, Tenant shall have the immediate right to exercise the option to purchase the Demised Premises granted in Article 7 hereof. In the event Tenant exercises such option, the entire insurance proceeds payable with respect to such damage or destruction shall be paid over to Landlord to the extent of the full Purchase Price for the Demised Premises (Tenant to be liable for the shortfall, if any) with any balance to be paid to Tenant. In the event Tenant does not exercise such option, then the provisions of paragraph 15.1 above shall apply. -14- ARTICLE 16 ---------- EMINENT DOMAIN -------------- 16.1. If at any time during the Term of this Lease, title to the whole or substantially all of the Demised Premises shall be taken by exercise of the right of condemnation or eminent domain or by amicable acquisition in lieu thereof (all such proceedings being collectively referred to herein as "taking" or "a taking in condemnation"), this Lease shall terminate and expire on the date when the condemning authority acquires actual possession of the Demised Premises to be taken (the "Condemnation Date"), and the Base Annual Rent and any and all additional rents or charges hereunder shall be apportioned and paid to the Condemnation Date. A taking of sixty percent (60%) or more of the ground floor area of the buildings on the Demised Premises at the time of the taking shall be deemed a taking of "substantially all of the Demised Premises". In the event of the taking of the whole or substantially all of the Demised Premises during the Term of this Lease, the net proceeds of any award after deducting all expenses and costs, including attorney's fees, incurred in connection therewith ("Net Proceeds") upon any such taking shall be distributed as follows: (a) First, the Net Proceeds shall be paid to the holder or holders of any Landlord's Mortgage(s) and to discharge any other lien created by Landlord on the Demised Premises to the extent of the then unpaid amount thereof but in no event shall the amounts due under this subparagraph (a) exceed Five Hundred Thousand Dollars ($500,000.00). (b) Second, the Net Proceeds remaining shall be paid to the Landlord to the extent of Five Hundred Thousand Dollars ($500,000.00), less any amounts paid under subparagraph 16.1(a). (c) Third, the balance of the Net Proceeds remaining shall be paid to the Tenant. 16.2. As an alternative to the foregoing, in the event title to the whole or substantially all of the Demised Premises shall be taken as aforesaid, Tenant, at its option, shall have the immediate right to exercise the option to purchase the Demised Premises granted in Article 7 hereof. In the event Tenant exercises such option, the entire Net Proceeds shall be paid over to Landlord to the extent of the full Purchase Price for the Demised Premises with any balance to be paid to Tenant. In the event Tenant does not exercise such option, then the provisions of paragraph 16.1 above shall apply. 16.3. If at any time during the Term of this Lease, title to less than the whole or substantially all of the Demised Premises shall be taken in condemnation, Tenant shall repair or restore the Demised Premises, as nearly as may be reasonably possible to the condition in which the Demised Premises was at the time of such taking. In such event, the Net Proceeds shall be paid to and held in trust by Landlord for the benefit of Tenant and shall be paid over to Tenant upon the completion of said restoration and repair to the extent necessary to pay the cost of said -15- restoration and repair. Any balance remaining after payment of such cost of restoration shall belong to Landlord. However, following such taking there shall be an equitable decrease in the Base Annual Rent in proportion to the portion and use of the Demised Premises so taken. 16.4. If at any time during the Term of this Lease, the temporary use of the whole or substantially all of the Demised Premises shall be taken in condemnation, then Tenant shall continue to pay in full the Base Annual Rent and any and all additional rents and/or charges to be paid by the Tenant hereunder, and Tenant shall be entitled to the Net Proceeds for such taking (whether paid by way of damages, rent, or otherwise) unless the period of occupation and use by the condemning authority shall extend beyond the date of expiration of this Lease, in which case the net proceeds for such taking shall be apportioned between Landlord and Tenant as of the date of such expiration, provided, however, that if Tenant appropriately and timely exercises the option to purchase granted in Article 7 hereof during the period of such temporary use, the provisions of Article 7, paragraph 7.9 and not the provisions of this paragraph, shall apply. At the termination of any such use or occupation of the Demised Premises, if the same occurs during the Term of this Lease, Tenant shall repair or restore the buildings and improvements then upon the Demised Premises to the condition, as nearly as may be reasonably possible, in which such buildings and improvements were at the time of such taking. In such event, the Net Proceeds shall be paid to and held in trust by Landlord for the benefit of Tenant and shall be paid over to Tenant upon the completion of said restoration and repair to the extent necessary to pay the cost of said restoration and repair. Any balance remaining after payment of such cost of restoration and repair shall belong to Landlord. 16.5. Nothing contained in this Article shall be construed to preclude Landlord or Tenant from making any claim for a taking in condemnation for its interest as Landlord or Tenant and for removal, moving and relocation; provided, however, that such claim does not diminish any award to Landlord provided for in subparagraph (1) of this Article 16. ARTICLE 17 ---------- MORTGAGES --------- 17.1. Landlord shall have the right to mortgage its fee interest or any other interest in the Demised Premises or buildings, improvements, fixtures, equipment or other property thereon to the extent owned by Landlord, to a maximum of Five Hundred Thousand Dollars ($500,000.00), or any part thereof, provided, however, that any such mortgage shall be subject to this Lease and that if the term of such mortgage shall extend beyond Tenant's exercise of the option granted in Article 7 hereof, then at Tenant's election, any such mortgage shall either be satisfied and discharged by Landlord in full on or before the date of Closing or, if the terms of such mortgage so allow, any such mortgage may be assumed by Tenant as a condition of Closing. Any such Mortgage shall provide that the holder thereof will release the lien of such Mortgage against the Demised Premises upon receipt of the payment of no more than $500,000 notwithstanding that the balance due on such Mortgage shall be in excess of $500,000. -16- 17.2. Landlord reserves the right to demand and obtain from Tenant a waiver of priority of Tenant's lien arising by virtue of the within leasehold estate, thereby subordinating Tenant's lien in favor of any first mortgage loan, any first mortgage lien, or any refinancing or replacing of a first mortgage loan that complies with Section 17.1 hereof. Tenant, upon demand by Landlord for the same, agrees to execute at any and all times, such instruments as may be required by any lending institution or prospective first mortgagee in order to effectuate such waiver of priority and subordination of Tenant's lien. If Tenant, within five (5) days after submission of such instrument, fails to execute the same, Landlord is hereby authorized to execute the same as attorney- in-fact for Tenant. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgagee or deed of trust, Tenant shall attorn to the purchaser in any such foreclosure or sale and recognize such purchaser as Landlord under this Lease. Tenant agrees, upon request of Landlord and/or Landlord's mortgagee, to execute and deliver to Landlord and/or Landlord's mortgagee, a Subordination, Non-Disturbance and Attornment Agreement. Tenant further agrees, upon request of Landlord and/or Landlord's mortgagee, to execute and deliver to Landlord and/or Landlord's mortgagee from time to time, an Estoppel Certificate in such form as either may require. 17.3. As a condition to Tenant executing the Subordination, Non- Disturbance and Attornment Agreement referred to in Section 17.2, Landlord shall procure from such lending institution or mortgagee of Landlord an agreement in writing, which shall be delivered to Tenant, providing in substance that so long as Tenant shall faithfully discharge the obligations on its part to be kept and performed under the terms of this Lease, Tenant's tenancy will not be disturbed nor this Lease affected by any default under such mortgage, and Tenant agrees that this Lease shall remain in full force and effect even though default in the mortgage may occur. ARTICLE 18 ---------- QUIET ENJOYMENT --------------- 18.1. Tenant, upon paying the Base Annual Rent and additional rent and/or any and all other sums and charges to be paid by it as herein provided, and upon observing and keeping all covenants, warranties, agreements and conditions of this Lease on its part to be kept, shall quietly have and enjoy the Demised Premises during the Term of this Lease. 18.2. Landlord represents and warrants to Tenant that: (a) As of the date hereof and as of the Commencement Date, it is the owner of the fee simple title to the Demised Premises, free and clear of all liens and encumbrances, except for the Approved Title Exceptions. (b) It has the power and authority to execute and deliver this Lease and to carry out and perform all covenants to be performed by it hereunder, and such power and authority shall be confirmed on or before the Commencement Date by the delivery to -17- Tenant of a duly executed corporate resolution as to the same adopted by the Shareholders and the Directors of Landlord. 18.3. Tenant represents and warrants to Landlord that: (a) It is a corporation duly organized and existing under the laws of the State of North Carolina. (b) It has the power and authority to execute and deliver this Lease and to carry out and perform all covenants to be performed by it hereunder. ARTICLE 19 ---------- TERMINATION AND DEFAULT ----------------------- 19.1. In the event that (a) Tenant shall fail to pay any installment of Base Annual Rent and/or additional rent and/or any other sums or charges to be paid by Tenant under this Lease when the same shall be due and payable and such failure shall continue for a period of ten (10) days after receipt by Tenant of notice in writing from Landlord specifying in detail the nature of such failure; or (b) Tenant shall fail to perform any of the other covenants, conditions and agreements herein contained on Tenant's part to be kept or performed and such failure shall continue without the curing of same for a period of thirty (30) days (or such additional period of time as may reasonably be required to cure such default if it cannot be cured within thirty (30) days, so long as Tenant is making diligent effort to cure same) after receipt by Tenant of notice in writing from Landlord specifying in detail the nature of such failure; or (c) Tenant shall voluntarily or involuntarily abandon, desert or vacate the Demised Premises or discontinue its operations therein regardless of the fault of Tenant; or (d) Tenant shall become insolvent, or shall take the benefit of any present or future insolvency statute, or shall make a general assignment for the benefit of its creditors, or shall file a voluntary petition in bankruptcy or a petition or answer seeking an arrangement or its reorganization or the readjustment of its indebtedness under the federal bankruptcy laws or under any other law or statute of the United States or of any State thereof, or consent to the appointment of a receiver, trustee or liquidator of all or substantially all its property; or (e) a petition under any part of the federal bankruptcy laws or an action under any present or future insolvency law or statute shall be filed by or against Tenant or against any guarantor of Tenant's obligations hereunder; or (f) by order or decree of a court, Tenant shall be adjudged bankrupt or an order shall be made approving a petition filed by any of the creditors of or by any of the partners of Tenant, seeking its reorganization or the readjustment of its indebtedness under the federal bankruptcy laws or under any law or statute of the United States or of any State thereof now or hereafter in effect; or (g) by or pursuant to any order or decree of any court or governmental board, agency or officer, a receiver, trustee or liquidator shall take possession or control of all or substantially all the property of Tenant, or any execution or attachment shall be issued against Tenant or any of its property whereupon possession or control of the Premises or of the income therefrom shall be taken by someone other than Tenant, and any such possession or control shall continue in effect for a period of thirty (30) days; or (h) the -18- interest or estate of Tenant under this Lease be sold, transferred, assigned, mortgaged, pledged, hypothecated, encumbered, conveyed or shall pass to or devolve upon (by operation of law, by statute or otherwise) any person or entity other than Tenant, except as provided in this Lease and provided further that for purposes of this Lease, a transfer of a controlling interest in Tenant or the sale to third parties of controlling interests in Tenant shall, for purposes of this paragraph, be considered a transfer of Tenant's interest under this subdivision; or (i) any mechanic's lien or other lien shall be filed against all or any portion of the Demised Premises or against Tenant's interest under this Lease and are not removed or discharged of record within ninety (90) days, as provided in Article 10 hereof; then in any such event, Landlord may, in addition to any other rights or remedies available to Landlord at law or in equity, elect to terminate this Lease, in which event Landlord shall give to Tenant, a notice of election to end the Term of this Lease upon a date specified in such notice, which date shall be not less than ten (10) business days (Saturdays, Sundays and legal holidays excluded) after the date of receipt by Tenant of such notice from Landlord, and upon the date specified in said notice, the Term and the estate hereby vested in Tenant shall cease and any and all other right, title and interest of Tenant hereunder shall likewise cease without further notice or lapse of time, as fully and with like effect as if the entire Term of this Lease had elapsed. 19.2. In the event that Landlord shall elect to terminate this Lease in accordance with the provisions of this Article then Tenant, in addition to any and all other liability as the result of same, shall be and remain liable for: (a) All payments of Base Annual Rent and/or other additional rents and/or sums due to be paid by Tenant under the Lease in arrears and/or in default on the date of termination and/or which would be due and payable for the balance of the Term; and (b) Any and all costs or expenses incurred by Landlord as the result of Tenant's default, including but not limited to the cost and expense of the termination of this Lease and of reletting the Demised Premises. Any such costs and expenses shall be paid in monthly installments by Tenant on the first (1st) day of the month succeeding the month in which the same arose and Landlord shall be entitled to recover from Tenant any such additional costs and expenses each month as the same shall arise. 19.3. Landlord shall, upon giving of notice of termination as provided in this Article, have the right to re-enter the Demised Premises and every part thereof upon the effective date of termination without further notice of any kind, and may regain and resume possession either with or without the institution of summary or any other legal proceedings or otherwise. Such re- entry or regaining of possession, however, shall not in any manner affect, alter or diminish any of the obligations of Tenant under this Lease, and shall in no event and under no circumstances constitute an acceptance of surrender. Upon such re-entry Landlord shall have, and is hereby expressly given, all rights to collect all rental and other amounts due from Tenants. Landlord's affidavit that such re-entry has occurred shall conclusively authorize all Tenants to pay all future rentals theretofore collected by Tenant, directly to Landlord. Upon such re-entry, Tenant shall immediately pay over to Landlord all security deposits in its possession or control. -19- ARTICLE 20 ---------- SURVIVAL OF THE OBLIGATIONS OF TENANT ------------------------------------- In the event that this Lease shall have been terminated in accordance with a notice of termination as provided in Article 19 of this Lease, or the interest of Tenant is cancelled pursuant thereto, or in the event that Landlord has re- entered or regained possession of the Premises in accordance with the provisions of Article 19 of this Lease, all the obligations of Tenant under this Lease shall survive such termination or cancellation, re-entry or regaining of possession and shall remain in full force and effect for the full Term of this Lease, and the amount or amounts of damages or any and all other payments for which Tenant is thereby made liable under paragraph 19.2 of Article 19, or otherwise, shall become due and payable to Landlord with interest at fourteen percent (14%) per annum. ARTICLE 21 ---------- WAIVERS ------- Failure of Landlord or Tenant to complain of or notify the other with respect to any act or omission on the part of the other party, no matter how long the same may continue, shall not be deemed to be a waiver by such party of any of its rights hereunder. No waiver by Landlord or Tenant at any time, express or implied, of any breach of any other provision of this Lease shall be deemed a consent to any subsequent breach of the same or any other provision. ARTICLE 22 ---------- BROKER ------ Both Landlord and Tenant confirm and acknowledge that this Lease has been entered into and the transaction herein contemplated has been arrived at by direct negotiations between them and that no broker or finder has initiated, been the procuring cause of, or otherwise brought about this Lease and/or this transaction. -20- ARTICLE 23 ---------- FORCE MAJEURE ------------- In the event that Landlord or Tenant shall be delayed, hindered in or prevented from the performance of any act required hereunder, except for the payment by lessee of the Base Annual Rent and any and all additional rent or other charges as and when due and payable hereunder, by reason of strikes, inability to procure materials, failure of power, riots, insurrection, the act, failure to act or default of the other party, war or other reason or cause beyond their control, then performance of such act (except as aforesaid) shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. ARTICLE 24 ---------- HOLDING OVER ------------ Without giving or recognizing any right of Tenant to do so and without limiting any and all rights and remedies of Landlord with respect thereto, including without limitation, any and all damages or losses sustained by Landlord in connection therewith, if Tenant shall remain in possession of the Premises after the expiration of the Term of this Lease, then Tenant shall be deemed Tenant from month to month only. Any holding over by Tenant shall be upon and subject to all of the terms and conditions of this Lease except as to the Term of this Lease, and except that the option to purchase shall not be exercisable during such holdover, and the monthly rental payment then due and payable shall be an amount double the amount thereof in force at the end of the Term. ARTICLE 25 ---------- NOTICES ------- Every notice, approval, consent or other communication authorized or required by this Lease shall not be effective unless same shall be in writing and sent postage prepaid by United States registered or certified mail, return receipt requested, directed to the other party at its address set forth below, or such other address as either party may designate by notice to the other given from time to time in accordance with this Article 25. The Base Annual Rent and/or any -21- other additional rent and/or other charges which Tenant is required hereunder to pay to Landlord shall be so paid at the same place where notice to Landlord is herein required to be directed. To Tenant: 1396 Charlotte Hwy. To Landlord: 4420 Sherwin Road (US 74 East) Willoughby, Ohio 44094 Fairview, NC 28730-0520 FAX: (216) 951-1724 FAX: 704-628-1439 Copy to: Benesch, Friedlander, Coplan & Aronoff P.L.L. Attn: Chairperson, Real Estate Dept. 2300 BP America Bldg. 200 Public Square Cleveland, Ohio 44114 ARTICLE 26 ---------- ENVIRONMENTAL MATTERS --------------------- 26.1. For purposes of this Agreement, the terms defined below have the following meanings: (a) "Contaminants" means those substances which are regulated by or form the basis of liability under any Environmental Laws, including, but not limited to, hazardous waste, hazardous substances, petroleum and any byproducts or fractions thereof, asbestos, and polychlorinated biphenyls ("PCBs"). (b) "Escrow Agreement" means the Environmental Remediation and Escrow Agreement, between Landlord and Tenant dated as of the date hereof. (c) "Environmental Laws" means all applicable Federal, state, and local laws, regulations and ordinances relative to air quality, water quality, solid waste management, hazardous waste management, hazardous or toxic substances or the protection of human health or the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Sec. 9601 et seq.), the -- --- Hazardous Material Transportation Act (49 U.S.C. Sec. 1801 et seq.), the -- --- Federal Water Pollution Control Act (33 U.S.C. Sec. 1251 et seq.), the -- --- Resource Conservation and Recovery Act of 1976 (42 U.S.C. Sec. 6901 et -- seq.), the Clean Air Act (42 U.S.C. Sec. 7401 et seq.), the Toxic --- -- --- Substances Control Act (15 U.S.C. Sec. 2601 et seq.), and the Federal -- --- Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Sec. 136 et seq.), as -- --- each of these laws may have been amended through the date of this Lease, and any analogous state or local statutes and the regulations promulgated pursuant thereto. -22- (d) "Pre-Closing Substances" means any Contaminants which were present, or Released in, on, under or from the Demised Premises prior to the date of this Lease. (e) "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, leaching, or migration into the environment, including the movement of any Contaminant or other substance through or in the air, soil, surface water, groundwater, or property. (f) "Remedial Action" means any action required under any Environmental Laws to (i) clean up, remove, treat, or in any other way address any Contaminant in the environment, (ii) prevent the Release or threatened Release, or minimize the further Release of any Contaminant so it does not migrate or endanger or threaten to endanger public health or welfare or the environment, or (iii) perform pre-remedial studies and investigations and post-remedial monitoring and care. 26.2. (a) Landlord shall indemnify, defend and hold harmless Tenant and any person claiming by or through Tenant (collectively the "Environmental Indemnitees") from and against any and all expense (including, without limitation, reasonable attorney fees and consultant fees), loss, judgment or other liability suffered or incurred in connection with any claims, suits, fines, governmental inquiries, requirements (including legally required Remedial Action), or orders by reason of or in connection with the presence, Release or threatened Release of any Pre-Closing Substance on, in, under or from the Demised Premises, or of any Contaminants from offsite sources onto or under the Demised Premises after the date of this Lease; provided, however, that this indemnity shall not cover any expense, loss, judgment or other liability which arises from the Release or threatened Release of any Contaminants caused by the activities of Environmental Indemnitees on, in, under or from the Demised Premises on or after the date of this Lease. (b) The indemnification rights and obligations set forth in Section 26.2(a) shall survive the expiration of this Lease; provided, however, that any indemnification by Landlord contained in Section 26.2(a) with respect to the presence, Release or threatened Release of Contaminants from offsite sources shall cease in the event Tenant purchases the Demised Premises. (c) The maximum aggregate amount of indemnification for which Landlord shall be liable under this Article 26, (including the amount of the Escrow Fund (as defined in the Escrow Agreement)), shall not exceed Twelve Million Dollars ($12,000,000). 26.3. The liabilities and obligations of Landlord with respect to the environmental indemnity provisions set forth in Section 26.2 shall be subject to the following: (a) If an Environmental Indemnitee obtains any knowledge of, or receives any notice with respect to, the occurrence of any event or the existence of any action by any person, including any formal or informal inquiry by any person or governmental agency, -23- which the Environmental Indemnitee is aware, in the exercise of reasonable discretion, could form the basis for a claim for indemnification under Section 26.2 ("Indemnification Event"), the Environmental Indemnitee shall promptly notify the Landlord in writing. (b) Unless it reasonably believes that it is required to do so by applicable law or regulation, none of the Environmental Indemnitees shall give notice to any governmental authority of any Indemnification Event unless the Landlord shall have given its prior written consent to the giving of such notice; provided, however, that Landlord's consent shall not be unreasonably withheld. The Environmental Indemnitees shall give Landlord prior written notice and a description of any proposed discussions between Tenant, its representatives and advisors and any governmental authority relating to an Indemnification Event, and Landlord shall be entitled to participate in such discussions. (c) Except to the extent that an Environmental Indemnitee reasonably believes that it is required to do so by applicable law, no Environmental Indemnitee shall undertake any Remedial Action in respect of any Pre-Closing Substances, without the prior written consent of Landlord. (d) If the Environmental Indemnitee and Landlord agree or the Landlord determines in its sole judgment that any Remedial Action is legally required in respect of any Pre-Closing Substances or if any judicial or governmental authority, including but not limited to, the U.S. Environmental Protection Agency and the Ohio Environmental Protection Agency, requires any such Remedial Action, or with respect to remedial activities required by the Escrow Agreement, Landlord shall undertake and have the right to control the performance of all aspects of any such Remedial Action. (e) The Environmental Indemnitees will cooperate with Landlord's exercise of its right to visit, inspect and enter upon any property concerning which a claim for indemnification is sought hereunder, to conduct any environmental tests as Landlord may require in respect of any Indemnification Event and to conduct any required Remedial Action in connection with the Pre-Closing Substances, provided Landlord exercises reasonable care not to interfere with the normal business operations of Tenant, and the Environmental Indemnitees will promptly deliver to Landlord copies of any environmental reports, studies, surveys, test data, assessments, cost estimates and similar information available to the Environmental Indemnitees relating to any Indemnification Event. (f) In connection with any claim asserted by any person against any Environmental Indemnitee with respect to which such Environmental Indemnitee is entitled to indemnification under Section 26.2, Landlord shall: (1) promptly assume the defense of such claim and give notice to the Environmental Indemnitees of its assumption of such defense; (2) promptly retain legal counsel of its choosing in connection with such defense; and (3) keep all Environmental Indemnitees informed and consult with each Environmental Indemnitee in connection with the defense of any such claim. Each Environmental Indemnitee retains the right, but not the obligation, to employ its own counsel and to participate in the defense of any such claim, the cost of which shall be the -24- sole responsibility of such Environmental Indemnitee unless Landlord has not promptly provided a defense in which case Section 26.3(g) applies. Landlord shall have the authority to settle or compromise any action or proceeding pending or threatened against any Environmental Indemnitee without the prior consent of such Environmental Indemnitee, unless as a result of such settlement or compromise: (i) injunctive or other equitable relief would be imposed against such Environmental Indemnitee; (ii) monetary damages would be awarded against any Environmental Indemnitee which Landlord will not pay in full contemporaneously with the execution of the settlement or compromise; or (iii) any Environmental Indemnitee would be deemed thereby to admit to any wrongdoing. (g) If Landlord fails or refuses promptly to assume the defense of any claim relating to an Indemnification Event and promptly to retain counsel therefor, then the Environmental Indemnitees may, but shall not be required to, participate in the defense of such claim with counsel and other experts of their own choice, and the Environmental Indemnitees' costs in connection with such defense shall be borne by Landlord if it is determined that Landlord is liable for indemnification hereunder in respect of such claim. 26.4. If requested by Landlord, any Environmental Indemnitee shall cooperate with the Landlord and its counsel in contesting any claim which the Landlord elects to contest or, if appropriate, in making any well grounded counterclaim against the person asserting the claim, or any well grounded cross- claim against any person, and further agrees to take such other actions as reasonably may be requested by an indemnifying party to reduce or eliminate any loss or expense for which the Landlord would have responsibility. The Landlord will reimburse the Environmental Indemnitee for any expenses including reasonable attorney fees in reviewing the propriety of any proposed counterclaim or cross claim incurred by it in so cooperating or acting at the request of the Landlord. 26.5. (a) Except in compliance with all applicable Environmental Laws and as otherwise specifically set forth in this Article 26, Tenant warrants that Tenant shall not cause or permit any Contaminant to be used, treated, stored, generated, handled or Released on, in, under or from the Demised Premises by Tenant, Tenant's officers, directors, agents, subagents, employees, contractors, subcontractors, licensees, invitees, successors or assigns (collectively the "Tenant Group"). Tenant shall indemnify, defend and hold harmless Landlord and any person claiming by or through Landlord from and against any and all expense (including, without limitation, reasonable attorney fees and consultant fees), loss, judgment or other liability suffered or incurred in connection with any claims, suits, fines, governmental inquiries, requirements (including legally required Remedial Action), or orders by reason of or in connection with Tenant Group causing the presence, Release or threatened Release on or after the date of this Lease of any Contaminants on, in, under or from the Demised Premises, provided, however, that this indemnity shall not cover any expense, loss, judgment or other liability which arises from the presence, Release or threatened Release of any Contaminants on, in, under or from the Demised Premises prior to the date of this Lease. -25- (b) If Tenant becomes obligated pursuant to this Section 26.5 to indemnify Landlord or any person claiming by or through Landlord for Tenant Environmental Damages, Tenant shall promptly, at its sole expense, take any and all necessary actions, including but not limited to any Remedial Actions, to return the Premises to the condition existing before the occurrence of any Tenant Environmental Damages caused by Tenant or the Tenant Group. The indemnification rights and obligations set forth in this Section 26.5 shall survive the expiration of this Lease. 26.6 Except for any claim, damage or liability which has been proximately caused by Tenant Group, Landlord releases the Tenant Group from any claims, whether for contribution or otherwise, it may have during the term of this Lease or thereafter in the future arising under 42 U.S.C. Sections 9607 & 9613 or any other Environmental Laws with respect to Pre-Closing Substances or with respect to other Contaminants migrating from offsite sources onto or under the Premises after the date of this Lease; provided, however, that the provisions of this Section 26.6 shall have no effect in the event Tenant purchases the Demised Premises. 26.7 Tenant hereby grants entry and access to the Site to Landlord and/or Landlord's agents, employees, representatives and contractors, as necessary, to conduct the Remediation (as defined in the Escrow Agreement). Tenant shall not materially interfere with Landlord's conduct of the Remediation and Landlord shall use reasonable care in its conduct of the Remediation to not materially interfere with Tenant's normal business operations at the Demised Premises. Landlord shall have no liability to Tenant for any loss, damage, expense or other liability arising as a result of interference with Tenant's normal business operations at the Demised Premises in the conduct on the Remediation by Landlord if Landlord has used reasonable best efforts to minimize disturbance of Tenant's ability to conduct business at the Demised Premises. ARTICLE 27 ---------- CERTIFICATES ------------ Either party shall, without expense to the other, at any time and from time to time hereafter, within ten (10) days after written request of the other, certify by written instrument duly executed and acknowledged to any mortgagee or purchaser, or proposed mortgagee or proposed purchaser, or any other person, firm, partnership or corporation specified in such request: (a) as to whether this Lease has been supplemented or amended, and if so, the substance and manner of such supplement or amendment; (b) as to the validity and force and effect of this Lease, in accordance with its tenor as then constituted; (c) as to the existence of any default hereunder; (d) as to the commencement and expiration dates of the Term of this Lease; and (e) as to any other matters as may reasonably be so requested. Any such certificate may be relied upon by the party requesting it and any other person, firm, partnership or corporation to whom the same may be exhibited or delivered, and the contents of such certificate be binding on the party executing same. -26- ARTICLE 28 ---------- GOVERNING LAW ------------- This Lease and the performance hereof shall be governed, interpreted, construed and regulated by the substantive laws of the State of Ohio. ARTICLE 29 ---------- PARTIAL INVALIDITY ------------------ If any term, covenant, condition or provision of this Lease or the application thereof to any person or circumstance shall, at any time or to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant, condition and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. ARTICLE 30 ---------- SHORT FORM LEASE ---------------- The parties agree that this Lease shall not be recorded, provided, however, that the parties will, at any time, at the request of either one, promptly execute duplicate originals of an instrument, in recordable form, which will constitute a short form of Lease, setting forth a description of the Demised Premises, the Term of this Lease and Tenant's option to purchase the Demised Premises, except that the rental, purchase price and/or terms of the option to purchase and any other economic terms or provisions hereof, shall not be set forth therein. ARTICLE 31 ---------- ARBITRATION ----------- Except as provided in Section 7.13, claims, disputes or other matters in question between the parties to this Lease arising out of or relating to this Lease or breach thereof shall be subject to and decided by arbitration in accordance with the rules of the American Arbitration Association currently in effect, unless the parties mutually agree otherwise, and in accordance with the following: -27- (a) Demand for arbitration shall be filed in writing with the other party to this Lease and with the American Arbitration Association. A demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statutes of limitations. (b) Any arbitration arising out of or relating to this Lease shall include, by consolidation, joinder or joint filing, any additional persons or entities not parties to this Lease to the extent reasonably necessary to the final resolution of the matter in controversy. (c) All arbitration proceedings shall be heard and decided by three (3) arbitrators, one selected by each party and the third selected by the first two arbitrators who shall experienced in matters similar to the subject of the arbitration. Each party shall be responsible for payment of its own arbitrator's fees and each party shall pay one-half (1/2) of the fee for the third arbitrator. (d) Each party shall be responsible for its own costs and expenses incurred in connection with the arbitration including, without limitation, attorney's fees. (e) Unless the parties otherwise agree, pre-hearing discovery shall be limited to production of documents and other things, as contemplated by Rule 34(a) of the Federal Rules of Civil Procedure. (f) In all arbitration proceedings, the award of the arbitrators shall not be limited to a single dollar amount, but (i) shall indicate the arbitrators' decision respect to the various claims, disputes or other matters in question presented by each party and (ii) shall contain a brief statement of the reasons supporting the arbitrator's decision. (g) The award rendered by the arbitrator or arbitrators shall be final and binding upon all parties, judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. (h) The location for arbitration of any and all claims, controversies or disputes arising out of or relating to this Lease or any breach thereof shall be Cleveland, Ohio. ARTICLE 32 ---------- INTERPRETATION -------------- 30.1. Wherever herein the singular number is used, the same shall include the plural, and the masculine gender shall include the feminine and neuter genders, and vice versa, as the context shall require. The section headings used herein are for reference and convenience only, and shall -28- not enter into the interpretation hereof. This Lease may be executed in counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. 30.2. Whenever this Lease provides that one party hereto agrees to perform any act upon the request of and "at no expense" to the other party, or similar words to that effect, such term shall be interpreted to mean that the party performing such act at the request of the other shall not demand or receive from the other party any compensation for performing such act. 30.3. Time is of the essence as to any and all times and/or time periods provided for in this Lease. ARTICLE 33 ---------- ENTIRE AGREEMENT ---------------- The Lease contains the entire agreement of the parties. This Agreement shall not be modified except by an instrument in writing subscribed to by all parties. ARTICLE 34 ---------- FURTHER ASSURANCES ------------------ The parties agree to cooperate with each other and to execute and deliver, without expense to the other, such further documents and assurances as may be necessary to carry out the purposes of this Lease. ARTICLE 35 ---------- PARTIES ------- Except as herein otherwise expressly provided, the covenants, conditions and agreements contained in this Lease shall be binding upon and inure to the benefit of Tenant and Landlord, Landlord's successors and assigns and Tenant's permitted successors and assigns. -29- ARTICLE 36 ---------- COUNTERPARTS ------------ This Lease may be executed in multiple counterparts, all of which shall be deemed to be an original copy thereof. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the date first hereinabove written. WITNESSES: LANDLORD: Figgie Properties, Inc. ____________________________________ By:________________________________ ____________________________________ As to Landlord TENANT: Communications Instruments, Inc. dba Hartman Division of CII Technologies, Inc. ____________________________________ By:________________________________ ____________________________________ And:_______________________________ As to Tenant -30- The undersigned hereby assumes and agrees to perform each of Landlord's obligations under Article 26 hereof as a co-obligor with Landlord. Notices to the undersigned shall be sent to Landlord's address set forth in Article 25 hereof and the undersigned shall be entitled to the same number of days of notice to which Landlord is entitled in order to require the undersigned to perform any obligations under Article 26. FIGGIE INTERNATIONAL, INC. By:________________________________ STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) BEFORE ME, a Notary Public, in and for said County and State, personally appeared the above-named Figgie Properties, Inc., a Delaware corporation, by _________________________, its ___________________, who acknowledged that he did sign the foregoing instrument and that the same is the free act and deed of said corporation, duly authorized by appropriate resolutions adopted by the Board of Directors of said corporation, and his free act and deed personally and as such officer. IN WITNESS WHEREOF, I have hereunto set my hand and official seal on this _____ day of _______________, 1996. ____________________________________ Notary Public -31- STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) BEFORE ME, a Notary Public, in and for said County and State, personally appeared the above-named Communications Instruments, Inc. dba Hartman Division of CII Technologies, Inc., a corporation, by its Chairman and its Secretary, who acknowledged that they did sign the foregoing instrument and that the same is the free act and deed of said corporation, duly authorized by appropriate resolutions adopted by the Board of Directors of said corporation, and their free act and deed personally and as such officers. IN WITNESS WHEREOF, I have hereunto set my hand and official seal on this _____ day of _______________, 1996. ____________________________________ Notary Public This instrument prepared by: Bernard D. Goodman, Esq. Attorney at Law Benesch, Friedlander, Coplan & Aronoff P.L.L. 2300 BP Building 200 Public Square Cleveland, Ohio 44114-2378 Telephone: (216) 363-4500 -32- EXHIBIT C The Approved Title Exceptions shall not prevent the use of the Demised Premises for substantially the same purposes for which the Demised Premises are now being used by Hartman. -33- EX-11 14 STATEMENT RE COMPUTATION OF PRO FORMA CII TECHNOLOGIES INC. EXHIBIT 11 STATEMENT RE: COMPUTATION OF PRO FORMA PER SHARE EARNINGS
Fiscal Year Ended Three Months Ended ----------------- ------------------ December 31, December 31, December 31, April 2, March 31, 1993 1994 1995 1995 1996 ------------------------------------------------------------------------------ Pro Forma Primary Earnings Per Share (1) Average Shares Outstanding 2,400,000 2,415,685 2,440,274 2,425,000 2,550,000 Effect for stock issued via subscription agreements (3) 95,440 95,440 95,440 95,440 - ------------------------------------------------------------------------------ Weighted Average Shares Outstanding 2,495,440 2,511,125 2,535,714 2,520,440 2,550,000 ============================================================================== Net Income ($000) $ (960) $ 87 $ (2,363) $ (134) $ 79 ============================================================================== Net Income per Share $ (0.38) $ 0.03 $ (0.93) $ (0.05) $ 0.03 ==============================================================================
Pro Forma Fully Diluted Earnings Per Share (1) (2) Average Shares Outstanding 2,400,000 2,415,685 2,440,274 2,425,000 2,550,000 Effect for stock issued via subscription agreements (3) 95,440 95,440 95,440 95,440 - ------------------------------------------------------------------------------ Weighted Average Shares Outstanding 2,495,440 2,511,125 2,535,714 2,520,440 2,550,000 ============================================================================== Net Income ($000) $ (960) $ 87 $ (2,363) $ (134) $ 79 ============================================================================== Net Income per Share $ (0.38) $ 0.03 $ (0.93) $ (0.05) $ 0.03 ==============================================================================
(1) Pro Forma Earnings Per Share Information gives effect to the 2.5 for 1 stock split effective with the closing of the initial public offering. (2) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) however no stock options or warrants with a dilutive effect existed for any period presented. (3) Per Staff Accounting Bulletin, Topic 4D, "Earnings Per Share Computations in an Initial Public Offering" stock issued within a one year period prior to the initial filing of the registration statement are treated as outstanding for periods reported. The Company issued 40,000 shares of common stock via subscription agreements to certain employees of the Company in December 1995. EX-21 15 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 1.01 Corporate Structure The attached chart shows the CII Technologies corporate structure with one -------- exception. Midtex is not a subsidiary, it is a division. - --------- /TM/ CII Technologies Inc. Corporate Worldwide Leader in High Performance Relay Technology Chart /TM/ CII Technologies Inc. Delaware /TM/ Communications Instruments, Inc. Fairview, North Carolina KILOVAC MIDTEX Santa Barbara, California El Paso, Texas FSC ELECTROMECH Cayman Islands Juarez, Mexico EX-23.1 16 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of CII Technologies Inc. and subsidiaries on Form S-1 of our report on the financial statements of Hartman Electrical Manufacturing Division of Figgie International dated June 28, 1996, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Cleveland, Ohio July 12, 1996 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of CII Technologies Inc. and subsidiaries on Form S-1 of our report dated March 21, 1996, appearing in the Prospectus, which is part of this Registration Statement, and of our report dated March 21, 1996, relating to the financial statement schedule appearing elsewhere in this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Charlotte, North Carolina July 12, 1996 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of CII Technologies Inc. and subsidiaries on Form S-1 of our report on the financial statements of Kilovac Corporation and subsidiaries dated December 6, 1995, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Los Angeles, California July 12, 1996 EX-27.1 17 FINANCIAL DATA SCHEDULE
5 YEAR 3-MOS DEC-31-1995 DEC-31-1996 DEC-31-1995 MAR-31-1996 193 73 0 0 8,512 8,331 (420) (446) 10,642 10,963 3,230 3,122 18,284 18,284 (5,059) (5,280) 48,986 48,359 12,253 12,218 0 0 4,497 4,590 0 0 9 9 (2,514) (2,435) 48,986 48,359 39,918 13,119 39,953 13,135 28,687 9,193 28,687 9,193 11,430 2,722 0 0 2,997 874 (3,194) 330 (1,076) 142 (2,153) 172 0 0 0 0 0 0 (2,363) 79 (0.93) 0.03 (0.93) 0.03
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