-----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, OTYkf/nuDP/x8D86u/qeyrMn3YJN2N0q5x1irqJMzJ8dTOyELNnmLnUQg/nIP4ra 385KaZUQNUEyVJdGWaKRtA== 0000049728-01-500003.txt : 20010501 0000049728-01-500003.hdr.sgml : 20010501 ACCESSION NUMBER: 0000049728-01-500003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010330 FILED AS OF DATE: 20010430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEC ELECTRONICS CORP CENTRAL INDEX KEY: 0000049728 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 133458955 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06508 FILM NUMBER: 1616050 BUSINESS ADDRESS: STREET 1: 105 NORTON ST CITY: NEWARK STATE: NY ZIP: 14513 BUSINESS PHONE: 3153317742 MAIL ADDRESS: STREET 1: PO BOX 271 CITY: NEWARK STATE: NY ZIP: 14513 10-Q 1 file002.txt SECOND QUARTER 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange - - - Act of 1934 For the quarterly period ended March 30, 2001 Commission file Number 0-6508 IEC ELECTRONICS CORP. ----------------------------------------------------- (Exact name of registrant as specified in its charter.) Delaware 13-3458955 ----------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 105 Norton Street, Newark, New York 14513 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices (Zip Code) (315) 331-7742 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code: Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common Stock, $0.01 Par Value - 7,659,230 shares as of April 27, 2001. Page 1 of 15 PART 1 FINANCIAL INFORMATION Page Number Item 1. Financial Statements Consolidated Balance Sheets as of : March 30, 2001 (Unaudited) and September 30, 2000............. 3 Consolidated Statements of Operations for the three months ended: March 30, 2001 (Unaudited) and March 31, 2000 (Unaudited)................................................... 4 Consolidated Statements of Operations for the six months ended: March 30, 2001 (Unaudited) and March 31, 2000 (Unaudited)..... 5 Consolidated Statement of Cash Flows for the six months ended: March 30, 2001 (Unaudited) and March 31, 2000 (Unaudited)..... 6 Notes to Consolidated Financial Statements (Unaudited)........ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 11 PART II Item 1. Legal Proceedings.............................................. 14 Item 2. Changes in Securities.......................................... 14 Item 3. Defaults Upon Senior Securities................................ 14 Item 4. Submission of Matters to a Vote of Security Holders............ 14 Item 5. Other Information.............................................. 14 Item 6. Exhibits and Reports on Form 8-K............................... 14 Signature ............................................................. 15 Page 2 of 15 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 30, 2001 AND SEPTEMBER 30, 2000 (in thousands, except for share data)
MARCH 30,2001 SEPTEMBER 30,2000 ---------------- ------------------ ASSETS (Unaudited) Current Assets: Accounts receivable $ 26,226 $ 27,915 Inventories 37,151 36,157 Other current assets 480 75 --------- ---------- Total current assets 63,857 64,147 --------- ---------- Property, Plant and Equipment, net 14,484 15,225 ---------- ---------- Other Assets: Cost in excess of net assets acquired, net 9,643 9,820 Other assets 236 300 ----------- ---------- Total other assets 9,879 10,120 ----------- ---------- $ 88,220 $ 89,492 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 2,105 $ 2,105 Accounts payable 28,210 25,295 Accrued payroll and related expenses 3,003 2,572 Accrued income taxes 99 - Accrued insurance 1,218 1,583 Other accrued expenses 2,264 1,663 -------- ------- Total current liabilities 36,899 33,218 -------- ------- Long-Term Debt 12,793 15,266 -------- ------- Shareholders' Equity: Preferred stock, par value $.01 per share Authorized - 500,000 shares Outstanding - 0 shares - - Common stock, par value $.01 per share Authorized - 50,000,000 shares Outstanding - 7,632,621 shares and 7,626,565 shares, respectively 76 76 Additional paid-in capital 38,341 38,332 Retained earnings 128 2,611 Accumulated other comprehensive income - Cumulative translation adjustment (6) - Treasury stock, at cost - 573 shares (11) (11) --------- --------- Total shareholders' equity 38,528 41,008 --------- --------- $ 88,220 $ 89,492 ========= ========= The accompanying notes to unaudited consolidated financial statements are an integral part of these balance sheets
Page 3 of 15 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000 (in thousands, except share data)
3 MONTHS ENDED 3 MONTHS ENDED MARCH 30, 2001 MARCH 31, 2000 -------------- ------------------ (Unaudited) (Unaudited) Net sales $45,592 $64,338 Cost of sales 43,121 61,971 ------- ------- Gross profit 2,471 2,367 Selling and administrative expenses 2,902 3,281 Reversal of restructuring charges - (857) ------- ------- Operating loss (431) (57) Interest expense (433) (553) Other income(expense), net 6 (1) ------- ------- Loss before provision for (benefit from) income taxes (858) (611) Income tax expense, (benefit) 99 (5) ------- ------- Net loss $ (957) $ (606) ======= ======= Net loss per common and common equivalent share: Basic and Diluted $ (0.13) $ (0.08) Weighted average number of common and common equivalent shares outstanding: Basic and Diluted 7,631,345 7,581,720 The accompanying notes to unaudited consolidated financial statements are an integral part of these financial statements.
Page 4 of 15 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000 (in thousands, except share data)
6 MONTHS ENDED 6 MONTHS ENDED MARCH 30, 2001 MARCH 31, 2000 -------------- ------------------ (Unaudited) (Unaudited) Net sales $105,248 $108,108 Cost of sales 101,007 105,712 ------- -------- Gross profit 4,241 2,396 Selling and administrative expenses 5,716 6,188 Reversal of restructuring charges - (857) ------- -------- Operating loss (1,475) (2,935) Interest expense (938) (914) Life insurance proceeds - 2,000 Other income, net 29 14 ------- -------- Loss before provision for (benefit from) income taxes (2,384) (1,835) Income tax expense, (benefit) 99 (5) ------- -------- Net loss $ (2,483) $ (1,830) ======= ======== Net loss per common and equivalent share: Basic and Diluted $ (0.33) $ (0.24) Weighted average number of common and common equivalent shares outstanding: Basic and Diluted 7,629,811 7,581,720 The accompanying notes to unaudited consolidated financial statements are an integral part of these financial statements.
Page 5 of 15 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000 (in thousands)
6 MONTHS 6 MONTHS ENDED ENDED MARCH 30, MARCH 31, 2001 2000 ----------- ----------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(2,483) $ (1,830) Adjustments to reconcile net loss to net cash (used in)provided by operating activities: Depreciation and amortization 2,800 3,795 Gain on sale of fixed assets (23) - Amortization of cost in excess of net assets acquired 177 177 Common stock issued under Directors Stock Plan 9 11 Changes in operating assets and liabilities: (Increase) decrease Accounts receivable 1,689 (13,667) Inventories (994) (6,341) Income taxes receivable - 2,966 Other current assets (405) (17) Other assets 65 (294) Increase (Decrease) Accounts payable 3,915 7,869 Accrued payroll and related expenses 431 (1,122) Accrued income taxes 99 - Accrued insurance (7) 608 Other accrued expenses 243 344 ------- -------- Net cash provided by (used in)operating activities 5,516 (7,501) ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (2,020) (529) Proceeds from sale of equipment 23 1,134 Utilization of restructuring provision for building/equipment (40) - -------- -------- Net cash (used in) provided by investing activities (2,037) 604 -------- -------- Cash Flows from Financing Activities: Net decrease in drafts payable (1,000) - Borrowings under line of credit agreements - 80,705 Repayments under line of credit agreements (1,420) (77,743) Principal payments on long-term debt (1,053) - -------- --------- Net cash (used in) provided by financing activities (3,473) 2,962 -------- --------- Net increase (decrease) in cash and cash equivalents 6 (3,935) Effect of exchange rate changes (6) (72) Cash and cash equivalents at beginning of period - 4,007 -------- --------- Cash and cash equivalents at end of period $ - $ - ======== ========= Supplemental Disclosures of Cash Flow Information: Cash paid(received)during the period for: Interest $ 885 $ 914 ======== ========= Income taxes $ - $ (2,954) ======== ========= Supplemental Disclosures of Noncash Information: During the six months ended March 31, 2000, the Company issued shares of its common stock in the amount $102 in the settlement of an accrued liability. The accompanying notes to unaudited consolidated financial statements are an integral part of these financial statements.
Page 6 of 15 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 2001 (1) Business and Summary of Significant Accounting Policies Business - -------- IEC Electronics Corp. (IEC) is an independent contract manufacturer of complex printed circuit board assemblies and electronic products and systems. IEC offers its customers a wide range of manufacturing and management services, on either a turnkey or consignment basis, including material procurement and control, manufacturing and test engineering support, statistical quality assurance and complete resource management. Consolidation - ------------- The consolidated financial statements include the accounts of IEC and its wholly-owned subsidiaries, IEC Electronicos de Mexico and IEC Electronics- Ireland Limited (collectively, the "Company"). In December 1999, the Company closed its underutilized Ireland operations and transferred some of the customers served there to its other operations in New York and Texas. All significant intercompany transactions and accounts have been eliminated. Revenue Recognition - ------------------- The Company recognizes revenue upon shipment of product for both turnkey and consignment contracts. In December 1999, the United States Securities and Exchange Commission ("SEC")issued Staff Accounting Bulletin 101,"Revenues Recognition in Financial Statements" subsequently updated by SAB 101A and SAB 101B ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company is required to adopt SAB 101 as of the beginning of the fourth quarter of fiscal 2001. Management does not expect a material impact on the results of operations from the implementation of SAB 101. Accounts Payable - ---------------- Trade accounts payable include drafts payable of $3.4 million and $4.4 million at March 30, 2001 and September 30, 2000, respectively. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The Company's cash and cash equivalents are held and managed by institutions which follow the Company's investment policy. The fair value of the Company's financial instruments approximates carrying amounts due to the relatively short maturities and variable interest rates of the instruments, which approximate current market interest rates. Inventories - ----------- Inventories are stated at the lower of cost (first-in, first-out) or market. The major classifications of inventories are as follows at period end (in thousands): March 30, 2001 September 30, 2000 ---------------- ---------------- (Unaudited) Raw materials $27,661 $23,331 Work-in-process 7,824 8,418 Finished goods 1,666 4,408 ---------------- ---------------- $37,151 $36,157 ================ ================ Foreign Currency Translation - ---------------------------- The assets and liabilities of the Company's foreign subsidiaries are translated based on the current exchange rate at the end of the period for the balance sheet and a weighted-average rate for the period of the consolidated statement of operations. Translation adjustments are recorded as a separate component of equity. Transaction gains or losses are included in operations. Page 7 of 15 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 2001 Unaudited Financial Statements - ------------------------------ The accompanying unaudited financial statements as of March 30, 2001, and for the three and six months ended March 30, 2001 have been prepared in accordance with generally accepted accounting principles for the interim financia1 information. In the opinion of management, all adjustments considered necessary for a fair presentation, which consist solely of normal recurring adjustments have been included. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2000 Annual Report on Form 10-K. Net Loss per Common and Common Equivalent Share - ------------------------------------------------ (in thousands, except for share and per share data) (Loss) Shares Per Share Three Months Ended (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------- March 30, 2001 Basic EPS Loss available to common Shareholders $ (957) 7,631,345 $(0.13) ==================================== March 31, 2000 Basic EPS Loss available to common Shareholders $ (606) 7,581,720 $(0.08) ==================================== (Loss) Shares Per Share Six Months Ended (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------- March 30, 2001 Basic EPS Loss available to common Shareholders $(2,483) 7,629,811 $(0.33) ==================================== March 31, 2000 Basic EPS Loss available to common Shareholders $(1,830) 7,581,720 $(0.24) ==================================== Basic EPS was computed by dividing reported earnings available to common shareholders by weighted-average common shares outstanding during the three and six month periods. No reconciliation is provided as the effect would be antidilutive. Page 8 of 15 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 2001 (2) Comprehensive Income -------------------- The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"(SFAS No. 130)on October 1, 1998. SFAS No. 130 requires comprehensive income and its components to be presented in the financial statements. Comprehensive income, which includes net (loss) income and foreign currency translation adjustments, was as follows for the three and six months ended March 30, 2001 and March 31, 2000.(in thousands): 3 MONTHS 3 MONTHS ENDED ENDED March 30, March 31, 2001 2000 ---------- ----------- (Unaudited) (Unaudited) Net loss $ (957) $ (606) Other comprehensive income: Foreign currency translation adjustments (6) (283) ---------- ----------- Comprehensive loss $ (963) $ (889) ========== =========== 6 MONTHS 6 MONTHS ENDED ENDED March 30, March 31, 2001 2000 ---------- ----------- (Unaudited) (Unaudited) Net loss $ (2,483) $ (1,830) Other comprehensive income: Foreign currency translation adjustments (6) (7) ---------- ----------- Comprehensive loss $ (2,489) $ (1,837) ========== =========== (3) Financing Arrangements ---------------------- On December 28, 1999, the Company entered into a three-year secured asset-based facility for $35.0 million. The credit facility as amended on March 30, 2000, December 1, 2000, and April 24, 2001, consists of two components, the first a $25.0 million revolving credit facility based on eligibility criteria for receivables and inventory. Amounts borrowed are limited to 85 percent of qualified accounts receivable, 20 percent of raw materials, and 30 percent of finished goods inventory, respectively. The second component consists of a $10 million three-year term loan with monthly principal installments based on a five-year amortization which began in April 2000. At March 30, 2001, $14.9 million was outstanding consisting of $7.0 million and $7.9 million relating to the revolving credit facility and term loan, respectively, with $14.4 million available under the revolving credit facility. Interest on this revolving credit facility is determined at the Company's option on a LIBOR or prime rate basis, plus a margin. A facility fee is paid on the unused portion of the facility. The credit facility contains specific affirmative and negative covenants, including, among others, the maintenance of certain financial covenants, as well as limitations on amounts available under the lines of credit relating to the borrowing base, capital expenditures, lease payments and additional debt. The more restrictive of the covenants require the Company to maintain a minimum tangible net worth, minimum net income after taxes, maximum debt-to-tangible worth ratio, and minimum cash flow coverage. As of the date of this filing, the Company is in compliance with these debt covenants. (4) Life Insurance Proceeds ----------------------- The Company's then President and Chief Executive Officer died suddenly on December 11, 1999. In the first quarter of fiscal 2000, the Company received non-taxable income from insurance proceeds of approximately $2.0 million. Page 9 of 15 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 2001 (5) Litigation ----------- The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position or results of operations of the Company. (6) Longford Operations ------------------- In February 2000, a third party purchased from the Company certain assets of Longford and assumed the lease of the Longford facility. This resulted in a benefit of $857 thousand from the reversal of a previously established restructuring reserve. (7) IEC Electronicos de Mexico -------------------------- In December 1998, the Company entered into a Shelter Services Agreement with a Texas Limited Partnership and its Mexican corporate subsidiary which leased 50,000 square feet in a newly constructed industrial park in Reynosa, Mexico. This Maquiladora facility thereafter commenced manufacturing printed circuit board assemblies and wire harnesses and began shipping in April 1999 as IEC Electronicos de Mexico. Effective February 1, 2001, the Company terminated the Shelter Services Agreement and exercised its option to acquire the Mexican subsidiary of the Texas Limited Partnership for one U.S. dollar ($1.00). On March 28, 2001, the subsidiary, now wholly owned by the Company, executed a new five-year lease agreement with a five-year renewal option combining the original 50,000 square feet with an additional 62,000 square feet at the Reynosa facility. Effective May 1, 2001, the Mexican subsidiary, IEC Electronicos de Mexico, S. De R.L. De C.V. will occupy the entire 112,000 square foot facility. During the second fiscal quarter, the Company accrued income tax expense of $99,000 related solely to payment of Mexican Maquiladora taxes calculated based on assets and operating expenses. Page 10 of 15 Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------ of Operations - ------------------------------------ Results of Operations - Three Months Ended March 30, 2001, Compared to the - -------------------------------------------------------------------------- Three Months Ended March 31, 2000. - ---------------------------------- Net sales for the three month period ended March 30, 2001, were $45.6 million, compared to $64.3 million for the comparable period of the prior year, a decrease of 29.1 percent. The decrease in sales is primarily due to the overall softening in the telecommunications sector and the slowdown in capital spending by product end-users that adversely affected the Company's significant customers. Turnkey sales were 95.9 percent of net sales in the quarter as compared to 96.7 percent for the comparable period of the prior year. Gross profit was $2.5 million or 5.4 percent of sales for the three month period ended March 30, 2001, versus $2.4 million or 3.7 percent of sales in the comparable period of the prior year. The improvement was due to lower labor and overhead costs as a percent of sales. Selling and administrative expenses decreased to $2.9 million in the three months ended March 30, 2001, from $3.3 million in the comparable period of the prior year. This decrease is primarily due to decreases in office and other expenses. As a percentage of net sales, selling and administrative expenses increased to 6.4 percent from 5.1 percent in comparison to the same quarter of the prior year. The Company recorded an income tax expense relating to foreign operations in the amount of $99,000. The Company has recorded no benefit from U.S. income tax as a result of the net loss, and accordingly, has a full valuation allowance against its net deferred tax asset including the net operating loss carry-forward. Net loss for the quarter was $(957) thousand versus $(606) thousand in the comparable quarter of the prior year. Diluted loss per share was $(0.13)as compared to diluted loss per share of $(0.08) in the comparable quarter of the prior year. Excluding the reversal of the previously established restructuring charge for the closure of the Longford facility of $857 thousand, the net loss would have been $(1.5) million or $(0.19) per share in second quarter of the prior year. Page 11 of 15 Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------ of Operations - ------------------------------------ Results of Operations - Six Months Ended March 30, 2001, Compared to Six - ------------------------------------------------------------------------ Months Ended March 31, 2000. - ---------------------------- Net sales for the six month period ended March 30, 2001, were $105.2 million, compared to $108.1 million for the comparable period of the prior year, a decrease of 3%. Turnkey sales were 95.9 percent of net sales in the six month period as compared to 96.7 percent for the comparable period of the prior year. Gross profit was $4.2 million or 4.0 percent of sales for the six month period ended March 30, 2001 versus $2.4 million or 2.2 percent of sales in the comparable period of the prior year. The increase was due to lower labor and overhead costs as a percent of sales. Selling and administrative expenses decreased to $5.7 million in the six months ended March 30, 2001, from $6.2 million in the comparable period of the prior fiscal year. This decrease is primarily due to decreases in office and other expenses. As a percentage of sales, selling and administrative expenses decreased to 5.4 percent from 5.7 percent in the same period of the prior year. The Company recorded an income tax expense relating to foreign operations in the amount of $99,000. The Company has recorded no benefit from U.S. income tax as a result of the net loss, and accordingly, has a full valuation allowance against its net deferred tax asset including the net operating loss carry-forward. Net loss for the six month period was $(2.5) million versus $(1.8) million in the comparable period of the prior year. Diluted loss per share was $(0.33) as compared to diluted loss per share of $(0.24) in the comparable period of the prior fiscal year. Excluding the reversal of the previously established restructuring charge for the closure of the Longford facility of $857 thousand, and the life insurance proceeds of $2.0 million, the net loss would have been $(4.7) million or $(0.62) per share in the prior period. Liquidity and Capital Resources - ------------------------------- Net sales for the month of March 2001 were $19.0 million, representing 41.7 percent of the total net sales for the three month period ending March 30, 2001. Net sales for the month of March 2000 were $28.4 million, representing 44.2 percent of the total net sales for the three month period ending March 31, 2000. The Company operates on a fiscal quarter consisting of four weeks in the first and second months and five weeks in the third month. On December 28, 1999, the Company entered into a three-year secured asset-based facility for $35.0 million. The credit facility as amended on March 30, 2000, December 1, 2000, and April 24, 2001, consists of two components, the first a $25.0 million revolving credit facility based on eligibility criteria for receivables and inventory. Amounts borrowed are limited to 85 percent of qualified accounts receivable, 20 percent of raw materials, and 30 percent of finished goods inventory, respectively. The second component consists of a $10 million three-year term loan with monthly principal installments based on a five-year amortization which began in April 2000. At March 30, 2001, $14.9 million was outstanding consisting of $7.0 million and $7.9 million relating to the revolving credit facility and term loan, respectively, with $14.4 million available under the revolving credit facility. The Company believes that its funds generated from operations and its existing credit facilities will be sufficient for the Company to meet its capital expenditure and working capital needs for its operations as presently conducted. As part of its overall business strategy, the Company may from time to time evaluate acquisition opportunities. The funding of these future transactions, if any, may require the Company to obtain additional sources of financing. The impact of inflation on the Company's operations has been minimal due to the fact that it is able to adjust its bids to reflect any inflationary increases in cost. Page 12 of 15 Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------- Quantitative and Qualitative Disclosures about Market Risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company due to adverse changes in financial rates. The Company is exposed to market risk in the area of interest rates. This exposure is directly related to its Term Loan and Revolving Credit borrowings under the Credit Agreement, due to their variable interest rate pricing. Management believes that interest rate fluctuations will not have a material impact on the Company's results of operations. Forward-looking Statements - -------------------------- Except for historical information, statements in this quarterly report are forward-looking made pursuant to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and are therefore subject to certain risks and uncertainties including timing of orders and shipments, availability of material, product mix and general market conditions that could cause actual results to differ materially from those projected in the forward looking statements. Investors should consider the risks and uncertainties discussed in the September 30, 2000, Form 10K and its other filings with the Securities and Exchange Commission. Restructuring Plan - ------------------ On April 25, 2001, the Company's Board of Directors approved a restructuring plan to consolidate its Texas and Mexico business operations including reducing its cost structure and improving working capital. As part of the business-restructuring plan, the Company expects to record a one-time charge to earnings in the range of $3 million to $5 million in the fiscal third quarter of 2001. The charge relates to headcount reductions and facility consolidations. This restructuring plan will allow the Company to concentrate its investments, resources and management attention on lower cost, high volume production at its Mexico operation. The restructuring plan is in compliance with revised financial covenants. Page 13 of 15 PART II. OTHER INFORMATION Item 1 -- Legal Proceedings None. Item 2 -- Changes in Securities None. Item 3 -- Defaults Upon Senior Securities None. Item 4 -- Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Stockholders was held on February 28, 2001 (b) The names of the directors elected at the Annual Meeting are as follows: David J. Beaubien W. Barry Gilbert Robert P.B. Kidd Thomas W. Lovelock Eben S. Moulton Dermott O'Flanagan James C. Rowe Russell E. Stingel Justin L. Vigdor (c)(i) At the Annual Meeting, the tabulation of the votes with respect to each nominee was as follows: Nominee Votes FOR Authority Withheld ------- --------- ------------------ David J. Beaubien 6,661,632 26,811 W. Barry Gilbert 6,661,982 26,461 Robert P. B. Kidd 6,653,091 35,652 Thomas W. Lovelock 6,663,730 24,713 Eben S. Moulton 6,662,132 26,311 Dermott O'Flanagan 6,657,491 30,952 James C. Rowe 6,663,732 24,711 Russell E. Stingel 6,654,905 33,538 Justin L. Vigdor 6,653,861 34,552 (c)(ii) At the Annual Meeting, the stockholders also voted upon a proposal to approve the Company's 2001 Employee Stock Purchase Plan. The tabulation of votes with respect to such matter are as follows: Votes Votes Votes Broker FOR AGAINST OUTSTANDING NON-VOTES 6,590,981 88,527 8,935 0 Item 5 -- Other Information None. Item 6 -- Exhibits and Reports on Form 8-K a. Exhibits 10.1 Lease Agreement dated as of March 21, 2001, between Matamoros Industrial Partners, L.P. and IEC Electronicos de Mexico, S. de R.L. de C.V. 10.2 2001 Employee Stock Purchase Plan 10.3 Employment Agreement between IEC Electronics Corp. and Bill R. Anderson dated as of March 19, 2001. b. Reports on Form 8-K None. Page 14 of 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IEC ELECTRONICS CORP. REGISTRANT Dated: ______________ /s/Thomas W. Lovelock ----------------------------- Thomas W. Lovelock President and Chief Executive Officer Dated: ______________ /s/Richard L. Weiss ------------------------------ Richard L. Weiss Vice President and Chief Financial Officer Page 15 of 15 EX-10 2 iecmexicolease.txt MEXICO PLANT LEASE AGREEMENT Exhibit 10.1 LEASE AGREEMENT A portion of Block 7, Lot 6 Interpark Parque Industrial del Norte Reynosa, Tamaulipas THIS LEASE AGREEMENT (this "Lease") is made as of the 21st day of March, 2001, by and between MATAMOROS INDUSTRIAL PARTNERS, L.P. ("Landlord"), a Delaware limited partnership, having an address at 518 Seventeenth Street, Suite 1700, Denver Colorado 80202, and represented herein by James Brinkerhoff in his capacity as legal representative, and IEC ELECTRONICOS DE MEXICO, S. DE R.L. DE C.V. ("Tenant"), a Mexican limited liability association with variable capital, having an address at Av. Industrial Rio San Juan, Parque Industrial del Norte, Reynosa, Tamaulipas, Mexico, and represented herein by Edward Snyder in his capacity as legal representative. W I T N E S S E T H: A. Landlord, through its legal representative, hereby states, represents and warrants that: (a) Landlord is a limited partnership organized under the laws of the State of Delaware, United States of America. (b) Landlord has proper and sufficient legal title (as beneficiary of a trust holding title to the Land) and authority to grant to Tenant the temporary use and possession of the Premises. (c) The Premises has an authorized zoning designation compatible with light and medium non-contaminating industrial use in accordance with the city plan of the municipality of Reynosa, State of Tamaulipas, Mexico. (d) Landlord wishes to grant to Tenant the temporary use and possession of the Premises pursuant to the terms and conditions contained herein. (e) Landlord and its legal representative have the necessary authority to execute this Lease. Said authority has not been limited or revoked in any manner whatsoever. B. Tenant, through its legal representatives, hereby states, represents and warrants that: (a) Tenant is a limited liability association with variable capital. (b) Tenant wishes to accept from Landlord the temporary use and possession of the Premises pursuant to the terms and conditions contained herein. (c) Tenant and its legal representative have the necessary authority to execute this Lease. Said authority has not been limited or revoked in any manner whatsoever. C. Both parties state that this Lease is being executed free from any and all consensual defects. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, for themselves, their heirs, executors, administrators, legal representatives, successors and assigns, hereby covenant and agree as follows: Page 1 of 24 1. DEFINITIONS. The following terms shall have the meanings set forth below. "Base Rent" shall mean the base rent payable by Tenant during the Term, subject to escalation as provided in Section 3B, as follows (amounts set forth below are in currency of the United States of America): PAYMENTS DATES ANNUAL MONTHLY MONTHLY/PSF Commencement Date through Expiration Date $658,560.00 $54,880 $0.49 "Building" shall mean that certain building and other improvements at the Land, having a street address of Av. Industrial Rio San Juan, Parque Industrial del Norte, Reynosa, Tamaulipas, containing approximately 112,000 square feet. "Commencement Date" shall mean May 1, 2001. "Common Areas" shall mean that portion of Landlord's Park indicated on Exhibit A attached hereto which is intended for the common use by Tenant and other tenants or owners in Landlord's Park for purposes of ingress and egress only. "Expiration Date" shall mean April 30, 2006. "Guarantor" shall mean IEC. "Guaranty" shall mean that certain guaranty executed and delivered by Guarantor simultaneously with the execution and delivery of this Lease, which guaranty is in the form of Exhibit C attached hereto "IEC" shall mean IEC Electronics Corp., a Delaware corporation. "Land" shall mean that certain real property on which the Building and Parking Spaces are located, being a portion of Block 7, Lot 6 located in the Parque Industrial del Norte, City of Reynosa, and State of Tamaulipas, a description of which is attached hereto as Exhibit A. "Landlord's Notice Address" shall mean 518 Seventeenth Street, Suite 1700, Denver, Colorado USA 80202. "Landlord's Park" shall mean all of Block 7, Lot 6 (including the Building and Premises) located in the Parque Industrial del Norte, City of Reynosa, State of Tamaulipas, identified on Exhibit A. "Laws" shall mean all applicable laws, statutes, codes, orders and regulations and with any related directive, and with all rules, orders, regulations or requirements of any board of fire underwriters or any other similar body with respect to the Premises or the use or occupancy thereof. "Parking Spaces" shall mean approximately [one-hundred (100)] parking spaces adjacent to the Building and shown on Exhibit A, the exclusive use of which shall be Tenant's, which Parking Spaces shall comply with all Laws, including, without limitation, applicable zoning laws and requirements. "Permitted Uses" shall mean non-contaminating manufacturing, warehouse and office uses and related non-contaminating operations to the extent same are permitted under the Licensia de Uso de Suelo, a copy of which is attached hereto as Exhibit B. "Premises" shall mean, collectively, the Land, the Building, and any other building or improvements now or hereafter constructed on the Land. "Rent Payment Account" shall mean Wells Fargo Bank West, 633 Seventeenth Street, Denver, Colorado, 80202 account no. ______. Tenant shall pay rent by means of wire or intra- or inter- bank transfer of funds directly into the Rent Payment Account. "Tenant's Notice Address" shall mean Av.Industrial Rio San Juan, Parque Industrial del Norte, Reynosa, Tamaulipas, Mexico, Attn: Richard Weiss, with a copy to each of: (i) Ed Snyder, Esq., Martin, Drought & Torres, Inc., 200 South 10th Street, Suite 1111, McAllen, Texas 78051, (ii) IEC Electronics Corp., 1920 Industrial Park Drive, Edinburg, Texas 78539, and (iii) Michael Howard, Esq., Boylan, Brown, Code, Vigdor & Wilson, LLP, 2400 Chase Square, Rochester, New York 14604. "Tenant's Park Share" shall be fifty (50%) percent. "Term" shall mean the period commencing on the Commencement Date and ending on the Expiration Date, being approximately five (5) years. Page 2 of 24 2. PREMISES AND TERM. (A) Premises and Term. Landlord represents and warrants to Tenant that a trust of which it is sole beneficiary has free, clear, absolute, complete and unrestricted ownership of Landlord's Park, the Building and the Premises, and that Tenant shall have, in accordance with and subject to this Lease, the uninterrupted, quiet use and enjoyment of the Premises. Subject to the terms, covenants and conditions contained in this Lease, Landlord hereby grants to Tenant the temporary use and possession of the Premises and Tenant hereby accepts same for the Term. The Premises shall be used and occupied by Tenant solely for the Permitted Uses and for no other purpose without Landlord's prior written consent. If Tenant takes possession or enters into occupancy of the Premises prior to the Commencement Date, such possession or occupancy shall be pursuant to all the terms, covenants and conditions of this Lease. The Premises is demised subject to all zoning regulations, restrictions, rules and ordinances, building restrictions and other laws and regulations now in effect or hereafter adopted by any governmental authority having jurisdiction. Landlord has not made, does not make, and has not authorized anyone else to make any representation as to the present or future physical condition, operation, or any other matter or thing pertaining to the Premises except as expressly set forth herein. Tenant and its agents, employees, guests and invitees shall have the non-exclusive right to use the Common Areas in common with other tenants and owners in Landlord's Park solely for the purposes of ingress and egress to and from the Premises. Tenant, its agents and employees, shall have access to any mechanical equipment and systems, and to any telecommunications equipment which, pursuant to this Lease, Tenant has elected or has the obligation to provide, maintain and keep in repair. Tenant's use of the Premises and Common Areas shall be subject to such reasonable rules and regulations as may be promulgated and modified, added to or deleted by Landlord from time to time, provided that such rules and regulations and any modifications thereof or additions thereto or deletions therefrom (i) are not inconsistent with any provision of this Lease, (ii) shall be applicable to all tenants in Landlord's Park, and (iii) shall not be effective until a copy thereof has been delivered to Tenant. Landlord shall enforce such rules and regulations in a non-discriminatory manner against all tenants in Landlord's Park but will not be liable to Tenant for failure of any tenant or person to comply therewith. The current rules and regulations are attached hereto as Exhibit D. In addition, Tenant's use of the Premises shall be subject to the covenants, conditions and restrictions in force from time to time with respect to the Del Norte Industrial Park, of which Landlord's Park forms a part. The current Del Norte Industrial Park covenants, conditions and restrictions are attached hereto as Exhibit E. (B) Renewal Term. Provided this Lease shall be in full force and effect and no Event of Default shall be continuing hereunder, Tenant shall have the right to extend the Term for one (1) additional, consecutive period of five (5) years (the "Extension Term"). The Extension Term shall commence on the day after the Expiration Date and shall expire on the day prior to the fifth (5th) year anniversary of such commencement unless sooner terminated pursuant to any of the terms, covenants or conditions of this Lease or pursuant to Laws. Tenant shall exercise its option hereunder by giving Landlord written notice of such election no later than six (6) months prior to the Expiration Date, and upon the giving of such notice, this Lease and the Term shall be extended without execution or delivery of any other or further documents, with the same force and effect as if the Extension Term had originally been included in the Term and the Expiration Date shall thereupon be deemed to be the last day of the Extension Term. All of the terms, covenants and conditions of this Lease shall continue in full force and effect during the Extension Term, including, without limitation, with respect to the payment of rent (with CPI Charges payable for each Rent Year of the Extension Term). 3. BASE RENT; CPI ESCALATION. (A) Base Rent. Tenant shall deposit monthly installments of Base Rent, along with applicable value added tax, directly into the Rent Payment Account or at such other place designated by Landlord, monthly, in advance, on the first day of each calendar month during the Term, without notice or demand. Payment of Base Rent will be made by Tenant directly into the Rent Payment Account by wire transfer or intra- or inter- bank transfer of funds. Landlord agrees to render to Tenant monthly rental invoices that shall comply with all applicable legal and tax requirements and include a breakdown of the value added tax. Said rental invoices shall be issued on the date rent is paid and shall contain the amount of rent paid in United States Dollars, as well as the corresponding amount in Mexican Pesos, according to the exchange rate published in the Official Journal of the Federation (Diario Official de la Federacion) on such date. Landlord acknowledges that Tenant has the right to pay rent in Mexican Pesos. In the event that rent is paid in Mexican Pesos, such will be paid at the rate of exchange in effect for selling Mexican Pesos to purchase United States Dollars, according to the rate published in the Official Journal of the Federation (Diario Official de la Federacion) on the date Tenant pays Landlord such rent. If Tenant elects to pay rent in Mexican Pesos, Tenant will be obligated to pay, in addition thereto and as an administrative fee, an amount equal to five percent (5%) of any such rent payment, plus applicable value added tax. If, for whatever reason, the Commencement Date does not occur on the first day of a calendar month or if the Term does not expire or terminate on the last day of a calendar month, rent payable hereunder shall be prorated for such partial month on the basis of a thirty (30) day month. In addition to all other rights and remedies provided Landlord, all amounts payable hereunder which remain unpaid for five (5) days after their respective due dates shall bear interest from the date that the same became due and payable to and including the date of payment, whether or not demand is made therefor, at the rate of twelve percent (12%) per annum. Page 3 of 24 (B) CPI Escalation: For purposes of this Lease, the following terms shall have the following meanings. "Base Index" shall mean the CPI Index for the month prior to the month in which the first anniversary of the Commencement Date occurs. "CPI Charges" shall mean the annual rental adjustment calculated and payable in accordance with this Section 3(B). "CPI Index" shall mean the Consumer Price Index presently designated as the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index for all Urban Consumers, U.S. City Average, "All Items" (1982-1984 equals 100). In the event that the statistics are not available or in the event that publication of the Consumer Price Index is modified or discontinued in its entirety, the adjustment provided for herein shall be made on the basis of an index chosen by Landlord as a comparable and recognized index of purchasing power of the United States consumer dollar published by the U.S. Department of Labor or other governmental agency. In the event that the CPI Index is not published for the months required for the calculation set forth in this Section, the parties shall utilize the Consumer Price Index for the month(s) nearest preceding the month(s) required for such calculation. "Rent Year" shall mean each twelve (12) month period during the Term commencing on the Commencement Date (or the date corresponding to the Commencement Date for Rent Years after the first Rent Year) and ending on the date which shall be one day prior to the one year anniversary of the Commencement Date (or the date corresponding to the Commencement Date for Rent Years after the first Rent Year) except that the last Rent Year shall end on the Expiration Date In addition to the payment of Base Rent, from and after the commencement of the third Rent Year, Tenant shall pay CPI Charges, along with applicable value added tax, in monthly installments in the same manner and at the same time as payment of Base Rent. As soon as practicable after the end of the second Rent Year and each succeeding Rent Year during the Term, Landlord shall notify Tenant in writing of the amount of monthly CPI Charges due and payable by Tenant to Landlord each month (commencing with the third Rent Year) in addition to Base Rent for each month of the then current Rent Year. CPI Charges for any applicable Rent Year shall be calculated by multiplying the Base Rent by a fraction, the numerator of which shall be the CPI Index for the last month of the immediately preceding Rent Year less the Base Index, and the denominator of which shall be the Base Index. Notwithstanding anything contained herein to the contrary, in no event shall the sum of the Base Rent and CPI Charges payable in any Rent Year increase at a rate less than one and one-half (1.5%) percent or more than two and one-half (2.5%) percent over the sum of the Base Rent and CPI Charges payable in the immediately preceding Rent Year. Upon the commencement of each Rent Year following the first Rent Year, and continuing thereafter until a statement of the adjustment in CPI Charges is delivered to Tenant, Tenant shall pay to Landlord, as and when Base Rent is due, one-twelfth (1/12) of the minimum CPI Charges (plus value added tax) due for such Rent Year based on the one and one-half (1.5%) percent minimum increase over the prior Rent Year's payment of Base Rent and CPI Charges. Tenant shall continue making such monthly payments, in addition to Base Rent, until receipt of notice from Landlord of the actual CPI Charges due from Tenant for such Rent Year. If the actual CPI Charges are greater than the payments Tenant shall have then made on account of CPI Charges, Tenant shall pay, within ten (10) days after the receipt of notice thereof, the amount of any such excess. Tenant shall pay Landlord on the first day of each succeeding month of such Rent Year the adjusted amount due for such month until the commencement of the succeeding Rent Year. The failure or delay by Landlord to deliver a notice with respect to CPI Charges for any Rent Year shall not be deemed a waiver of Landlord's right to deliver such notice or to collect CPI Charges. Whenever the term "rent" is used in this Lease, such term will be deemed to include CPI Charges. Page 4 of 24 4. ADDITIONAL RENT; UTILITIES; NET LEASE. (A) Taxes. Tenant covenants to reimburse Landlord for all Premises-related taxes and assessments and other similar governmental charges which are applicable during the Term and which may be assessed, levied, imposed upon, or become due or payable out of or in respect of, or become a lien on, the Premises or any part thereof or any appurtenance thereto, or any personal property, any rent or income received by Tenant from permitted subtenants, or any use, possession or occupation of or activity conducted at the Premises (all of the foregoing, together with, to the extent caused by Tenant, any and all penalties and/or interest thereon, being sometimes collectively referred to herein as "Impositions"). Tenant shall pay Landlord the amount of any Imposition within ten (10) business days after receipt by Tenant of evidence of the amount thereof. Nothing herein contained shall require Tenant to pay income taxes assessed against Landlord. Landlord represents and warrants to Tenant that the Premises is not a separate tax parcel; rather, the Premises constitutes a portion of a tax parcel which is currently Landlord's Park. Tenant shall pay Tenant's Park Share of real property taxes payable with respect to Landlord's Park. Landlord represents and warrants to Tenant that currently, real property taxes payable with respect to Landlord's Park are in the approximate amount of US $5,500.00 per annum. Any Imposition which is not timely reimbursed shall bear interest at the rate set forth in SECTION 3 from the date due until the date payment is received. In the event that Tenant shall fail to pay Impositions in a timely manner, Landlord will have the right to require Tenant to deposit one-twelfth (1/12) of the current annual Impositions, on the first day of each month, in advance, to be applied to the payment of Impositions. (B) Utilities. Landlord represents and warrants to Tenant that electric (up to 2,000 KVA, as required by Tenant), water (via a 3/4 inch incoming water line), sewerage and telephone services (a minimum of four (4) lines) are available to the Premises. Tenant shall directly contract for all utilities of every type and nature required by it and available to it in its use of the Premises and shall pay or cause to be paid, when due, all bills therefor directly to the appropriate provider. Tenant shall pay all deposits, substation contribution fees and connection fees with respect to the delivery of utilities to the Premises. In addition to the 750 KVA currently supplied to the premises, Tenant will purchase 750 KVA of capacity. Tenant will not be obligated to pay any transmission fee for the first 300 KVA of electric capacity used by Tenant at the Premises, under this agreement. It is agreed that with respect to the first 750 KVA of electric capacity to be provided to Tenant, Tenant shall pay, within 30 days after receipt of invoice therefor, a transmission fee in the amount of $30,946.50 (based on 450 KVA of capacity at $68.77 per KVA) and a transformation fee in the amount of $41,670.00 (based on 750 KVA of capacity at $55.56 per KVA). (C) Industrial Park Fees. Tenant shall pay, within ten (10) business days after receipt of invoice therefor (accompanied by appropriate back-up), Tenant's Park Share of any maintenance or other, similar fees or charges levied against Landlord's Park during the Term by any industrial park authority or any other association or authority levying any such charges or fees against the Premises or Landlord's Park or operations thereat. Landlord has been advised that, upon completion of all buildings that Landlord intends to construct at Landlord's Park and assuming no unusual monthly assessments, the monthly maintenance assessment for Landlord's Park will be approximately $650.00. Amounts not paid within such ten (10) business day period shall bear interest at the rate set forth in SECTION 3. (D) Landlord Park Charges. Tenant shall pay, within ten (10) business days after receipt of invoice therefor, Tenant's Park Share of any reasonable charges for Common Area maintenance as contemplated under SECTION 7. Amounts not paid within such ten (10) business day period shall bear interest at the rate set forth in SECTION 3. (E) Insurance Reimbursement. Tenant shall pay, within ten (10) business days after receipt of invoice therefor (accompanied by appropriate back-up), any reasonable premiums for casualty insurance maintained by Landlord with respect to the Premises pursuant to SECTION 10A. Amounts not paid within such ten (10) business day period shall bear interest at the rate set forth in SECTION 3. (F) Net Lease. It is the purpose and intent of Landlord and Tenant that the rent payable hereunder shall be absolutely net to Landlord so that this Lease shall yield, net to Landlord, the rent specified herein in each year during the Term. To the extent applicable, value added tax will be paid by Tenant on all Landlord reimbursements required hereunder, as indicated in the applicable invoice from Landlord to Tenant. Page 5 of 24 5. WORK. (A) Landlord's Work. Tenant acknowledges that Landlord is not obligated to complete or perform any improvements, alterations or other construction or preparation with respect to the Premises in connection with Tenant's occupancy thereof. Tenant acknowledges, represents and warrants that, upon commencement date, Tenant will have fully examined and inspected the Premises and will have accepted the foregoing and that the Premises will be accepted by Tenant "as is, where is, with all faults." Landlord has not made, does not make, and has not authorized anyone else to make any representation as to the present or future physical condition, operation, or any other matter or thing pertaining to the Premises except as expressly set forth herein. (B) Tenant's Initial Alteration; Landlord's Contribution. Tenant shall perform all work necessary to prepare the Building for Tenant's use and possession ("Tenant's Initial Alteration") as reflected on plans and specifications to be approved by Landlord in accordance with SECTION 8 of this Lease, such work to be performed in accordance with the terms of this Lease. Landlord shall reimburse Tenant for the cost of Tenant's Initial Alteration, as approved by Landlord and performed by Tenant, to the extent of the lesser of (i) US$200,000.00 and (ii) the actual cost to Tenant for Tenant's Initial Alteration as depicted on the approved plans therefor ("Landlord's Contribution"). Provided this Lease is then in full force and effect and no Event of Default is continuing hereunder, Landlord shall pay Landlord's Contribution to Tenant within thirty (30) days after satisfactory completion of Tenant's Initial Alteration and submission by Tenant of (a) "as-built" drawings showing Tenant's Initial Alteration, (b) a detailed breakdown of Tenant's final and total construction costs, together with receipted invoices (or such other proof of payment as Landlord shall reasonably require) showing payment thereof, (c) a written statement from Tenant's architect or engineer that the work described on any such invoices has been completed in accordance with the approved plans therefor, (d) final releases executed by the general contractor and all major subcontractors employed by Tenant in connection with Tenant's Initial Alteration, (e) a copy of all licenses, certificates, permits and other government authorizations necessary in connection with Tenant's Initial Alteration and (f) proof reasonably satisfactory to Landlord that Tenant has complied with all of the conditions set forth in this SECTION 5(B) and has satisfactorily completed Tenant's Initial Alteration, which may include, at Landlord's option, a certificate from Landlord's architect after inspection of Tenant's Initial Alteration. 6. PARKING; SECURITY. Tenant shall have the exclusive use of the Parking Spaces. Landlord shall not be liable for any damage to, or any theft of, vehicles, or contents thereof, within the parking area. Landlord represents and warrants that the Parking Spaces are sufficient in all respects to satisfy all Laws, including, without limitation, zoning laws and building codes. All security or security measures with respect to the Premises shall be Tenant's responsibility. 7. REPAIRS AND MAINTENANCE. (A) Landlord's Obligations. Landlord, at its expense, shall maintain and repair the foundations, structure and roof of the Building in good repair, order and condition and in accordance with all Laws provided that Tenant shall reimburse Landlord for the reasonable cost of any repairs or maintenance performed by Landlord to the extent caused by the negligence or criminal or willful misconduct of Tenant or its agents, employees, contractors, invitees and licensees. All repairs, maintenance and replacements to be made or performed by Landlord shall be performed in a good and workmanlike manner in accordance with Laws and the provisions of this Lease and shall be as close to the same quality and design as the original work or item as commercially practicable. Landlord, at its expense (subject to reimbursement as provided under SECTION 4D), will maintain the Common Areas and other areas in Landlord's Park that are not subject to maintenance by a specific tenant, in good repair and condition and in accordance with all Laws. Landlord shall use reasonable efforts to minimize interference with Tenant's conduct of business in connection with Landlord's performance of any work described in this SECTION 7. Tenant agrees to notify Landlord promptly of any defective condition known to Tenant that Landlord is obligated to repair. Except as provided herein, Landlord shall not be obligated to provide any maintenance, repairs or services to Tenant or the Premises. Page 6 of 24 (B) Tenant's Obligations. Except for Landlord's obligations set forth above, Tenant, at its sole cost and expense, shall keep, repair and maintain the Premises and all fixtures and equipment therein, including, without limitation, all plumbing, heating, air-conditioning, electrical, gas, water, sewerage and similar systems, fixtures and equipment as well as the interior structure of the Premises (including interior walls, ceiling and floor coverings), window glass, loading docks, exterior steps, doors and signs of Tenant on the outside of the Building, as well as the Premises outside of the Building (including, without limitation, any landscaping located thereat and the Parking Spaces) in good repair, order and condition and in accordance with all Laws. Tenant shall keep the Premises clean and in good order and shall arrange and pay for all garbage and refuse removal. All repairs, maintenance and replacements to be made or performed by Tenant shall be performed in a good and workmanlike manner in accordance with Laws and the provisions of this Lease and shall be as close to the same quality and design as the original work or item as commercially practicable. (C) Notwithstanding anything to the contrary contained herein, each party shall be obligated to repair damage to the Premises to the extent caused by the negligence of such party and to the extent that such damage is not covered by insurance proceeds available for such purpose. If it is not possible to determine the cause of damage, the applicable provisions of the Civil Code of the State of Tamaulipas shall apply. 8. ALTERATIONS; SIGNS. (A) Alterations. Except as set forth in Section 27 of this Lease, Tenant shall not make any alterations, additions or improvements (collectively, along with Tenant's Initial Alteration, "Alterations") to the Premises without Landlord's prior written consent (Tenant's Initial Alteration specifically being subject to Landlord's consent), except that no consent shall be required for one or more minor (that is, costing less than $10,000 US) modifications to the interior of the Building, provided any such modification is non-structural and does not affect the Building's mechanical or electrical systems or services. Landlord agrees not to unreasonably condition, delay or withhold its consent to any Alterations for which its consent is required and which are nonstructural and do not affect the Building's mechanical or electrical systems or services and which, in Landlord's reasonable judgment, do not materially reduce the value or utility of the Building. Tenant shall provide to Landlord for its reasonable approval plans and specifications with respect to any Alteration (including, without limitation, engineering and mechanical plans and specifications) as well as any modifications to any such plans and specifications that have been previously approved by Landlord. All Alterations performed by Tenant at the Premises (whether or not subject to Landlord's consent) shall be performed at Tenant's expense (except as contemplated in SECTION 5(B) above) in a good and workmanlike manner and of a quality and standard equivalent to the standards for construction set by Landlord, from time to time, for the Building and by a contractor or contractors (including major subcontractors) licensed by applicable authorities and reasonably approved by Landlord, and such Alterations shall be performed in accordance with such approved plans and specifications and Laws. Tenant shall give Landlord fifteen (15) days prior notice before commencing any Alterations which require Landlord's consent. Tenant shall be responsible for any alterations, additions or improvements required by Laws to be made by Landlord to or in the Building as a result of Tenant's proposed Alterations. Upon the Expiration Date or sooner termination of the Term, any Alterations, except movable furniture and trade fixtures (including, without limitation, Telecommunications Equipment (as hereinafter defined), telephone switching hardware, computer equipment and air compressors), shall become Landlord's property and shall be surrendered with the Premises, unless, prior to the installation thereof, Landlord directs Tenant to remove such Alterations, whereupon Tenant shall remove same at its expense and restore the Premises to the condition existing prior to such Alterations, normal wear and tear excepted. Notwithstanding the foregoing, in the event Tenant desires to remove any Alteration which is not furniture or trade fixtures or any of the other items set forth above, Tenant shall so provide in its request to Landlord to perform such Alteration (or, if consent is not required with respect to such Alteration, Tenant shall separately so notify Landlord) and upon approval by Landlord, or notice to Landlord, as the case may be, such Alterations shall remain Tenant's property upon the expiration or earlier termination of this Lease. Tenant shall keep the Premises free from claims arising out of any work performed on Tenant's behalf (other than work performed by Landlord or its agents) and shall not affect any interest of Landlord in the Premises. Page 7 of 24 (B) Signage. Tenant shall not, without Landlord's prior written consent, which consent shall not be unreasonably conditioned, delayed or withheld and which will be given or denied within ten (10) days after request, install any exterior signage at the Premises. In the event that Landlord fails to give or deny its consent within such 10 day period, Landlord shall be deemed to have given its consent. Tenant shall also be required to obtain any required approvals from the del Norte industrial park authorities, with Landlord agreeing to cooperate, at Tenant's cost, in connection with any such approvals Landlord will permit Tenant to make any required applications with governmental authorities for Landlord-approved signage in Landlord's name and to obtain permits from governmental agencies for the construction and maintenance of any such signage. The installation of any approved signage shall be performed in a good and workmanlike manner in accordance with all Laws. All signs and placards must comply with all Laws. Tenant shall pay all costs of fabrication, installation and maintenance of all permitted signs or placards. Prior to vacating the Premises, Tenant shall, at its expense, promptly remove its sign(s) and placards and restore the surface beneath such signs or placards damaged or discolored by such removal. Landlord agrees that any signage of Tenant approved hereunder will not be obstructed or interfered with by Landlord or by approved signage of any other tenant of the Building or Landlord's Park. 9. ASSIGNMENT AND SUBLETTING (A) Tenant shall not (i) assign or otherwise transfer this Lease; (ii) permit the Premises or any part thereof to be used by anyone other than Tenant; (iii) sublet the Premises or any portion thereof; or (iv) mortgage or otherwise encumber this Lease or Tenant's interest in the Premises, in each instance without obtaining Landlord's prior written consent. For the purposes of this SECTION 9, the transfer or issuance of stock or other interests in Tenant ultimately resulting in a change of control in Tenant shall be an assignment of this Lease. For the purposes hereof, "control" shall mean ownership of at least fifty-one percent (51%) of the voting stock of a corporation or at least fifty-one percent (51%) of the legal and equitable interest in any other business entities. The provisions of this SECTION 9 shall not apply to transactions with a corporation into or with which Tenant is merged or consolidated or to which substantially all of Tenant's assets are transferred, provided that Tenant's successor has a net worth computed in accordance with generally accepted accounting principles at least equal to the net worth of Tenant herein named on the date of this Lease and Landlord shall have received satisfactory proof of such net worth at least ten (10) days prior to the effective date of such transaction. (B) Tenant shall not be released from its obligations hereunder as a result of any permitted subletting or, to the extent permitted by Laws, assignment except as expressly provided herein. (C) Notwithstanding any provision of this SECTION 9 to the contrary, Landlord acknowledges and agrees that at any time: (i) Tenant shall have the right, upon thirty (30) days' prior notice to Landlord, to terminate this Lease and be released, along with Guarantor, from all further obligations and liabilities hereunder and under the Guaranty, provided Tenant pays to Landlord an amount equal to all amounts then owed by Tenant to Landlord plus all rent which Tenant would have paid hereunder for the then remainder of the Term (which rent shall include Base Rent and CPI Charges as well as all other amounts to be reimbursed to Landlord or otherwise paid by Tenant hereunder, with items not then susceptible of certain calculation being calculated based on the amount Tenant is then paying hereunder) discounted to present value at a rate equal to the per annum rate of interest announced from time to time by Chase Bank as its commercial prime rate prime minus two and one-half (2 1/2%) percent, such amount being payable upon the date the Lease terminates, (ii) Tenant may assign this Lease or sublet the Premises, and be released of its obligations and liabilities hereunder, to any entity which controls, is controlled by, or is under common control with Guarantor (each, a "related entity") for the Permitted Uses provided that (a) an Event of Default shall not at that time be present under this Lease, (b) at least twenty (20) days prior to such assignment or subletting, Tenant furnishes Landlord with the name of such related entity, together with Tenant's written certification that such entity is a related entity, and (c) the Guaranty remains in full force and effect after any such assignment or subletting, and (iii) Tenant may propose for Landlord's approval, not to be unreasonably withheld or delayed or conditioned, an assignee of the Lease or sublessee of the Premises provided the Guaranty remains in full force and effect, upon which assignment or sublease Tenant shall be released from all further obligations and liabilities hereunder, and (iv) Tenant may propose for Landlord's approval, which approval Landlord may grant, withhold or condition in its sole and absolute discretion, an assignee of the Lease, upon which approved assignment (a) Tenant will be released from all further obligations and liabilities hereunder and (b) the Guaranty will terminate. Page 8 of 24 10. INSURANCE. (A) Landlord shall maintain throughout the Term, at its expense but subject to reimbursement as hereinafter provided, fire and extended coverage insurance covering the Building against loss or damage by fire, flood, windstorm, hail, earthquake, explosion, riot, damage from aircraft and vehicles, smoke damage, vandalism, malicious mischief and such other risks as are from time to time covered under "extended coverage" endorsements and special extended coverage endorsements commonly known as "all-risk" endorsements in an amount equal to the full replacement value of the Building and containing the waiver of subrogation required in this SECTION 10. All such insurance shall be placed with reputable companies licensed to do business in accordance with applicable law. Tenant shall be obligated to pay the premiums with respect to such insurance in accordance with SECTION 4. (B) Tenant shall maintain throughout the Term, at its expense, the following insurance (i) fire and extended coverage insurance covering Tenant's fixtures, equipment and other personal property against loss or damage by fire, flood, windstorm, hail, earthquake, explosion, riot, damage from aircraft and vehicles, smoke damage, vandalism, malicious mischief and such other risks as are from time to time covered under "all-risk" endorsements, (ii) commercial general liability insurance on an occurrence basis providing coverage for bodily injury (including death), property damage and products liability insurance (where such exposure exists) containing a broad form contractual liability endorsement insuring Tenant's obligations under SECTION 12(A) hereof with a combined single limit of at least One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the aggregate for all occurrences within any policy year and naming Landlord as an additional insured, and (iii) such other insurance as Landlord may reasonably require, it being agreed that in no event will Landlord require business interruption insurance. Tenant shall deliver original certificates of all such policies prior to the Commencement Date and each anniversary date thereafter, which shall provide that no cancellation or non-renewal of such policies shall be effective without thirty (30) days prior written notice from the insurer to Landlord. Tenant shall not do any act or thing in the Premises or store anything therein except as now or hereafter permitted by any fire department, board of fire underwriters, or insurance rating organization having jurisdiction or other authority having jurisdiction and then only in such quantity and manner of storage as not to increase the existing rate of, or adversely affect, or cause a cancellation of, any insurance policies covering the Premises. (C) Each party shall obtain a waiver of subrogation or consent to a waiver of right of recovery against the other party, and each hereby agrees that it will not make any claim against or seek to recover from the other party for any loss or damage covered by its fire and extended coverage insurance. 11. EMINENT DOMAIN AND CASUALTY. (A) Eminent Domain. If all or substantially all of the Premises is taken by a public authority pursuant to the exercise of the power of eminent domain, this Lease and the Guaranty shall terminate on the date on which the condemning authority takes possession of the Premises ("Date of Taking"). If part of the Premises will be taken such that, in Landlord's reasonable opinion (based on the determination of an architect or engineer named by Landlord and reasonably approved by Tenant within thirty (30) days after notice of such eminent domain), the Premises cannot be restored to an economically viable and tenantable condition, Landlord may terminate this Lease as of the Date of Taking upon thirty (30) days prior written notice to Tenant at which time the Guaranty shall also terminate. If Landlord does not terminate this Lease and the condemnation will render twenty (20%) percent or more of the Building untenantable, Tenant may terminate this Lease effective on the Date of Taking by written notice given no later than thirty (30) days after the determination of the architect or engineer at which time the Guaranty shall also terminate. Upon a partial taking which does not result in a termination of this Lease: (i) rent shall be adjusted to reflect the reduced amount of rentable area in the Building; and (ii) Landlord shall restore the Building and Premises to a tenantable unit and Tenant shall be entitled to an abatement of rent until the Building and Premises are made tenantable. Landlord shall not be obligated to replace or restore any improvements or alterations to the Premises made by or on behalf of Tenant, or any of Tenant's leasehold improvements, personal property, furniture, fixtures or equipment. Upon any taking, Landlord shall be entitled to any resulting damages, awards or any interest therein, and Tenant shall have no claim for the value of any unexpired term of the Lease or otherwise. Notwithstanding the foregoing, Tenant may independently claim for the value of its furniture, fixtures and equipment as well as its moving expenses. Page 9 of 24 (B) Casualty. If more than 20% of the Building is rendered untenantable by fire or other casualty and Landlord reasonably determines (based on the determination of an architect or engineer named by Landlord and reasonably approved by Tenant) that the damage cannot be repaired within one hundred eighty (180) days after Landlord is notified of the casualty, then either Landlord or Tenant may, within thirty (30) days after such determination (which shall be provided to Tenant), give the other notice of termination of this Lease, and the Term and Guaranty shall expire thirty (30) days after such notice is given, with rent being apportioned and as of the date of Lease termination. If either Landlord or Tenant have not elected to terminate as herein provided, Landlord shall repair the Building and Premises to the same condition as existed as of the Commencement Date, reasonable wear and tear excepted with reasonable dispatch and in compliance with all Laws at the time of such repair. During any period Tenant is not able to occupy the Premises on account of any repair or restoration, Tenant will have no obligation to pay rent or other amounts due hereunder. Tenant shall give Landlord prompt written notice of any damage to the Building by fire or other casualty. Landlord's obligations to restore are strictly limited to the replacement of the Building and Common Areas. Landlord shall not be obligated to restore any Alterations, personal property, furniture, fixtures or equipment. In the event Landlord fails to perform its restoration obligations by the date which shall be 30 days after the time estimate provided by the architect's or engineer's determination noted above, Tenant shall have the right, but not the obligation, to terminate this Lease and the Guaranty upon ten (10) days' prior notice without any further obligation to Landlord. 12. INDEMNIFICATION AND COMPLIANCE WITH LAWS. (A) Tenant shall defend, indemnify and hold Landlord and its officers, directors, employees, attorneys and agents harmless from and against any and all demands, causes of action, judgments, costs, expenses, losses, damages, claims, or liability for any damage to any property or injury, illness or death of any person (a) occurring in the Premises at any time during the Term on account of the acts or omissions of Tenant or its officers, directors, employees, attorneys, agents, guests and invitees; (b) arising out of or in any way related to claims for labor performed or materials furnished to Tenant (other than labor performed or materials furnished by Landlord unless due to the acts or omissions of Tenant) or the performance of any work done by or for the account of Tenant (other than work furnished by Landlord unless due to the acts or omissions of Tenant), whether or not Tenant obtained Landlord's permission to have such work done, labor performed or materials furnished; or (c) arising out of or in any way related to any breach of a covenant or condition in this Lease to be performed by Tenant. The provisions of this Subsection shall survive the expiration or sooner termination of this Lease. (B) Landlord shall defend, indemnify and hold Tenant and its officers, directors, employees and agents harmless from and against any and all demands, causes of action, judgments, costs, expenses, losses, damages, claims, or liability for any damage to any property or injury, illness or death of any person (a) occurring in the Premises at any time during the Term on account of the acts or omissions of Landlord or its officers, directors, employees, attorneys, agents, guests and invitees, (b) arising out of or in any way related to claims for labor performed or materials provided by Landlord under this Lease during the Term; or (c) arising out of or in any way related to any breach of a covenant or condition in this Lease to be performed by Landlord. The provisions of this Subsection shall survive the expiration or sooner termination of this Lease. Page 10 of 24 (C) Tenant, at its expense, shall comply with all Laws applicable to its obligations and responsibilities hereunder, including, without limitation, any Laws relating to any material that is prohibited, limited or regulated as a toxic or hazardous substance, health or environmental hazard or pollutant under any Law ("Hazardous Materials"). Neither Tenant nor its officers, directors, employees or agents shall use, generate, store, treat, transport, dispose of or release any Hazardous Materials at the Premises other than non-material and non-reportable quantities of Hazardous Materials used in connection with the Permitted Uses and only if properly and legally used and stored and disposed of at Tenant's cost. Landlord has previously provided to Tenant a copy of the Phase I environmental survey prepared by McLean Environmental Services and dated June 4, 1998 which Landlord has caused to be prepared with respect to Landlord's Park. Landlord represents and warrants to Tenant that Landlord has no knowledge of any non-compliance with environmental Laws at the Premises or Landlord's Park except as may be set forth in such Phase I environmental survey. (D) Landlord, at its expense, shall comply with all Laws applicable with respect to its obligations and responsibilities hereunder, including, without limitation, Laws related to Hazardous Materials. Landlord shall not nor, to the extent practicable, will Landlord permit others to use, generate, store, treat, transport, dispose of or release any Hazardous Materials at Landlord's Park other than non-material and non-reportable quantities of Hazardous Materials and only if properly and legally used and stored and disposed of at Landlord's cost (E) Landlord and Tenant each warrant to the other that it is now complying with, and agrees, at all times during the term of this Lease or any extension hereof, to comply with those provisions of the social security or such other laws of the municipality and state within which they operate, which require them to provide social security for their workers. 13. QUIET ENJOYMENT AND SUBORDINATION. (A) Landlord covenants and agrees that, upon Tenant's performance of all the terms, covenants and conditions hereof on Tenant's part to be performed, Tenant shall have, hold and enjoy the Premises, subject to the terms, covenants and conditions of this Lease. (B) This Lease is subject and subordinate to any mortgage, deed of trust or deed to secure debt (each, a "Mortgage"); any easement agreements; all ground and underlying leases; and to any renewals, modifications, extensions, replacements, and substitutions of any of the foregoing, now or hereafter affecting the Premises. This provision shall be self-operative and no further instrument of subordination shall be required; provided, however, that upon request, Tenant shall execute and deliver instrument(s) in recordable form confirming this subordination. The parties acknowledge that, pursuant to the Civil Code for the State of Tamaulipas, this Lease shall survive any foreclosure of any Mortgage. In addition, the subordination of this Lease to any ground or underlying lease shall be subject to providing Tenant non-disturbance protection in standard form, reasonably satisfactory to Tenant. Landlord may assign the rents and its interest in this Lease to the holder of any Mortgage. In such event, Tenant shall give such holder a reasonable period (not to exceed twenty (20) days) to cure such default, commencing on the last day on which Landlord could cure such default. Landlord will notify Tenant of any Mortgage. Page 11 of 24 14. EVENTS OF DEFAULT. In addition to any other event specified in this Lease as an event of default, the occurrence of any one or more of the following events during the Term (each, an "Event of Default") shall constitute a breach of this Lease by Tenant, and Landlord may exercise the rights set forth in SECTION 15 or as otherwise provided at law: (1) Tenant fails to pay any sum payable hereunder within five (5) days after written notice thereof from Landlord to Tenant; or (2) Tenant fails to perform any of the other covenants, terms or conditions of this Lease to be performed by Tenant (other than any monetary default), and, unless expressly provided elsewhere in this Lease, such default shall continue for thirty (30) days after written notice thereof from Landlord to Tenant, or, in the case of a default which cannot with due diligence be cured within thirty (30) days, Tenant or Guarantor fails to commence such cure promptly within such thirty (30) day period and thereafter diligently prosecute such cure to completion; or (3) Tenant or Guarantor files a voluntary petition in bankruptcy or becomes insolvent within the meaning of any applicable bankruptcy code (the "Code"), or a petition is filed against Tenant or Guarantor under the Code and is not dismissed with prejudice within ninety (90) days after filing, or Tenant files any petition or answer seeking reorganization or similar relief under any bankruptcy or other applicable law, or seeks or consents to the appointment of a receiver or other custodian for any substantial part of Tenant's properties or any part of the Premises; or (4) Guarantor shall default beyond any applicable notice and/or grace period under its guaranty; or (5) the Premises shall be abandoned by Tenant for a period of twenty (20) days; or (6) a lien or claim is filed against the Premises arising out of any work performed by or on behalf of Tenant and Tenant fails to discharge such lien or remedy such claim within sixty (60) days after the filing thereof. During any period prior to the exercise of the Purchase Option under the Shelter Agreement or a termination of the Shelter Agreement, there shall be no Event of Default hereunder unless Guarantor shall have failed, within fifteen (15) days after notice to Guarantor from Landlord that Tenant has failed to cure a breach within any applicable grace or cure period, to cure such breach (whether or not Guarantor or a related entity of Guarantor shall have assumed Tenant's obligations under the Lease). Landlord will send copies of default notices hereunder to Guarantor. 15. LANDLORD'S REMEDIES. Upon the occurrence of an Event of Default, Landlord may pursue any remedies available to Landlord under Laws including, without limitation, the right of specific performance or payment of damages to the extent permitted by Laws. Upon the occurrence of an Event of Default, Landlord may give Tenant written notice of its election to rescind this Lease, whereupon Tenant's right to possession of the Premises shall cease on the day specified therein, and this Lease shall be terminated. 16. LANDLORD DEFAULT. (A) Landlord Default. In the event Landlord shall fail to perform any covenant required to be performed by Landlord under the terms and provisions of this Lease and such failure shall continue unremedied or uncorrected for a period of twenty (20) days after notice to Landlord (which notice shall be simultaneously delivered to any mortgagee of which Tenant has been given notice), or, in the case of a default which cannot with due diligence be cured within twenty (20) days, Landlord fails to commence such cure promptly within such twenty (20) day period and thereafter diligently prosecute such cure to completion, Tenant may, at Tenant's option, terminate this Lease (at which time the Guaranty will be of no further force and effect) and/or pursue any remedies available to Tenant under Laws including, without limitation, the right of specific performance or payment of damages to the extent permitted by Laws. Page 12 of 24 (B) Tenant's Self-Help Right. In the event that Landlord fails to maintain the insurance required to be maintained by it under SECTION 10(A) or perform any of its repair obligations under SECTION 7(A) and fails to cure same during any applicable cure period under SECTION 16(A), Tenant may provide a notice to Landlord (which notice shall be simultaneously delivered to any mortgagee of which Tenant has been given notice) stating that Tenant intends to itself cure such default. If Landlord has not commenced to cure such default or made arrangements satisfactory to Tenant to cure such default within five (5) business days after such notice and thereafter does not proceed with diligence to cure such default, Tenant may obtain such insurance or cause such work to be performed, in which event Landlord will be obligated to reimburse Tenant for the reasonable cost thereof within five (5) business days after receipt of evidence of such amount. If Landlord fails to pay such amounts within such time period, Tenant shall have the right to offset such amount against Base Rent next due and payable. 17. HOLDING OVER. If Tenant remains in possession of the Premises after the expiration or other termination of the Term, then, at Landlord's option, Tenant shall be deemed to be occupying the Premises as a non-fixed term ("tacita reconduccion") tenant pursuant to Laws, at a monthly rental equal to the one and one-half (1 1/2) times the monthly rent (including, without limitation, CPI Charges) payable hereunder during the last month of the Term, along with value added tax. 18. NOTICES. All notices given hereunder shall be (i) in writing and delivered to Landlord's Notice Address or Tenant's Notice Address, as applicable, (ii) given by an internationally recognized overnight courier, and (iii) deemed to be given two days after delivery to the overnight courier (if delivery is international) or one day after delivery to the courier if delivery is within the United States, or upon receipt of confirmation with respect to facsimile delivery. Either party may designate a different notice address at any time and any Notice given hereunder shall be effective if delivered by counsel for either party in accordance with this Section. 19. BROKERS. Each party represents to the other that it has dealt with no broker in connection with the negotiation and/or execution of this Lease. Each party shall defend, indemnify and hold the other harmless from and against any and all liability, loss, damage, expense, claim, action, demand, suit or obligation arising out of or relating to a breach by such party of this representation and such obligations shall survive the expiration or sooner termination of this Lease. 20. FORCE MAJEURE. As used herein, the term "Force Majeure" shall mean (i) an elimination of the Maquila Program which results in the termination of operations in Reynosa of 35% of the companies holding Maquila permits at the time of such program elimination, and (ii) acts of God, strike, riot, shortages of labor or materials, war, acts of terrorism or any other causes of any kind whatsoever which are beyond such party's reasonable control. Any event of Force Majeure which prevents a party from performing its non-monetary obligations under this Lease shall not constitute a default hereunder provided that the non-performing party perform its obligations promptly after the end of such Force Majeure event. In the event of Force Majeure arising (a) under clause (ii) above which renders the Premises unavailable for Tenant's use for a period of time in excess of six (6) months or (b) under clause (i) above for a period of time in excess of six (6) months, all rent otherwise payable hereunder will be abated during any additional period beyond the end of such six (6) month period. Page 13 of 24 21. NO SETOFF. Except as expressly set forth herein, all agreements, covenants and activities to be performed by Tenant hereunder shall be at Tenant's expense and without any abatement of rent. Except as set forth in Sections 11 or 16(B), Tenant shall not be entitled to any setoff, offset or abatement of any rent due Landlord hereunder if Landlord fails to perform its obligations hereunder. 22. LIMITATION OF LANDLORD LIABILITY. (A) Upon a transfer of title to or lease of the Premises, the transferor shall be relieved of all covenants and obligations of Landlord hereunder except to the extent that a notice of default shall have been previously provided to the transferor, and Tenant shall look solely to the successor in interest of the transferor as Landlord hereunder. Tenant agrees to attorn to the transferee or assignee, such attornment to be self-operative. (B) In no event shall Landlord be liable to Tenant for any failure of other tenants in the Premises, if any, to operate their businesses, or for any loss or damage caused by the acts or omissions of any other tenants. Notwithstanding anything to the contrary contained herein, no general or limited partner in or of Landlord, whether direct or indirect, nor any direct or indirect partners in such partners, nor any disclosed or undisclosed officers, shareholders, principals, directors, employees, partners, servants or agents of Landlord, nor any of the foregoing, nor any investment adviser or other holder of any equity interest in Landlord, their successors, assigns, agents, or any mortgagee in possession shall have any personal liability with respect to any provisions of this Lease. In addition, in no event shall Tenant have recourse under this Lease against assets of Landlord (including but not limited to the Building) in an amount in excess of One Million and 00/100 Dollars US ($1,000,000.00 US). 23. ESTOPPEL CERTIFICATE. Each party shall deliver to the other, within ten (10) days after the other's written request therefor, a certificate to the party designated in such request, certifying that this Lease is unmodified and in full force and effect (or stating any modifications then in effect), that there are no defenses or offsets thereto (or stating those claimed), the dates to which rent has been paid, and including any other information reasonably requested which relates to the Lease and the party's performance hereunder (as opposed to information about the party itself). 24. MISCELLANEOUS. (A) Either party's failure to exercise its rights with respect to a breach of any term, covenant or condition contained herein shall not be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition contained herein. Page 14 of 24 (B) If either party brings an action against the other, the prevailing party (as determined by the court or administrative body having jurisdiction over such action) may recover court costs and attorneys' fees and disbursements in such amount as the court or administrative body deems reasonable. Either party shall also be entitled to recover reasonable attorneys' fees and disbursements incurred in connection with a default beyond all applicable notice and grace periods by the other hereunder which does not result in the commencement of any action or proceeding. (C) Each of Landlord and Tenant acknowledges that it has not relied on any representations or agreements except those expressed herein, and that this Lease contains the entire agreement of the parties. No modification of this Lease shall be binding or valid unless in writing and executed and delivered by both parties. Neither Landlord nor Tenant shall record this Lease or a memorandum hereof without the other's prior written consent. Except as otherwise specifically provided herein, the terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of the respective heirs, successors, executors, administrators and assigns of each of the parties hereto. (D) The submission of this document for review does not constitute an option, offer or agreement to lease space. This document shall be effective only upon Landlord's and Tenant's execution and Landlord's delivery of same to Tenant. Except as expressly contained herein, neither Landlord nor Landlord's agent has made representations, warranties or promises with respect to the Premises or this Lease. Landlord and Tenant each acknowledge that each has been represented by independent counsel and has executed this Lease after being fully advised by said counsel as to its effect and significance. (E) This Lease shall be construed in accordance with the laws of the Mexican state in which the Premises is located. Unless herein waived, Landlord and Tenant acknowledge that all of the applicable statutes of such state are superimposed on the rights, duties and obligations of Landlord and Tenant hereunder. (F) If any term or provision of this Lease shall, to any extent, be illegal, invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and all other terms and provisions of this Lease shall be valid and enforceable to the fullest extent permitted by law. (G) Landlord and Landlord's agents and representatives shall have the right to enter the Premises at any time in case of an emergency, and, when accompanied by a representative of Tenant, at all reasonable times upon reasonable prior notice for any purpose permitted pursuant to the terms of this Lease, including, without limitation, showing the Premises to prospective purchasers or lenders. Landlord and Landlord's agents and representatives shall have the right to show the Premises to prospective tenants during the last six (6) calendar months of the Term upon reasonable prior notice during reasonable hours and when accompanied by a representative of Tenant. (H) The parties acknowledge that Landlord owns or will own prior to the commencement of the Term all of Landlord's Park, of which land the Land is but a part, and that Landlord intends to develop the remainder of Landlord's Park with one or more buildings. Tenant acknowledges and understands that construction and related activities may be carried on from time to time near the Premises. Landlord will use commercially reasonable efforts to minimize any interference with Tenant's business operations at the Premises. (I) All dollar amounts set forth herein are in money of the United States of America. Page 15 of 24 25. ARBITRATION. Any dispute, controversy or claim arising out of or related to this Lease or a breach hereof, shall be resolved by arbitration in the event that the parties, despite their good faith efforts, are not able to resolve the dispute within 60 days. The arbitration shall be in accordance with the procedural rules of the American Arbitration Association. There shall be one (1) arbitrator who shall be selected by the parties, and if the parties are not able so to select an arbitrator within 30 days after a notice of arbitration is filed, the American Arbitration Association shall appoint an arbitrator from a panel of experienced arbitrators accredited by the American Arbitration Association. The arbitration, including the rendering of the award, shall take place in San Antonio, Texas, United States of America. The language to be used in the arbitration shall be English, except that the arbitral award shall be issued in both English and Spanish.. Judgment upon the award of arbitrators may be entered and enforced through any competent court of the State of Tamaulipas, Mexico. 26. TRANSLATION. This Lease has been prepared in English, and a Spanish translation may be prepared. The Spanish translation would be for reference purposes only and, in case of conflicts in the translation or interpretation, the English version will control. In the event, however, that for purposes of judicial enforcement of this Agreement, a Spanish translation of this Agreement is required, then a Spanish translation shall be prepared by a court approved expert translator. The parties shall agree on the language of the Spanish translation prepared by the court approved expert translator, and the party seeking enforcement of this Agreement shall pay the cost of such translation. 27. TELECOMMUNICATIONS EQUIPMENT. (A) Notwithstanding anything to the contrary contained herein, Landlord hereby grants to Tenant the absolute right, without Landlord's consent, to install, attach to the exterior of the Building, and operate telecommunications equipment, including without limitation, antennae, satellite transmission and/or receiving equipment, and/or microwave dishes ("Telecommunications Equipment") in the area(s) designated on Exhibit A, provided Tenant shall first submit to Landlord plans and specifications therefor and obtain Landlord's written approval thereof (which approval shall not be unreasonably conditioned, delayed or withheld) prior to commencing any such installation or operation of Telecommunications Equipment. (B) Tenant hereby covenants and agrees that the installation and operation of the Telecommunications Equipment shall be done (i) at Tenant's sole cost and expense and (ii) in compliance with Laws. (C) Landlord covenants and agrees to cooperate at Tenant's cost and expense, to obtain any and all permits and licenses necessary of the installation and operations of the Telecommunications Equipment. Furthermore Landlord authorizes Tenant to make application in Landlord's name for any and all permits and licenses required for the installation and operation of the Telecommunications Equipment. (D) Landlord covenants and agrees to use commercially reasonable efforts to minimize interference with the Telecommunications Equipment by other tenants in Landlord's Park. Page 16 of 24 28. TERMINATION OF PRIOR LEASE. Landlord and Tenant hereby terminate, effective as of the Commencement Date, that certain Lease Agreement dated as of December 18, 1998, between Landlord and Tenant with respect to the leasing of a portion of the Building (as amended, the "Prior Lease"), it being the intention of the parties hereto that this Lease supersede and replace the Prior Lease and no further documents or instruments shall be necessary to evidence such termination of the Prior Lease, but each party agrees to execute, acknowledge and deliver such other documents and instruments as may be reasonably necessary or desirable to confirm the foregoing. Landlord and Tenant each agree to release the other from all liability and claims under the Prior Lease, except for (i) any third party claims, (ii) any items of Base Rent and/or other monetary obligations due and payable under the Prior Lease for periods prior to the termination thereof, including such amounts which are not yet ascertainable and/or billed and (iii) obligations of Tenant under the Prior Lease which survive the expiration date thereof or which relate to the condition of the premises leased thereunder as of such expiration date. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date set forth above. MATAMOROS INDUSTRIAL PARTNERS, IEC ELECTRONICOS de MEXICO, L.P., Landlord S. de R.L. de C.V., Tenant By: By: James Brinkerhoff, Authorized Signatory Edward Snyder, Authorized Signatory EXHIBITS A Description of the Premises and Common Areas B Uso de Suelo C Guaranty D Rules and Regulations for Landlord's Park E Industrial Park Covenants and Restrictions Page 17 of 24 LEASE AGREEMENT BETWEEN MATAMOROS INDUSTRIAL PARTNERS, L.P., LANDLORD AND IEC ELECTRONICOS DE MEXICO, S. DE R.L. DE C.V., TENANT Premises Address: Portion of Block 7, Lot 6 Parque Industrial del Norte Reynosa, Tamaulipas, Mexico SUMMARY LEASE INFORMATION GUARANTOR IEC Electronics Corp. PREMISES SIZE 112,000 square feet RENTAL RATE ($/MONTH/SF) $0.49 per month per sq. ft. ESCALATION CPI based after year two TERM 5 years, with one 5 year renewal option COMMENCEMENT DATE May 1, 2001 EXPIRATION DATE April 30, 2006 Page 18 of 24 EXHIBIT B USO DE SUELO Page 19 of 24 EXHIBIT C GUARANTY OF LEASE In consideration of, and as an inducement to Matamoros Industrial Partners, L.P. ("Landlord") to enter that certain Lease Agreement of even date herewith (as same may be amended or modified, the "Lease") with IEC Electronicos de Mexico, S. de R.L. de C.V. ("Tenant") for the premises having a street address of Av. Industrial Rio San Juan, Parque Industrial Del Norte, Reynosa, Tamaulipas, Mexico and in further consideration of the premises and other good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned ("Guarantor") hereby guarantees, absolutely and unconditionally, to Landlord the full and prompt performance of all terms, covenants, conditions and agreements to be performed and observed by Tenant under the Lease and any and all amendments, modifications and other instruments relating thereto, whether now or hereafter existing, and the full and prompt payment of all damages, costs and expenses which shall at any time be recoverable by Landlord from Tenant by virtue of the Lease and any amendments, modifications and other instruments relating thereto; and Guarantor hereby covenants and agrees to and with Landlord, its successors and assigns, that if Tenant, its successors and assigns, shall default at any time in the payment of Base Rent, CPI Charges (both as defined in the Lease) or any other sums or charges payable by Tenant under the Lease or in the performance of any of the terms, covenants, provisions or conditions contained in the Lease after the passage of any applicable cure or grace period, Guarantor will, within fifteen (15) days after notice from Landlord, pay to Landlord, its successors and assigns, such Base Rent, CPI Charges and other sums and charges and will forthwith faithfully perform and fulfill all of such terms, covenants, conditions and provisions of the Lease. Notwithstanding anything to the contrary contained herein, once the Lease is assigned or sublet pursuant to Section 9(C)(iii), the aforementioned guarantee shall be limited to the full and prompt payment of Base Rent and CPI Charges under the Lease. Furthermore, notwithstanding anything to the contrary contained herein, this Guarantee shall terminate and be of no further force and effect in the instances specified in the Lease, including, without limitation, those instances more particularly detailed in Sections 9(C)(i), 9(C)(iv), 11(A), 11(B), and 16 of the Lease. Any such Lease obligations which Guarantor is guaranteeing hereunder are sometimes referred to herein as "Liabilities of Tenant." Guarantor agrees that, with or without notice or demand, Guarantor will reimburse Landlord, to the extent that such reimbursement is not made by Tenant, for all expenses (including reasonable attorneys' fees and disbursements) incurred by Landlord in connection with any default by Tenant which is covered by this Guaranty. Page 20 of 24 All moneys available to Landlord for application in payment or reduction of the Liabilities of Tenant may be applied by Landlord, in such manner and in such amounts and at such time or times as it may see fit, to the payment or reduction of such of the Liabilities of Tenant as Landlord may elect. This Guaranty shall be a continuing guaranty, and the liability of the Guarantor hereunder shall in no way be affected, modified or diminished by reason that the Lease or any other obligation of Tenant is changed, altered, renewed, extended, continued, surrendered, compromised or waived in whole or in part, or that any default with respect thereto is waived, whether or not notice thereof is given to Guarantor, and it is understood and agreed that Landlord may fail to set off, in whole or in part, any credit on its books in favor of Tenant, and may extend further credit in any manner whatsoever to Tenant, and generally deal with Tenant or any such security as Landlord may see fit; and Guarantor shall remain bound under this Guaranty notwithstanding any such exchange, surrender, release, change, alteration, renewal, extension, continuance, compromise, waiver, inaction, extension of further credit or other dealing. Notwithstanding any provision to the contrary contained herein, Guarantor hereby unconditionally and irrevocably waives (a) any and all rights of subrogation to the claims, whether existing now or arising hereafter, Landlord may have against Tenant, but only until such time as the Liabilities of Tenant shall have been fully discharged, and (b) any and all rights of reimbursement, contribution or indemnity against Tenant which may have heretofore arisen or may hereafter arise in connection with any guaranty or pledge or grant of any lien or security interest made in connection with the Lease. Guarantor hereby acknowledges that the waiver contained in the preceding sentence (the "Waiver") is given as an inducement to Landlord to enter into the Lease and, in consideration of Landlord's willingness to enter into the Lease, Guarantor agrees not to amend or modify in any way the Waiver without Landlord's prior written consent. If any amount shall be paid to Guarantor by Tenant on account of any claim set forth at any time when all the Liabilities of Tenant shall not have been paid in full, such amount shall be held in trust by Guarantor for Landlord's benefit, shall be segregated from the other funds of Guarantor and shall forthwith be paid over to Landlord to be applied in whole or in part by Landlord against the Liabilities of Tenant, whether matured or unmatured. Except as expressly provided for in the Lease, nothing herein contained is intended or shall be construed to give to Guarantor any rights of subrogation or right to participate in any way in Landlord's right, title or interest in the Lease, notwithstanding any payments made by Guarantor to or toward any payments due from Guarantor under this Guaranty, all such rights of subrogation and participation being hereby expressly waived and released. Guarantor hereby expressly waives, except as expressly set forth above, (a) notice of acceptance of this Guaranty; (b) presentment and demand for payment of any of the Liabilities of Tenant; (c) protest and notice of dishonor or default to any party (other than Guarantor) with respect to any of the Liabilities of Tenant; (d) all other notice to which Guarantor might otherwise be entitled; and (e) any demand for payment under this Guaranty; and Guarantor hereby expressly agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall not be terminated, affected or impaired by reason of the assertion or the failure to assert by Landlord against Tenant, or Tenant's successors and assigns, of any of the rights or remedies reserved to Landlord pursuant to provisions of the Lease. Page 21 of 24 This is an absolute and unconditional guaranty of payment and not of collection and Guarantor further waives any right to require that any action be brought against Tenant or any other person or entity or to require that resort be had to any security or to any balance of any deposit account. This Guaranty shall constitute a primary obligation of the undersigned. Each reference herein to Landlord shall be deemed to include its successors and assigns, in whose favor the provisions of this Guaranty shall also inure. Each reference herein to Guarantor shall be deemed to include the heirs, distributees, executors, administrators, legal representatives, successors and assigns of Guarantor, all of whom shall be bound by the provisions of this Guaranty. No delay on the part of Landlord in exercising any rights hereunder or failure to exercise the same shall operate as a waiver of such rights; no notice to or demand on Guarantor shall be deemed to be a waiver of the obligation of Guarantor or of the right of Landlord to take further action without notice or demand as provided herein; nor in any event shall any modification or waiver of the provisions of this Guaranty nor any termination hereof be effective unless in writing signed by Landlord, nor shall any waiver be applicable except in the specific instance for which given. This Guaranty shall continue to be effective or be reinstated, as the case may be, if any payment of Guarantor on account of the Liabilities of Tenant must be returned by Landlord upon the insolvency, bankruptcy or reorganization of Tenant, Guarantor, or otherwise, as though such payment had not been made. Guarantor has delivered to Landlord true, correct and complete audited financial statements of Guarantor for the fiscal year 2000 which have been prepared in accordance with generally accepted accounting principles. Guarantor agrees that, within fifteen (15) days after Landlord's request (which request may be given no more than once each calendar year), it shall deliver Landlord accurate, audited financial statements for Guarantor's most recent fiscal year (which is the calendar year) and calendar period for which financial statements have been prepared, which financial statements shall be prepared in accordance with recognized accounting principles and certified by a corporate officer of Guarantor. This Guaranty is, and shall be deemed to be, a contract entered into under and pursuant to the laws of the State of New York and shall be in all respects governed, construed, applied and enforced in accordance with the laws of such State; and no defense given or allowed by the laws of any other State or Country shall be interposed in any action or proceeding hereon unless such defense is also given or allowed by the laws of the State of New York. In any action or proceeding arising out of this Guaranty, Guarantor agrees to submit to personal jurisdiction in the State of New York. Guarantor agrees to pay all costs and expenses, including, without limitation, reasonable attorneys' fees, which are incurred by Landlord in the enforcement of this Guaranty. All of Landlord's rights and remedies under the Lease or under this Guaranty are intended to be distinct, separate and cumulative and no such right and remedy therein or herein mentioned is intended to be in exclusion of or a waiver of any of the others. Page 22 of 24 As a further inducement to Landlord to accept the Lease and in consideration thereof, Landlord and Guarantor covenant and agree that in any action or proceeding brought on, under or by virtue of this Guaranty, Landlord and the Guarantor shall and do hereby waive trial by jury. Except as provided in the Lease, this Guaranty shall not be affected by any assignment of the Lease or sublet of the Premises by Tenant. Any notices which either party herein may desire to give to the other shall be made in writing and shall be given by certified or registered mail, postage prepaid, return receipt requested or overnight courier and shall be deemed to be given on the third (3rd) business day after the date of posting in a United States Post Office or branch post office, and shall be delivered to Landlord at 518 Seventeenth Street, Suite 1700, Denver, Colorado 80202. Notices for Guarantor(s) shall be sent to the address(es) set forth below. Either party may, by notice as aforesaid actually received, designate a different address or addresses for communications intended for it. Guarantor represents and warrants to Landlord that each individual executing this Guaranty on behalf of Guarantor is duly authorized to execute and deliver this Guaranty and that this Guaranty is binding upon Guarantor in accordance with its terms. IN WITNESS WHEREOF, Guarantor has caused its duly authorized representative the undersigned has executed this Guaranty as of the __ day of March, 2001. IEC ELECTRONICS CORP., a Delaware corporation By: ___________________ EIN: - - Guarantor Notice Address: IEC Electronics Corp. 105 Norton Street P.O. Box 271 Newark, New York 14513 Attn: Richard L. Weiss With a copy to: Boylan, Brown, Code, Vigdor & Wilson LLP 2400 Chase Square Rochester, New York 14604 Attn: Justin L. Vigdor, Esq. Page 23 of 24 EXHIBIT D RULES AND REGULATIONS (1) Security. Landlord may from time to time adopt systems and procedures for the security or safety of Landlord's Park or any persons occupying, using or entering the same, and Tenant shall comply with Landlord's reasonable requirements relating thereto. (2) Locks. Tenant shall have the right from time to time to change locks at the Premises, provided that in all cases, Tenant shall, simultaneously with such change, provide keys to Landlord. (3) Keys. At the end of the Term, Tenant shall promptly return or provide to Landlord all keys for the Building and Premises. (4) Antennas and Aerials. No antenna or aerial shall be erected on the roof or exterior walls of the Building or elsewhere at the Premises without the prior written consent of Landlord. Any antenna or aerial so installed without prior consent shall be subject to removal without notice at any time, and Tenant shall bear all costs of removal and any repairs necessitated by virtue of its attachment to the Building. (5) Personal Use of Premises. The Premises shall not be used or permitted to be used for residential lodging or sleeping purposes or for the storage of personal effects or property not required for business purposes. (6) Deliveries. Vehicles making deliveries to or pick-ups from the Premises shall not be permitted to park in, block or remain in the Common Areas. Tenant shall promptly pay or cause to be paid to Landlord the cost of repairing any damage in or to Landlord's Park or the Premises caused by any person making such deliveries or pick-ups. (7) Parking. Tenant's employees or other users of the Premises shall not be permitted to park in, block or remain in the Common Areas. (8) Furniture and Equipment. Tenant shall insure that furniture, fixtures, equipment and machinery being moved into or out of the Premises is moved in an appropriate manner through appropriate entrances, and shall promptly pay or cause to be paid to Landlord the cost of repairing any damage in or to the Building caused thereby. (9) Solicitations. Landlord reserves the right to restrict or prohibit canvassing, soliciting or peddling in Landlord's Park. (10) Refuse. Tenant shall place all refuse in proper receptacles provided by Tenant at its expense at the Premises, and shall keep the Common Areas free of all refuse generated by Tenant. (11) Obstruction. Tenant shall not obstruct or place anything in or on the sidewalks or driveways outside the Building or in the Common Areas, or use such locations for any purpose except ingress to and egress from the Premises without Landlord's prior written consent. Landlord may remove, at Tenant's expense, any such obstruction or thing (unauthorized by Landlord) without notice or obligation to Tenant. (12) Proper Conduct. Tenant shall not conduct itself in any manner which is materially inconsistent with the character of Landlord's Park as a first quality park or which will materially impair the comfort and convenience of other tenants in Landlord's Park. (13) Employees, Agents and Invitees. In these Rules and Regulations, "Tenant" includes the employees, contractors, agents, invitees and licensees of Tenant and others permitted by Tenant to use or occupy the Premises. Page 24 of 24 EX-10 3 espp.txt ESPP Exhibit 10.2 IEC Electronics Corp. 2001 Employee Stock Purchase Plan Section 1. Purpose. The IEC Electronics Corp. 2001 Employee Stock Purchase Plan (the "Plan") is designed to provide an opportunity for the employees of IEC Electronics Corp. and its subsidiaries (hereinafter referred to, unless the context otherwise requires, as the "Company") to purchase Common Stock (the "Stock") of the Company through voluntary systematic payroll deductions. It is the purpose and policy of the Plan to provide employees with an opportunity to acquire a proprietary interest in the economic progress of the Company and thereby to have an additional incentive to promote its best interests. It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that Section of the Code. Section 2. Certain Definitions. (a) "Compensation" means the base salary or wage paid to an Employee, including commissions and overtime payments. "Compensation" shall not include bonuses, profit sharing contributions, Company contributions to Social Security, contributions to the Company's 401(k) Profit Sharing Plan or any other retirement plan or program, or the value of any other fringe benefits provided at the expense of the Company. (b) "Employee" means any person, including an officer, who is employed by (i) the Company or (ii) any subsidiary company, 50% or more of whose voting shares are owned directly or indirectly by the Company. A director of the Company who is not also a full time officer is not deemed to be an employee. (c) "Fair Market Value" means the value of one share of Stock on the relevant date, determined as follows: (i) If the shares are traded on an exchange (including The Nasdaq Stock Market), the reported "closing price" on the relevant date (e.g., the Offering Commencement Date or Offering Termination Date) assuming it is a trading day; otherwise on the next trading day. (ii) If the shares are traded over-the-counter with no reported closing price, the mean between the lowest bid and the highest asked prices on said system on the relevant date assuming it is a trading day; otherwise on the next trading day; and (iii)If neither (i)nor(ii) applies, the fair market value a determined by the Committee in good faith. Such determination shall be conclusive and binding on all persons. Section 3. Offerings under the Plan. The Plan will be implemented by a series of offerings of the Company's Stock (the "Offerings") that will terminate on the termination date of the Plan. As used in the Plan, "Offering Commencement Date" means the date on which a particular Offering begins, "Offering Termination Date" means the date on which a particular Offering terminates, and "Purchase Period" means the period beginning on the Offering Commencement Date and ending on the Offering Termination Date. Each Purchase Period shall be determined by the Committee. Unless otherwise determined by the Committee, the Plan will operate with successive semi-annual Purchase Periods commencing as soon as administratively practicable after the Effective Date, although the Committee may pilot the program with a shorter initial Purchase Period. The Committee shall have the power to specify and change the commencement and duration of Purchase Periods, without stockholder approval, and without regard to the expectations of any Participants. Participation in any Offering under the Plan shall neither limit, nor require, participation in any other Offering except that no Employee may have more than one authorization for payroll deduction in effect simultaneously. Except as provided in Section 4 of the Plan, all Employees participating in an Offering shall have the same rights and privileges to purchase Stock in the Plan. Page 1 of 7 Section 4. Eligibility. (a) Initial Eligibility. Any Employee regularly employed on a full-time or part-time basis by the Company on an Offering Commencement Date shall be eligible to participate in the Plan with respect to the Purchase Period commencing on such Offering Commencement Date, provided that the Company may establish administrative rules requiring that employment commence some minimum period (e.g.,one month's employment) prior to an Offering Commencement Date for the Employee to be eligible to participate with respect to the Purchase Period beginning on that Offering Commencement Date and provided further that (1) the Committee may exclude part-time Employees from participation pursuant to criteria and procedures established by the Committee and (2) the Committee may impose an eligibility period on participation of up to two years employment with the Company with respect to participation on any prospective Offering Commencement Date. The Board also may determine that a designated group of highly compensated Employees is ineligible to participate in the Plan so long as the excluded category fits within the definition of "highly compensated employee" in Section 414(q) of the Code. An Employee shall be considered employed on a full-time basis unless his or her customary employment is less than 20 hours per week or five months per year. All Employees who participate in the Plan shall have the same rights and privileges under the Plan, except for differences which are consistent with Section 423(b)(5) of the Code. The Committee may impose restrictions on eligibility and participation of Employees who are officers and directors to facilitate compliance with federal or state securities laws. (b) Restrictions on Participation. Notwithstanding any provisions of the Plan to the contrary, no Employee shall be eligible to participate in the Plan or be granted an option to purchase Stock in the Plan if: (i) Immediately after the grant, such Employee would own, or be considered to own, 5% or more of the total combined voting power or value of all classes of stock of the Company (for purposes of this paragraph, the rules of Section 424(d) of the Code shall apply in determining stock ownership of any Employee, and stock that the Employee may purchase under outstanding options shall be treated as stock owned by the Employee); or (ii) Such option would permit such Employee's rights to purchase stock under all employee stock purchase plans of the Company which meet the requirements of Section 423(b) of the Code to accrue at a rate which exceeds $25,000 in fair market value (as determined pursuant to Section 423(b)(8) of the Code)for each calendar year in which such option is outstanding. Section 5. Participation and Payroll Deductions. (a) Payment for Stock. Shares of Stock purchased under the Plan will be paid for by payroll deductions during the Purchase Period. (b) Participation. (i) An Employee who is eligible to participate in the Plan in accordance with Section 4 may become a participant ("Participant") in the Plan by completing an authorization for a payroll deduction on the form provided by the Company ("Employee Authorization Card")and filing it with the Human Resources Department of the Company during the enrollment period ("Enrollment Period") prior to an Offering Commencement Date. Upon becoming a Participant, the Employee shall be bound by the terms of this Plan, including any amendments hereto. (ii) The Enrollment Period for each of the Offerings is the thirty (30)days prior to each Offering Commencement Date or such other period of time as may be prescribed by the Committee. (iii)An Employee Authorization Card shall become effective on the Offering Commencement Date of the first applicable Offering and shall remain in effect for all subsequent Offerings so long as the Employee remains eligible under the Plan and has not withdrawn from the Plan as set forth in Section 8. Page 2 of 7 (c) Payroll Deductions. (i) At the time an Employee files an Employee Authorization Card, the Employee shall elect to have deductions made from his or her pay on each payday during the time the Employee is a Participant in an Offering at the rate of not less than one percent (1%) and not greater than ten percent (10%) of the Compensation which the Employee is entitled to receive on such payday ("Payroll Deduction Rate"); provided, however, that the Committee from time to time before an Offering may establish limits other than those herein described for all purchases to occur during the relevant Purchase Period. (ii) Payroll deductions for a Participant shall begin as of the first pay period after an Employee Authorization Card has become effective. (iii) All payroll deductions made for a Participant shall be credited to the Participant's account under the Plan. Amounts credited to such accounts may be used by the Company for any corporate purpose. A Participant may not make any separate cash payment into such account. (d) Changes in Payroll Deduction Rate; Discontinuance of Payroll Deductions. (i) A Participant may discontinue his or her participation in the Plan as provided in Section 8(a) of the Plan, but no other change can be made during an Offering, including, but not limited to, changes in the Payroll Deduction Rate for such Offering. A Participant may change the Payroll Deduction Rate for subsequent Offerings by giving written notice of such change to the Company during the Enrollment Period immediately preceding the Offering Commencement Date for the Offering for which such change is effective. (ii) At any time during an Offering, a Participant may discontinue his or her participation in the Plan by notifying the Company that the Participant wishes to discontinue his or her payroll deductions. This notice shall be in writing and on such forms as provided by the Company and shall become effective as of a date not more than thirty (30) days following its receipt by the Company. (e) No Interest. No interest shall be paid or credited to the Participant with respect to payroll deductions or any amounts held in the Participant's account. Section 6. Granting of Options. (a) Number of Option Shares. With respect to each Offering, each eligible Employee who has elected to participate as provided in Section 5(b) above shall be deemed to have been granted on the Offering Commencement Date an option to purchase the number of full shares of Stock which may be purchased with the payroll deductions accumulated in an account maintained on behalf of each Participant during each Purchase Period at the option price specified in Section 6(b) below, subject to the limitations contained in Section 4(b) above. (b) Option Price. The option price under each option shall be the lower of: (i) 85% of the Fair Market Value of the Stock on the Offering Commencement Date; or (ii) 85% of the Fair Market Value of the Stock on the Offering Termination Date. Section 7. Exercise of Options. (a) Automatic Exercise. Unless a Participant gives written notice to the Company as provided in Section 8(a) below, the Participant's option for the purchase of Stock with payroll deductions made during any Offering will be deemed to have been exercised automatically on the Offering Termination Date applicable to such Offering. (b) Fractional Shares. Fractional shares will not be issued under the Plan and any accumulated payroll deductions which would have been used to purchase fractional shares will be credited to the Participant's account for the next succeeding Offering, or, at the Participant's election, returned to the Participant as soon as practicable following the Offering Termination Date, without interest. (c) Transferability of Option. No option granted to a Participant pursuant to the Plan shall be transferable other than by will or by the laws of descent and distribution, and no such option shall be exercisable during the Participant's lifetime other than by the Participant. (d) Delivery of Shares. The Company shall deliver to the Participant certificates for shares of Stock acquired on the exercise of options during an Offering as soon as practicable following the Offering Termination Date of such Offering or, at the Participant's request, the Company shall deposit such shares directly with a broker designated by the Participant. The Company may utilize electronic or automated methods of share transfer. The Company may require that shares be retained for a designated period of time and/or may establish other procedures to permit tracking of disqualifying dispositions of such shares or to restrict transfer of such shares. Page 3 of 7 Section 8. Withdrawals. (a) Withdrawal of Account. A Participant may elect to withdraw payroll deductions credited to the Participant's account under the Plan at any time before the Offering Termination Date of any Offering by giving written notice to the Company. All of the Participant's payroll deductions credited to the Participant's account will be paid to the Participant promptly after receipt of the notice of withdrawal, and no further payroll deductions will be made from the Participant's pay during such Offering. (b) Effect on Subsequent Participation. A Participant's withdrawal from any Offering will not have any effect upon the Participant's eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by the Company. (c) Termination of Employment. Upon termination of the Participant's employment for any reason, including retirement (but excluding death while in the employ of the Company), the payroll deductions credited to the Participant's account will be returned to the Participant or, in the case of the Participant's death subsequent to the termination of the Participant's employment, to the person or persons entitled thereunder under Section 11(a). (d) Termination of Employment Due to Death. Upon termination of the Participant's employment because of the Participant's death, the Participant's beneficiary (as defined in Section 11) shall have the right to elect, by written notice given to the Company prior to the earlier of the Offering Termination Date or the expiration of a period of sixty (60) days commencing with the date of the death of the Participant, either: (i) to withdraw all of the payroll deductions credited to the Participant's account under the Plan, or (ii) to exercise the Participant's option for the purchase of Stock on the Offering Termination Date next following the date of the Participant's death for the purchase of the number of full shares of Stock which the accumulated payroll deductions in the Participant's account at the date of the Participant's death will purchase at the applicable option price, and any excess in such account will be returned to said beneficiary, without interest. In the event that no such written notice of election shall be duly received by the Company, the beneficiary shall automatically be deemed to have elected, pursuant to paragraph (ii), to exercise the Participant's option. Section 9. Stock. (a) Maximum Number of Shares. The maximum number of shares which shall be issued under the Plan, subject to adjustment upon changes in capitalization of the Company as provided in Section 11(d), shall be 250,000 shares. If the total number of shares for which options are exercised on any Offering Termination Date in accordance with Section 6 exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares available for delivery and distribution in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable, and the balance of payroll deductions credited to the account of each Participant under the Plan shall be returned to the Participant as promptly as possible. (b) Participant's Interest in Option Stock. The Participant will have no interest in Stock covered by the Participant's option until such option has been exercised. (c) Registration of Stock. Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant, or, if the Participant so directs by written notice to the Company prior to the Offering Termination Date applicable thereto, in the names of the Participant and one such other person as may be designated by the Participant, as joint tenants with rights of survivorship or as tenants by the entireties, to the extent permitted by applicable law. (d) Restrictions on Exercise. The Committee may, in its discretion, require as conditions to the exercise of any option that the shares of Stock reserved for issuance upon the exercise of the option shall have been duly listed, upon official notice of issuance, upon a stock exchange, and that either: (i) a Registration Statement under the Securities Act of 1933, as amended, with respect to said shares shall be effective, or (ii) the Participant shall have represented at the time of purchase, in form and substance satisfactory to the Company, that it is the Participant's intention to purchase the shares for investment and not for resale or distribution. Page 4 of 7 Section 10. Administration. (a) Committee. The Compensation Committee (the "Committee") of the Board of Directors shall administer the Plan. The Committee shall consist of no fewer than three members of the Board of Directors. No member of the Committee shall be eligible to purchase Stock under the Plan. (b) Authority of Committee. Subject to the express provisions of the Plan, the Committee shall have plenary authority in its discretion to interpret and construe any and all provisions of the Plan, to adopt rules and regulations for administering the Plan, and to make all other determinations deemed necessary or advisable for administering the Plan. The Committee may delegate to one or more individuals the day-to-day administration of the Plan. Decisions of the Committee shall be conclusive and binding upon all persons in interest. (c) Rules Governing the Administration of the Committee. The Board of Directors may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed and may fill vacancies, however caused, in the Committee. The Committee may select one of its members as its Chairman and shall hold its meetings at such times and places as it shall deem advisable and may hold telephonic meetings. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. The Committee may correct any defect or omission or reconcile any inconsistency in the Plan, in the manner and to the extent it shall deem desirable. Any decision or determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary and shall make such rules and regulations for the conduct of its business as it shall deem advisable. (d) Indemnification of Committee. In addition to such other rights of indemnification as they may have as directors or as members of the Committee, under the Company's Certificate of Incorporation, Bylaws, or pursuant to law or contract, the members of the Committee shall be indemnified by the Company against reasonable expenses, including attorneys' fees actually and necessarily incurred in connection with any action or appeal therein, to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding except in relation to matters as to which it shall be adjudged in such action, suit, proceeding that such Committee member is liable for misconduct in the performance of his duties; provided that within sixty (60) days after institution of any such action, suit or proceeding a Committee member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same. Page 5 of 7 Section 11. Miscellaneous. (a) Designation of Beneficiary. A Participant may file a written designation of a beneficiary who is to receive any shares and cash to the Participant's credit under the Plan in the event of such Participant's death prior to delivery to the Participant of such shares and cash. Such designation of beneficiary may be changed by the Participant at any time by written notice to the Company. Upon the death of a Participant and upon receipt by the Company of proof of the identity and existence at the Participant's death of a beneficiary validly designated by the Participant under the Plan, the Company shall deliver such shares and cash to such beneficiary. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such shares and cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company) the Company, in its discretion, may deliver such shares and cash to the spouse or to any one or more dependents or relatives of the Participant or if no spouse, dependent, or relative is known to the Company then to such other person as the Company may designate. No designated beneficiary shall prior to the death of the Participant by whom the beneficiary has been designated, acquire any interest in the shares or cash credited to the Participant under the Plan. (b) Transferability. Neither payroll deductions credited to a Participant's account nor any rights with regard to the exercise of an option or to receive Stock under the Plan may be assigned, transferred, pledged, or otherwise encumbered or disposed of in any way by the Participant other than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 8(a). (c) Use of Funds. All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose and the Company shall not be obligated to segregate such payroll deductions. (d) Recapitalization. If, while any options are outstanding, the outstanding shares of Stock of the Company have increased, decreased, changed into, or been exchanged for a different number or kind of shares or securities of the Company through reorganization, merger, recapitalization, reclassification, stock split, reverse stock split or similar transaction, appropriate and proportionate adjustments may be made by the Committee in the number and/or kind of shares which are subject to purchase under outstanding options and on the option exercise price or prices applicable to such outstanding options. In addition, in any such event, the number and/or kind of shares which may be offered in the Offerings described in Section 3 hereof shall also be proportionately adjusted. (e) Merger, Liquidation, Other Corporate Transactions. (i) In the event of the proposed liquidation or dissolution of the Company, the Offering then in progress will terminate immediately prior to the consummation of such proposed liquidation or dissolution, unless otherwise provided by the Board in its sole discretion, and all outstanding options shall automatically terminate and the amounts of all payroll deductions will be refunded without interest to the Participants. (ii) In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger or consolidation of the Company with or into another corporation, then in the sole discretion of the Board, (1) each option shall be assumed or an equivalent option shall be substituted by the successor corporation or parent or subsidiary of such successor corporation, or (2) a date established by the Board on or before the date of consummation of such merger, consolidation or sale shall be treated as an Exercise Date, and all outstanding options shall be deemed exercisable on such date, or (3) all outstanding options shall terminate and the accumulated payroll deductions shall be returned to the Participants, without interest. Page 6 of 7 (f) Amendment and Termination. The Board of Directors shall have complete power and authority to terminate, suspend or amend the Plan; provided, however, that the Board of Directors shall not, without the approval of the stockholders of the Company (i) increase the maximum number of shares which may be issued under the Plan, (ii) amend the requirements as to the class of employees eligible to purchase Stock under the Plan or permit the members of the Committee to purchase Stock under the Plan, or (iii) extend the term of the Plan beyond the date specified in Section 11(j). No termination, modification or amendment of the Plan may, without the consent of an Employee then having an option under the Plan to purchase Stock, adversely affect the rights of such Employee under such option. (g) No Rights as a Stockholder. No right as a stockholder shall exist with respect to any shares of Stock covered by options until the shares subject to the option have been purchased and delivered as provided in Section 7(d). No adjustment shall be made for dividends or other rights for which the record date is prior to the date such shares have been purchased and delivered. (h) No Employment Rights. The Plan does not, directly or indirectly, create any right for the benefit of any Employee or class of employees to purchase any shares under the Plan, or create in any Employee or class of employees any right with respect to continuation of employment by the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an Employee's employment at any time. (i) Effective Date. The Plan shall become effective as of March 1, 2001, subject to approval by the stockholders of the Company within twelve (12) months after its adoption by the Board of Directors. If the Plan is not approved, the Plan shall not become effective. (j) Termination Date. This Plan shall terminate, and no further shares of Stock shall be sold or issued hereunder, on February 28, 2006, or such earlier date as may be determined by the Board of Directors or Committee. The termination of this Plan, however, shall not affect any restrictions previously imposed on the shares issued pursuant to this Plan or rights of the Company granted pursuant to this Plan. (k) Effect of Plan. The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Employee participating in the Plan, including, without limitation, such Employee's estate and the executors, administrator or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Employee. (l) Governing Law. The law of the State of New York will govern all matters relating to this Plan except to the extent it is superseded by the laws of the United States. Date Plan adopted by Board of Directors: December 7, 2000 Date Plan approved by Stockholders: Page 7 of 7 EX-10 4 andersonempagmt.txt ANDERSON EMP AGMT Exhibit 10.3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of March 19, 2001 by and between IEC ELECTRONICS CORP., a Delaware corporation ("IEC" or the "Company"), and BILL R. ANDERSON ("Executive"). RECITALS IEC desires to employ Executive to devote his full time to the business of IEC, and Executive desires to be so employed. In consideration of the mutual covenants and obligations hereinafter set forth, the parties agree as follows: 1. Employment. IEC hereby employs the Executive as Vice President, Materials and Supply Chain Management. Executive hereby accepts such employment and agrees to remain in the employ of IEC for the Term (as hereinafter defined), to perform such other or additional duties as shall be assigned to him by IEC's President and Chief Executive Officer and to abide by the terms and conditions of this Agreement. During the Term, in good faith, Executive shall exert all reasonable efforts to promote the interests of the Company and shall devote substantially all of his entire working time, attention and energies to the business of the Company. The Executive will be available to the Company, either on-site in Newark, NY or at another of the Company's facilities, for four working days each week. The fifth working day will typically occur at the Executive's permanent place of residence via e-mail, fax or teleconference. There will be occasions that will require the Executive to be in Newark, NY, or at one of the Company's other facilities, or off-site at a customer, supplier or other business related locations, on the fifth working day, or weekends, and the Executive agrees to be available at that location when such situations arise. 2. Term of Employment. Subject to the terms and conditions of this Agreement, the term of employment under this Agreement shall commence on March 19, 2001 ("Employment Commencement Date") and shall terminate on March 18, 2002 (the "Initial Term"). The Initial Term of this Agreement may be extended for additional one-year terms (each an "Additional Term") upon the end of the Initial Term, or any successor Additional Term, provided the Executive and the Company shall agree in writing to such an extension of term. 3. Compensation. A. Base Salary. For all services to be rendered to the Company and its affiliates by Executive in any capacity, IEC shall pay to Executive an annual base salary at the annual rate of not less than $160,000 ("Base Salary"). The Base Salary of Executive shall be reviewed at least annually and may be increased from time to time in the sole discretion of the President and Chief Executive Officer. Base Salary shall be payable in accordance with the customary payroll practices of IEC, subject to such deductions and withholdings as may be required by law or agreed to by Executive. B. Sign-on Bonus. A sign-on bonus of $25,000 shall be payable to Executive upon completion of 30 days employment from the Employment Commencement Date. C. Performance Bonus. Provided Executive is an employee of the Company on September 30, 2001, Executive shall be entitled to a performance bonus for the fiscal year ending September 30, 2001 payable in accordance with the IEC Electronics Corp. Incentive Compensation Bonus Plan, as modified, for fiscal year 2001, and subject to its terms and conditions. In subsequent fiscal years, Executive shall be entitled to such performance bonus based upon such performance goals and targets as shall be established for such successive fiscal year by the Board of Directors. 4. Benefits. Executive will be entitled to all benefits of full-time employees or officers as set forth in IEC's Policy Manual as to which he meets the eligibility requirements universally applicable to all such employees and such other benefits as may be accorded to executives from time to time. 5. Stock Options. Pursuant to the Company's 1993 Stock Option Plan, IEC will grant Executive on the Employment Commencement Date a stock option for 60,000 shares of IEC common stock at an exercise price equal to the fair market value of IEC's common stock on that date. To the extent permitted by Section 422 of the Internal Revenue Code, the option will be an incentive stock option. The option will vest in the following manner: (i) 10,000 shares will be immediately vested and exercisable; and (ii) 50,000 shares will vest in 25% increments beginning one year from the date of grant. The stock option will expire seven years from the date of grant and will contain such other terms and conditions as are customary in the Company's stock options. Future stock options will be granted at the discretion of the Board of Directors pursuant to its policies and guidelines. Page 1 of 6 6. Relocation Assistance. A. In connection with Executive's relocation to New York State, IEC will reimburse Executive in the manner and to the extent set forth below: (i) reasonable and customary expenses incurred in the sale of Executive's home in Pennsylvania and in the purchase of a new home in the Rochester/Newark, New York area (such expenses include out-of-pocket closing costs such as sales commissions, broker fees, title insurance, title charges, recording fees, transfer taxes, survey fees, termite inspections, home inspections, legal fees, and such other costs as are customarily paid by a seller and buyer in the respective areas where the sale and purchase are made); (ii) reasonable expenses incurred in transporting normal household goods to the new location; (iii) reasonable temporary living expenses incurred while awaiting occupancy in the new home for a period not to exceed 90 days from the Employment Commencement Date; and (iv) other benefits set forth in the Company's Executive Relocation Policy. B. The relocation payments made to Executive by Company in Section 6A(i)-(iii) above shall not exceed $10,000 in the aggregate without the prior approval of the Compensation Committee of the Company's Board of Directors. C. In lieu of the relocation benefits provided for in Section 6A(i) and (ii), Executive may, at his option, provided he notifies the Company in writing prior to the expiration of 90 days from the Employment Commencement Date, extend the period for the payment of temporary living expenses (as set forth in Section 6A(iii)) for up to an additional 275 days (the "Extended Period"). During the Extended Period, however, the Company's reimbursement for temporary living expenses shall include only those expenses for rent and utilities. In addition, Executive agrees that, should he resign his employment with the Company or should he terminate this Agreement for any reason prior to the expiration of the Initial Term, Executive will reimburse the Company on the last day worked the total amount of the temporary living expenses paid to him during the Extended Period. 7. Termination or Employment/Severance Payment. A. Termination of Employment by Company - In General. In the event of the termination of employment of Executive by the Company prior to the expiration of the Term or an Additional Term, as the case may be, for any reason other than Termination for Cause (as hereinafter defined), death, disability, or a Change in Control (as hereinafter defined), the Company will continue to pay the Executive for a period of one year following such termination an amount equal to the Executive's annual Base Salary at the annual rate then in effect less any sums which may be due from Executive to Company at such time. Payments of such amount will be made in installments which are in accordance with the customary payroll practices of the Company but will not be less than once a month. In addition, the Company will provide Executive with Executive's then current health, dental, life and accidental death and dismemberment insurance benefits for a period of one year following such termination. All payments made to Executive hereunder will be subject to all applicable employment and withholding taxes. B. Termination of Employment- following Change in Control. In the event of the termination of employment of Executive within the two year period following a Change in Control (as hereinafter defined) of the Company, and such termination is (i) by the Company for any reason other than Termination for Cause (as hereinafter defined), death or disability, or (ii) by the Executive for "Good Reason" (as hereinafter defined), the Company will pay the Executive for a period of one year following such termination an aggregate amount equal to the sum of (x) Executive's Base Salary at the annual rate then in effect and (y) the average annual performance bonus paid to Executive during the three full fiscal years preceding termination. Payments of such amount less any sums which may be due from Executive to Company at such time will be made in installments which are in accordance with the customary payroll practices of the Company but will not be less than once a month. In addition, Executive will be immediately vested in any retirement, incentive, or option plans or agreements then in effect and the Company will continue to provide Executive with Executive's then current health, dental, life and accidental death and dismemberment insurance benefits for a period of one year. All payments made to Executive hereunder will be subject to all applicable employment and withholding taxes. C. Limitations. Notwithstanding anything in this Agreement to the contrary, the maximum amount of cash and other benefits payable (whether on a current or deferred basis and whether or not includible in income for income tax purposes) under Section 7B of this Agreement (the "Severance Benefits") shall be limited to the extent necessary to avoid causing any portion of such Severance Benefits, or any other payment in the nature of compensation to the Executive, to be treated as a "parachute payment" within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended. Any adjustment required to satisfy the limitation described in the preceding sentence shall be accomplished first by reducing any cash payments that would otherwise be made to the Executive and then, if further reductions are necessary, by adjusting other benefits as determined by the Company. Page 2 of 6 D. Certain Definitions. Change in Control. A "Change in Control" shall be deemed to have occurred (i) on the date that any person or group deemed a person under Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, other than the Company or any person or group who has reported or is required to report such ownership on Schedule 13G under such Act, in a transaction or series of transactions, has become the beneficial owner, directly or indirectly (with beneficial ownership as determined as provided in Rule 13d-3, or any successor rule under such Act), of 15% or more of the outstanding voting securities of the Company; or (ii) on the date on which one third or more of the members of the Board of Directors shall consist of persons other than Current Directors (for these purposes, a "Current Director" shall mean any member of the Board of Directors elected at or continuing in office after the 2001 Annual Meeting of Shareholders, any successor of a Current Director who has been approved by a majority of the Current Directors then on the Board, and any other person who has been approved by a majority of the Current Directors then on the Board); or (iii) on the date of (x) the merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately prior to the merger or consolidation, would not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all shareholders of the corporation would be entitled in the election of directors or where the members of the Board of Directors of the Company, immediately prior to the merger or consolidation, would not immediately after the merger or consolidation, constitute a majority of the Board of Directors of the corporation issuing cash or securities in the merger or consolidation or (y) on the date of the sale or other disposition of all or substantially all the assets of the Company. Termination for Cause. The Company shall have the right to terminate the services of Executive at any time without further liability or obligations to Executive if: (i) Executive has failed or refused to perform such services as may reasonably be delegated or assigned to Executive consistent with the Executive's position, by the Board of Directors; (ii) Executive has been grossly negligent in connection with the performance of Executive's duties; (iii) Executive has committed acts involving dishonesty, willful misconduct, breach of fiduciary duty, fraud, or any similar offense which materially affects Executive's ability to perform Executive's duties for the Company or may materially adversely affect the Company; or (iv) Executive has been convicted of a felony; or (v) Executive has violated or breached in any respect any material term, covenant or condition contained in this Agreement. Termination of the services of Executive for Cause shall not be effective unless and until acted upon by the Board of Directors and unless and until written notice shall have been given to Executive, which notice shall include identification with specificity of each and every factual basis or incident upon which the termination is based. Notwithstanding the preceding sentence, in connection with the termination of the services of Executive for Cause under clauses (i) and (ii) above, the Board of Directors shall take no action until Executive has been provided written notice of the services Executive has failed or refused to perform or has performed in a grossly negligent manner and Executive shall have had 15 days after receiving such written notice to remedy the situation, if possible. Good Reason. Good Reason shall mean the occurrence or existence of any of the following with respect to Executive: (i) Executive's annual rate of salary is reduced from the annual rate then currently in effect or Executive's other employee benefits are in the aggregate materially reduced from those then currently in effect (unless such reduction of employee benefits applies to employees of the Company generally), or (ii) Executive's place of employment is moved more than 50 miles from its then current location, or (iii) Executive is assigned duties that are demeaning or are otherwise materially inconsistent with the duties then currently performed by Executive. Before Executive may terminate his employment for Good Reason, Executive must notify the Company in writing of his intention to terminate and the Company shall have 15 days after receiving such written notice to remedy the situation, if possible. E. Release. Notwithstanding the foregoing, IEC may condition the entitlement of Executive or his estate, heirs and beneficiaries, as applicable, to any payment or benefit under this Section 7 upon receipt of a fully executed general release in favor of IEC and its affiliates in reasonable form to be prepared by IEC. Page 3 of 6 8. Confidential Information. Executive acknowledges and agrees that Executive will be exposed to Confidential Information, knowledge or data as described below and Executive further acknowledges and agrees that such Confidential Information, knowledge or data is proprietary to and a valuable trade secret of the Company and that any disclosure or unauthorized use thereof will cause irreparable harm and loss to the Company. Executive understands that the Company has invested large sums in developing these materials and it would be difficult for Executive to develop these same materials from any independent sources without expenditure of large sums of money and effort. Executive also acknowledges that any use of the Company's materials other than in the scope of Executive's employment with the Company would constitute an unlawful use and taking of the materials from the Company for which the Company would have remedies against Executive. Executive agrees that during the period of Executive's employment by the Company or by any parent or subsidiary of the Company and at all times thereafter, Executive will not, directly or indirectly, disclose or authorize anyone else to disclose or use or make known for Executive's or another's benefit any Confidential Information, knowledge, or data of the Company whether or not patentable or copyrightable, in any way acquired by Executive during Executive's employment by the Company or by any parent or subsidiary of the Company. Confidential Information, knowledge or data of the Company shall, for purposes of this Agreement, include but not be limited to matters not readily available to the public which are: (a) of a technical nature, such as, but not limited to, methods, know-how, formulae, compositions, drawings, blueprints, compounds, processes, discoveries, machines, manufacturing procedures, techniques, computer databases, source codes, computer codes, designs, programs, prototypes, inventions, computer programs, and similar items; (b) of a business nature such as, but not limited to, information about sales or lists of customers (including mailing lists), vendors, competitors, prices, costs, purchasing, profits, markets, sales and marketing methods, documents, records, contract forms, computer disks containing data or other materials and information relating to the products, services and business of the Company, product strengths and weaknesses, business processes, business and marketing plans and activities, financial information, and personnel information; (c) pertaining to future developments such as, but not limited to, research and development, or future marketing or merchandising plans or ideas. All records (whether in hard copy or digital form), books and computer discs relating in any manner whatsoever to the Company shall be the exclusive property of the Company regardless of who actually prepared the original record or book. Executive shall not copy or cause to have copied any such records and books except in the ordinary course of business. Immediately upon termination of Executive's employment, Executive will deliver to the Company all copies of data, information and knowledge, including, without limitation, all documents, correspondence, specifications, blueprints, notebooks, reports, sketches, formulae, computer programs, sales and other manuals, price lists, customer lists, samples, and all other materials and copies thereof relating to the business of the Company obtained by Executive during the period of Executive's employment by the Company or by any parent or subsidiary of the Company which are in Executive's possession or under Executive's control. The foregoing shall be in addition to any obligation Executive may have under applicable law in respect of trade secrets and other legally protected information. Page 4 of 6 9. Covenant Not to Compete. During the period of employment and during the Non-Compete Period (as hereinafter defined) the Executive will not, directly or indirectly (a) own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director, consultant, independent contractor, principal, agent, stockholder or otherwise with, or have any financial interest in, or aid or assist any other person in the conduct of, any entity or business in the electronics manufacturing services industry which competes with any business, venture or activity being conducted or proposed to be conducted on the date of termination of the Executive's employment of any group, division or affiliate of the Company, in any geographic area where such business is being conducted or is proposed to be conducted at the date of cessation of the Executive's employment, or (b) persuade or attempt to persuade any officer, employee or consultant of the Company to leave the employ of the Company, or to stop providing services to the Company, or in any way interfere with the relationship between the Company and any officer, employee, director, shareholder or consultant thereof, or (c) solicit, hire or cause to be hired, directly or through another entity any person who is an employee of the Company on the date of termination of employment of Executive, or (d) induce or attempt to induce any customer, dealer, supplier or licensee to cease doing business with the Company, or in any way interfere with the relationship between any such customer, dealer, supplier or licensee and the Company or change that client's business relationship with the Company, or (e) provide or assist in providing any products or services to any clients of the Company (including any party to whom the Company has made a sales proposal within 18 months prior to the termination of employment of Executive) of the type offered by the Company. However, nothing herein shall prevent Executive from owning not more than five percent (5%) of the outstanding publicly traded shares of common stock of a corporation, as to which corporation Executive has no relationship other than as a shareholder. For purposes of this Agreement, "Non-Compete Period" shall mean either (a) a period of one year following termination of employment, whether voluntary or involuntary, for any reason other than as a result of a Change-in-Control or (b) a period of two years following termination of employment as a result of a Change-in-Control, whichever is applicable. Executive specifically agrees that because of Executive's special expertise and the special and unique services that Executive will be furnishing the Company, and because of the Confidential Information that will be disclosed to Executive during Executive's employment, the above stated geographic areas and time period, in and during which Executive will not compete with the Company, are reasonable in scope and duration and are necessary to afford the Company just and adequate protection against the irreparable damage which would result to the Company from any activities prohibited by this Section. In connection with the foregoing provisions of this Section 9, the Executive represents that Executive's experience, capabilities and circumstances are such that such provisions will not unreasonably prevent Executive from earning a livelihood and that the limitations set forth herein are reasonable and properly required for the adequate protection of the Company and its affiliates. If Executive in any way breaches the obligations specified in this Section 9, the Company shall have the right, in addition to any other remedies available to it, to terminate the further payment of any amounts due, any compensation, any severance payments, or any benefits. If the specific prohibitions or time restriction contained in this Section 9 shall be determined by an arbitrator or court of law or equity to be unreasonable, the arbitrator or court may amend this Section 9 to provide a reasonable geographic or time restriction which shall then be binding upon the Company and the Executive. In the event of a "Termination for Cause", or "Good Reason", the result of which does not provide salary and benefits continuation as identified in Section 7.A and 7.B, then Section 9 does not apply. 10. Injunctive Relief. Executive agrees that any breach or threatened breach by Executive of any of the provisions contained in Sections 8 and 9 cannot be remedied solely by the recovering of damages and the Company shall be entitled to an injunction against such breach or threatened breach. Nothing herein, however, shall be construed as prohibiting the Company from pursuing, in conjunction with an injunction or otherwise, any other remedies available at law or in equity for any such breach or threatened breach, including the recovery of damages from Executive. 11. Resignations. Upon termination of Executive's employment with or without cause, Executive shall resign as an officer and director of IEC and its subsidiaries. Page 5 of 6 12. Notices. All notice given in connection with this Agreement shall be in writing and shall be delivered either by personal delivery, by telegram, telex, telecopy or similar facsimile means, by certified or registered mail, return receipt requested, or by a recognized express courier or delivery service, addressed to the parties hereto at the following addresses: To Executive: To IEC Electronics Corp.: Bill R. Anderson IEC Electronics Corp. RD 3, Box 468E 105 Norton Street Altoona, PA 16601 Newark, NY 14513 Attn: President and Chief Executive Officer FAX: (315) 331-8185 or at such other address and number as either party shall have previously designated by written notice given to the other party in the manner hereinabove set forth. Notice shall be deemed given when received, if sent by telegram, telex, telecopy or similar facsimile means (confirmation of such receipt by confirmed facsimile transmission being deemed receipt of communications sent by telex, telecopy or other facsimile means); and when delivered and receipted for (or upon the date of attempted delivery where delivery is refused), if hand-delivered, sent by express courier or delivery services, or sent by certified or registered mail, return receipt requested. 13. Termination of Severance Payments. If Executive violates or breaches any of the agreements and covenants contained in this Agreement, the Company shall, in addition to other remedies under law or equity, be entitled to discontinue further severance payments and benefits to be made hereunder. 14. Waiver. Any waiver of a breach of any of the terms of this Agreement shall not operate as a waiver of any other breach of such terms or of any other terms, nor shall failure to enforce any term hereof operate as a waiver of any such term or of any other term. 15. Severability. If any term of this Agreement or the application thereof is held invalid or unenforceable, the validity or unenforceability shall not effect any other term of this Agreement which can be given effect without the invalid or unenforceable term. 16. Governing Law; Venue. This Agreement shall be construed and enforced in accordance with and governed by the internal laws of the State of New York, without reference to conflict of law principles of any jurisdiction (including, without limitation, New York) which would result in the application of the domestic substantive laws of any other jurisdiction. The parties consent to the exclusive jurisdiction of the Supreme Court of New York, Monroe County or of the United States District Court of the Western District of New York for any legal action instituted by any party against any other with respect to the subject matter hereof. 17. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof. This Agreement may not be amended or changed except by a writing signed by both parties. 18. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns and Executive and his heirs, executors, administrators and legal representatives. IN WITNESS WHEREOF, Executive has executed this Agreement and the Company has caused this Agreement to be executed as of the date set forth above. IEC ELECTRONICS CORP. By: Thomas W. Lovelock Its: President and Chief Executive Officer EXECUTIVE Bill R. 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