-----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, TSjmb5NHxGyoAL4Xo9WzFl+cw3ihLw9dl21O/8vyFJLUkXrUQ2WabV9gSY6adrZl 3CwBJeU54uhB1EEYY1Igwg== 0000049728-03-000001.txt : 20030114 0000049728-03-000001.hdr.sgml : 20030114 20030114170647 ACCESSION NUMBER: 0000049728-03-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20030114 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06508 FILM NUMBER: 03513925 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 FORMER COMPANY: FORMER CONFORMED NAME: INTERCONTINENTAL ELECTRONICS CORP DATE OF NAME CHANGE: 19730601 10-K 1 iec10k200211403.txt FY 2002 10K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 2002 or ------------------ [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ 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 IRS Employer ID No. incorporation or organization 105 Norton Street, Newark, New York 14513 - -------------------------------------------------------------------------------- Address of principal executive offices Zip Code Registrant's telephone number, including area code: 315-331-7742 ------------ Securities registered pursuant to Section 12(b) of the Act: ----------------------------------------------------------- None Securities registered pursuant to Section 12(g) of the Act: ----------------------------------------------------------- Common Stock, $.01 par value ---------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. Page 1 of 104 The aggregate market value of shares of common stock held by non-affiliates of the registrant was approximately $469,651 as of January 9, 2003, based upon the closing price of the registrant's common stock on the Over The Counter Bulletin Board on such date. Shares of common stock held by each executive officer and director and by each person and entity who beneficially owns more than 5% of the outstanding common stock have been excluded in that such person or entity under certain circumstances may be deemed to be an affiliate. Such exclusion should not be deemed a determination or admission by registrant that such individuals or entities are, in fact, affiliates of registrant. As of January 9, 2003, there were outstanding 7,691,503 shares of Common Stock. Documents incorporated by reference: Portions of IEC Electronics Corp.'s Proxy Statement for the Annual Meeting of Stockholders to be held on February 26, 2003 are incorporated into Part III of this Form 10-K. Page 2 of 104 TABLE OF CONTENTS PART I PAGE Item 1: Business..................................................... 4 Item 2: Properties................................................... 12 Item 3: Legal Proceedings............................................ 12 Item 4: Submission of Matters to a Vote of Security Holders.......... 12 Executive Officers of Registrant............................. 12 PART II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters......................................... 13 Item 6: Selected Consolidated Financial Data......................... 14 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 15 Item 7A: Quantitative and qualitative disclosures about market risk... 21 Item 8: Financial Statements and Supplementary Data.................. 21 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................... 21 PART III Item 10: Directors and Executive Officers of the Registrant........... 21 Item 11: Executive Compensation....................................... 21 Item 12: Security Ownership of Certain Beneficial Owners and Management.................................................. 21 Item 13: Certain Relationships and Related Transactions............... 22 Item 14: Controls and Procedures...................................... 22 PART IV Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................. 22 Page 3 of 104 PART I ITEM 1. BUSINESS - ----------------- IEC Electronics Corp. ("IEC", "We", "Our") is an independent electronics manufacturing services ("EMS") provider of complex printed circuit board assemblies and electronic products and systems. IEC is a significant provider of high quality electronics manufacturing services with state-of-the-art manufacturing capabilities and production capacity. Utilizing computer controlled manufacturing and test machinery and equipment, We provide manufacturing services employing surface mount technology ("SMT") and pin-through-hole ("PTH") interconnection technologies. As an independent full-service EMS provider, IEC offers its customers a wide range of manufacturing and management services, on either a turnkey or consignment basis, including design, prototype, material procurement and control, manufacturing and test engineering support, statistical quality assurance, complete resource management and distribution. Our strategy is to cultivate strong manufacturing relationships with established and emerging original equipment manufacturers ("OEMs"). IEC Electronics Corp., a Delaware corporation, is the successor by merger in 1990 to IEC Electronics Corp., a New York corporation which was organized in 1966. In June 1992, IEC acquired an EMS provider in Edinburg, Texas which it renamed IEC Electronics-Edinburg, Texas Inc. ("Texas"). In November 1994, IEC acquired an EMS provider in Arab, Alabama, which it renamed IEC Arab, Alabama Inc. ("Alabama"). In August 1998, IEC through an Irish subsidiary, IEC Electronics - Ireland Limited, ("Longford"), acquired certain assets of an EMS provider located in Longford, Ireland. In February 2001, IEC acquired IEC Electronicos de Mexico, located in Reynosa, Mexico ("Mexico"). In October 1998, IEC closed its Alabama facility. The facility's customers were transferred to IEC's other facilities, the equipment was moved to IEC's other locations, and certain portions of the real estate were leased until October 2002, when the real estate was sold for the sum of $600,000. In December 1998, IEC 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. The consolidated financial statements include the accounts of IEC and its wholly-owned subsidiaries, Texas and Alabama until January 26, 2000 when each of Texas and Alabama merged into IEC; Longford from August 31, 1998, until September 4, 2001, when it was merged into IEC; and Mexico from February 2001, (collectively, "IEC"). In December 1999, IEC closed its under utilized Longford 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. Effective February 1, 2001, IEC 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, wholly owned by IEC, 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. occupied the entire 112,000 square foot facility. In April 2001, the Texas and Mexico business operations were consolidated. On June 18, 2002, IEC signed an Asset Purchase Agreement to sell substantially all of the assets of Mexico to Electronic Product Integration Corporation (EPI) for $730,000 plus payments of an Earn-out Amount, based upon sales revenues received by EPI from certain former customers of IEC during the period between July 1, 2002 and January 31, 2003, in an amount up to $700,000. As of September 30, 2002, no Earn-out amounts have been accrued or received. In addition, EPI will pay to IEC commissions based on the net selling price of products shipped to certain former customers of IEC during various time periods between June 18, 2002 and March 31, 2003. No such commissions have been earned as of September 30, 2002. Under the terms of a related agreement, IEC and Mexico were also released of all of their lease obligations to the landlord of the Mexican facility. EPI paid IEC $315,000 in June 2002, $265,000 in July 2002 and $150,000 in September 2002. IEC recorded an after-tax loss on the sale of the business of approximately $3.1 million. The reserve balance at September 30, 2002 was $421,000. It is anticipated that all remaining charges against the accrual will be made by September 2003. The Consolidated Financial Statements and related notes have been restated, where applicable, to reflect Mexico as a discontinued operation. Page 4 of 104 In June 2002, IEC's Board of Directors approved a restructuring and reduction of workforce plan at its Newark, NY facility. At this time, IEC's President, Chief Executive Officer and a director of the Company and its Chief Financial officer and Treasurer also resigned their positions with IEC. Each elected not to continue in the management of a restructured and downsized company. In connection with this restructuring, IEC recorded a $448,000 charge to earnings during fiscal 2002 relating primarily to severance. As of September 30, 2002, a reserve balance of approximately $215,000 still remained. It is anticipated that all remaining charges against the accrual will be made by October 2003. In July 2002, IEC closed its manufacturing operations in Texas and the facility has been listed for sale since that time. IEC has achieved world-class ISO 9001 certification at its Newark, New York plant. In fiscal 2002, IEC also became an FDA registered contract manufacturer of medical devices. These certifications are international quality assurance standards that most OEMs consider crucial in qualifying their EMS providers. IEC's New York facility is self-certified to previously recognized British Approvals Board for Telecommunications standards, allowing it to provide manufacturing and test services to manufacturers producing telecommunication equipment destined for shipment to the European Common Market. During 1998, IEC opened a state-of-the-art 10,000 square foot Technology Center at its Newark, New York manufacturing facility. During 2000, the Technology Center added pilot build to its services, which also include prototype assembly and the Advanced Materials Technology Laboratory. Design Engineering services are also provided at the Newark, New York facility. IEC's executive offices are located at 105 Norton Street, Newark, New York 14513. The telephone number is (315) 331-7742, its internet address is www.iec-electronics.com. Electronics Manufacturing Services: The Industry The EMS industry specializes in providing the program management, technical and administrative support and manufacturing expertise required to take a product from the early design and prototype stages through volume production and distribution. It provides quality product, delivered on time and at the lowest cost, to the OEM. This full range of services gives the OEM an opportunity to avoid large capital investments in plant, equipment and staff and allows the OEM to concentrate instead on the areas of its greatest strengths: innovation, design and marketing. Utilizing EMS such as those provided by IEC gives the customer an opportunity to improve return on investment with greater flexibility in responding to market demands and exploiting new market opportunities. Primarily as a response to rapid technological change and increased competition in the electronics industry, OEMs have recognized that by utilizing EMS providers they can improve their competitive position, realize an improved return on investment and concentrate on areas of their greatest expertise such as research, product design and development and marketing. In addition, EMS allows OEMs to bring new products to market rapidly and adjust more quickly to fluctuations in product demand; avoid additional investment in plant, equipment and personnel; reduce inventory and other overhead costs; and establish known unit costs over the life of a contract. Many OEMs now consider EMS providers an integral part of their business and manufacturing strategy. Accordingly, the EMS industry experienced significant growth through mid-2000. The downturn of the telecommunications industry, and economic conditions in the United States as a result of September 11, 2001 caused a slowdown in the EMS industry, but the current long term forecast is for growth to resume in late 2003, as OEMs have established long-term working arrangements with EMS providers such as IEC. Page 5 of 104 OEMs increasingly require EMS providers to provide complete turnkey manufacturing and material handling services, rather than working on a consignment basis in which the OEM supplies all materials and the EMS provider supplies labor. Turnkey contracts involve design, manufacturing and engineering support, the procurement of all materials, and sophisticated in-circuit and functional testing and distribution. In the industry there has been the increasing shift from PTH to SMT interconnection technologies. PTH technology involves the attachment of electronic components to printed circuit boards with leads or pins which are inserted into pre-drilled holes in the boards. The pins are then soldered to the electronic circuits. The drive for increasingly greater functional density has resulted in the emergence of SMT, which eliminates the need for holes and allows components to be placed on both sides of a printed circuit, contributing to size reductions of up to 50%. SMT requires expensive, highly automated assembly equipment and significantly more expertise than PTH technology. To achieve high yields, EMS providers must have extensive knowledge and experience in solder paste, solder reflow, thermal management, metal fatigue, adhesives, solvents, flux chemistry, surface analysis, intermetallic bonding and testing. The shift to SMT from PTH technology has increased the use of EMS providers by OEMs seeking to avoid the significant capital investment required for development and maintenance of SMT expertise. IEC continually evaluates emerging technology and maintains a technology road map to ensure relevant processes are available to its customers when commercial and design factors so indicate. The current generation of interconnection technologies include chip scale packaging and ball grid array (BGA) assembly techniques. IEC has placed millions of plastic BGA's since 1994 and added Ceramic BGA placement for networking customers to its service offerings in fiscal 2001. Future advances will be directed by IEC's Technology Center which combines Prototype and Pilot Build Services with the capabilities of the Advanced Materials Technology Laboratory, and is supported by the Design Engineering Group. IEC is well positioned to utilize its very experienced workforce with technical expertise. Our emphasis is on building the most challenging complete systems with current work for Motorola, Lucent OPENet and Teradyne as examples. IEC's Strategy IEC's strategy is to cultivate strong manufacturing partnerships with established and emerging OEMs in the electronics industry. These long-term business partnerships involve the joint development of manufacturing and support strategies with OEM customers and promote customer satisfaction. In implementing this strategy, we offer our customers a full range of manufacturing solutions through flexibility in production, high quality and fast-turnaround manufacturing services and computer-aided testing. As part of our strategy, we recognize the need to offer advanced manufacturing technologies to our customers. We have also successfully pursued high-mix, small lot and complete system assemblies which are difficult and require very close management. Assembly Process IEC generally enters into formal agreements with its significant customers. These agreements generally provide for fixed prices for one year, absent any customer changes which impact cost of labor or material, and rolling forecasts of customer requirements. After establishing an OEM relationship, IEC offers its consultation services with respect to the manufacturability and testability of the product design. IEC often recommends design changes to reduce manufacturing costs and to improve the quality of the finished assemblies, and in some instances will produce original designs to the customer's specifications. Upon receipt, a customer's order is entered into IEC's computer system by customer service personnel and is reviewed by all departments. The Production Control Department generates a detailed manufacturing schedule. Bills of material and approved vendor lists are reviewed by the Engineering Department, which creates a detailed process to direct the flow of product through the plant. The Material Control Department utilizes a material requirement planning (MRP) program to generate the requisitions used by the Purchasing Department to procure all material and components from approved vendors in the quantities and at the time required by the production schedule. Page 6 of 104 All incoming material is inspected to ensure compliance with customer specifications and delivered to the production floor on a "just-in-time" basis. Material and product movement are carefully and continuously computer-monitored throughout the assembly process to meet customer requirements. The placement and insertion of components on circuit board assemblies are accomplished by high-speed, vision and computer-controlled PTH or SMT machines. Any manual operations are performed prior to passage of the assemblies through various soldering processes. Statistical process control ("SPC") is used to provide consistent results in all steps of the manufacturing process. The manufactured assembly then moves into the test phase. IEC's computer-aided testing ensures delivery of high quality products on a consistent basis. Computer-driven in-circuit tests verify that all components have been properly placed or inserted and that the electrical circuits are complete. Functional tests determine if the board or system assembly is performing to customer specifications. IEC assigns a program manager to each customer. The program manager maintains regular contact with the customer to assure timely and complete flow of information between the customer and IEC. Many products manufactured by IEC are in the early stages of their product cycle and therefore undergo numerous engineering changes. In addition, production quantities and schedules of certain products must be varied to respond to changes in customers' marketing opportunities. We assess the impact of such changes on the production process and take the appropriate action, such as restructuring bills of material, expediting procurement of new components and adjusting its manufacturing and testing plans. IEC believes that its ability to provide flexible and rapid response to customer needs in high change environment is critical to its success. Products and Services IEC manufactures a wide range of assemblies which are incorporated into many different products. IEC provides electronic manufacturing services primarily for broadband telecommunications equipment; measuring devices; medical instrumentation; imaging equipment and diagnostic test equipment. During the fiscal year ended September 30, 2002 IEC provided electronics manufacturing services to approximately 25 different customers, including Motorola ("Motorola"), Teradyne Diagnostic Solutions UK ("Teradyne Diagnostic"), Teradyne Test Division ("Teradyne Test"), and General Electric Transportation ("GE"). IEC provides its services to multiple divisions and product lines of many of its customers and typically manufactures for a number of each customer's successive product generations. In most cases, IEC is the sole contract manufacturer for the customer site or division, providing all services, prototype through box build and functional test. Materials Management In fiscal 2002, 2001, and 2000, turnkey contracts, under which IEC provided materials in addition to a value-added labor component, represented 92 percent, 96 percent and 96 percent of sales, respectively. Materials and the associated material handling expense often represent a very substantial portion of the total manufacturing cost of turnkey products. IEC generally procures material only to meet specific contract requirements. In addition, IEC's agreements with its significant customers generally provide for cancellation charges equal to the costs which are incurred by IEC as a result of a customer's cancellation of contracted quantities. IEC's internal systems provide effective controls for all materials, whether purchased by IEC or provided by the customer, through all stages of the manufacturing process, from receiving to final shipment. Materials and components used in EMS, whether supplied by the OEM or by IEC, are available generally from a number of suppliers at negotiated prices which are firm for the life of the purchase order. However, at various times in the electronics industry there have been industry-wide shortages of components which have temporarily delayed IEC's manufacture and shipment of products. Our business is not dependent upon any one supplier. Suppliers We have Master Distribution Programs in place with Arrow Electronics and Pioneer-Standard Electronics. These alliances have the benefit of reducing lead time on program parts, reducing the quotation process timetable, providing competitive pricing, providing some protection during periods of component allocation, providing better payment terms, reducing overhead cost and providing access to global resources. Page 7 of 104 Marketing and Sales For most of 2002, IEC has successfully maintained and grown sales through increases in services to existing customers. However, the real and perceived financial threats to IEC have precluded the efforts to engage with new customers. With the attainment of a new credit facility, we expect to pursue new business through the efforts of our long term exclusive relationship with a manufacturers' representative in New England and through the careful selection of new representatives in the Mid-Atlantic and Mid-Western regions. In addition to our sales and marketing staff, our executives are closely involved with marketing efforts. IEC conducts market research to identify industries and to target companies where the opportunity exists to provide electronic manufacturing services across a number of product lines and product generations. Our sales effort is supported by advertising in trade media, sales literature, internet website, video presentations, participation in trade shows and direct mail promotions. Inquiries resulting from these advertising and public relations activities are assigned to the representative covering the customer's location. In addition, referrals by existing customers are an important source of new opportunities. Our objective is to sell complex, high-mix, full systems to regional customers who require both our technical expertise and our ability to execute in a dynamic engineering change environment. These customers can be found in many diverse industries including telecom, medical, transportation, defense, avionics and others. Backlog IEC's backlog as of September 30, 2002 and September 30, 2001 was approximately $8.5 million and $11.6 million, respectively. At December 31, 2002, the backlog was $17.5 million, and the book-to-bill ratio (newly signed purchase orders/sales) for the first quarter of fiscal 2003 improved to 1.96 from 1.55 for the fourth quarter of fiscal 2002. Backlog consists of contracts or purchase orders with delivery dates scheduled within the next 12 months. Substantially all of the current backlog is expected to be shipped within IEC's current fiscal year. Variations in the magnitude and duration of contracts received by us and customer delivery requirements may result in substantial fluctuations in backlog from period to period. Because customers may cancel or reschedule deliveries, backlog is not a meaningful indicator of future financial results. Governmental Regulation Our operations are subject to certain federal, state and local regulatory requirements relating to environmental, waste management, health and safety matters. Management believes that our business is operated in compliance with applicable regulations promulgated by the Occupational Safety and Health Administration and the Environmental Protection Agency and corresponding state agencies which, respectively, pertain to health and safety in the work place and the use, discharge, and storage of chemicals employed in the manufacturing process. Current costs of compliance are not material to IEC. However, new or modified requirements, not presently anticipated, could be adopted creating additional expense for us. Employees IEC's employees numbered approximately 190 at January 8, 2003, including 33 employees engaged in engineering, 109 in manufacturing and 48 in administrative and marketing functions. None of IEC's employees are covered by a collective bargaining agreement. We have not experienced any work stoppages and believe that our employee relations are good. We have access to a large work force by virtue of our northeast location midway between Rochester and Syracuse, two upstate New York industrial cities. Patents and Trademarks IEC holds patents unrelated to electronics manufacturing services and also employs various registered trademarks. IEC does not believe that either patent or trademark protection is material to the operation of its business. Safe Harbor for Forward-looking Statements under Securities Litigation Reform Act of 1995: Certain risk factors Page 8 of 104 From time to time, IEC or its representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by IEC with the Securities and Exchange Commission. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the Reform Act). IEC wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to maximize to the fullest extent possible the protections of the Safe Harbor established in the Reform Act. Accordingly, such statements are qualified in their entirety by reference to and are accompanied by the following discussion of certain important factors that could cause actual results to differ materially from such forward looking statements. Stockholders should be aware that while IEC does, from time to time, communicate with securities analysts, it is against our policy to disclose to such analysts any material non-public information or other confidential information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst regardless of the content of such statement or report. Accordingly, to the extent that reports issued by a securities analyst contain any projections, forecasts, or opinions, such reports are not the responsibility of IEC. The risks included here are not exhaustive. Furthermore, reference is also made to other sections of this report which include additional factors which could adversely impact IEC's business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all such risk factors on IEC's business or the extent to which any factor, or a combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. General Economic Conditions IEC is exposed to general economic conditions which could have a material adverse impact on its business, operating results and financial condition. As a result of continued unfavorable economic conditions, sales have declined in fiscal 2002 compared to fiscal 2001. In particular, sales to OEMs in the telecommunications, workstation and server equipment manufacturing industry worldwide were impacted during fiscal 2002. If the economic conditions in the United States worsen either as the result of a protracted recession, in consequence of the after effects of the events of September 11, 2001 or as the result of a pending war, IEC may experience a material adverse impact on its business, operating results and financial condition. Financing Arrangements As of September 30, 2001, IEC was not in compliance with certain financial covenants under its secured asset-based credit agreement. As of December 21, 2001, IEC's banks waived the non-compliance, amended certain covenants to allow IEC more flexibility and changed the expiration date of the credit agreement to February 15, 2002 from January 31, 2003. Subsequent amendments were made to the credit agreement as of February 15, 2002, February 28, 2002, March 15, 2002, April 8, 2002, June 20, 2002, October 1, 2002, November 12, 2002 and January 1, 2003 which, among other things, continued to extend the expiration date of the credit agreement. As a result of the January 1, 2003 amendment, the expiration date of the credit agreement was January 17, 2003. As last amended, the credit agreement provided for a revolving credit facility component of $1.0 million. Amounts borrowed were limited to 85% of qualified accounts receivable. The interest rate on the revolving credit facility was increased at the time of the various amendments and on September 30, 2002 was prime rate plus 3.50%. On January 14, 2003 it was prime rate plus 6.00%. Page 9 of 104 The second component of the credit facility consisted of a $10 million three-year term loan with monthly principal installments based on a five-year amortization which began in April 2000. The interest rate on the term loan facility was increased at the time of the various amendments and at September 30, 2002 was prime rate plus 4.00%. On January 14, 2003 it was prime rate plus 6.00%. At September 30, 2002, $3.6 million was outstanding, consisting of $1.1 million and $2.5 million relating to the revolving credit facility and term loan, respectively, with an additional $403,000 available under the revolving credit facility. At January 6, 2003, the availability under the revolver was $0, and $611,000 was outstanding on the revolver and $1.1 million was outstanding on the term loan. On January 14, 2003, IEC completed a new $7,300,000 financing composed of a $5,000,000 Senior Secured Facility with Keltic Financial Partners LLP ("Keltic"), a $2,200,000 Secured Term Loan with SunTrust Bank ("SunTrust") and a $100,000 infusion by certain of the IEC directors. The Keltic Facility, which has a 3 year maturity, bears interest at the rate of prime plus 6%. It involves a revolving line of credit for up to $3,850,000 based upon advances on eligible accounts receivable and inventory, a term loan of $600,000, secured by machinery and equipment, to be amortized over a 36 month period and a term loan of $550,000 secured by a first mortgage lien against IEC's Edinberg, Texas real estate which loan is due at the earlier of the sale of that real estate or one year from the date of closing. The SunTrust Term Loan is secured by the assignment of a certain promissory note and a first mortgage on the IEC plant in Newark, New York. It is payable with interest at prime plus 1.5% in monthly installments over a period of 3 years. These funds were used to repay all but $100,000 of the prior indebtedness to HSBC USA as agent for itself and GE Capital Corporation (the "Prior Lenders"). The Prior Lenders retain a subordinated interest in substantially all of IEC's assets. The Keltic and Suntrust loan agreements contain various affirmative and negative covenants including, among other, limitations on the amount available under the revolving line of credit relative to the borrowing base, capital expenditures, fixed charge coverage ratios, and minimum earnings before interest, taxes, depreciation and amortization (EBITDA). In connection with the financing IEC entered into agreement with certain of its trade creditors providing for extended payment terms on past due balances. Customer Concentration; Dependence On the Electronics Industry A small number of customers are currently responsible for a significant portion of our net sales. During fiscal 2002, 2001, and 2000, IEC's five largest customers accounted for 81%, 72% and 81% of consolidated net sales, respectively. During fiscal 2002, Motorola and Teradyne accounted for 44% and 23%, respectively, of consolidated net sales. IEC is dependent upon continued revenues from its other large customers. The percentage of IEC's sales to its major customers may fluctuate from period to period. Significant reductions in sales to any of these customers could have a material adverse effect on our results of operations. IEC has no firm long-term volume purchase commitments from our customers, and over the past few years has experienced reduced lead-times in customer orders. In addition, customer contracts can be canceled and volume levels can be changed or delayed. The timely replacement of canceled, delayed or reduced contracts with new business cannot be assured. These risks are increased because a majority of IEC's sales are to customers in the electronics industry, which is subject to rapid technological change and product obsolescence. The factors affecting the electronics industry, in general, or any of our major customers in particular, could have a material adverse effect on IEC's results of operations. Revenue Fluctuations IEC's revenues have fluctuated over the past five fiscal years. Net sales were $163.9 million in fiscal 1998, $122.6 million in fiscal 1999, $146.4 million in fiscal 2000, $114.8 million in fiscal 2001, and $39.4 million in fiscal 2002. Although IEC is seeking to broaden its portfolio of customers there can be no assurance that its revenues will increase. Should we increase our expenditures in anticipation of a future level of sales which does not materialize, our profitability would be adversely affected. On occasion, customers may require increased volume or rapid increases in production which can place an excessive burden on our resources. Page 10 of 104 Potential Fluctuations in Operating Results IEC's margins and operating results are affected by a number of factors, including product mix, additional costs associated with new projects, price erosion within the electronics industry, capacity utilization, price competition, the degree of automation that can be used in the assembly process, the efficiencies that can be achieved by us in managing inventories and fixed assets, the timing of orders from major customers, fluctuations in demand for customer products, the timing of expenditures in anticipation of increased sales, customer product delivery requirements, and increased costs and shortages of components or labor. IEC's results are also affected by its costs and fees associated with its financing. IEC's turnkey manufacturing, which typically results in higher net sales and gross profits but lower gross profit margins than consignment assembly and testing services, represents a substantial percentage of net sales. All of these factors can cause fluctuations in our operating results over time. Because of these factors, there can be no assurance that our margins or results of operations will not fluctuate or decrease in the future. Competition As a result of IEC's new focus on a target market consisting of complex, high-mix, high unit price, full systems build, we believe that IEC is competitive with contract electronics manufacturers ("CEMs") of our size in our region. There is a reluctance for customers with $1 million to $5 million annual purchases to engage with very large CEMs. Availability of Components Substantially all of IEC's net sales are derived from turnkey manufacturing in which we provide both materials procurement and assembly services. IEC is well positioned with supplier relationships and material procurement expertise to acquire needed materials. However, availability of customer-consigned parts and unforeseen shortages of components on the world market are beyond our control and could adversely affect revenue levels and operating efficiencies. Market Price of Common Stock The fluctuations in IEC's operating results as well as general market conditions have affected the price of our Common Stock. On January 9, 2003, the closing price of the Company's Common Stock on The Over the Counter Bulletin Board ("OTCBB") was $0.09 per share. Environmental Compliance IEC is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing process. Any failure by IEC to comply with present or future regulations could subject it to future liabilities or the suspension of production which could have a material adverse effect on our business. In addition, such regulations could restrict IEC's ability to expand its facilities or could require us to acquire costly equipment or to incur other expenses to comply with environmental regulations. Dependence on Key Personnel and Skilled Employees IEC's results depend to a large extent upon the efforts and abilities of key managerial and technical employees. The loss of services of certain key personnel could have a material adverse effect on IEC. IEC's business also depends upon its ability to continue to attract and retain senior managers and skilled employees. Failure to do so could adversely affect our operations. Page 11 of 104 ITEM 2. PROPERTIES - ------------------- IEC's administrative and manufacturing facility is located in Newark, New York and contains an aggregate of approximately 300,000 square feet. The IEC Edinburg, Texas facility consists of approximately 87,000 square feet. The facility is unused, and is currently being marketed for sale. IEC's Arab, Alabama facility which consists of approximately 106,500 square feet, was sold during October 2002. ITEM 3. LEGAL PROCEEDINGS - -------------------------- Except as set forth below, there are no material legal proceedings pending to which IEC or any of its subsidiaries is a party or to which any of IEC's or subsidiaries' property is subject. To our knowledge, there are no material legal proceedings to which any director, officer or affiliate of IEC, or any beneficial owner of more than 5 percent (5%) of Common Stock, or any associate of any of the foregoing, is a party adverse to the Company or any of its subsidiaries. On August 12, 2002, an action was commenced in United States District Court for the Southern Division of Texas (Civil Action No. M-02-358) against IEC and several other corporate defendants. The plaintiffs (Armando Gonzalez and Maria Sylvia Gonzalez, husband and wife, as Next Friends of Adrian Gonzalez, a Minor, et al.) allege a "toxic tort" action against the defendants, for exposure to lead, lead dust, chemicals and other substances used in the manufacture of products by the defendants. The essence of the complaint relates to alleged "in utero" exposure to the circulatory system of the then unborn children, resulting in alleged tissue toxicity through the mothers, causing damage to the central nervous system, brain and other organs of the fetus. The complaint alleges theories of negligence, gross negligence, strict liability, breach of warranty and fraud/negligent misrepresentation, and claims unspecified damages for pain and suffering, a variety of special damages, punitive damages and attorneys fees. An answer has been filed denying liability on the part of the Company. Discovery has not begun and no trial date has been set. Royal & Sunalliance Insurance Company has agreed to provide a defense of the claims with a reservation of rights, but has expressly excluded any coverage for the claim for punitive damages. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ During the fourth quarter of fiscal 2002, no matters were submitted to a vote of security holders. EXECUTIVE OFFICERS OF THE REGISTRANT IEC's executive officers as of September 30, 2002, were as follows: Name Age Position W. Barry Gilbert 56 Chairman of the Board, Director and Acting Chief Executive Officer Bill R. Anderson 57 Vice President and Chief Operating Officer Kevin J. Monacelli 48 Controller and Principal Financial and Accounting Officer W. Barry Gilbert has served as acting Chief Executive Officer since June 2002. He has been a director of IEC since February 1993, and Chairman of the Board since February 2001. He is an adjunct faculty member at the William E. Simon Graduate School of Business Administration of the University of Rochester. From 1991-1999, Mr. Gilbert was President of the Thermal Management Group of Bowthorpe Plc. of Crawley, West Sussex, England. Prior to that, he was corporate Vice President and President, Analytical Products Division of Milton Roy Company, a manufacturer of analytical instrumentation. Bill R. Anderson has served as Chief Operating Officer since June 2002. From September 2001 to June 2002, he was Vice President and General Manager, Newark Operations and from March 2001 to September 2001, he was Vice President, Supply Chain Management and Materials. He held the positions of Vice President of Materials and of Executive Vice President and General Manager at IEC from 1995-1998. In 1998, he left IEC and became Vice President of North American Operations for SMT Centre (SMTC), Toronto, Canada, an EMS provider. From there, he accepted the position of Vice President of Materials and Supply Chain Management at MCMS, Inc., also an EMS provider, a position he held until March 2001, when he rejoined IEC. Kevin J. Monacelli joined IEC on May 31, 2000 as Director of Corporate Finance and was appointed Company Controller on November 30, 2000. He has served as Principal Financial and Accounting Officer since June 2002. He previously worked for 22 years in finance at Alling and Cory/xpedx, serving as its Controller the last 17 years. Prior to that, Mr. Monacelli was employed at Deloitte and Touche in Rochester, NY. Page 12 of 104 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS --------------------------------------------------------------------- (a) Market Information. IEC's Common Stock began trading on The Over the Counter Bulletin Board under the symbol IECE.OB on December 3, 2002. Prior to that, IEC's Common Stock was traded on the Nasdaq Stock Market. The following table sets forth, for the period stated, the high and low closing sales prices for the Common Stock as reported on The Nasdaq Stock Market. Closing Sales Price Period High Low October 1, 2000 - December 31, 2000 $ 2.063 $ 0.531 January 1, 2001 - March 31, 2001 $ 2.000 $ 0.656 April 1, 2001 - June 30, 2001 $ 1.440 $ 1.063 July 1, 2001 - September 30, 2001 $ 1.200 $ 0.520 October 1, 2001 - December 31, 2001 $ 0.850 $ 0.400 January 1, 2002 - March 31, 2002 $ 0.680 $ 0.360 April 1,2002 - June 30, 2002 $ 0.570 $ 0.110 July 1, 2002 - September 30, 2002 $ 0.160 $ 0.070 The closing price of IEC's Common Stock on The Over Counter Bulletin Board on January 9, 2003, was $0.09 per share. (b) Holders. As of January 9, 2003, there were approximately 138 holders of record of IEC's Common Stock. (c) Dividends. IEC has never paid dividends on its Common Stock. It is the current policy of the Board of Directors of IEC to retain earnings for use in the business of the Company. Certain financial covenants set forth in IEC's current loan agreement prohibit IEC from paying cash dividends. We do not plan to pay cash dividends on our Common Stock in the foreseeable future. (d) Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth information concerning IEC's equity compensation plans as of September 30, 2002. Plan Category Number of securities Weighted-average Number of securities to be issued upon exercise price of remaining available for exercise of outstanding options, future issuance under outstanding options, warranties and rights equity compensation warrants and rights plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders 870,850 $2.27 1,171,250 Equity compensation plans not approved by security holders - NA - Total 870,850 $2.27 1,171,250
Page 13 of 104 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA - ----------------------------------------------- SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data)
Years Ended September 30, 2002 2001 2000 1999 1998(1) -------------------------------------------------- Income statement data Net sales $ 39,365 $114,771 $146,359 $122,593 $163,886 -------------------------------------------------- Gross profit (loss) $ 2,297 $ 2,942 $ 10,339 $ (4,888) $ 4,443 -------------------------------------------------- Operating (loss) income $ (3,026) $(16,208) $ 2,019 $(19,172) $(12,420) -------------------------------------------------- (Loss) income from continuing operations $ (3,771) $(17,439) $ 2,411 $(18,005) $ (9,597) -------------------------------------------------- (Loss) income from discontinued operations $ (7,208) $(11,833) $(10,442) $ (2,560) $ 3,437 -------------------------------------------------- Net loss $(10,979) $(29,272) $ (8,031) $(20,565) $ (6,160) -------------------------------------------------- (Loss) income from continuing operations per common and common equivalent share: Basic and Diluted $ (0.49) $ (2.28) $ 0.32 $ (2.38) $ (1.27) --------------------------------------------------- (Loss) income from discontinued operations per common and common equivalent share: Basic and Diluted $ (0.94) $ (1.55) $(1.38) $ (0.34) $ 0.46 --------------------------------------------------- Net loss per common and common equivalent share: Basic and Diluted $ (1.43) $ (3.83) $(1.06) $ (2.72) $ (0.82) --------------------------------------------------- Common and common equivalent shares Basic and Diluted 7,692 7,651 7,590 7,563 7,542 ------------------------------------------------- Balance sheet data - ------------------ Working (deficiency) capital $(3,572) $ 1,163(2) $30,860 $33,424 $31,764 ------------------------------------------------- Total assets $15,065 $38,127 $89,561 $93,919 $98,665 ------------------------------------------------- Long-term debt, less current maturities $ 1,268 $ - $15,266 $16,547 $ 7,138 ------------------------------------------------- Shareholders' equity $799 $11,809 $41,008 $ 48,845 $69,568 -------------------------------------------------
(1) The results of operations and financial position as of and for the year ended September 30, 1998, include the operations of IEC Electronics - Ireland Limited, as of the acquisition date, August 31, 1998, through September 4, 2001. (2) All debt is recorded as current for reporting purposes. Page 14 of 104 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS -------------------------- MANAGEMENT'S DISCUSSION OF OPERATIONS The information in this Management's Discussion & Analysis should be read in conjunction with the accompanying consolidated financial statements, the related Notes to Financial Statements and the Five-Year Summary of Financial Data. Forward-looking statements in this Management's Discussion and Analysis are qualified by the cautionary statement in Item 1 of this Form 10K. Overview - -------- IEC had a challenging year in fiscal 2002 as it continued its downsizing and restructuring in an effort to return to profitability with a continuing focus on telecommunications and industrial customers. During 2002, these segments of the economy contracted dramatically and IEC suffered significant order reductions from its customers. IEC was also adversely impacted by our limited ability to finance growth. IEC took a number of important steps in 2002, including a continued emphasis on business development from new and existing customers and completing a restructuring which resulted in the elimination of its Texas and Mexico business operations, while significantly reducing its overhead structure to match lower revenues. Analysis of Operations - ---------------------- Sales ----- (dollars in millions) % % For Year Ended September 30, 2002 2001 Change 2000 Change ---- ---- ------ ---- ------ Net sales $39.4 $114.8 (66)% $146.4 (22)% The 66% decrease in fiscal 2002 net sales compared to fiscal 2001 was primarily due to the continued decline in demand from existing customers, the loss of four major customers and the overall economic slowdown in the electronics manufacturing services industry. The 22% decrease in fiscal 2001 net sales compared to fiscal year 2000 was primarily due to the loss of one major customer and the significant downturn in the telecommunications and industrial sectors of the U.S. economy. Subsequent to September 30, 2002, the book-to-bill ratio has improved and was at 1.96 for the first quarter of fiscal 2003, compared to 1.55 for the fourth quarter of fiscal 2002. IEC's percentage of turnkey sales has remained steady. Such sales represented 92% ,96% and 96% of net sales in fiscal 2002, 2001 and 2000, respectively. Gross Profit and Selling and Administrative Expenses ---------------------------------------------------- (as a % of Net Sales) For Year Ended September 30, 2002 2001 2000 ---- ---- ---- Gross profit 5.8% 2.6% 7.1% Selling and administrative expenses 10.7% 6.1% 6.4% Gross profit as a percentage of sales was 5.8% in fiscal 2002 as compared to 2.6% in fiscal 2001. The increase of more than 3 percentage points was primarily attributable to the sale of fully reserved inventory to Acterna Corporation for $1.1 million as part of an out of court settlement. In addition, the 2001 amount was considerably lower due to the charge against inventory and receivables as described below. Offsetting this increase was a reduction due to fixed manufacturing overhead costs being absorbed by a significantly lower sales volume. Gross profit as a percentage of sales was 2.6% in fiscal 2001 as compared to 7.1% in fiscal 2000. This decrease was a result of a combination of factors. IEC experienced lower overhead absorption due to underutilized capacity from lower sales volume, change of customer mix, and greater customer product complexity with requests for design changes which caused manufacturing production interruptions, restarts and increased set-up expenses, creating excess production downtime. A significant factor was a charge against inventory and receivables recorded on January 11, 2002, included in the financial statements as of September 30, 2001, to reflect litigation contingencies. Were it not for that charge, the fiscal 2001 gross profit percentage would have been 5.0%. During fiscal 2001, IEC significantly reduced its overhead structure in an effort to match lower revenues. On an annualized basis, $8.0 million was removed. As a result, the breakeven level of business was almost half of the level in effect in fiscal 2000. Page 15 of 104 Selling and administrative expenses as a percentage of sales increased to 10.7% in fiscal 2002 compared to 6.1% in fiscal 2001 as certain costs remained fixed with a significantly lower sales volume. Selling and administrative expenses as a percentage of sales in fiscal 2001 decreased slightly to 6.1% compared to 6.4% in fiscal 2000. This minimal change during a year when revenue decreased 22% was primarily a result of concentrated efforts to better match overhead expenses with the revenue stream. Other Income and Expense ------------------------ (dollars in millions) For Year Ended September 30, 2002 2001 2000 ---- ---- ---- Interest and financing expense $0.9 $1.3 $1.6 Other income $0.2 $ - $2.0 Interest and financing expense decreased $0.4 million to $0.9 million in fiscal 2002 from $1.3 million in fiscal 2001, due to a decrease in the weighted average debt balance of $7.6 million and a weighted average rate decrease of 2.8%, offset by additional bank financing charges of approximately $580,000. Interest and financing expense decreased $0.3 to $1.3 million in fiscal 2001 from $1.6 million in fiscal 2000 due to lower interest rates throughout the year. Other income of $0.2 million in fiscal 2002 is composed of interest income received from Acterna Corporation as part of an out of court settlement. Other income of $2.0 million in fiscal 2000 is composed of life insurance proceeds due to the death of the former Chief Executive Officer in December 1999. Income Taxes ------------ (as a % of loss before income taxes) For Year Ended September 30, 2002 2001 2000 ---- ---- ---- Effective tax rate -% (0.1)% -% In fiscal 2001, IEC recorded an income tax benefit from the receipt of a prior year state refund in the amount of $95,000. IEC has recorded no benefit from U.S. income tax for fiscal years 2002, 2001 and 2000 as a result of net losses from fiscal 1998 through 2002, and accordingly, has a full valuation allowance against its net deferred tax asset including the net operating loss carry-forward. Restructuring Charge (Benefit) ----------------------------- (dollars in millions) For Year Ended September 30, 2002 2001 2000 ---- ---- ---- $0.2 $ - $(1.0) In June 2002, IEC's Board of Directors approved a restructuring and reduction of workforce plan at its Newark, NY facility. At this time, IEC's President, Chief Executive Officer and a director of IEC and its Chief Financial officer and Treasurer also resigned their positions with IEC. Each elected not to continue in the management of a restructured and downsized company. In connection with this restructuring, IEC recorded a $448,000 charge to earnings in fiscal 2002 relating primarily to severance. Offsetting this charge was a $240,000 reduction in a reserve previously recorded for IEC's Arab, Alabama facility that was no longer needed due to the sale of the facility in October 2002. In fiscal 2000, $1.0 million of a previously recorded restructuring reserve related to the Longford facility was reversed when certain assets of the Longford facility were sold and the lease of the facility was assumed. Page 16 of 104 Asset Impairment Writedown - -------------------------- In assessing and measuring the impairment of long-lived assets, IEC applies the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the long-lived asset or identifiable intangible being tested for impairment was acquired in a purchase business combination, the goodwill that arose in that transaction is included in the asset grouping in determining whether an impairment has occurred. If some but not all of the assets acquired in that transaction are being tested, goodwill is allocated to the assets being tested for impairment based on the relative fair values of the long-lived assets and identifiable intangibles acquired at the acquisition date. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Additionally, where an impairment loss is recognized for long-lived assets and identifiable intangibles where goodwill has been allocated to the asset grouping, as described immediately above, the carrying amount of the allocated goodwill is impaired (eliminated) before reducing the carrying amounts of impaired long-lived assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. With respect to the carrying amounts of goodwill remaining after the testing for impairment of long-lived assets and identifiable intangibles, including enterprise level goodwill not subject to impairment testing under SFAS No. 121, IEC assesses such carrying value for impairment whenever events or changes in circumstances indicate that the carrying amount of such goodwill may not be recoverable. IEC assesses the recoverability of this goodwill by determining whether the amortization of goodwill over its remaining life can be recovered through undiscounted future operating cash flows of the acquired business. The amount of goodwill impairment, if any, is measured based on projected discounted operating cash flows compared to the carrying value of such goodwill. During the fourth quarter of 2001, certain fixed assets and intangible assets were identified as impaired. As a result of the overall softening of the electronics manufacturing services industry and a change in IEC's business strategy, IEC did not believe that their future cash flows supported the carrying value of the long-lived assets and goodwill. The current market values were compared to the net book value of the related long-lived assets with the difference representing the amount of the impairment loss. The effect of this impairment recognition totaled approximately $12.6 million, of which $9.6 million represented a writeoff of goodwill and $3.0 million represented a writedown of property, plant and equipment. During August 1998, IEC initiated a plan to dispose of its Arab, Alabama facility. In conjunction with this decision, the asset was written down to its estimated recoverable sales value, net of commissions. The effect of this impairment recognition totaled approximately $900,000 for fiscal 2002. The facility is recorded at its carrying value of $497,000 at September 30, 2002. The facility was sold in October 2002 for $600,000. During April 2001, IEC initiated a plan to dispose of its Edinburg, Texas facility. In conjunction with this decision, the asset was written down to its estimated recoverable sales value, net of commissions. The effect of this impairment recognition totaled approximately $1.04 million for fiscal 2002 and was reflected in discontinued operations. The facility is recorded at its carrying value of $800,000 at September 30, 2002. Discontinued Operations - ----------------------- On June 18, 2002, IEC signed an Asset Purchase Agreement to sell substantially all of the assets of Mexico to Electronic Product Integration Corporation (EPI) for $730,000 plus payments of an Earn-out Amount, based upon sales revenues received by EPI from certain former customers of IEC during the period between July 1, 2002 and January 31, 2003, in an amount up to $700,000. As of September 30, 2002, no Earn-out amounts have been accrued or received. In addition, EPI will pay to IEC commissions based on the net selling price of products shipped to certain former customers of IEC during various time periods between June 18, 2002 and March 31, 2003. No such commissions have been earned as of September 30, 2002. Under the terms of a related agreement, IEC and Mexico were also released of all of their lease obligations to the landlord of the Mexican facility. EPI paid IEC $315,000 in June 2002, $265,000 in July 2002 and $150,000 in September 2002. During the third quarter of 2002, IEC recorded an after-tax loss on the sale of the business of approximately $4.5 million. During the fourth quarter of 2002, IEC reversed $1.3 million of this loss due to the refining of estimates as the disposal process continued to be completed. The after-tax loss on the sale of the business for 2002 was approximately $3.1 million. The reserve balance at September 30, 2002 was $421,000. It is anticipated that all remaining charges against the accrual will be made by September 2003. The Consolidated Financial Statements and related notes have been restated, where applicable, to reflect Mexico as a discontinued operation. Page 17 of 104 Liquidity and Capital Resources - ------------------------------- As reflected in the Consolidated Statement of Cash Flows for 2002, $8.1 million of cash was provided by operating activities, $0.5 million was provided by investing activities and was mainly related to the sale of Mexico and $1.0 million was provided by discontinued operations. $9.5 million of this cash was used to pay down debt. During fiscal year 2002, total debt, including drafts payable, was reduced from $14.2 million to $4.0 million. As reflected in the Consolidated Statement of Cash Flows for 2001, of the $17.2 million of cash provided by operating activities, $3.2 million was used to fund investing activities, and $4.6 million was used to pay down bank debt, and $9.4 million was used in discontinued operations. Capital additions were $3.1 million in 2001 and $1.2 million in 2000. These expenditures were primarily used to upgrade the manufacturing capabilities of IEC. As of September 30, 2001, IEC was not in compliance with certain financial covenants under its secured asset-based credit agreement. As of December 21, 2001, IEC's banks waived the non-compliance, amended certain covenants to allow IEC more flexibility and changed the expiration date of the credit agreement to February 15, 2002 from January 31, 2003. Subsequent amendments were made to the credit agreement as of February 15, 2002, February 28, 2002, March 15, 2002, April 8, 2002, June 20, 2002, October 1, 2002, November 12, 2002 and January 1, 2003 which, among other things, continued to extend the expiration date of the credit agreement. As a result of the January 1, 2003 amendment, the expiration date of the credit agreement was January 17, 2003. As last amended, the credit agreement provided for a revolving credit facility component of $1.0 million. Amounts borrowed were limited to 85% of qualified accounts receivable. The interest rate on the revolving credit facility was increased at the time of the various amendments and on September 30, 2002 was prime rate plus 3.50%. On January 14, 2003 it was prime rate plus 6.00%. The second component of the credit facility consisted of a $10 million three-year term loan with monthly principal installments based on a five-year amortization which began in April 2000. The interest rate on the term loan facility was increased at the time of the various amendments and at September 30, 2002 was prime rate plus 4.00%. On January 14, 2003 it was prime rate plus 6.00%. At September 30, 2002, $3.6 million was outstanding, consisting of $1.1 million and $2.5 million relating to the revolving credit facility and term loan, respectively, with an additional $403,000 available under the revolving credit facility. At January 6, 2003, the availability under the revolver was $0, and $611,000 was outstanding on the revolver and $1.1 million was outstanding on the term loan. On January 14, 2003, IEC completed a new $7,300,000 financing composed of a $5,000,000 Senior Secured Facility with Keltic Financial Partners LLP ("Keltic"), a $2,200,000 Secured Term Loan with SunTrust Bank ("SunTrust") and a $100,000 infusion by certain of the IEC directors. The Keltic Facility, which has a 3 year maturity, bears interest at the rate of prime plus 6%. It involves a revolving line of credit for up to $3,850,000 based upon advances on eligible accounts receivable and inventory, a term loan of $600,000, secured by machinery and equipment, to be amortized over a 36 month period and a term loan of $550,000 secured by a first mortgage lien against IEC's Edinburg, Texas real estate which loan is due at the earlier of the sale of that real estate or one year from the date of closing. The SunTrust Term Loan is secured by the assignment of a certain promissory note and a first mortgage on the IEC plant in Newark, New York. It is payable with interest at prime plus 1.5% in monthly installments over a period of 3 years. These funds were used to repay all but $100,000 of the prior indebtedness to HSBC USA as agent for itself and GE Capital Corporation (the "Prior Lenders"). The Prior Lenders retain a subordinated interest in substantially all of IEC's assets. The Keltic and Suntrust loan agreements contain various affirmative and negative covenants including, among other, limitations on the amount available under the revolving line of credit relative to the borrowing base, capital expenditures, fixed charge coverage ratios, and minimum earnings before interest, taxes, depreciation and amortization (EBITDA). In connection with the financing IEC entered into agreement with certain of its trade creditors providing for extended payment terms on past due balances. Page 18 of 104 Application of Critical Accounting Policies - ------------------------------------------- IEC's financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Critical accounting policies for IEC include revenue recognition, impairment of marketing rights, accounting for legal contingencies and accounting for income taxes. IEC recognizes revenue in accordance with Staff Accounting Bulletin No.101, "Revenue Recognition in Financial Statements." Sales are recorded when products are shipped to customers. Provisions for discounts and rebates to customers, estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. IEC evaluates its long-lived assets for financial impairment on a regular basis in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." IEC evaluates the recoverability of long-lived assets not held for sale by measuring the carrying amount of the assets against the estimated discounted future cash flows associated with them. At the time such evaluations indicate that the future discounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. IEC is subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies", requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. IEC evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact IEC's financial position or its results of operations. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in IEC's financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact IEC's financial position or its results of operations. Impact of Inflation - ------------------- The impact of inflation on IEC's operations for the last three years has been minimal due to the fact that it is able to adjust its bids to reflect any inflationary increases in cost. New Pronouncements - ------------------ In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets." FAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets other than goodwill be amortized over their useful lives. The provisions of FAS No. 142 will be effective for fiscal years beginning after December 15, 2001; however, as IEC wrote-off all goodwill during fiscal 2001, adoption of this pronouncement will have no impact on IEC. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). We adopted this standard on October 1, 2002. Upon adoption of SFAS No. 143, the fair value of a liability for an asset retirement obligation will be recognized in the period in which it is incurred. The associated retirement costs will be capitalized as part of the carrying amount of the long-lived asset and subsequently allocated to expense over the asset's useful life. Management does not expect the adoption of SFAS No. 143 to have a material effect on the financial results of IEC. Page 19 of 104 In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"). FAS No. 144 supercedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". FAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business". FAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and was adopted by IEC, as required, on October 1, 2002. Management is currently determining what effect, if any, FAS No. 144 will have on IEC's financial position and results of operations. In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44,and 64, Amendment of FASB Statement No. 13, and technical Corrections (SFAS No. 145). SFAS No. 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No. 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual and infrequent and meet the criteria for classification as an extraordinary item. SFAS No. 145 is effective for IEC beginning January 1, 2003. Management does not expect the adoption of SFAS No. 145 to have a material effect on the financial results of IEC. In June 2002, the Financial Accounting Standards Board issued FASB Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by SFAS 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146 applies to all exit or disposal activities initiated after December 31, 2002. Management does not anticipate that the adoption of SFAS 146 will have any material impact on the financial statement. Page 20 of 104 In October 2002, the Financial Accounting Standards Board issued FASB Statement No. 147, "Accounting for Acquisitions of Certain Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9" (SFAS 147). SFAS 147 amends SFAS 72 and no longer requires companies to recognize, and subsequently amortize, any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset. In addition, SFAS 147 amends SFAS 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that SFAS 144 requires for other long-lived assets that are held and used. Management does not anticipate that the adoption of SFAS 147 will have any material impact on the financial statements. ITEM 7A. 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 IEC due to adverse changes in financial rates. IEC 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 IEC's results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The information required by this item is incorporated herein by reference to pages 25 through 44 of this Form 10-K and is indexed under Item 14(a)(1) and (2). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE -------------------- There have been no disagreements on accounting and financial disclosure matters. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information required by this item is presented under the caption entitled "Election of Directors - Nominees for Election as Directors" contained in the definitive proxy statement issued in connection with the Annual Meeting of Stockholders to be held February 26, 2003 and is incorporated in this report by reference thereto. The information regarding Executive Officers of the Registrant is found in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information required by this item is presented under the caption entitled "Executive Officer Compensation" contained in the definitive proxy statement issued in connection with the Annual Meeting of Stockholders to be held February 26, 2003 and is incorporated in this report by reference thereto, except, however, the sections entitled "Performance Graph" and "Report of the Compensation Committee of the Board of Directors" are not incorporated in this report by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The information required by this item is presented under the caption entitled "Security Ownership of Certain Beneficial Owners and Management" contained in the definitive proxy statement issued in connection with the Annual Meeting of Stockholders to be held February 26, 2003 and is incorporated in this report by reference thereto. Page 21 of 104 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The information required by this item is presented under the caption "Executive Officer Compensation - Certain Transactions" contained in the definitive proxy statement issued in connection with the Annual Meeting of Stockholders to be held February 26, 2003 and is incorporated in this report by reference thereto. ITEM 14 CONTROLS AND PROCEDURES - -------------------------------- (a) Evaluation of disclosure controls and procedures. Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-K, IEC's principal executive officer and principal financial officer have concluded that IEC's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act") are effective to ensure that information required to be disclosed by IEC in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) Changes in internal controls. There were no significant changes in IEC's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) The following documents are filed as part of this report and as response to Item 8: Page (1) and (2) Financial Statements and Supplementary Schedule Report of Independent Public Accountants...................... 29 Consolidated Balance Sheets as of September 30, 2002 and 2001.................................. 30 Consolidated Statements of Operations for the years ended September 30, 2002, 2001 and 2000 .................... 31 Consolidated Statements of Comprehensive Income (Loss) and Shareholders' Equity for the years ended September 30, 2002, 2001 and 2000................................................ 32 Consolidated Statements of Cash Flows for the years ended September 30, 2002, 2001 and 2000...................... 33 Notes to Consolidated Financial Statements.................... 34 Selected Quarterly Financial Data (unaudited)................ 45 All other schedules are either inapplicable or the information is included in the financial statements and, therefore, have been omitted. (3) Exhibits Exhibit No. Title Page 3.1 Amended and Restated Certificate of Incorporation of DFT Holdings Corp. (Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, Registration No. 33-56498) 3.2 Amended Bylaws of IEC Electronics Corp. 46 3.3 Agreement and Plan of Merger of IEC Electronics into DFT Holdings Corp. (Incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1, Registration No. 33-56498) 3.4 Certificate of Merger of IEC Electronics Corp. into DFT Holdings Corp. - New York. (Incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1, Registration No. 33-56498) 3.5 Certificate of Ownership and Merger merging IEC Electronics Corp. into DFT Holdings Corp. - Delaware. (Incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-1, Registration No. 33-56498) 3.6 Certificate of Merger of IEC Acquisition Corp. into IEC Electronics Corp. (Incorporated by reference to Exhibit 3.6 to the Company's Registration Statement on Form S-1, Registration No. 33-56498) Page 22 of 104 3.7 Certificate of Amendment of Certificate of Incorporation of IEC Electronics Corp. filed with the Secretary of State of the State of Delaware on Feb. 26, 1998 (Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended March 27, 1998) 3.8 Certificate of Designations of the Series A Preferred Stock of IEC Electronics Corp. filed with the Secretary of State of the State of Delaware on June 3, 1998. (Incorporated by reference to Exhibit 3.8 of the Company's Annual Report on Form 10-K for the year ended September 30, 1998) 4.1 Specimen of Certificate for Common Stock. (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-56498) 4.2 Rights Agreement dated as of June 2, 1998 between IEC Electronics Corp. and ChaseMellon Shareholder Services. LLC., as Rights Agents (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated June 2, 1998) 10.1* Form of Indemnity Agreement. (Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1993) 10.2* IEC Electronics Corp. 1993 Stock Option Plan, as amended (Incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended September 30, 1998) 10.3* Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8, Registration No. 33-79360) 10.4* Form of Non-Statutory Stock Option Agreement (Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8, Registration No. 33-79360) 10.5* Form of Non-Employee Director Stock Option Agreement (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8, Registration No. 33-79360) 10.6* IEC Electronics Corp. 2001 Stock Option and Incentive Plan 57 10.7 2001 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2001). 10.8* IEC Electronics Corp. Savings and Security Plan effective June 1, 1997 (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). 10.9* Amendment to IEC Electronics Corp. Savings and Security Plan effective June 1, 1998. (Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended September 30, 1998). 10.10* IEC Electronics Corp. Director Compensation Plan (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended September 30, 1998). 10.11 Loan and Security Agreement dated as of December 28, 1999, among IEC ELECTRONICS CORP. and IEC ELECTRONICS-EDINBURG, TEXAS INC. (collectively, "Debtor") and HSBC BANK USA as agent ("Agent") and HSBC BANK USA ("HSBC Bank") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital"), as Lenders (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999). Page 23 of 104 10.12 Amendment No. 1 dated as of March 30, 2000 to Loan and Security Agreement originally dated as of December 28, 1999 amount IEC ELECTRONICS CORP. ("IEC) and IEC ELECTRONICS-EDINBURG, TEXAS INC. ("IEC-Edinburg") (collectively, "Debtor") and HSBC BANK USA, as Agent ("Agent") and HSBC BANK USA ("HSBC Bank") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital") as Lenders (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000) 10.13 Amendment No. 2 dated as of December 1, 2000 to Loan and Security Agreement originally dated as of December 28, 1999 among IEC ELECTRONICS CORP. ("IEC") and IEC ELECTRONICS-EDINBURG, TEXAS INC.("IEC-Edinburg")(collectively, "Debtor") and HSBC BANK USA, as Agent ("Agent") and HSBC BANK USA ("HSBC Bank") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital") as Lenders. (Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the year ended September 30, 2000). 10.14 Amendment No. 3 dated as of April 24, 2001 to Loan and Security Agreement originally dated as of December 28, 1999 among IEC Electronics Corp. ("IEC") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg") and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital"). (Incorporated by reference to Exhibit 10.16 of the Company's Annual Report on Form 10-K for the year ended September 30, 2001). 10.15 Amendment No. 4 dated as of December 21, 2001 ("Amendment") to Loan and Security Agreement originally dated as of December 28, 1999 and originally among IEC Electronics Corp. ("IEC" or "Debtor") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg") and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital") as Lenders. (Incorporated by reference to Exhibit 10.26 of the Company's Annual Report on Form 10-K for the year ended September 30, 2001). 10.16 Amendment No. 5 dated as of February 15, 2002 to Loan and Security Agreement originally dated as of December 28, 1999 among IEC Electronics Corp. ("IEC") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg") and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital")(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 20, 2002). 10.17 Amendment No. 6 dated as of February 28, 2002 to Loan and Security Agreement originally dated as of December 28, 1999 among IEC Electronics Corp. ("IEC") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg") and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital")(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 6, 2002). 10.18 Amendment No. 7 dated as of March 15, 2002 to Loan and Security Agreement originally dated as of December 28, 1999 among IEC Electronics Corp. ("IEC") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg") and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital")(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 21, 2002). 10.19 Amendment No. 8 dated as of April 8, 2002 to Loan and Security Agreement originally dated as of December 28, 1999 among IEC Electronics Corp. ("IEC") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg")and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital")(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 9, 2002). 10.20* Retirement and Deferred Compensation Agreement dated September 30, 1999 between Russell E. Stingel and IEC Electronics Corp.(incor- porated by reference to Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000) 10.21* Employment Agreement made as of August 11, 2000 between IEC Electronics Corp. and Thomas W. Lovelock. (Incorporated by reference to Exhibit 10.27 of the Company's Annual Report on Form 10-K for the year ended September 30, 2000.) 10.22* First Amendment dated as of October 23, 2001 and effective as of August 21, 2001 to Employment Agreement between IEC Electronics Corp. and Thomas W. Lovelock. (Incorporated by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the year ended September 30, 2001). 10.23* Employment Agreement made as of November 1, 2000, effective as of June 5, 2000, between IEC Electronics Corp. and William Nabors. (Incorporated by reference to Exhibit 10.28 of the Company's Annual Report on Form 10-K for the year ended September 30, 2000.) 10.24* First Amendment dated as of August 24, 2001 to Employment Agreement dated as of November 1, 2000 and effective as of June 5, 2000 between IEC Electronics Corp. and William Nabors. (Incorporated by reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K for the year ended September 30, 2001). Page 24 of 104 10.25* Employment Agreement between IEC Electronics Corp. and Bill R. Anderson dated as of March 29, 2001 (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2001). 10.26* Form of Change-in-Control Agreement between IEC Electronics Corp. and each of its Vice Presidents, dated as of May 1, 1998. (Incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended September 30, 1998.) 10.27* Change-in-Control Agreement dated as of June 6, 2001 between IEC Electronics Corp. and Randall C. Lainhart. (Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the year ended September 30, 2001). 10.28* Severance Agreement dated June 6, 2002 between IEC Electronics 74 Corp. and Thomas W. Lovelock. 10.29* Supplemental Severance Agreement dated December 6, 2002 between 76 IEC Electronics Corp. and Thomas W. Lovelock. 10.30 Amendment Number 9 dated as of June 20, 2002 to Loan and Security 77 Agreement originally dated as of December 28, 1999 among IEC Electronics Corp. ("IEC") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg")and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital"); Letter Modifications to Amendment Number 9 dated August 9, 2002, August 23, 2002, September 17, 2002 and September 24, 2002 10.31 Amendment Number 10 dated as of October 1, 2002 to Loan and 88 Security Agreement originally dated as of December 28, 1999 among IEC Electronics Corp. ("IEC") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg")and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital") 10.32 Amendment Number 11 dated as of November 13, 2002 to Loan and 92 Security Agreement originally dated as of December 28, 1999 among IEC Electronics Corp. ("IEC") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg")and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital") 10.33 Amendment Number 12 dated as of January 1, 2003 to Loan and 53 96 Security Agreement originally dated as of December 28, 1999 among IEC Electronics Corp. ("IEC") and IEC Electronics-Edinburg, Texas Inc. ("IEC-Edinburg")and HSBC Bank USA, as Agent ("Agent") and HSBC Bank USA ("HSBC Bank") and General Electric Capital Corporation ("GE Capital") 10.34* Amendment to IEC Electronics Corp. Savings and Security Plan 100 effective April 1, 2002 16.1 Arthur Andersen LLP letter dated June 4, 2002 (incorporated by reference to the Company's Current Report on Form 8-K filed June 4, 2002). 21.1 Subsidiaries of IEC Electronics Corp. 101 23.1 Consent of Rotenberg & Co., LLP 102 99.1 Certification of Chief Executive Officer pursuant to Section 906 103 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Principal Financial Officer pursuant to Section 104 906 of the Sarbanes-Oxley Act of 2002 *Management contract or compensatory plan or arrangement (b) Reports on Form 8-K (i) A current report on Form 8-K was filed with the Securities and Exchange Commission on August 12, 2002. The report contained information about the engagement of new independent accountants. (ii) A current report on Form 8-K was filed with the Securities and Exchange Commission on September 6, 2002. The report contained information regarding the settlement of the Registrant's litigation with Acterna Corporation. (iii) A current report on Form 8-K was filed with the Securities and Exchange Commission on September 20, 2002. The report contained information regarding Registrant's failure to comply with certain NASDAQ Marketplace Rules. (iv) A current report on Form 8-K was filed with the Securities and Exchange Commission on October 25, 2002. The report contained information regarding Amendment No. 10 to Registrant's Loan and Security Agreement. (v) A current report on Form 8-K was filed with the Securities and Exchange Commission on November 1, 2002. The report contained information regarding (x)Registrant's acceptance of term sheets involving a refinancing which would repay existing indebtedness to its lenders and (y) potential delisting of Registrant's securities by NASDAQ. Page 25 of 104 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: January 14, 2003. IEC Electronics Corp. By:/s/ W. Barry Gilbert ------------------------- W. Barry Gilbert Acting Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/W. Barry Gilbert Acting Chief Executive Officer and - ---------------------- Chairman of the Board (W. Barry Gilbert) January 14, 2003 /s/Kevin Monacelli Controller - ----------------- (Principal Financial (Kevin Monacelli) and Accounting Officer) January 14, 2003 /s/David J. Beaubien Director January 14, 2003 - -------------------- (David J. Beaubien) /s/Robert P. B. Kidd Director January 14, 2003 - ------------------- (Robert P. B. Kidd) /s/Eben S. Moulton Director January 14, 2003 - ------------------ (Eben S. Moulton) /s/Justin L. Vigdor Director January 14, 2003 - ------------------- (Justin L. Vigdor) /s/James C. Rowe Director January 14, 2003 - ------------------ (James C. Rowe) /s/Dermott O'Flanagan Director January 14, 2003 - --------------------- (Dermott O'Flanagan) Page 26 of 104 CERTIFICATIONS I, W. Barry Gilbert, certify that: 1. I have reviewed this annual report on Form 10-K of IEC Electronics Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 14, 2003 IEC Electronics Corp. By: /s/ W. Barry Gilbert ------------------------ W. Barry Gilbert Acting Chief Executive Officer Page 27 of 104 CERTIFICATIONS I, Kevin J. Monacelli, certify that: 1. I have reviewed this annual report on Form 10-K of IEC Electronics Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 14, 2003 IEC Electronics Corp. By: /s/ Kevin J. Monacelli -------------------------- Kevin J. Monacelli Controller & Principal Financial Accounting Officer Page 28 of 104 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors IEC Electronics Corp. Newark, New York We have audited the accompanying consolidated balance sheet of IEC Electronics Corp. (a Delaware corporation) and subsidiaries as of September 30, 2002, and the related consolidated statements of operations, comprehensive loss and shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IEC Electronics Corp. and subsidiaries as of September 30, 2002 and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The financial statements for the years ended September 30, 2001 and 2000 were audited by other auditors who have ceased operations whose report dated November 16, 2001 (except with respect to the matter discussed in Notes 1 and 5, as to which the date was January 11, 2002), on those statements included an explanatory paragraph describing conditions that raised substantial doubt about the Company's ability to continue as a going concern. /s/ Rotenberg & Co., LLP - ------------------------ Rotenberg & Co., LLP Rochester, New York November 20, 2002 (except with respect to the matters discussed in Notes 7 and 14 as to which the date is January 14, 2003) Page 29 of 104 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2002 AND 2001 (in thousands)
ASSETS 2002 2001 -------------------- CURRENT ASSETS: Accounts receivable, net of allowance for doubtful accounts of $146 and $698 $ 5,480 $ 11,114 Inventories 3,412 6,846 Other current assets 186 217 Current assets-discontinued operations 348 9,304 -------------------- Total current assets 9,426 27,481 -------------------- PROPERTY, PLANT AND EQUIPMENT, NET 4,333 5,835 ASSET HELD FOR SALE 497 1,397 LONG-TERM ASSETS-DISCONTINUED OPERATIONS 809 3,414 ----------------------- $ 15,065 $ 38,127 =======================
LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001 ------------------------- CURRENT LIABILITIES: Current portion of long-term debt $ 3,128 $ 13,382 Accounts payable 6,250 5,283 Accrued payroll and related expenses 697 1,518 Other accrued expenses 1,497 2,038 Other current liabilities-discontinued operations 1,426 4,097 ------------------------- Total current liabilities 12,998 26,318 ------------------------- LONG TERM DEBT - TOTAL 1,268 - TOTAL LIABILITIES - - ------------------------- COMMITMENTS AND CONTINGENCIES (Note 12) 14,266 26,318 SHAREHOLDERS' EQUITY: Preferred stock, par value $.01 per share Authorized - 500,000 shares; Issued and outstanding - none - - Common stock, par value $.01 per share Authorized - 50,000,000 shares Issued - 7,692,076 shares 77 77 Treasury stock, 573 shares; at cost (11) (11) Additional paid-in capital 38,418 38,418 Accumulated deficit (37,640) (26,661) Accumulated other comprehensive loss- Cumulative translation adjustments (45) (14) ------------------------- Total shareholders' equity 799 11,809 -------------------------- $ 15,065 $ 38,127 ========================= The accompanying notes are an integral part of these financial statements.
Page 30 of 104 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000 (in thousands, except per share and share data)
2002 2001 2000 --------------------------------- Net sales $ 39,365 $114,771 $146,359 Cost of sales 37,068 111,829 136,020 -------------------------------- Gross profit 2,297 2,942 10,339 Operating expenses Selling and administrative expenses 4,209 7,049 9,364 Restructuring charge (benefit) 214 - (1,044) Asset impairment writedown 900 12,101 - -------------------------------- Total operating expenses 5,323 19,150 8,320 -------------------------------- Operating (loss) income (3,026) (16,208) 2,019 Interest and financing expense (932) (1,331) (1,575) Other income 188 5 1,963 ------------------------------- (Loss) income from continuing operations before income taxes (3,771) (17,534) 2,406 Provision for (benefit from) income taxes - (95) (5) -------------------------------- (Loss) income from continuing operations (3,771) (17,439) 2,411 -------------------------------- Discontinued operations: Loss from operations of IEC-Mexico disposed of (net of income taxes of $56, $116 and $0 in 2002, 2001 and 2000, respectively) (4,069) (11,833) (10,442) Estimated loss on disposal of IEC-Mexico (net of income taxes of $0) (3,139) - - -------------------------------- (7,208) (11,833) (10,442) -------------------------------- Net loss $(10,979) $(29,272) $ (8,031) ================================ Net (loss) income per common and common equivalent share: Basic and diluted (Loss) income from continuing operations $(0.49) $(2.28) $ 0.32 Loss from discontinued operations $(0.94) $(1.55) $(1.38) Loss available to common shareholders $(1.43) $(3.83) $(1.06) Weighted average number of common and common equivalent shares outstanding: Basic and Diluted 7,691,503 7,650,673 7,590,046 ================================ The accompanying notes are an integral part of these financial statements
Page 31 of 104 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) AND SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000 (in thousands)
Accumulated Other Additional Retained Comprehensive Total Comprehensive Common Paid-In Earnings Income Treasury Shareholders Loss Stock Capital (Deficit) (Loss) Stock Equity ---------------------------------------------------------------------------------------------- BALANCE, September 30, 1999 $76 $38,566 $10,642 $(28) $(411) $48,845 Executive signing bonus - (181) - - 200 19 Shares issued in lieu of cash to suppliers and others - (78) - - 200 122 Shares issued under Directors Stock Plan - 25 - - - 25 Net Loss $(8,031) - - (8,031) - - (8,031) Other comprehensive income, currency translation adjustments 28 - - - 28 - 28 ----------------------------------------------------------------------------------------------------- (8,003) ======= BALANCE, September 30, 2000 76 38,332 2,611 - (11) 41,008 Shares issued under Directors Stock Plan 1 86 - - - 87 Net Loss $(29,272) - - (29,272) - - (29,272) Other comprehensive loss, Currency translation adjustments (14) - - - (14) - (14) ------------------------------------------------------------------------------------------------------ Comprehensive loss $(29,286) ========= BALANCE, September 30, 2001 77 38,418 (26,661) (14) (11) 11,809 Shares issued under Directors Stock Plan Net loss $(10,979) - - (10,979) - - (10,979) Other comprehensive loss, Currency translation adjustments (31) - - - (31) - (31) ------------------------------------------------------------------------------------------------------ Comprehensive loss $(11,010) ========= BALANCE, September 30, 2002 $77 $38,418 $(37,640) $(45) $(11) $799 ================================================================================== The accompanying notes are an integral part of these financial statements.
Page 32 of 104 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000 (in thousands)
2002 2001 2000 ------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (10,979) $(29,272) $(8,031) Non-cash adjustments: Loss from discontinued operations 4,069 11,833 10,442 Loss on sale of discontinued operations 3,139 - - Depreciation and amortization 1,637 4,005 5,286 (Gain) loss on sale of fixed assets (6) (4) 17 Goodwill amortization - 324 353 Issuance of directors fees in stock - 87 25 Asset impairment writedown (recovery) 900 12,101 (365) Changes in operating assets and liabilities: Accounts receivable 5,634 6,232 3,281 Inventories 3,434 14,511 2,294 Income taxes receivable - - 2,396 Other current assets 31 (143) 272 Other assets - 292 (284) Accounts payable 1,469 (4,320) (7,366) Accrued payroll and related expenses (820) (316) (1,455) Accrued insurance 119 (253) 774 Other accrued expenses (661) (80) 534 ------------------------------ Net cash flows from operating activities 8,092 14,997 8,173 ------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (190) (3,120) (1,237) Intercompany asset transfers NBV - - 195 Proceeds from sale of property 61 20 1,294 Utilization of restructuring provision for building/equipment - (40) (116) Proceeds from sale of discontinued operations 730 ------------------------------ Net cash flows from investing activities 601 (3,140) 136 ------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net change in drafts payable (502) (639) - Net (payments) borrowings on revolving credit facilities (4,708) (1,884) 824 Principal payments on long-term debt (4,278) (2,105) (1,052) ------------------------------ Net cash financing activities (9,488) (4,628) (228) ------------------------------ Cash from (used in) discontinued operations 951 (7,215) (12,116) Change in cash and cash equivalents 30 14 (4,035) Effect of exchange rate changes (30) (14) 28 Cash and cash equivalents, beginning of year - - 4,007 ----------------------------- Cash and cash equivalents, end of year $ - $ - $ - ============================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 1,461 $1,860 $ 1,996 ============================= Income taxes, net of refunds received $ - $ (95) $ (2,971) ============================= The accompanying notes are an integral part of these financial statements.
Page 33 of 104 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002, 2001 AND 2000 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - -- -------------------------------------------------------- Business - -------- IEC Electronics Corp. (IEC) is an independent EMS provider 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 Electronics-Edinburg, Texas Inc. ("Texas") and IEC Electronics-Arab, Alabama Inc. ("Alabama"), until January 26, 2000 when each of Texas and Alabama merged into IEC; IEC Electronics-Ireland Limited ("Longford") from August 31, 1998, until September 4, 2001, when it was merged into IEC; and IEC Electronicos de Mexico from February 2001, (collectively, the "Company"). Operations in Alabama were closed in October 1998, in Longford in December 1999 and in Texas and Mexico in July 2002. Revenue Recognition - ------------------- The Company recognizes revenue upon shipment of product for both turnkey and consignment contracts. 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. Accounts Payable - ---------------- Trade accounts payable include drafts payable of $302,000 and $804,000 at September 30, 2002, and September 30, 2001, respectively. Page 34 of 104 Long-Lived Assets - ----------------- In assessing and measuring the impairment of long-lived assets, the Company applies the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the long-lived asset or identifiable intangible being tested for impairment was acquired in a purchase business combination, the goodwill that arose in that transaction is included in the asset grouping in determining whether an impairment has occurred. If some but not all of the assets acquired in that transaction are being tested, goodwill is allocated to the assets being tested for impairment based on the relative fair values of the long-lived assets and identifiable intangibles acquired at the acquisition date. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Additionally, where an impairment loss is recognized for long-lived assets and identifiable intangibles where goodwill has been allocated to the asset grouping, as described immediately above, the carrying amount of the allocated goodwill is impaired (eliminated) before reducing the carrying amounts of impaired long-lived assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. With respect to the carrying amounts of goodwill, if any, remaining after the testing for impairment of long-lived assets and identifiable intangibles, including enterprise level goodwill not subject to impairment testing under SFAS No. 121, the Company assesses such carrying value for impairment whenever events or changes in circumstances indicate that the carrying amount of such goodwill may not be recoverable. The Company assesses the recoverability of this goodwill by determining whether the amortization of goodwill over its remaining life can be recovered through undiscounted future operating cash flows of the acquired business. The amount of goodwill impairment, if any, is measured based on projected discounted operating cash flows compared to the carrying value of such goodwill. During the fourth quarter of 2001, certain fixed assets and intangible assets were identified as impaired. As a result of the overall softening of the electronics manufacturing services industry and a change in the Company's business strategy, the Company did not believe that their future cash flows supported the carrying value of the long-lived assets and goodwill. The current market values were compared to the net book value of the related long-lived assets with the difference representing the amount of the impairment loss. The effect of this impairment recognition totaled approximately $12.6 million, of which $9.6 million represented a writeoff of goodwill and $3.0 million represented a writedown of property, plant and equipment. During August 1998, IEC initiated a plan to dispose of its Arab, Alabama facility. In conjunction with this decision, the asset was written down to its estimated recoverable sales value, net of commissions. The effect of this impairment recognition totaled approximately $900,000 for fiscal year 2002. The facility is recorded at its carrying value of $497,000 at September 30, 2002. During April 2001, IEC initiated a plan to dispose of its Edinburg, Texas facility. In conjunction with this decision, the asset was written down to its estimated recoverable sales value, net of commissions. The effect of this impairment recognition totaled approximately $1.04 million in fiscal 2002. The facility is recorded at its carrying value of $800,000 at September 30, 2002. Fair Value of Financial Instruments - ----------------------------------- The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value. Current Assets and Liabilities - The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of those instruments. Debt - The fair value of the Company's debt is estimated based upon the quoted market prices for the same or similar issues which approximates its carrying amount. Page 35 of 104 Costs in Excess of Net Assets Acquired - -------------------------------------- Costs in excess of net assets acquired of $14.1 million were being amortized on a straight-line basis over 40 years. Amortization of $324,000 and $353,000 was charged against operations for the years ended September 30, 2001 and 2000, respectively. The remaining net goodwill in the amount of $9.6 million, related to the Newark operations was written off in fiscal 2001. The write-off of net goodwill in the amount of $670,000, related to the Longford operations, was charged to the restructuring reserve in fiscal 1999. The write-off of net goodwill of approximately $1.3 million during fiscal 1998, related to the Alabama facility, was charged to the restructuring reserve. See Note 6. Earnings Per Share - ------------------ Net income (loss) per common share is computed in accordance with SFAS No. 128, "Earnings Per Share". Basic earnings per common share is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding for each period. Diluted earnings per common share is calculated by adjusting the weighted-average shares outstanding assuming conversion of all potentially dilutive stock options, warrants and convertible securities. Foreign Currency Translation - ---------------------------- The assets and liabilities of the Company's foreign subsidiary are translated based on the current exchange rate at the end of the period for the balance sheet and weighted-average rate for the period for the statement of operations. Translation adjustments are recorded as a separate component of equity. Transaction gains or losses are included in operations. Comprehensive Income - -------------------- Comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments and is presented in the statements of comprehensive income (loss) and shareholders' equity. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Pronouncements - ------------------ In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets." FAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets other than goodwill be amortized over their useful lives. The provisions of FAS No. 142 became effective for fiscal years beginning after December 15, 2001; however, as the Company wrote-off all goodwill during fiscal 2001, adoption of this pronouncement will have no impact on the Company. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). We have adopted this standard on October 1, 2002. Upon adoption of SFAS No. 143, the fair value of a liability for an asset retirement obligation will be recognized in the period in which it is incurred. The associated retirement costs will be capitalized as part of the carrying amount of the long-lived asset and subsequently allocated to expense over the asset's useful life. Management does not expect the adoption of SFAS No. 143 to have a material effect on the financial results of the Company. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"). FAS No. 144 supercedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". FAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business". FAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and will thus be adopted by the Company, as required, on October 1, 2002. Management is currently determining what effect, if any, FAS No. 144 will have on its financial position and results of operations. Page 36 of 104 In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44,and 64, Amendment of FASB Statement No. 13, and technical Corrections (SFAS No. 145). SFAS No. 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No. 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual and infrequent and meet the criteria for classification as an extraordinary item. SFAS No. 145 is effective for the Company beginning January 1, 2003. Management does not expect the adoption of SFAS No. 145 to have a material effect on the financial results of the Company. In June 2002, the Financial Accounting Standards Board issued FASB Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by SFAS 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146 applies to all exit or disposal activities initiated after December 31, 2002. Management does not anticipate that the adoption of SFAS 146 will have any material impact on the financial statement. In October 2002, the Financial Accounting Standards Board issued FASB Statement No. 147, "Accounting for Acquisitions of Certain Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9" (SFAS 147). SFAS 147 amends SFAS 72 and no longer requires companies to recognize, and subsequently amortize, any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset. In addition, SFAS 147 amends SFAS 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that SFAS 144 requires for other long-lived assets that are held and used. Management does not anticipate that the adoption of SFAS 147 will have any material impact on the financial statements. Reclassifications - ----------------- Certain prior year amounts have been reclassified to conform with the current year presentation. 2. 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): 2002 2001 ------ ------- Raw Materials $ 2,175 4,318 Work-in-process 1,214 2,103 Finished goods 23 425 ------- ------- 3,412 6,846 ======= ======= Page 37 of 104 3. PROPERTY, PLANT, AND EQUIPMENT - --------------------------------- Property, plant, and equipment are stated at cost and are depreciated over various estimated useful lives using the straight-line method. Maintenance and repairs are charged to expense as incurred; renewals and improvements are capitalized. At the time of retirement or other disposition of property, plant, and equipment, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income. The major classifications of property, plant, and equipment are as follows at September 30 (in thousands): 2002 2001 -------- -------- Land and land improvements $ 768 $ 768 Buildings and improvements 3,995 4,244 Machinery and Equipment 46,501 46,552 Furniture and fixtures 5,850 5,606 -------- -------- $57,114 $57,170 Less- Accumulated depreciation and amortization (52,781) (51,335) -------- -------- $ 4,333 $ 5,835 ======== ======== Depreciation and amortization was $1.8 million, $4.0 million, and $5.3 million for the years ended September 30, 2002, 2001 and 2000, respectively. The principal depreciation and amortization lives used are as follows: Estimated Description Useful Lives - ---------------------------- ------------ Land improvements 10 years Buildings and improvements 5 to 40 years Machinery and equipment 3 to 5 years Furniture and fixtures 3 to 7 years 4. ASSET HELD FOR SALE - ---------------------- Included in asset held for sale are land and land improvements with a net book value of approximately $114,000 and buildings and improvements with a net book value of approximately $383,000. 5. DISCONTINUED OPERATIONS - ------------------------------ On June 18, 2002, the Company signed an Asset Purchase Agreement to sell substantially all of the assets of IEC-Mexico to Electronic Product Integration Corporation (EPI) for $730,000 plus payments of an Earn-out Amount, based upon sales revenues received by EPI from certain former customers of the Company during the period between July 1, 2002 and January 31, 2003, in an amount up to $700,000. In addition, EPI will pay to the Company commissions based on the net selling price of products shipped to certain former customers of the Company during various time periods between June 18, 2002 and March 31, 2003. As of September 30, 2002 no additional amounts were earned under the agreement. Under the terms of a related agreement, the Company and IEC-Mexico were also released of all of their lease obligations to the landlord of the Mexican facility. EPI paid the Company $315,000 in June 2002, $265,000 in July 2002 and $150,000 in September 2002. The Company recorded an after-tax loss on the sale of the business of approximately $3.1 million. The reserve balance at September 30, 2002 was $421,000. It is anticipated that all remaining charges against the accrual will be made by September 2003. The Consolidated Financial Statements and related notes have been restated, where applicable, to reflect IEC-Mexico as a discontinued operation. Net sales of IEC-Mexico were $10.8 million, $45.9 million and $57.8 million for the years ended September 30, 2002, 2001 and 2000 respectively. These amounts are not included in net sales in the accompanying consolidated statements of operations. Page 38 of 104 Assets and liabilities of IEC-Mexico to be disposed of consisted of the Following at September 30:
2002 2001 ---------- ---------- Accounts receivable $ 141,075 $3,812,779 Inventories - 5,185,977 Other current assets 206,746 305,147 --------- ---------- Total current assets 347,821 9,303,903 Property, plant and equipment, net 800,000 3,405,005 Other assets 9,166 9,166 --------- ---------- Total non-current assets 809,166 3,414,171 --------- ---------- Total assets $1,156,987 $12,718,074 ========== =========== Accounts payable $ 668,232 $ 2,183,941 Accrued payroll and related expenses 37,044 496,916 Other accrued expenses 720,222 1,416,496 ---------- ----------- Total current liabilities $1,425,498 $4,097,353 ========== =========== Net assets to be disposed of $ (268,511) $8,620,721 =========== ===========
6. RESTRUCTURING - ------------------- In June 2002, the Company's Board of Directors approved a restructuring and reduction of workforce plan at its Newark, NY facility. At this time, the Company's President, Chief Executive Officer and a director of the Company and the Company's Chief Financial Officer and Treasurer also resigned their positions with the Company. Each elected not to continue in the management of a restructured and downsized company. In connection with this restructuring, the Company recorded a $448,000 charge to earnings in fiscal 2002 relating primarily to severance. As of September 30, 2002, a reserve balance of approximately $215,000 still remained. It is anticipated that all remaining charges against the accrual will be made by October 2003. In April 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 recorded a charge to earnings, which is now reflected in discontinued operations, of $1.4 million in the third quarter of fiscal 2001. This restructuring plan allowed the Company to concentrate its investments, resources and management attention on lower cost, high volume production at its Mexico operations. The charge related to facility consolidations ($1.0 million) and headcount reductions ($400,000). As of September 2002, a reserve balance of approximately $168,000 still remained. It is anticipated that all remaining charges against the accrual will be made within the next twelve months. There have been no significant reallocations or re-estimates of this restructuring charge to date. In September 1999, the Company announced its plan to close its underutilized Longford operations and transfer some of the customers served there to its other operations in New York and Texas. Accordingly, a restructuring charge of approximately $4.0 million was recorded in the fourth quarter of fiscal 1999. The components of the charge are as follows: the write-down of assets to be disposed of to their fair market value ($1.1 million), the write-down of goodwill ($670,000), severance and employee benefits ($619,000), accrual of the remaining lease payments and related building maintenance costs ($895,000), and repayment of a grant provided by the Irish Development Agency ($681,000). 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 $1.0 million from the reversal of a previously established restructuring reserve which included $800,000 relating to the lease and $200,000 recovered from a guarantee which had been executed by the company from whom the assets in Longford had been purchased. The Company recorded charges against the accrual of approximately $54,000 and $2.2 million during fiscal 2001 and 2000, respectively. There is no remaining balance at September 30, 2002. Page 39 of 104 In August 1998, the Company announced its plan to close its underutilized Alabama facility and transferred the facility's customers to the Company's other operations in New York and Texas. Accordingly, a restructuring charge of $4.7 million was recorded in the fourth quarter of fiscal 1998. The components of the charge were as follows: the write-down of assets to be disposed of to their fair market value ($2.2 million), the write-down of goodwill ($1.3 million), and severance and employee benefits ($1.2 million). Due to the pending sale of the facility, a benefit of approximately $240,000 was recorded in fiscal 2002 resulting from the reversal of a previously established restructuring reserve which related to building maintenance costs. The Company recorded charges against the accrual of $85,000 and $200,000 in fiscal 2001 and 2000, respectively. 7. LONG-TERM DEBT: - --------------------- Long-term debt consists of the following at September 30 (in thousands): 2002 2001 ------- ------- Senior debt facility $ 1,976 $13,382 Term loan 2,420 - Less - Current portion 3,128 13,382 -------- ------- $ 1,268 $ - ======== ======= As of September 30, 2001, the Company was not in compliance with certain financial covenants under its secured asset-based credit agreement. As of December 21, 2001, the Company's banks waived the non-compliance, amended certain covenants to allow the Company more flexibility and changed the expiration date of the credit agreement to February 15, 2002 from January 31, 2003. Subsequent amendments were made to the credit agreement as of February 15, 2002, February 28, 2002, March 15, 2002, April 8, 2002, June 20, 2002, October 1, 2002, November 12, 2002 and January 1, 2003 which, among other things, continued to extend the expiration date of the credit agreement. As a result of the January 1, 2003 amendment, the expiration date of the credit agreement was January 17, 2003. As last amended, the credit agreement provided for a revolving credit facility component of $1.0 million. Amounts borrowed were limited to 85% of qualified accounts receivable. The interest rate on the revolving credit facility was increased at the time of the various amendments and on September 30, 2002 was prime rate plus 3.50%. On January 14, 2003, it was prime rate plus 6.00%. The second component of the credit facility consisted of a $10 million three-year term loan with monthly principal installments based on a five-year amortization which began in April 2000. The interest rate on the term loan facility was increased at the time of the various amendments and at September 30, 2002 was prime rate plus 4.00%. On January 14, 2003, it was prime rate plus 6.00%. At September 30, 2002, $3.6 million was outstanding, consisting of $1.1 million and $2.5 million relating to the revolving credit facility and term loan, respectively, with an additional $403,000 available under the revolving credit facility. At January 6, 2003, the availability under the revolver was $0, and $611,000 was outstanding on the revolver and $1.1 million was outstanding on the term loan. On January 14, 2003, IEC completed a new $7,300,000 financing composed of a $5,000,000 Senior Secured Facility with Keltic Financial Partners LLP ("Keltic"), a $2,200,000 Secured Term Loan with SunTrust Bank ("SunTrust") and a $100,000 infusion by certain of the IEC directors. The Keltic Facility, which has a 3 year maturity, bears interest at the rate of prime plus 6%. It involves a revolving line of credit for up to $3,850,000 based upon advances on eligible accounts receivable and inventory, a term loan of $600,000, secured by machinery and equipment, to be amortized over a 36 month period and a term loan of $550,000 secured by a first mortgage lien against IEC's Edinburg, Texas real estate which loan is due at the earlier of the sale of that real estate or one year from the date of closing. The SunTrust Term Loan is secured by the assignment of a certain promissory note and a first mortgage on the IEC plant in Newark, New York. It is payable with interest at prime plus 1.5% in monthly installments over a period of 3 years. These funds were used to repay all but $100,000 of the prior indebtedness to HSBC USA as agent for itself and GE Capital Corporation (the "Prior Lenders"). The Prior Lenders retain a subordinated interest in substantially all of IEC's assets. The Keltic and Suntrust loan agreements contain various affirmative and negative covenants including, among other, limitations on the amount available under the revolving line of credit relative to the borrowing base, capital expenditures, fixed charge coverage ratios, and minimum earnings before interest, taxes, depreciation and amortization (EBITDA). In connection with the financing IEC entered into agreement with certain of its trade creditors providing for extended payment terms on past due balances. Page 40 of 104 8. LIFE INSURANCE PROCEEDS: - ------------------------------ The Company's former President and Chief Executive Officer died suddenly on December 11, 1999. In the second quarter of fiscal 2000, the Company received non-taxable income from insurance proceeds of approximately $2.0 million, which is included in other income. 9. INCOME TAXES: - ------------------- The provision for (benefit from) income taxes in fiscal 2002, 2001 and 2000 is summarized as follows (in thousands): 2002 2001 2000 ------- ------- ------- Current Federal $ - $ - $ - State/Other - (95) (5) Deferred - - - -------- --------- -------- Provision for (benefit from) income taxes, net $ - $ (95) $ (5) ======== ========= ======== The components of the deferred tax asset (liability) at September 30 are as follows (in thousands): 2002 2001 ---- ---- Net operating loss and AMT credit carryovers $ 8,472 $ 8,167 Asset impairment loss 1,688 1,030 Accelerated depreciation (1,067) (1,255) New York state investment tax credits 3,237 3,435 Compensated absences 119 293 Inventories 985 3,609 Receivables 151 323 Restructuring reserve 470 711 Other 666 41 ------ ------- 14,721 16,354 Valuation allowance (14,721) (16,354) ------- ------- $ - $ - ======== ======= A full valuation allowance has been established against the net deferred tax asset due to recent losses and tax carryback limitations. The Company has a net operating loss carryforward of $26.2 million (expiring in years through 2022). The Company has available approximately $4.9 million in New York State investment tax credits (expiring in years through 2017). The differences between the effective tax rates and the statutory federal income tax rates for fiscal years 2002, 2001 and 2000 are summarized as follows: 2002 2001 2000 ----- ----- ----- Benefit from income taxes at statutory rates (34.0)% (34.0)% (34.0)% Goodwill adjustments - 14.1 1.5 Provision for state taxes, net - - - Life Insurance - - (8.5) Other 0.1 0.9 1.8 Valuation Allowance 33.9 19.0 39.2 ----- ----- ------ - % - % -% ===== ===== ====== 10. SHAREHOLDERS' EQUITY: - ---------------------------- Stock-Based Compensation Plans In November 1993, the Company adopted the 1993 Stock Option Plan (SOP) which replaced and superseded the 1989 Stock Option Plan. Under the SOP, a total of 1,400,000 shares, inclusive of the foregoing, were reserved for key employees, officers, directors and consultants. The option price for incentive options must be at least 100 percent of the fair market value at date of grant, or if the holder owns more than 10 percent of total common stock outstanding at the date of grant, then not less than 110 percent of the fair market value at the date of grant. Stock options issued prior to 1992 terminate 10 years from date of grant, while incentive and nonqualified stock options issued subsequent to 1991 terminate seven and five years from date of grant, respectively. Page 41 of 104 In December 2001, the Board of Directors authorized the 2001 Stock Option and Incentive Plan, reserving 1,500,000 shares of common stock for issuance to directors, officers, consultants or independent contractors providing services to the Company and key employees. The option price for incentive options must be at least 100 percent of the fair market value at date of grant, or if the holder owns more than 10 percent of total common stock outstanding at the date of grant, then not less than 110 percent of the fair market value at the date of grant. The Plan was approved by shareholders in February 2002. In conjunction with the approval of this plan, no further grants will be made under the 1993 SOP and the 1993 SOP was terminated. Stock options issued under this plan terminate five years from date of grant. Generally, incentive stock options granted during the period between July 1995 through September 2002 vest in increments of 25 percent. Nonqualified stock options granted during fiscal years 1999 to 2002 vest in increments of 33 1/3 percent. Changes in the status of options under the SOP at September 30, are summarized as follows: Weighted Shares Average Under Exercise Available September 30, Option Price for Grant Exercisable ------------- ---------- -------- -------- ----------- 1999 624,497 8.38 684,503 367,372 Options granted 378,000 2.04 Options exercised - - Options forfeited (130,122) 7.39 ---------- 2000 872,375 5.78 436,625 490,917 Options granted 493,450 1.33 Options exercised - - Options forfeited (303,125) 7.68 ---------- 2001 1,062,700 3.17 246,300 414,226 Options authorized 1,500,000 Options terminated (246,300) Options granted 338,250 0.07 Options exercised - - Options forfeited (530,100) 2.68 ---------- 2002 870,850 2.27 1,171,250 362,283 ========== The following table summarizes information about stock options outstanding as of September 30, 2002: Options Outstanding Options Exercisable -------------------------------------- -------------------------- Number Weighted Number Outstanding Average Weighted Exercisable Weighted Range of at Remaining Average at Average Exercise September 30, Contractual Exercise September 30, Exercise Prices 2002 Life Price 2002 Price - -------------- ---------------- ---------- --------- ---------------- --------- $ 0.070 328,750 4.797 $ 0.070 25,000 $ 0.070 $ 0.520 -$ 0.700 44,500 5.764 $ 0.549 13,750 $ 0.536 $ 1.240 -$ 1.500 187,000 4.646 $ 1.370 86,333 $ 1.413 $ 1.625 -$ 1.875 99,400 4.961 $ 1.664 37,225 $ 1.695 $ 2.500 -$ 3.875 43,700 3.446 $ 3.633 33,225 $ 3.644 $ 6.250 86,000 1.082 $ 6.250 86,000 $ 6.250 $ 9.500 -$ 9.750 77,000 0.768 $ 9.575 77,000 $ 9.575 $16.500 4,500 0.137 $ 16.500 3,375 $ 16.500 ------------- ------------ 870,850 361,908 ============= ============ Page 42 of 104 The weighted average fair value of options granted during fiscal 2002, 2001 and 2000 was $.05, $.97 and $1.33, respectively. The fair value of options is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 4.40 percent, 5.19 percent and 6.21 percent, for fiscal 2002, 2001 and 2000, respectively; volatility of 57.68 percent, 78.76 percent and 58.27 percent for fiscal 2002, 2001 and 2000, respectively; and expected option life of 5.0 years, 6.7 years and 7.0 years for fiscal 2002, 2001 and 2000, respectively. The dividend yield was 0 percent. Forfeitures are recognized as they occur. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and the disclosure only provisions of SFAS No. 123 "Accounting for Stock-Based Compensation". Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had the Company recognized compensation cost based upon the fair value at the date of grant for awards under its plans consistent with the methodology prescribed by SFAS No. 123, net loss and net loss per common and common equivalent share would have been as follows for years ended September 30 (in thousands, except per share data): 2002 2001 2000 ---------------- --------------- --------------- As Pro As Pro As Pro Reported Forma Reported Forma Reported Forma -------- ------ -------- ------- ------- ------- Net loss $(10,979) $(10,940) $(29,272) $(29,503) $(8,031) $(8,461) ========= ======== ======== ========= ======= ======= Net loss per common and common equivalent share: Basic and Diluted $ (1.43) $ (1.42) $ (3.83) $ (3.86) $ (1.06) $ (1.11) ======== ======== ========= ========= ======= ======== Because the SFAS No. 123 method of accounting had not been applied to options granted prior to October 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Treasury Stock During fiscal 2000, the Company issued 20,000 shares out of treasury for services rendered and executive signing bonus. The treasury balance is 573 shares with a book value of $11,000. 11. MAJOR CUSTOMERS AND CREDIT RISK CONCENTRATIONS: - ------------------------------------------------------ Financial instruments which potentially subject the Company to concentrations of a significant credit risk consist primarily of cash, cash equivalents, and trade accounts receivable. The Company has concentrations of credit risk due to sales to its major customers. The Company's revenues are derived primarily from sales to North American customers in the industrial and telecommunications industries and are concentrated among specific companies. For the fiscal year ended September 30, 2002, two customers accounted for 44 percent and 23 percent of the Company's net sales. For the fiscal year ended September 30, 2001, four customers accounted for 18 percent, 17 percent, 15 percent and 14 percent of the Company's net sales. For the fiscal year ended September 30, 2000, two customers accounted for 49 percent and 16 percent of the Company's net sales. At September 30, 2002, amounts due from three customers represented 34 percent, 26 percent and 20 percent of trade accounts receivable. At September 30, 2001, amounts due from three customers represented 30 percent, 22 percent and 20 percent of trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial positions and generally does not require collateral. Page 43 of 104 12. COMMITMENTS AND CONTINGENCIES: - ---------------------------------- Lease Commitments 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. occupied the entire 112,000 square foot facility. In June 2002, in conjunction with the sale of IEC-Mexico, IEC and IEC-Mexico were released of all their lease obligations related to the Mexican facility. Rental expense for the Mexico facility was $54,000, $465,000 and $312,000 for fiscal 2002, 2001 and 2000, respectively. These amounts are included in discontinued operations. As of September 30, 2002, the Company was obligated under non-cancelable operating leases, primarily for manufacturing and office equipment. These leases generally contain rental options and provisions for payment of the lease for executory costs (taxes, maintenance and insurance). Rental expenses on equipment were $352,000, $178,000 and $91,000 for fiscal 2002, 2001 and 2000, respectively. The lease for the manufacturing equipment expires in fiscal 2003 with required monthly payments of $23,000 through January 2003. Litigation - ---------- The Company is from time to time subject to routine 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. On August 12, 2002, an action was commenced in United States District Court for the Southern Division of Texas (Civil Action No. M-02-358) against the Company and several other corporate defendants. The plaintiffs (Armando Gonzalez and Maria Sylvia Gonzalez, husband and wife, as Next Friends of Adrian Gonzalez, a Minor, et al.) allege a "toxic tort" action against the defendants, for exposure to lead, lead dust, chemicals and other substances used in the manufacture of products by the defendants. The essence of the complaint relates to alleged "in utero" exposure to the circulatory system of the then unborn children, resulting in alleged tissue toxicity through the mothers, causing damage to the central nervous system, brain and other organs of the fetus. The complaint alleges theories of negligence, gross negligence, strict liability, breach of warranty and fraud/negligent misrepresentation, and claims unspecified damages for pain and suffering, a variety of special damages, punitive damages and attorneys fees. An answer has been filed denying liability on the part of the Company. Discovery has not begun, and no trial date has been set. Royal & Sunalliance Insurance Company has agreed to provide a defense of the claims with a reservation of rights, but has expressly excluded any coverage for the claim for punitive damages. 13. RETIREMENT PLAN: - -------------------- The Company has a retirement savings plan, established pursuant to Sections 401(a) and 401(k) of the Internal Revenue Code. This plan is for the exclusive benefit of its eligible employees and beneficiaries. Eligible employees may elect to contribute a portion of their compensation each year to the plan. Effective June 1, 1998, The Board of Directors approved a change in the employer match from 33 percent of the amount contributed by participant to 100 percent of the first 3 percent of employee contributions, and 50 percent of the next 3 percent of employee contributions. The match is discretionary and was suspended indefinitely as of October 1, 2001. There was no matching contribution made for fiscal 2002. The matching Company contributions were approximately $608,000 and $464,000 for the years ended September 30, 2001 and 2000, respectively. The plan also allows the Company to make an annual discretionary contribution determined by the Board of Directors. There were no discretionary contributions for fiscal 2002, 2001, or 2000. Page 44 of 104 14. SUBSEQUENT EVENTS - ---------------------- Subsequent to year end, the Company successfully completed the sale of its Arab, Alabama facility for approximately $600,000. The net proceeds from this sale resulted in an immaterial gain which will be recognized in the first quarter of fiscal 2003. Subsequent to year end, to assist with its liquidity, the Company was able to generally extend the payment dates of its accounts payable and in the case of certain of its principal vendors, either negotiated or is in the process of negotiating, discounted payment terms. The resulting gain from the discounted payment terms will be recognized in the first quarter of fiscal 2003. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- ---------- (in thousands, except per share data) YEAR ENDED SEPTEMBER 30,2002: Net sales $11,209 $13,478 $ 6,038 $ 8,640 Gross profit (loss) 379 (269) 416 1,771 Net (loss) income from continuing operations (1,073) (2,394) (1,697) 1,393 (1) Net (loss) income from discontinued IEC-Mexico operations (1,089) (1,436) (5,171) 488 (2) Net (loss) income (2,162) (3,830) (6,868) 1,881 Basic and diluted EPS Continuing operations (.14) (.31) (.22) .18 Discontinued IEC-Mexico operations (.14) (.19) (.67) .06 ------ ------ ------ -------- Net (loss) income $ (0.28) $(0.50) $(0.89) $ 0.24 ====== ====== ====== ======== YEAR ENDED SEPTEMBER 30,2001: Net sales $44,712 $31,133 $28,191 $10,735 Gross profit (loss) 2,996 2,654 1,704 (4,412) Net income (loss) from continuing operations 927 610 (237) (18,739) Net loss from discontinued IEC-Mexico operations (2,452) (1,567) (2,972) (4,842) Net loss (1,525) (957) (3,209) (23,581) Basic and diluted EPS Continuing operations .12 .08 (.03) (2.45) Discontinued IEC-Mexico operations (.32) (.21) (.39) (.63) ------ ------ ------ -------- Net loss $ (.20) $(0.13) $(0.42) $(3.08) ====== ====== ====== ======== (1) Included in this amount for the fourth quarter is the $1.1 million received from Acterna Corporation as discussed in Management's Discussion and Analysis in Item 7. (2) Included in this amount for the fourth quarter is the $1.3 million reversal of the estimate to dispose of IEC-Mexico offset by the $1.0 million write down of the Texas facility as discussed in Management's Discussion and Analysis in Item 7. Page 45 of 104 EX-3.2 3 bylawsexhibit6602.txt AMENDED BY-LAWS EXHIBIT 3.2 As Amended - 6/6/02 BY - LAWS IEC ELECTRONICS CORP. (hereinafter called the Corporation) ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof, and any such meeting called by the Board of Directors may be postponed by the Board of Directors to another time and place prior to the holding of such meeting. Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be held on such dates and at such times as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 3. Special Meetings. Unless otherwise prescribed by law or by the Certificate of Incorporation, Special Meetings of Stockholders, for any purpose or purposes, may be called by either (i) the Chairman, if there be one, or (ii) the President (iii) any Vice President, if there be one, (iv) the Secretary, or (v) any Assistant Secretary, if there be one. Such request shall state the purpose or purposes of the proposed meeting. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 4. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. Section 5. Voting. Unless otherwise required by law, the Certificate of Incorporation or these By-Laws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. Each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such pr6xy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. Page 1 Page 46 of 104 Section 6. Authorization of Merger, Consolidation or Sale of Assets. A vote of 66 2/3 percent of the outstanding stock entitled to vote thereon shall be required to authorize any agreement for merger, consolidation or sale of all or substantially all of the assets of the Corporation. Such vote shall be taken at a meeting called and held upon notice in accordance with the General Corporation Law and these By-Laws. Section 7. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of share registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. This list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. Section 8. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 7 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 9. Notification of Nominations. Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Any stockholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, 90 days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated (b) a representation that such stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (c) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder, (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated by the Board of Directors, and (e) the consent of each nominee to serve as a director of the Corporation if elected. The chairman of a stockholder meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Section 10. Notification of Proposals for Corporate Action. Any stockholder entitled to vote at a meeting may make a proposal for corporate action at such meeting only if written notice of such stockholder's intent to make such a proposal is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an annual meeting of stockholders, 90 days in advance of such meeting, and (ii) with respect to a special meeting of stockholders, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the proposal, (b) a representation that such stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the proposal, (c) a description of the proposal, (d) such other information regarding the proposal as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange commission. The chairman of a stockholder meeting may refuse to acknowledge the proposal of any person not made in compliance with the foregoing procedure. Page 2 Page 47 of 104 Section 11. Conduct of Meeting. The Board of Directors of the Corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies, and such other persons as the Chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comment by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot, unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE III DIRECTORS Section 1. Number and Election of Directors. The Board of Directors shall consist of not less than one nor more than fifteen members, the exact number of which shall initially be fixed by the Incorporator and thereafter from time to time by the Board of Directors. Except as provided in Section 2 of this Article III, directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office until the next Annual Meeting and until his successor is duly elected and qualified, or until his earlier resignation or removal. Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders. Section 2. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier resignation or removal. Section 3. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the President, or any director. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Section 5. Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Page 3 Page 48 of 104 Section 6. Actions of Board. Unless otherwise provided by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each such meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10 Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of the majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specially approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorized the contract or transaction. Section 11. Removal of Directors. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Page 4 Page 49 of 104 ARTICLE IV OFFICERS Section 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion1 may also choose a Chairman of the Board of Directors (who must be a director), a Chief Executive Officer, a Chief Financial Officer, a Chief Operating Officer, a Controller, and one or more Vice-Presidents, Assistant Vice-Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. Section 2. Election, Removal, Vacancies and Salary. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors, and, in its discretion, the Board of Directors may leave unfilled for any period it may fix any office and may delegate the powers or duties of any officer to another officer or director for an interim period of time. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the Board, the Chief Executive Officer, the President or any Vice-President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. Section 4. Chairman of the Board of Directors. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to the Chairman by these By- Laws or by the Board of Directors. Section 5. Chief Executive Officer. The Chief Executive Officer, if there be one, shall be the chief executive officer of the Corporation and shall exercise such duties as customarily pertain to the office of Chief Executive Officer. Unless the Board of Directors otherwise provide, in the absence or disability of the Chairman of the Board of Directors, or if there be none, the Chief Executive Officer shall preside at all meetings of the stockholders and the Board of Directors. The Chief Executive Officer may appoint officers, agents, or employees other than those elected or appointed by the Board of Directors. The Chief Executive Officer may sign, execute and deliver in the name of the Corporation powers of attorney, contracts, bonds, mortgages and other obligations and instruments of the Corporation and shall perform such other duties and exercise such other powers as may be prescribed from time to time by the Board of Directors or the By-Laws. Section 6. President. The President shall be the chief administrative officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President may sign, execute and deliver in the name of the Corporation powers of attorney, all bonds, mortgages, contracts and other obligations and instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By- Laws, the Board of Directors, the Chief Executive Officer or the President. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to the President by these By-Laws or by the Board of Directors. If there be no President, the Board of Directors shall designate the officer of the Corporation, if any, who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all powers of and be subject to all the restrictions upon the President. Page 5 Page 50 of 104 Section 7. Vice-Presidents. Each Vice-President shall perform such duties and have such powers as the Board of Directors, Chief Executive Officer or President from time to time may prescribe. Each Vice-President may sign, execute and deliver contracts and other obligations pertaining to the regular course of his or her duties. Section 8. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or President. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 9. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President, the Chief Executive Officer and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 10.Chief Financial Officer. The Chief Financial Officer, if there be one, shall be the principal financial officer of the Corporation and shall exercise such duties as customarily pertain to the office of Chief Financial Officer. The Chief Financial Officer may sign, execute and deliver in the name of the Corporation powers of attorney, contracts, bonds, mortgages and other instruments and obligations of the Corporation and shall perform such other duties and exercise such other powers as may be prescribed from time to time by the Board of Directors, the Chief Executive Officer, or the President. Page 6 Page 51 of 104 Section 11. Chief Operating Officer. The Chief Operating Officer, if there be one, shall be the chief operating officer of the Corporation and shall, subject to the control of the Board of Directors, the Chief Executive Officer, or the President, have general supervision over the manufacturing operations of the Corporation. The Chief Operating Officer may sign, execute and deliver in the name of the Corporation powers of attorney, contracts, bonds, mortgages and other instruments and obligations of the Corporation and shall perform such other duties and exercise such other powers as may be prescribed from time to time by the Board of Directors, the Chief Executive Officer, or the President. Section 12. Controller. The Controller shall be responsible to the Board of Directors, the Chief Executive Officer and the President for all financial control and internal audit of the Corporation and its subsidiaries. If the Board of Directors has not chosen a Chief Financial Officer, the Controller shall have the powers, duties and responsibilities of a Chief Financial Officer. The Controller shall perform such other duties as may be assigned to him or her by the Board of Directors, the Chief Executive Officer or the President. Section 13. Assistant Vice-Presidents. Except as may otherwise be provided in these By-Laws, Assistant Vice-Presidents, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President or any Vice-President, and in the absence of any Vice-President or in the event of his disability or his refusal to act, shall perform the duties of such Vice- President, and when so acting, shall have all the powers of and be subject to all the restrictions upon such Vice-President. Section 14. Assistant Secretaries. Except as may be otherwise provided in these By- Laws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President, any Vice-President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 15. Assistant Treasurers. Assistant Treasurers, if there by any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President, any Vice-President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 16. Other Officers. Such other officers as the Board of Directors, the Chairman of the Board of Directors, if there be one, the Chief Executive Officer or the President may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chairman of the Board of Directors, if there be one, the Chief Executive Officer or the President. Section 17. Bank Accounts. In addition to such bank accounts as may be authorized in the usual manner by resolution of the Board of Directors, the Treasurer or the Controller of the Corporation with the approval of the Chief Executive Officer or the President or the Chief Financial Officer may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he or she may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation which may be signed jointly or singly by either the manual or facsimile signature or signatures of such officer or bonded employees of the Corporation as shall be specified in the written instructions of the Treasurer or the Controller of the Corporation with the approval of the Chief Executive Officer, President, or the Chief Financial Officer of the Corporation. Page 7 Page 52 of 104 ARTICLE V STOCK Section 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice-President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. Section 4. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however1 that the Board of Directors may fix a new record date for the adjourned meeting. Section 5. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI NOTICES Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable. Section 2. Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Page 8 Page 53 of 104 ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers to such other person or persons as the Board of Directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal. Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced otherwise. ARTICLE VIII INDEMNIFICATION Section 1. Power to Indemnify in Actions. Suits or Proceedings other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in the manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a please of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Power to Indemnify in Actions Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Page 9 Page 54 of 104 Section 3. Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director, officer or employee of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer or employee. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director, officer or employee may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. Section 6. Expenses Payable in Advance. Expenses incurred in defending or investigating a threatened or pending action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Section 7. Non-exclusivity and Survival of Indemnification. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Page 10 Page 55 of 104 Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article VIII. Section 9. Meaning of "Corporation" for Purposes of Article VIII. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees so that any person who is or was a director, officer or employee of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 10. Meaning of "other enterprises" and certain other terms for Purposes of Article VIII. For purposes of this Article VIII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. ARTICLE IX AMENDMENTS Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Director; provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such meeting of stockholders or Board of Directors, as the case may be. All such amendments must be approved by either the holders of a majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office. Section 2. Entire Board of Directors. As used in this Article IX and in these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. Page 11 Page 56 of 104 EX-10.6 4 iec2001stockoptionplan.txt 2001 STOCK OPTION AND INCENTIVE PLAN EXHIBIT 10.6 IEC ELECTRONICS CORP. 2001 STOCK OPTION AND INCENTIVE PLAN Article I. Establishment and Purpose 1.1 Establishment of the Plan. IEC Electronics Corp., a Delaware corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan, to be known as the IEC Electronics Corp. 2001 Stock Option and Incentive Plan (hereinafter referred to as the "Plan"), as set forth in this document. 1.2 Purpose of the Plan. The Plan is intended to enhance the Company's ability to attract and retain highly qualified officers, key employees, outside directors, and other persons to advance the interests of the Company by providing such persons with stronger incentives to continue to serve the Company and its subsidiaries (as defined herein) and to expend maximum effort to improve the business results and earnings of the Company. The Plan is intended to accomplish this objective by providing to eligible persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. 1.3 Effective Date. This Plan shall become effective upon its adoption by the Board of Directors; provided, however, that the validity of the Plan and any Award provided hereunder is subject to approval of the Plan at the next stockholders' meeting following its adoption by the Board of Directors. If the stockholders fail to timely approve the Plan, the Plan and any Award that may be issued hereunder shall be null and void. Article II. Definitions Whenever used in the Plan and related documents (including Award Agreements), the following terms shall have the meanings set forth below and, when such meaning is intended, the initial letter of the word is capitalized: 2.1 Award means, individually or collectively, a grant under the Plan of any Option, Stock Appreciation Right, Unrestricted Stock, Restricted Stock, Performance Stock, Director Stock or any other type of stock-based award permitted under the Plan. 2.2 Award Agreement means an agreement setting forth the terms and provisions applicable to an Award granted to a Participant under the Plan. 2.3 Base Value of an SAR means the Fair Market Value of a share of Stock on the date the SAR is granted. 2.4 Beneficial Owner means such term as defined in Rule 13d-3 under the Exchange Act. 2.5 Board or Board of Directors means the Board of Directors of the Company. 2.6 Change in Control means: (a) the date of the acquisition by any "person" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, excluding the Company or any of its Subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 15% or more of either the then outstanding shares of Stock of the Company or the then outstanding voting securities entitled to vote generally in the election of directors; or (b) the date the individuals who constitute the Board as of the date of the adoption of the Plan by the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the members of the Board, provided that any person becoming a director subsequent to the date of the adoption of the Plan by the Board whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than any individual whose nomination for election to Board membership was not endorsed by the Company's management prior to, or at the time of, such individual's initial nomination for election) shall be, for the purposes of this Plan, considered as though such person were a member of the Incumbent Board; or (c) the date of consummation of a merger, consolidation, recapitalization, reorganization, sale or disposition of all or a substantial portion of the Company's assets or the issuance of shares of stock of the Company in connection with the acquisition of the stock or assets of another entity; provided, however, that a Change in Control shall not occur under this clause (c) if consummation of the transaction would result in at least 51% of the total voting power represented by the voting securities of the Company (or, if not the Company, the entity that succeeds to all or substantially all of the Company's business) outstanding immediately after such transaction being beneficially owned (within the meaning of Rule 13d-3 promulgated pursuant to the Exchange Act) by at least 51% of the holders of outstanding voting securities of the Company immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction; or Page 1 Page 57 of 104 (d) the date the Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report of item therein) that a change in control of the Company has or may have occurred, or will or may occur in the future, pursuant to any then existing contract or transaction. 2.7 Code means the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. 2.8 Committee means the committee, as specified in Article III appointed by the Board to administer the Plan. 2.9 Company means IEC Electronics Corp., a Delaware corporation, or any successor thereto as provided in Article XX herein. 2.10 Covered Employee means any Participant who would be considered a "covered employee" for purposes of Section 162(m) of the Code. 2.11 Designated Beneficiary means the beneficiary designated by a Participant, in a manner determined by the Committee, to receive amounts or Stock due or exercise rights of the Participant in the event of the Participant's death. In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's Estate. 2.12 Detrimental Activity means the type of activity described in Section 17.1 herein. 2.13 Director Stock means an Award of Stock to an Outside Director described in Section 7.2 herein. 2.14 Disability means a mental or physical condition which, in the opinion of the Committee, renders a Participant unable or incompetent to carry out the job responsibilities which such Participant held or the duties to which such Participant was assigned at the time the disability was incurred, and which is expected to be permanent or for an indefinite duration. 2.15 Eligible Person means any employee, officer or director (including any Outside Director) of the Company and its Subsidiaries and any consultant or independent contractor providing services to the Company or any Subsidiary whom the Committee deems to be an Eligible Person. 2.16 Employee means an individual who is paid on the payroll of the Company or of one of the Company's Subsidiaries, and is classified on the Company's human resource payroll system as a regular full-time or regular part-time employee. 2.17 Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. 2.18 Exercise Period means the period during which an Option or SAR is exercisable as set forth in the related Award Agreement. 2.19 Fair Market Value means the value of a share of Stock, determined as follows: if on the determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on the Nasdaq National Market, or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (the closing price on the principal such exchange or market if there is more than one such exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such trading date), or, if no sale of Stock is reported for such trading day, on the next preceding day on which any sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value shall be the value of the Stock as determined by the Committee in good faith. 2.20 Family Member means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, or sibling, including adoptive relationships, a trust in which these persons have more than fifty (50) percent of the beneficial interest, a foundation in which these persons (or the Employee) control the management of assets, and any other entity in which these persons (or the Employee) own more than fifty (50) percent of the voting interests. 2.21 Freestanding SAR means an SAR that is not a Tandem SAR. 2.22 Incentive Stock Options or ISO means an option to purchase Stock, granted under Article VI of the Plan, which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code or any successor provision. 2.23 Nonstatutory Stock Option or NSO means an option to purchase Stock, granted under Article VI of the Plan, which is not intended to be an incentive stock option under Section 422 of the Code. Page 2 Page 58 of 104 2.24 Option means an option to purchase one or more shares of Stock pursuant to the Plan and may be designated as an Incentive Stock Option, a Nonstatutory Stock Option, a Reload Option or an Outside Director Option. 2.25 Option Exercise Price means the price at which the shares of Stock covered by a particular Option may be purchased by a Participant, as determined by the Committee or Board and set forth in the Option Award Agreement. 2.26 Other Stock-Based Award means any Award granted under Article XI of the Plan. 2.27 Outside Director means a member of the Board who is not an officer or employee of the Company. 2.28 Outside Director Option means an NSO granted under Section 7.1 of the Plan to an Outside Director. 2.29 Participant means an Eligible Person designated to be granted an Award under the Plan. 2.30 Performance Stock means an Award described in Article X of the Plan. 2.31 Period of Restriction means that period of time determined by the Committee during which the transfer of shares of Restricted Stock is limited in some way and such shares are subject to forfeiture. 2.32 Person means any individual, corporation, partnership, association or trust. 2.33 Plan means the IEC Electronics Corp. 2001 Stock Option and Incentive Plan. 2.34 Reload Option means an additional Option described in Section 6.6 herein. 2.35 Reporting Person means a person required to file reports under Section 16(a) of the Exchange Act or any successor statute. 2.36 Restricted Stock means an Award described in Article IX herein. 2.37 Retirement means termination of employment with the Company if such termination of employment constitutes normal retirement, early retirement, disability retirement or other retirement as provided for at the time of such termination of employment under the applicable retirement program then maintained by the Company, provided that the Participant does not continue in the employment of the Company. 2.38 Securities Act means the Securities Act of 1933, as amended. 2.39 Stock means the common stock, $.01 par value, of the Company. 2.40 Stock Appreciation Right or SAR means a right, granted alone or in connection with a related Option, designated as an SAR, to receive a payment on the day the right is exercised, pursuant to the terms of Article VIII herein. Each SAR shall be denominated in terms of one share of Stock. 2.41 Subsidiary means any "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code. 2.42 Tandem SAR means an SAR that is granted in connection with a related Option, the exercise of which shall require forfeiture of the right to purchase Stock under the related Option (and when Stock is purchased under the Option, the Tandem SAR shall be similarly canceled). 2.43 Ten-Percent Stockholder means an Employee who owns stock of the Company possessing more than 10% percent of the total combined voting power of all classes of stock of the Company at the time an ISO is granted. 2.44 Termination of Employment means the date on which an individual is for any reason no longer employed by the Company or any of its Subsidiaries. 2.45 Termination of Service means the date on which an Outside Director's service as a director ceases for any reason. 2.46 Unrestricted Stock means an Award of Stock not subject to restrictions described in Article IX herein. Page 3 Page 59 of 104 Article III. Administration of the Plan 3.1 The Committee. The Plan shall be administered by the Compensation Committee or such other committee (the "Committee") as the Board shall select. The Committee shall consist of no fewer than two members of the Board, none of whom shall be an officer or other salaried employee of the Company, and each of whom shall qualify in all respects as a "non- employee director" within the meaning of Rule 16b-3 under the Exchange Act or any successor rule or regulation and as an "outside director" within the meaning of Section 162(m) of the Code. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board. 3.2 Authority of the Committee. The Committee shall have full power and authority, except as limited by law, the Articles of Incorporation or the Bylaws of the Company, subject to such other restricting limitations or directions as may be imposed by the Board and subject to the provisions herein, to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of shares of Stock to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of Options or the lapse of restrictions relating to Restricted Stock; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Stock, other securities, other Awards, other property, or canceled, forfeited or suspended; (vii) determine whether, to what extent and under what circumstances cash, stock, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or the Committee; (viii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; or other property, or canceled, forfeited or suspended; (ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. 3.3 Awards to Outside Directors. With respect to Awards to Outside Directors pursuant to Article VII, the Committee's responsibilities under the Plan shall be limited to taking all legal actions necessary to document the Awards so granted, to interpret the Award Agreements evidencing such Awards, to maintain appropriate records and reports regarding such Awards, and to take all acts authorized by this Plan or otherwise reasonably necessary to effect the purposes hereof. Awards provided for in Article VII shall be made by the Board. 3.4 Delegation. The Committee may delegate to one or more officers of the Company, but only to the extent such officer or officers are also members of the Board of Directors of the Company, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to Eligible Persons who are not officers or directors of the Company for purposes of Section 16 of the Exchange Act. The Committee shall not delegate its powers and duties under the Plan in any manner that would cause the Plan not to comply with the requirements of Section 162(m) of the Code. 3.5 Delivery of Stock by Company; Restrictions on Stock. Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any Stock or benefits under the Plan unless such delivery would comply with all applicable laws (including, without limitation, the Securities Act) and applicable requirements of any securities exchange or similar entity and unless the Participant's tax obligations have been satisfied as set forth in Article XV. The Committee may impose such restrictions on any Stock acquired pursuant to Awards under the Plan as it may deem advisable, including, without limitation, restrictions to comply with applicable federal securities laws, with the requirements of any stock exchange or market upon which such Stock is then listed and/or traded and with any blue sky or state securities laws applicable to such Stock. 3.6 Decisions Binding. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award, any employee of the Company or any Subsidiary, and all other persons having any interest therein. 3.7 No Liability; Indemnification. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award or Award Agreement, except for liability arising from his or her own willful misfeasance, gross negligence or reckless disregard of his or her duties. The Company hereby agrees to indemnify each member of the Committee and the Board for all costs and expenses and, to the fullest extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiating for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any actions in administering this Plan or in authorizing or denying authorization to any transaction hereunder. 3.8 Costs. The Company shall pay all costs of administration of the Plan. Page 4 Page 60 of 104 Article IV. Stock Subject to the Plan 4.1 Number of Shares. Subject to Section 4.2 herein, the total number of shares of Stock available for Awards under the Plan shall be 1,500,000. Shares of Stock underlying lapsed or forfeited Awards, or Awards that are not paid in Stock, may be reused for other Awards. If the purchase price relating to an Award is satisfied by tendering Stock, only the number of shares issued net of the shares tendered shall be deemed issued under the Plan. Stock granted pursuant to the Plan may be (i) authorized but unissued shares of common stock or (ii) treasury stock. 4.2 Adjustments in Authorized Stock and Awards. In the event that any dividend or other distribution (whether in the form of cash, Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Stock or other securities of the Company or other similar corporate transaction or event affecting the Stock would be reasonably likely to result in the diminution or enlargement of any of the benefits or potential benefits intended to be made available under the Plan or under an Award (including, without limitation, the benefits or potential benefits of provisions relating to the term, vesting or exercisability of any Option, the availability of any "reload" Option rights, if any, contained in any Option Award, and any Change in Control or similar provisions of any Award), the Committee, in its sole discretion, shall, in such manner as it shall deem equitable or appropriate in order to prevent such diminution or enlargement of any such benefits or potential benefits, adjust any or all of (i) the number and type of shares of Stock (or other securities or other property) which thereafter may be made the subject of Awards, (ii) the number and type of shares of Stock (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of shares of Stock covered by any Award or to which such Award relates shall always be a whole number. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Stock Option shall comply with the rules of Section 424(a) of the Code and (ii) in no event shall any adjustment be made which would render any Incentive Stock Option granted hereunder to be other than an incentive stock option for purposes of Section 422 of the Code. 4.3 Award Limitations. Subject to Section 4.2 above, (i) the total number of shares of Stock with respect to which Options or SARs may be granted in any calendar year to any Covered Employee shall not exceed 400,000 shares; (ii) the total number of shares of Restricted Stock that may be granted in any calendar year to any Covered Employee shall not exceed 400,000 shares; (iii) the total number of shares of Performance Stock that may be granted in any calendar year to any Covered Employee shall not exceed 400,000 shares; and (iv) the total number of shares of Stock that are intended to qualify for deduction under Section 162(m) of the Code granted pursuant to Article XI herein in any calendar year to any Covered Employee shall not exceed 400,000 shares. 4.4 Incentive Stock Options. Notwithstanding the foregoing, the number of shares of Stock available for granting Incentive Stock Options under the Plan shall not exceed 1,000,000, subject to adjustment as provided in Section 4.2 of the Plan and Section 422 or 424 of the Code or any successor provision. Article V. Eligibility and Participation 5.1 Eligibility. Any Eligible Person, including any Eligible Person who is an officer or director of the Company or any Subsidiary, shall be eligible to be designated a Participant; provided, however, that an Incentive Stock Option may be granted only to full-time or part-time employees (which term as used herein included, without limitation, officers and directors who are also employees). 5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all Eligible Persons those to whom Awards shall be granted. Page 5 Page 61 of 104 Article VI. Stock Options 6.1 Grant of Options. Subject to the terms and conditions of the Plan, Options may be granted to an Eligible Person, except an Outside Director, at any time and from time to time, as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of shares of Stock subject to Options granted to each Eligible Person (subject to Article IV herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such Options. The Committee may grant ISOs, NSOs or a combination thereof. Notwithstanding the foregoing, no Eligible Person shall be granted an ISO which would result in such person receiving a grant of ISOs for Stock that would have an aggregate fair market value in excess of $100,000, or such other amount specified in Section 422(d) of the Code, determined as of the time that the ISO is granted, that would be exercisable for the first time by such person during any calendar year. 6.2 Option Award Agreement. Each Option grant shall be evidenced by an Option Award Agreement that shall specify the Option Exercise Price, the term of the Option, the number of shares of Stock to which the Option pertains, the Exercise Period and such other provisions as the Committee shall determine, including, but not limited to, special provisions relating to a change in control and any Reload Options. The Option Award Agreement shall also specify whether the Option is intended to be an ISO or NSO. 6.3 Option Exercise Price. The Option Exercise Price shall not be less than 100% of the Fair Market Value of the Stock on the date of grant (110% in the case of an ISO granted to a Ten-Percent Stockholder). 6.4 Option Term. The term of each Option shall be fixed by the Committee at the time of grant, but, in no event, shall any Option have a term of more than ten years (five years in the case of an ISO granted to a Ten-Percent Stockholder). The Committee may, subsequent to the grant of any Option, extend the term thereof, but, in no event, shall the term as so extended exceed the maximum term provided for in the preceding sentence. 6.5 Exercise of and Payment for Options. Options granted under the Plan shall be exercisable in such amounts and at such time and shall be subject to such restrictions and conditions as the Committee shall in each instance approve. The Committee may accelerate the exercisability of any Option or any portion thereof at any time. A Participant may exercise an Option at any time during the Exercise Period. Options shall be exercised by the delivery of a written notice to the Company, setting forth the number of shares of Stock with respect to which the Option is to be exercised, accompanied by provision for full payment of the Stock. The Option Exercise Price shall be payable: (i) in cash or its equivalent, (ii) by tendering (by actual delivery of shares or by attestation) previously acquired Stock (owned for at least six months) having an aggregate Fair Market Value at the time of exercise equal to the total Option Exercise Price, (iii) by broker-assisted cashless exercise or (iv) by a combination of (i), (ii) and/or (iii). Stock received upon exercise of an Option may be granted subject to any restrictions deemed appropriate by the Committee. 6.6 Reload Options. The Committee may provide in an Award Agreement that a Participant who exercises all or any portion of an Option with Stock which has a Fair Market Value equal to not less than 100% of the Option Exercise Price for such Option shall be granted, subject to Article IV, an additional option ("Reload Option") for a number of shares of Stock equal to the sum ("Reload Number") of the number of shares of Stock tendered in payment of the Option Exercise Price for the Options plus, if so provided by the Committee, the number of shares of Stock, if any, retained by the Company in connection with the exercise of the Options to satisfy any federal, state or local tax withholding requirements. Reload Options shall be subject to the following terms and conditions: (i) the grant date for each Reload Option shall be the date of exercise of the Option to which it relates; (ii) subject to (iii) below, the Reload Option, upon vesting, may be exercised at any time during the unexpired term of the Option to which it relates (subject to earlier termination thereof as provided in the Plan and in the applicable Award Agreement); and (iii) the terms of the Reload Option shall be the same as the terms of the Option to which it relates, except that (a) the Option Exercise Price shall be the Fair Market Value of the Stock on the grant date of the Reload Option and (b) the Reload Option shall be subject to new vesting provisions, commencing one (1) year after the grant date of the Reload Option and vesting upon the same schedule as the Option to which it relates. Reload Options may not be granted to Participants who exercise Options after a Termination of Employment. Page 6 Page 62 of 104 6.7 Termination. Each Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's employment with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee (subject to applicable law), shall be included in the Option Award Agreement entered into with Participants, need not be uniform among all Options granted pursuant to the Plan or among Participants and may reflect distinctions based on the reasons for termination. To the extent the Option Agreement does not set forth termination provisions, the provisions of Article XVI shall control 6.8 Transferability of Options. Except as otherwise determined by the Committee, all Options granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant, and no Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. ISOs are not transferable other than by will or by the laws of descent and distribution. The Committee shall have the authority, in its discretion, to grant (or to sanction by way of amendment to an existing Award) Nonstatutory Stock Options which may be transferred by the Participant during his lifetime to any Family Member. A transfer of an Option pursuant hereto may only be effected by the Company at the written request of a Participant and shall become effective only when recorded in the Company's record of outstanding Options. In the event an Option is transferred as contemplated herein, any Reload Options associated with such transferred Option shall terminate, and such transferred Option may not be subsequently transferred by the transferee except by will or the laws of descent and distribution. Otherwise, a transferred Option shall continue to be governed by and subject to the terms and limitations of the Plan and the relevant Award Agreement, and the transferee shall be entitled to the same rights as the Participant, as if no transfer had taken place. Article VII. Awards to Outside Directors 7.1 Outside Director Options. 7.1.1 Grant of Options. Subject to the terms and conditions of the Plan, Nonstatutory Stock Options may be granted to an Outside Director at any time and from time to time, as shall be determined by the Board. The Board shall have complete discretion in determining the number of shares of Stock subject to Outside Director Options granted to each Outside Director (subject to Article IV herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such Outside Director Options. 7.1.2 Option Award Agreement. Each Outside Director Option grant shall be evidenced by an Option Award Agreement that shall specify the Option Exercise Price, the term of the Option (which shall not be greater than ten (10 years), the number of shares of Stock to which the Option pertains, the Exercise Period and such other provisions as the Board shall determine, including, but not limited to, special provisions relating to a change of control. 7.1.3 Option Exercise Price. The Option Exercise Price shall not be shall not be less than 100% of the Fair Market Value of the Stock on the date of grant. 7.1.4 Option Term. The term of each Option shall be fixed by the Board at the time of grant, but, in no event, shall an Option have a term of more than ten years. The Board may, subsequent to the grant of any Option, extend the term thereof, but, in no event, shall the term as so extended exceed the maximum term provided for in the proceeding section. 7.1.5 Exercise of and Payment for Options. Outside Director Options granted under the Plan shall be exercisable at such times and shall be subject to such restrictions and conditions, as the Board shall in each instance approve. Page 7 Page 63 of 104 An Outside Director may exercise an Option at any time during the Exercise Period. Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of shares of Stock with respect to which the Option is to be exercised, accompanied by provision for full payment of the Stock. The Option Exercise Price shall be payable: (i) in cash or its equivalent, (ii) by tendering (by actual delivery of shares or by attestation) previously acquired Stock (owned for at least six months) having an aggregate Fair Market Value at the time of exercise equal to the total Option Exercise Price, (iii) by broker-assisted cashless exercise or (iv) by a combination of (i), (ii) and/or (iii). Stock received upon exercise of an Outside Director Option may be granted pursuant to any restrictions deemed appropriate by the Board. 7.1.6 Termination. Each Option Award Agreement shall set forth the extent to which the Outside Director shall have the right to exercise the Option following termination of the Outside Director's service with the Company. Such provisions shall be determined in the sole discretion of the Board (subject to applicable law), shall be included in the Option Award Agreement entered into with the Outside Director, need not be uniform among all Options granted to Outside Directors pursuant to the Plan and may reflect distinctions based on the reasons for termination. To the extent the Option Award Agreement does not set forth termination provisions, the provisions of Article XVI shall control. 7.1.7 Transferability of Options. Except as otherwise determined by the Board, all Options granted to an Outside Director under the Plan shall be exercisable during his or her lifetime only by such Outside Director, and no Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. The Board shall have the authority, in its discretion, to grant (or to sanction by way of amendment to an existing Award) Outside Director Options, which may be transferred by the Outside Director during his or her lifetime to any Family Member. A transfer of an Option pursuant hereto may only by effected by the Company at the written request of an Outside Director and shall become effective only when recorded in the Company's record of outstanding Options. A transferred Option shall continue to be governed by and subject to the terms and limitations of the Plan and the relevant Award Agreement, and the transferee shall be entitled to the same rights as the Outside Director, as if no transfer had taken place. 7.2 Director Stock. 7.2.1 Director Compensation. The Company intends to pay each Outside Director (a) an annual retainer, payable in quarterly installments or in any other manner (determined without regard to the Plan) (the "Retainer"), (b) fees for attendance at meetings of the Board of Directors and/or committees thereof (determined without regard to the Plan) ("Meeting Fees"), and (c) such other compensation for services as a director ("Other Compensation") as may be determined from time to time by the Board. The Retainer, the Meetings Fees, and the Other Compensation (collectively, "Director Compensation") shall be in such amounts as may be set from time to time by the Board. 7.2.2 Director Compensation Payable in Cash or Stock. Except as the Board may otherwise determine, each Outside Director shall be entitled to receive any component of his or her Director Compensation exclusively in cash, exclusively in stock ("Director Stock") or any portion in cash and any portion in Director Stock. The Board may from time to time require that all or a portion of the Director Compensation be paid in Director Stock. To the extent not otherwise prescribed by the Board, each Director shall be given the opportunity, during the month the Director first becomes a Director and during the last month of each quarter thereafter, to elect among the three choices for the remainder of the quarter (in the case of the election made when the Director first becomes a Director) and for the following quarter (in the case of any subsequent election). If the Director chooses to receive at least some of his or her Director Compensation in Director Stock, the election shall also indicate the percentage of each component of the Director Compensation to be paid in Director Stock. If a Director makes no election during his or her first opportunity to make an election, the Director shall be assumed to have elected to receive his or her entire Director Compensation in cash. If a Director makes no election during any succeeding election month, the Director shall be assumed to have remade the election then currently in effect for that Director. An election by a Director to receive a portion of his or her Director Compensation in Director Stock shall either (i) be approved by (a) the Committee or (b) the Board or (ii) provide that Director Stock received by the Director pursuant to such election shall be held by the Director for a period of at least six months. Page 8 Page 64 of 104 7.2.3 Payment in Director Stock. Except as may otherwise be determined by the Board, issuances of Director Stock in payment of Director Compensation for a particular quarter shall be made as of the first trading day after the end of such calendar quarter. The number of shares of Stock to be issued to a Director as of the relevant trading date shall equal: [% multiplied by C] divided by P WHERE: % = the percentage of the Director's Compensation that the Director is required and/or has elected to receive in the form of Director Stock, expressed as a decimal; C = the cash amount that otherwise would have been paid as Director Compensation to the Director for the calendar quarter; and P = the Fair Market Value of one share of Stock on the trading date For Director Compensation not paid in quarterly installments, the Board shall determine the relevant date of issuance for the shares of Stock to be issued to a Director. Director Stock shall not include any fractional shares. Fractions shall be rounded to the nearest whole share. Article VIII. Stock Appreciation Rights 8.1 Grant of SARs. Subject to the terms and conditions of the Plan, an SAR may be granted to an Eligible Person at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs or any combination of these forms of SARs. A stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one share of Stock on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one share of Stock on the date of grant of the Stock Appreciation Right. The Committee shall have complete discretion in determining the number of SARs granted to each Eligible Person (subject to Article IV herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs. 8.2 SAR Award Agreement. Each SAR grant shall be evidenced by an SAR Award Agreement that shall specify the number of SARs granted, the Base Value, the term of the SAR, the Exercise Period, the methods of exercise, and such other conditions or restrictions as the Committee shall determine, including, but not limited to, special provisions relating to a change in control. 8.3 Exercise and Payment of SARs. Tandem SARs may be exercised for all or part of the Stock subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the shares of Stock for which its related Option is then exercisable. Notwithstanding any other provision of the Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Exercise Price of the underlying ISO and the Fair Market Value of the shares of Stock subject to the underlying ISO at the time the Tandem SAR is exercised; (iii) the Tandem SAR may be exercised only when the Fair Market Value of the shares of Stock subject to the ISO exceeds the Option Exercise Price of the ISO; and (iv) the Tandem SAR may be transferred only when the underlying ISO is transferable, and under the same circumstances. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them. A Participant may exercise an SAR at any time during the Exercise Period. SARs shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of SARs being exercised. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount equal to the product of: (a) the excess of (i) the Fair Market Value of a share of Stock on the date of exercise of (ii) the Base Value multiplied by: (b) the number of shares of Stock with respect to which the SAR is exercised. At the sole discretion of the Committee, the payment to the Participant upon SAR exercise may be in cash, the shares of Stock of equivalent value or in some combination thereof. Page 9 Page 65 of 104 8.4 Termination. Each SAR Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant's employment with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the SAR Award Agreement entered into with Participants and may reflect distinctions based on the reasons for termination. To the extent the SAR Award Agreement does not set forth termination provisions, the provisions of Article XVI shall control. 8.5 Transferability of SARs. Except as otherwise determined by the Committee, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or his or her legal representative, and no SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Article IX. Unrestricted Stock and Restricted Stock 9.1 Grant of Unrestricted Stock. Subject to the terms and conditions of the Plan, Unrestricted Stock and/or Restricted Stock may be granted to an Eligible Person at any time and from time to time, as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of shares of Unrestricted Stock and/or Restricted Stock granted to each Eligible Person (subject to Article IV herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such Awards. Restricted Stock shall be subject to such restrictions as may be determined by the Committee and set forth in the Award Agreement. 9.2 Period of Restriction. Restricted Stock shall be subject to a Period of Restriction (after which restrictions will lapse), which shall mean a period commencing on the date the Restricted Stock is granted and ending on such date as the Committee shall determine. The Committee may provide for the lapse of restrictions in installments where deemed appropriate. 9.3 Unrestricted Stock and Restricted Stock Award Agreement. Each grant of Unrestricted Stock and/or Restricted Stock shall be evidenced by an Award Agreement that shall specify the number of shares of Unrestricted Stock and/or Restricted Stock granted, the Period or Periods of Restriction (if applicable), and such other provisions as the Committee shall determine, including, but not limited to, special provisions relating to a change in control. 9.4 Transferability. Restricted Stock granted hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Award Agreement. During the applicable Period of Restriction, all rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant or his or her legal representative. 9.5 Certificates. No certificates representing Stock shall be delivered to a Participant until such time as all restrictions applicable to such shares have been satisfied. 9.6 Removal of Restrictions. Restricted Stock shall become freely transferable by the Participant after the last day of the Period of Restriction applicable thereto. However, the Committee, in its sole discretion, shall have the right to immediately vest the Stock and waive all or part of the restrictions and conditions with regard to all or part of the Stock held by any Participant at any time. Once Restricted Stock is released from the restrictions, the Participant shall be entitled to receive a certificate. 9.7 Voting Rights. During the Period of Restriction, Participants may exercise full voting rights with respect to the Restricted Stock. 9.8 Dividends and Other Distributions. Subject to the Committee's right to determine otherwise at the time of grant, during the Period of Restriction, Participants shall receive all regular cash dividends paid with respect to the Restricted Stock while they are so held. All other distributions paid with respect to such Restricted Stock shall be credited to Participants subject to the same restrictions on transferability and forfeitability as the Restricted Stock with respect to which they were paid and shall be paid to the Participant promptly after the full vesting of the Restricted Stock with respect to which such distributions were made. Page 10 Page 66 of 104 9.9 Termination. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive Restricted Stock payment following termination of the Participant's employment or service with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with the Participants, need not be uniform among all grants of Restricted Stock or among Participants and may reflect distinctions based on the reasons for termination. To the extent the Restricted Stock Award Agreement does not set forth termination provisions, the provisions of Article XVI shall control. Article X. Performance Stock 10.1 Grant of Performance Stock. Subject to the terms and conditions of the Plan, Performance Stock may be granted to an Eligible Person at any time and from time to time, as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of shares of Performance Stock granted to each Eligible Person (subject to Article IV herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such Awards. 10.2 Performance Stock Award Agreement. Each grant of shares of Performance Stock shall be evidenced by a Performance Stock Award Agreement that shall specify the number of shares of Performance Stock granted, the Performance Period, the Performance Goals and such other provisions as the Committee shall determine, including, but not limited to, special provisions relating to a change in control. 10.3 Value of Performance Stock. The value of a share of Performance Stock shall be equal to the Fair Market Value of the Stock. The Committee shall set Performance Goals in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Stock that will be paid to the Participants. 10.4 Performance Period. The Performance Period for Performance Stock is the period over which the Performance Goals are measured. The Performance Period is set by the Committee for each Award; however, in no event shall an Award have a Performance Period of less than one year. 10.5 Performance Goals. For each Award of Performance Stock, the Committee shall establish performance objectives ("Performance Goals") for the Company, its Subsidiaries, and/or divisions of any of foregoing, based on the Performance Criteria and other factors set forth in (a) and (b) below. Performance Goals shall include payout tables, formulas or other standards to be used in determining the extent to which the Performance Goals are met, and, if met, the number of shares of Performance Stock and/or cash (or the rate of such conversion) and distributed to Participants in accordance with Section 10.7. All Performance Stock which may not be converted under the Performance Goals or which are reduced by the Committee or which may not be converted for any other reason after the end of the Performance Period shall be cancelled at the time they would otherwise be distributable. When the Committee desires an Award to qualify under Section 162(m) of the Code, as amended, the Committee shall establish the Performance Goals for the respective Performance Stock prior or within 90 days of the beginning of the service relating to such Performance Goal, and not later than after 25% of such period of service has elapsed. For all other Awards, the Performance Goals must be established before the end of the respective Performance Period. (a) The Performance Criteria which the Committee is authorized to use, in its sole discretion, are any of the following criteria or any combination thereof: (1) Financial performance of the Company (on a consolidated basis), of one or more of its Subsidiaries, and/or a division of any of the foregoing. Such financial performance may be based on net income, EBITDA (earnings before income taxes, depreciation and amortization), revenues, sales, expenses, costs, market share, return on net assets, return on assets, return on capital, profit margin, operating revenues, operating expenses, and/or operating income. (2) Service performance of the Company (on a consolidated basis), of one or more of its Subsidiaries, and/or of a division of any of the foregoing. Such service performance may be based upon measured customer perceptions of service quality. (3) The Company's Stock price, return on stockholders' equity, total stockholder return (Stock price appreciation plus dividends, assuming the reinvestment of dividends), and/or earnings per share. Page 11 Page 67 of 104 (b) Except to the extent otherwise provided by the Committee in full or in part, if any of the following events occur during a Performance Period and would directly affect the determination of whether or the extent to which Performance Goals are met, the effects of such events shall be disregarded in any such computation: changes in accounting principles; extraordinary items; changes in tax laws affecting net income; and natural disasters, including floods, hurricanes, and earthquakes. No such adjustment shall be made to the extent such adjustment would cause the Performance Stock to fail to satisfy the performance based exemption of Section 162(m) of the Code. 10.6 Earning of Performance Stock. After the applicable Performance Period has ended, the Participant shall be entitled to receive a payout with respect to the Performance Stock earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals have been achieved. 10.7 Form and Timing of Payment of Performance Stock. Payment of earned Performance Stock shall be made following the close of the applicable Performance Period. The Committee, in its sole discretion, may pay earned Performance Stock in cash or in Stock (or in a combination thereof), which has an aggregate Fair Market Value equal to the value of the earned Performance Stock at the close of the applicable Performance Period. Such Stock may be granted subject to any restrictions deemed appropriate by the Committee. 10.8 Termination. Each Performance Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive a Performance Stock payment following termination of the Participant's employment or service with the Company and its Subsidiaries during a Performance Period. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with Participants, need not be uniform among all grants of Performance Stock or among Participants and may reflect distinctions based on reasons for termination. To the extent the Performance Stock Award Agreement does not set forth termination provisions, the provisions of Article XVI shall control. 10.9 Transferability. Except as otherwise determined by the Committee, a Participant's rights with respect to Performance Stock granted under the Plan shall be available during the Participant's lifetime only to such Participant or the Participant's legal representative and Performance Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Article XI. Other Stock-Based Awards The Committee shall have the right to grant to Eligible Persons such other Stock-Based Awards which may include, without limitation, the payment of Stock in lieu of cash and the payment of Stock in lieu of cash under other Company incentive or bonus programs as are deemed by the Committee to be consistent with the purpose of the Plan; provided, however, that such grants must comply with applicable law. Subject to the terms of the Plan, the Committee shall determine the terms and conditions of such Awards. Article XII. Stock Purchase Program 12.1 Establishment of Program. Subject to the terms of the Plan and compliance with applicable law, the Board or Committee may, from time to time, establish one or more programs under which Eligible Persons will be permitted to purchase shares of Stock under the Plan, and shall designate the Eligible Persons to participate under Stock purchase programs. The purchase price for shares of Stock available under such programs, and other terms and conditions of such programs shall be established by the Board or Committee. The purchase price may not be less than 100% of the Fair Market Value of the Stock at the time of purchase (or in the Board's or Committee's discretion, the average Stock value over a period determined by the Board or Committee), and further provided that the purchase price may not be less than par value. 12.2 Restrictions. The Board or Committee may impose such restrictions with respect to shares of Stock purchased under this Article XII as the Board or Committee determines to be appropriate. Such restrictions may include, without limitation, restrictions of the type that may be imposed with respect to Restricted Stock under Article IX. Article XIII. Deferrals The Committee may, in its sole discretion, permit a Participant to defer the Participant's receipt of the payment of cash or the delivery of Stock that would otherwise be due to such Participant under the Plan. If any such deferral election is permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals. Page 12 Page 68 of 104 Article XIV. Rights of Participants 14.1 No Rights to Awards. No Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to different Participants. 14.2 Award Agreements. No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company. 14.3 No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Subsidiary from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. 14.4 No Right to Employment, etc. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ, or as a consultant, or as giving an Outside Director the right to continue as a director, of the Company or any Subsidiary. In addition, the Company or Subsidiary may at any time dismiss a Participant from employment, or as a consultant, or terminate the term of an Outside Director, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. 14.5 Limitation of Implied Rights. Neither a Participant nor any other Person shall, by reason of the Plan, acquire any right in or title to any assets, funds or property of the Company or any Subsidiary whatsoever, including, without limitation, any specific funds, assets or other property which the Company or any Subsidiary, in their sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the Stock or amounts, if any, payable under the Plan, unsecured by any assets of the Company or any Subsidiary. Nothing contained in the Plan shall constitute a guarantee that the assets of such companies shall be sufficient to pay any benefits to any Person. 14.6 No Right as a Stockholder. Except as otherwise provided in the Plan, no Award under the Plan shall confer upon the holder thereof any right as a stockholder of the Company prior to the date on which the individual fulfills all conditions for receipt of such rights. 14.7 Waiver. Each Participant, by acceptance of an Award, waives all rights to specific performance or injunctive or other equitable relief and acknowledges that he or she has an adequate remedy at law in the form of damages. Article XV. Payment for Awards and Withholding 15.1 Payment for Awards. In the event a Participant elects to pay the Option Exercise Price or make payment for any other Award through tender of previously acquired Stock, (i) only a whole number of share(s) of Stock (and not fractional shares of Stock) may be tendered in payment, (ii) such Participant must present evidence acceptable to the Company that he or she has owned any such shares of Stock tendered in payment (and that such shares of Stock tendered have not been subject to any substantial risk of forfeiture) for at least six months prior to the date of exercise and (iii) Stock must be tendered to the Company, either by actual delivery of the shares or by attestation. When payment is made by tender of Stock, the difference, if any, between the aggregate amount payable and the Fair Market Value of the share(s) of Stock tendered in payment (plus any applicable taxes) shall be paid by check. No Participant may tender shares of Stock having a Fair Market Value exceeding the aggregate Option Exercise Price or other payment due. Page 13 Page 69 of 104 15.2 Loans and Guarantees. The Committee may, in its discretion, cause the Company to guarantee a loan from a third party to the Participant or to make a loan to the Participant in an amount equal to all or any portion of the Option Exercise Price and/or any related income taxes. Any such guarantee or loan by the Company pursuant to this section shall be upon the following terms and conditions: 15.2.1 Term of Loan. Each loan or guarantee will extend for a period of not more than five (5) years. 15.2.2 Promissory Note. Each loan will be evidenced by a promissory note given by the Participant and for which the Participant shall have full personal liability. Each such note shall bear interest at such rate per annum as determined by the Committee, which interest shall be not less than the rate in effect for the Company's senior indebtedness to a financial institution and shall be payable at such times as determined by the Committee but at least no less frequently than annually. Payments of principal, or installments thereof, need not be required by the terms of the notes, but may be required thereby if so determined by the Committee. Principal and interest may be prepaid in whole or in part, from time to time, without penalty. Each such note shall in all events become due and payable without demand on the fifth anniversary of the date of the note, or upon the Participant's failure to pay any installment of principal and interest when due or within 30 days thereafter, or immediately upon the insolvency or bankruptcy of the Participant, or within 30 days from the date of termination of the Participant's employment or directorship or office for whatever cause, excepting only death, Disability and Retirement. In the event of the death of a Participant, such note shall become due and payable without demand 9 months from the date of such death. In the event of the Disability or Retirement of a Participant such note shall become due and payable without demand 3 months from the date of such permanent disability or approved retirement. 15.2.3 Pledge of Stock. Each note or guaranty will be secured by a pledge of the shares of Stock purchased with the proceeds of the loan which shall be deposited with the Company. Dividends paid on shares subject to the pledge shall be first applied against interest charges due upon the bank loan, or the note secured, with any balance applied to reduce the principal thereof. Regardless of any other provision of this Plan, shares pledged to secure the guarantee or note may not be withdrawn from the pledge unless the proportionate amount of the guaranteed bank loan or the note secured thereby shall be immediately repaid. 15.2.4 Other Terms and Conditions. All such notes, guaranty and pledges may contain such further terms and conditions consistent with this Plan, including provisions for additional collateral security, as may be determined by the Committee. from time to time. 15.2.5 Approval by Stockholders. Approval and adoption of this Plan by the stockholders of the Company shall constitute full and complete authorization for any guaranty, loan, or interest reimbursement made to or on behalf of Participant hereunder. 15.2.6 Loans to Outside Directors and Consultants. Notwithstanding anything contained herein to the contrary, each note or guaranty representing a loan or guaranty to a Non- Employee Director or Consultant shall be secured by a pledge of shares equal to twice their maximum loan value as defined in Federal Reserve Regulation U (12 CFR Part 221) or by such other or additional collateral security as the Committee deems appropriate and in the best interests of the Company. 15.3 Notification under Section 83(b). If a Participant shall, in connection with the exercise of any Option, or the grant of any share of Restricted Stock, make the election permitted under Section 83(b) of the code (i.e., an election to include in such Participant's gross income in the year of transfer the amounts specified in Section 83(b) of the Code), such Participant shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under the authority of Section 83(b) of the Code. 15.4 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount (including any Stock withheld as provided below) sufficient to satisfy federal, state and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to an Award made under the Plan. 15.5 Stock Withholding. With respect to tax withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising out of or as a result of Awards granted hereunder, Participants may elect to satisfy the withholding requirement, in whole or in part, by tendering Stock held by the Participant (by actual delivery of the shares or by attestation) or by having the Company withhold Stock having a Fair Market Value equal to the minimum statutory total tax which could be imposed on the transaction. All elections shall be irrevocable, made in writing and signed by the Participant. Page 14 Page 70 of 104 Article XVI. Termination of Employment/Service 16.1 Options to Employees and Officers. If a Participant who is an Employee or officer has a Termination of Employment, then, unless otherwise provided by the Committee or in the Award Agreement, the following provisions shall apply; 16.1.1 Death. If the Participant's Termination of Employment is on account of death, then unvested options shall be forfeited, and Options, to the extent they are vested on the date of Termination of Employment, may be exercised, in whole or in part, by the Participant's Designated Beneficiary at any time on or before the earlier to occur of (x) the Expiration Date of the Option and (y) the first anniversary of the date of such Termination of Employment. 16.1.2 Retirement. If the Participant's Termination of Employment is on account of Retirement, then unvested options shall be forfeited, and Options, to the extent they are vested on the date of Termination of Employment, may be exercised, in whole or in part, by the Participant at any time on or before the earlier to occur of (x) the Expiration Date of the Option and (y) three months after the date of such Termination of Employment. 16.1.3 Disability. If the Participant's Termination of Employment is on account of Disability, unvested Options shall be forfeited, and Options, to the extent they are vested on the date of Termination of Employment, may be exercised, in whole or in part, by the Participant at any time on or before the earlier to occur of (x) the Expiration Date of the Option and (y) the first anniversary of the date of such Termination of Employment. 16.1.4 Cause. If the Participant's Termination of Employment is on account of cause, all outstanding Options, vested and unvested, shall terminate and be forfeited on the date of such Termination of Employment. 16.1.5 Other Reasons. If the Participant's termination of Employment is for any reason other than those enumerated in Sections 16.1.1 through 16.1.4, unvested Options shall be forfeited, and Options, to the extent they are vested on the date of Termination of Employment, may be exercised, in whole or in part, by the Participant at any time on or before the earlier to occur of (x) the Expiration Date of the Option and (y) three months after the date of such Termination of Employment. 16.1.6 Death after Termination of Employment. If (a) the Participant's Termination of Employment is for any reason other than death and (b) the Participant dies after such Termination of Employment but before the date the Options must be exercised as set forth in the preceding subsections, unvested Options shall be forfeited, and any Options, to the extent they are vested on the date of the Participant's death, may be exercised, in whole or in part, by the Participant's Designated Beneficiary at any time on or before the earliest to occur of (x) the Expiration Date of the Option and (y) the first anniversary of the date of death. Reload Options may not be granted after a Termination of Employment. 16.2 Options to Outside Directors. If a Participant who is an Outside Director has a Termination of Service, then, unless otherwise provided by the Committee or in the Award Agreement, the following provisions shall apply: 16.2.1 Death. If the Participant's Termination of Service is on account of death, then unvested options shall be forfeited, and Options, to the extent they are vested on the date of Termination of Service, may be exercised, in whole or in part, by the Participant's Designated Beneficiary at any time on or before the earlier to occur of (x) the Expiration Date of the Option and (y) the first anniversary of the date of such Termination of Service. 16.2.2 Disability. If the Participant's Termination of Service is on account of Disability, unvested Options shall be forfeited, and Options, to the extent they are vested on the date of Termination of Service, may be exercised, in whole or in part, by the Participant at any time on or before the earlier to occur of (x) the Expiration Date of the Option and (y) the first anniversary of the date of such Termination of Service. 16.2.3 Retirement After Five Years of Service. If the Participant's Termination of Service is on account of retirement from the Board, after having served at least five (5) years as a director, then all outstanding Options, to the extent not vested, shall vest, and all outstanding Options may be exercised, in whole or in part, by the Participant at any time on or before the Expiration Date of the Option. Page 15 Page 71 of 104 16.2.4 Cause. If the Participant's Termination of Service is on account of cause, all outstanding Options, vested and unvested, shall terminate and be forfeited on the date of such Termination of Service. 16.2.5 Other Reasons. If the Participant's Termination of Service is for any reason other than those enumerated in Sections 16.2.1 through 16.2.4, unvested Options shall be forfeited, and Options, to the extent they are vested on the date of Termination of Service, may be exercised, in whole or in part, by the Participant at any time on or before the earlier to occur of (x) the Expiration Date of the Option and (y) three months after the date of such Termination of Service. 16.2.6 Death after Termination of Service. If (a) the Participant's Termination of Service is for any reason other than death and (b) the Participant dies after such Termination of Service but before the date the Options must be exercised as set forth in the preceding subsections, unvested Options shall be forfeited, and any Options, to the extent they are vested on the date of the Participant's death, may be exercised, in whole or in part, by the Participant's Designated Beneficiary at any time on or before the earliest to occur of (x) the Expiration Date of the Option and (y) the first anniversary of the date of death. 16.3 Performance Stock. 16.3.1 Termination of Employment Due to Death or Disability. In the event of the Participant's Termination of Employment by reason of death or Disability, the Participant shall receive a lump sum payout of all outstanding Performance Stock calculated as if all unfinished Performance Periods had ended with 100% of the Performance Goals achieved, payable in the year following the date of Termination of Employment. 16.3.2 Termination of Employment for Other Reasons. In the event of the Participant's Termination of Employment for other than a reason set forth in Section 16.3.1 (and other than for Cause), the Participant may receive no more than a prorated payout of all Performance Stock, based on the number of months the Participant worked during the respective Performance Period divided by the number of months in the Performance Period. 16.3.3 Termination of Employment for Cause. In the event of a Participant's Termination of Employment for Cause, all Performance Stock shall be forfeited by the Participant to the Company. 16.4 Other Awards. If a Participant has a Termination of Employment or a Termination of Service, then, unless otherwise provided by the Committee or in the Award Agreement, all Awards, other than the Awards enumerated in Sections 16.1, 16.2 and 16.3, shall terminate and be forfeited on the date of such Termination of Employment or Termination of Service. Article XVII. Cancellation and Rescission of Awards 17.1 Cancellation and Rescission; Detrimental Activity. Unless the Award Agreement specifies otherwise, the Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or deferred Awards at any time if the Participant is not in compliance with all applicable provisions of the Award Agreement and the Plan, or if the Participant engages in any "Detrimental Activity". For purposes of this Article XVII, "Detrimental Activity" shall include: (i) the rendering of services for any organization or engaging directly or indirectly in any business which is or becomes competitive with the Company, or which organization or business, or the rendering of services to such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company; (ii) the disclosure to anyone outside the Company, or the use in other than the Company's business, without prior written authorization from the Company, of any confidential information or material relating to the business of the Company, acquired by the Participant either during or after employment with the Company; (iii) activity that results in termination of the Participant's employment or service for cause; (iv) a violation of any rules, policies, procedures or guidelines of the Company, including, but not limited to, the Company's Code of Conduct; (v) any attempt, directly or indirectly, to induce any employee of the Company to be employed or perform services elsewhere or any attempt, directly or indirectly, to solicit the trade or business of any current or prospective customer, supplier or partner of the Company or (vi) any other conduct or act determined by the Board to be injurious, detrimental or prejudicial to any interest of the Company. 17.2 Certification of Compliance. Upon exercise, payment or delivery pursuant to an Award, the Participant, if requested by the Company, shall certify in a manner acceptable to the Company that he or she is in compliance with the terms and conditions of the Plan. 17.3 Repayment of Gain; Set-off. In the event a Participant fails to comply with the provisions of (i)-(vi) of Section 17.1 prior to, or during the six months after, any exercise, payment or delivery pursuant to an Award, such exercise, payment or delivery may be rescinded within two years thereafter. In the event of any such rescission, the Participant shall pay to the Company the amount of any gain realized or payment received as a result of the rescinded exercise, payment or delivery, in such manner and on such terms and conditions as may be required, and the Company shall be entitled to set-off against the amount of any such gain any amount owed to the Participant by the Company. Page 16 Page 72 of 104 Article XVIII. Change in Control Except as otherwise determined by the Committee or Board or except as otherwise provided in the Award Agreement, upon the occurrence of a Change in Control: (a) any and all outstanding Options and SARs will immediately become vested and exercisable; (b) all restrictions applicable to outstanding Restricted Stock, Other Stock-Based Awards and Stock purchased by Participants pursuant to Article XII will immediately lapse and such Stock will immediately become fully vested; (c) the 100% Performance Goal for all Performance Stock relating to incomplete Performance Periods shall be deemed to have been fully achieved and shall be converted and distributed in accordance with the other terms of the Award Agreement and this Plan. Article XIX. Amendment, Modification and Termination The Board may, at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part, without the approval of the stockholders of the Company, except as stockholder approval may be required (i) to permit the Company to deduct, in computing its income tax liability pursuant to the provisions of the Code, compensation resulting from Awards, (ii) to retain incentive stock option treatment under Section 422 of the Code or (iii) under the listing requirements of any securities exchange on which are listed any of the Company's equity securities. No termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award, unless such termination, modification or amendment is required by applicable law and except as otherwise provided herein. Article XX. Successors All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise of all or substantially all of the business and/or assets of the Company. Article XXI. Legal Construction 21.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular and the singular shall include the plural. 21.2 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 21.3 Requirements of Law. The granting of Awards and the issuance of Stock under the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 21.4 Governing Law. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with, and governed by, the laws of the State of Delaware, except with regard to conflicts of law provisions. Article XXII. Duration of the Plan Subject to the Board's right to earlier terminate the Plan pursuant to Article XIX hereof, the Plan shall terminate ten (10) years after the date of the adoption of the Plan by the Board. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond the end of such 10-year period, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond the end of such period. Page 17 Page 73 of 104 EX-10.28 5 lovelockseveragree.txt SEVERANCE AGREEMENT EXHIBIT 10.28 T. LOVELOCK SEVERANCE AGREEMENT June 6, 2002 Thomas W. Lovelock 8 Northstone Rise Pittsford, NY 14534 Dear Tom: This Letter will summarize the agreement between you and IEC Electronics Corp. (the "Company") with respect to all issues relating to your cessation of employment with the Company: 1. You hereby resign your employment and all positions and offices with the Company and its subsidiaries, including that of director, effective immediately. 2.The Company will pay or provide to you the following amounts and benefits: (a)Your full salary and benefits though August 20, 2002, the expiration date of your Employment Agreement. (b) Additional severance payments in an aggregate amount equal to six (6) months salary at your current annual rate; said payments will commence on September 30, 2002 and will be payable in six (6) equal monthly installments on the last day of the month, with the last installment to be paid on March 31, 2003. Notwithstanding the foregoing sentence, if at any time between the date hereof and March 31, 2003 you receive compensation for services rendered in any capacity, all such compensation shall be offset against the severance payments due from the Company between September 30, 2002 and March 31, 2003. You agree to promptly notify the Company of all such compensation. If the Company fails to pay a severance payment installment within ten days after the due date, interest will accrue on the unpaid amount of the severance payment at the rate of 18% per annum. (c) You will continue to be provided with health, dental, life and accident, death and disability insurance at Company expense through March 31, 2003. At that time, you will be provided with the option to continue coverage pursuant to COBRA and applicable law. (d) Reimbursement for lease costs of your automobile through August 2002. (e) At your election, the Company will provide you with either (i) outplacement services for a period of six (6) months at a cost not to exceed $10,000 or (ii) the lease costs for the balance of the lease term on the automobile. In the event you desire the outplacement services, and the auto lessor will not accept a lease transfer, the Company will provide you with an amount equal to the greater of the costs associated with (i) and (ii) above, and you will determine the manner in which to apply the funds. 3. The Company hereby releases you from the covenant not to compete contained in Section 9 of your Employment Agreement dated as of August 11, 2000; however, you acknowledge and agree that the Confidentiality provisions in Section 8 of said Agreement continue to remain in full force and effect. 4. (a) You agree that the terms set forth in this Letter are in full satisfaction of all obligations the Company has to you, known and unknown. You do hereby irrevocably and unconditionally release the Company, its affiliates, officers, directors, employees, agents, representatives, successors and assigns from any and all claims, demands and liabilities whatsoever, including, but not limited to, any claims in contract or tort and any claims in connection with your employment with the Company, the termination of that employment, or pursuant to any federal, state or local employment laws, regulations, executive orders or other requirements. In exchange for the benefits being accorded to you under this Letter, it is your intent to provide to the Company the broadest release of claims and liabilities that may be provided by law. (b)The Company agrees that this Letter shall be in complete and final settlement of and releases you, your heirs, executors, administrators and assigns and all others connected with you, from any and all causes of action, rights or claims which the Company has had in the past or now has against you in any way related to or arising out of your employment and its termination. Page 1 Page 74 of 104 5. Without additional compensation, you agree to provide transition support and help with such projects as the Company may reasonably request between now and March 31, 2003. The Company will pay your reasonable expenses incurred in connection therewith. If legal proceedings are brought to enforce this Letter Agreement, the prevailing party shall be entitled to recover its or his reasonable attorney's fees. This Letter contains the entire agreement between the parties with respect to all issues relating to the cessation of your employment with the Company. If this Letter accurately reflects our agreement, please do indicate by executing a copy of this Letter as indicated below and returning the same to us by 1:30 p.m. on June 6, 2002, failing which this offer is withdrawn and becomes null and void. Sincerely yours, IEC Electronics Corp. By: /s/ David J. Beaubien - --------------------- David J. Beaubien, Chairman Compensation Committee ACKNOWLEDGED AND AGREED /s/ Thomas W. Lovelock - ---------------------- Thomas W. Lovelock Date: Page 2 Page 75 of 104 EX-10.29 6 lovelocksupplesever.txt SUPPLEMENTAL SEVERANCE AGREEMENT EXHIBIT 10.29 SUPPLEMENTAL SEVERANCE AGREEMENT WITH T. LOVELOCK This document will summarize the supplemental agreement between Tom Lovelock and IEC Electronics Corp. (the "Company") with respect to extending the payment schedule relating to severance obligations. Thus, in consideration of the mutual covenants and promises contained in this agreement, the Company and tom Lovelock agree as follows: The Company will pay to Tom the gross sum of $10,500.00 monthly, to begin Friday, December 6, 2002. Subsequent payments will be made the last Friday of each month (to begin Friday, December 27, 2002) in the amount of $10,500 through August 31, 2003. The final payment will be made on September 27, 2003 in the amount of $9230.60 reflecting the remaining balance owed. This payment arrangement will replace the previous payment schedule contained within the severance document signed by the Company and Tom on June 6, 2002. IEC Electronics will maintain Tom's health insurance coverage through October 1, 2003 at which time Tom will be provided with the option to continue coverage pursuant to COBRA and applicable law. Effective May 1, 2003 Tom will be required to pay the standard "employee" portion of the premium, to be determined. Should Tom obtain employment in which he is eligible to participate in a health insurance plan, he will be required to notify IEC immediately to cancel the policy. All other benefits, life, accident, death and disability insurance will expire as previously indicated, March 31, 2003. This letter contains the entire supplemental agreement between Tom and IEC Electronics. December 6, 2002 IEC Electronics Corporation - ---------------- --------------------------- Date /s/Tina DeVey -------------- Manager, Human Resources December 9, 2002 /s/Tom Lovelock - ---------------- --------------- Date Tom Lovelock Page 1 Page 76 of 104 EX-10.30 7 bankamend9.txt BANK AMENDMENT 9 EXHIBIT 10.30 AMENDMENT NO. 9 TO LOAN AND SECURITY AGREEMENT Amendment No. 9 dated as of June 20, 2002 ("Amendment") to Loan and Security Agreement originally dated as of December 28, 1999 and originally among IEC ELECTRONICS CORP. ("IEC" or "Debtor") and IEC ELECTRONICS-EDINBURG, TEXAS INC. ("IEC-Edinburg") and HSBC BANK USA, as Agent ("Agent") and HSBC BANK USA ("HSBC Bank") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital") as lenders (collectively, the "Lenders"). BACKGROUND 1. Debtor, Agent and Lenders entered into a Loan and Security Agreement dated as of December 28, 1999 and Amendment Nos. 1, 2, 3, 4, 5, 6, 7 and 8 thereto dated as of March 30, 2000, December 1, 2000, April 24, 2001, December 21, 2001, February 15, 2002, February 28, 2002, March 15, 2002 and April 8, 2002, respectively (collectively, the "Agreement"). On or about January 27, 2000, IEC-Edinburg merged into IEC leaving IEC as the sole Debtor under the Agreement. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Agreement. 2. Debtor has requested that Agent and Lenders consider extending the term of the Agreement through September 30, 2002 and has represented to Agent and the Lenders that Debtor has undertaken efforts to cause certain asset sales to occur in the immediate future, and is pursuing with third-party lenders a refinancing of all of the indebtedness of Debtor to Agent and the Lenders under the Agreement ("Indebtedness"), and that Debtor expects such efforts to result in the repayment in full of the Indebtedness on or before September 30, 2002. 3. In response to Debtor's request and subject to all of the terms and conditions set forth herein, the Agent and the Lenders are willing to make certain amendments to the Agreement as set forth below on the conditions set forth below. NOW, THEREFORE, Debtor, the Agent and the Lenders for good and valuable consideration, receipt of which is hereby acknowledged, and in contemplation of the foregoing, hereby agree as follows: A. Conditions. The amendments and waivers contained herein shall be granted upon satisfaction of the following terms and conditions: 1. Debtor shall have executed, and shall have caused IEC Electronics, S. de R.L. de C.V. ("IEC-Mexico") and IEC Electronics Foreign Sales Corporation ("IEC-FSC") to have executed, this Amendment to indicate their consent hereto, and four executed duplicate originals of this Agreement shall have been delivered to Agent. 2. Debtor's continuing agreement, evidenced by Debtor's signature on this Amendment, that Debtor will: (i) continue to cooperate with Getzler & Company, Inc. ("Getzler") so that Getzler may review Debtor's business and business plans in order to report thereon to Agent's counsel and the Lenders; (ii) permit Getzler to access Debtor's places of business and its books and records in order to complete such review and report; (iii) reimburse the Agent or its counsel, upon demand, for the cost and expenses of Getzler; and (iv) promptly advise in writing, any professionals engaged by Debtor or its Affiliates to advise Debtor or its Affiliates with respect to their business or financial prospects, including, without limitation, Lincoln Partners LLC (individually, an "Investment Banker" and collectively, the "Investment Bankers"), that Debtor (a) consents to Agent and the Lenders communicating with such Investment Bankers for the purpose of being advised by, and discussing with, such Investment Bankers, the Investment Bankers' timeline, process, recommendations and proposals for any asset or stock sales, or the refinancing of Debtor's indebtedness, or for the recapitalization of Debtor or any Affiliate, or any other plans for increasing Debtor's equity, reducing the indebtedness of Debtor and its Affiliates, or otherwise improving the financial condition or business of Debtor and its Affiliates, and (b) requests such Investment Bankers to provide such information to the Agent and the Lenders, and to also provide to Agent and the Lenders a copy of any contact or other reports prepared by such Investment Bankers for Debtor when such reports are delivered to Debtor. 3. Payment on the date hereof by Debtor to Agent, for the account of the Lenders, of the $80,000 unpaid portion of the extension fee earned under the terms of Amendment No. 8. 4. Debtor's agreement evidenced by Debtor's signature on this Amendment, to pay to Agent, for the account of the Lenders, an additional $100,000 extension fee, with such fee being earned upon execution of this Agreement by all parties, and payable in the amounts and on the due dates listed below: Amount Due Date $15,000 7/15/02; $15,000 8/15/02; $15,000 9/15/02; and $55,000 9/30/02. In the event the Indebtedness is fully and irrevocably paid in full ("Full Payment"), then any of the above amounts which are due and payable after the date of such Full Payment shall be waived. Page 1 Page 77 of 104 5. Debtor's agreement evidenced by Debtor's signature on this Amendment to the reduction from $350,000 to $175,000 of Debtor's ACH facility with HSBC Bank USA effective as of the date of this Agreement. 6. Debtor's agreement evidenced by Debtor's signature on this Amendment to diligently pursue the sale of Debtor's property in Arab, Alabama and obtain and deliver to Agent by August 1, 2002 a copy of either: (i) an executed written bona fide purchase offer from a qualified purchaser, such offer and such purchaser to be acceptable to Debtor, Agent and the Lenders, or (ii) an executed written auction agreement with a qualified auctioneer to conduct a commercially reasonable auction of such property by September 13, 2002, such auction agreement and auctioneer to be acceptable to the Debtor, Agent and the Lenders. 7. Debtor's agreement evidenced by Debtor's signature on this Amendment that Agent may hire an appraiser and an environmental consultant satisfactory to Agent to appraise and conduct an environmental review of the Edinburg, Texas assets and real property of Debtor, and that the fees and expenses of such appraiser and environmental consultant shall be for the account of Debtor and shall be paid by Debtor, or reimbursed by Debtor to Agent, upon Agent's demand. B. Amendments. Debtor, the Agent and the Lenders agree that upon Debtor's satisfaction of, or agreement to, as appropriate, the conditions set forth in Section A above, the Agreement and the Schedule are amended in the following respects: 1. Part (A) of Item 1 of the Schedule to the Agreement is hereby deleted in its entirety and replaced with the following new text: "(A) The applicable Maximum Limit of $3,500,000;" 2. Item 18(g) of the Schedule to the Agreement is hereby deleted in its entirety and replaced with the following new text: "(g) Pricing Grid - Advances and Term Loan. The applicable rates of interest to be charged during each time period listed below for each Prime Rate Loan and Libor Loan made or outstanding hereunder as an Advance or under the Term Note are listed below: PRICING GRIDS A.ADVANCES Period Prime Rate Option Libor Rate Option --------------------------------------------------------------------- 6/1/02 - 6/30/02 Prime Rate plus 2-3/4% None 7/1/02 - 7/31/02 Prime Rate plus 3% None 8/1/02 - 8/31/02 Prime Rate plus 3-1/4% None 9/1/02 - 9/30/02 Prime Rate plus 3-1/2% None B.TERM LOAN Period Prime Rate Option Libor Rate Option ----------------------------------------------------------------------- 6/1/02 - 6/30/02 Prime Rate plus 3-1/4% None 7/1/02 - 7/31/02 Prime Rate plus 3-1/2% None 8/1/02 - 8/31/02 Prime Rate plus 3-3/4% None 9/1/02 - 9/30/02 Prime Rate plus 4% None." 3. Item 32 of the Schedule to the Agreement is hereby deleted in its entirety and replaced with the following new text: "Initial Term: To expire on September 30, 2002 Renewal Term: NONE" Page 2 Page 78 of 104 4. The following new negative covenants are added to Article 10 of the Agreement: "10.17. MEXICO ASSET SALE. Debtor will cause substantially all of the assets of IEC and IEC-Mexico located in IEC-Mexico's facility in Reynosa, Mexico to be sold pursuant to that certain Asset Purchase Agreement dated as of June 18, 2002 between IEC and Electronic Product Integration Corporation ("Asset Purchase Agreement") providing for a cash sale price (the "Cash Price") as set forth in paragraph 3.2 of the Asset Purchase Agreement payable in accordance with paragraph 3.5 thereof. The balance of the sale price may be payable to Debtor over time based on various factors including a percentage of future orders received by the purchaser from certain former customers of Debtor or IEC-Mexico ("Earn-out Amount") and additional compensation may be paid to Debtor under paragraph 8.4 of the Asset Purchase Agreement in the form of commissions based on future sales volume from certain customers ("Commission Payments", and together with the Earn-out Amount, the "Earnout Proceeds"). Immediately upon receipt of that portion of the Cash Price described at section 3.5(a)(ii) of the Asset Purchase Agreement, Debtor will pay an amount not less than $125,000 to Agent to be applied as follows: $75,000 to unpaid Advances under the Revolving Credit and $50,000 to installments of principal of the Term Notes in inverse order of maturity, and in conjunction therewith a new Reserve in the amount of $75,000 will be established under the Revolving Credit with respect to certain potential litigation expenses of Debtor heretofore disclosed to Agent with such Reserve to remain in place at the discretion of Agent until such time as Agent is paid $200,000 in total hereunder or Debtor reaches a settlement in full of certain litigation heretofore disclosed to Agent or such Reserve is used to fund all or part of the balance of the $200,000 due Agent under the terms of this Section 10.17; and immediately upon receipt of that portion of the Cash Price described at section 3.5(a)(iii) of the Asset Purchase Agreement, Debtor will pay to Agent to be applied to installments of principal of the Term Notes in inverse order of maturity an amount equal to the greater of $75,000 or the amount necessary to bring the total of the payments hereunder to Agent from the Cash Price to $200,000 in the aggregate. 10.18. ASSIGNMENT OF EARNOUT PROCEEDS. Promptly upon execution of the Asset Purchase Agreement, Debtor will execute and deliver to Agent, for the benefit of the Agent and the Lenders, a first lien assignment of the Earnout Proceeds (as defined in Section 10.17 hereof), such assignment to be in form and content satisfactory to Agent. Immediately upon receipt of any Earnout Proceeds, Debtor will pay the amount thereof to Agent to be applied to installments of principal of the Term Notes in inverse order of maturity. 10.19. SALE OF DEBTOR'S BUSINESS OR STOCK. Debtor will obtain and deliver to Agent and the Lenders by July 26, 2002 an executed letter of intent from a satisfactory purchaser to purchase substantially all of the assets or business or stock of Debtor ("Sale"); Debtor will cause such Sale to be closed on or before August 30, 2002; and Debtor will immediately upon such closing pay to Agent, for the benefit of the Agent and the Lenders, a sufficient amount of the net proceeds from such Sale to repay in full all of the Indebtedness." 5. Debtor acknowledges that Debtor intends to refinance the Advances and the Term Loans under the Agreement with one or more different lenders on or before the expiration of the Initial Term as amended herein, and agrees that, upon such payment of the Advances under the Agreement, the Term Notes of the Debtor dated December 28, 1999 in favor of the Lenders become due and payable by the terms thereof since such financing would not come from internally generated funds in the ordinary course of business. D. Reaffirmations and Release. 1. The Agreement, except as specifically modified hereby, shall remain in full force and effect and Debtor hereby reaffirms the Agreement, as modified by this Amendment, and all collateral and other documents executed and delivered to Agent and the Lenders in connection with the Agreement. 2. IEC-Mexico and IEC-FSC, by their execution hereof, consent hereto and hereby reaffirm the execution and delivery of their respective Guaranties dated December 28, 1999 and each agrees that its respective guaranty shall continue in full force and effect and shall be applicable to all indebtedness, obligations and liabilities of Debtor to Agent and the Lenders, including without limitation, all indebtedness evidenced by or arising under the Agreement, as modified by this Amendment. Page 3 Page 79 of 104 3. By their execution hereof, each of Debtor, IEC-Mexico and IEC-FSC, (each individually a "Releasor", and collectively, the "Releasors"), for good and valuable consideration, and by these presents does for itself, and its representatives, successors and assigns, remise, release and forever discharge the Agent and the Lenders in any and every capacity, their predecessors, successors, assigns, directors, officers, shareholders, employees, attorneys, advisors and agents (collectively, the "Releasees") of and from all, and all manner of action and actions, cause and causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law or in equity, which against such Releasees or any one or more of them, any Releasor ever had, now has or which any Releasor or any of any Releasor's representatives, successors or assigns hereafter can, shall or may claim to have for or by reason of any cause, matter or thing whatsoever, arising from the beginning of time to and through and including the date hereof. E. Other Provisions. 1. Debtor agrees to pay on demand by Agent all expenses of Agent and Lenders including without limitation, fees and disbursements of counsel for Agent and the Lenders, in connection with the transactions contemplated by this Amendment, the negotiations for and preparation of this Amendment and any other documents related hereto, and the enforcement of the rights of Agent and the Lenders under the Agreement as amended by this Amendment. 2. Debtor affirms that Debtor has completed a management restructuring and that (a) W. Barry Gilbert has been duly appointed and is acting as Chief Executive Officer replacing Thomas W. Lovelock and has been duly appointed and is acting as an officer of IEC-Mexico and IEC Electronics Foreign Sales Corporation; (b) Bill R. Anderson has been duly appointed and is acting as Chief Operating Officer; (c) Richard L. Weiss is no longer Chief Financial Officer and is no longer employed by Debtor; and (d) Thomas W. Lovelock and Debtor have entered into a consulting agreement. 3. This Amendment shall be governed by and construed under the internal laws of the State of New York, as the same may from time to time be in effect, without regard to principles of conflicts of law. Agreed to as of the date first set forth above. IEC ELECTRONICS CORP. HSBC BANK USA, as Agent as Debtor By: /s/ W. Barry Gilbert By: /s/ Vincent J. Harper - ------------------------ ------------------------- W. Barry Gilbert Vincent J. Harper Chief Executive Officer First Vice President GENERAL ELECTRIC CAPITAL HSBC BANK USA, as a Lender CORPORATION, as a Lender By: /s/ Donald J. Cavanagh By: /s/ Vincent J. Harper - -------------------------- ------------------------- Donald J. Cavanagh Vincent J. Harper Duly Authorized Signatory First Vice President CONSENTED TO AND AGREED AS OF THIS 20TH DAY OF JUNE, 2002. IEC ELECTRONICOS, S. de R.L. de C.V. IEC ELECTRONICS FOREIGN SALES as Guarantor CORPORATION, as Guarantor By: /s/ W. Barry Gilbert By: /s/ W. Barry Gilbert - ------------------------ ------------------------ W. Barry Gilbert W. Barry Gilbert Chief Executive Officer Chief Executive Officer Page 4 Page 80 of 104 August 9, 2002 IEC Electronics Corp. 105 Norton Street Newark, NY 14513 Attn: W. Barry Gilbert, Chief Executive Officer Re: Loan and Security Agreement Gentlemen: Pursuant to your request, we are willing to modify certain of the deadlines set forth in Amendment No. 9 dated June 20, 2002 ("Amendment No. 9") to the Loan and Security Agreement dated as of December 28, 1999 with the present parties thereto being you, HSBC Bank USA as Agent, and HSBC Bank USA and General Electric Capital Corporation as the Lenders (as amended prior to the date hereof, the "LSA"), and we are also willing to temporarily modify one of the reserves established under the LSA. As Agent, we agree that Amendment No. 9 is hereby modified as follows: 1. The existing Section A.6 is hereby deleted and replaced with the following new Section A.6: "6. Debtor's agreement to diligently pursue the sale of Debtor's property in Arab, Alabama and obtain and deliver to Agent by August 16, 2002 a copy of either: (i) an executed written bona fide purchase offer from a qualified purchaser, such offer and such purchaser to be acceptable to Debtor, Agent and the Lenders, or (ii) an executed written auction agreement with a qualified auctioneer to conduct a commercially reasonable auction of such property by September 13, 2002, such auction agreement and auctioneer to be acceptable to the Debtor, Agent and the Lenders." 2. Section 10.19 is hereby deleted and replaced with the following new Section 10.19: "10.19 SALE OF DEBTOR'S BUSINESS OR STOCK. Debtor will obtain and deliver to Agent and the Lenders by September 20, 2002 an executed definitive sale agreement from a satisfactory purchaser to purchase substantially all of the assets or business or stock of Debtor ("Sale"), and providing for such Sale to be closed on or before October 30, 2002; and will immediately upon such closing pay to Agent, for the benefit of the Agent and the Lenders, a sufficient amount of the net proceeds from such Sale to repay in full all of the Indebtedness." We also hereby temporarily modify the existing $1,000,000 Term Loan Reserve under the LSA by reducing the amount thereof to $800,000 for the period from August 9, 2002 through August 16, 2002 with such Term Loan Reserve to be restored to $1,000,000 as of August 19, 2002. This letter replaces in its entirety our letter of August 5, 2002 which never was fully executed and is null and void. In order to signify your agreement to, and acceptance of, the above modifications, please sign and return to us today the enclosed duplicate original of this letter whereupon this letter shall become effective as of the date hereof. HSBC BANK USA, as Agent By:/s/Gary T. Fowler --------------------- Gary T. Fowler Senior Vice President Accepted and Agreed as of August 9, 2002 IEC ELECTRONICS CORP., as Debtor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC ELECTRONICS S. de. R.L. de C.V. By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC ELECTRONICS FOREIGN SALES CORPORATION, as Guarantor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer Page 5 Page 81 of 104 August 23, 2002 IEC Electronics Corp. 105 Norton Street Newark, NY 14513 Attn: W. Barry Gilbert, Chief Executive Officer Re: Amendment No. 9 Second Modification Gentlemen: Pursuant to your request, we are willing to further modify one of the deadlines set forth in Amendment No. 9 dated June 20, 2002 ("Amendment No. 9") to the Loan and Security Agreement dated as of December 28, 1999 with the present parties thereto being you, HSBC Bank USA as Agent, and HSBC Bank USA and General Electric Capital Corporation as the Lenders (as amended prior to the date hereof, the "LSA"). As Agent, we agree that Amendment No. 9 is hereby modified as follows: 1. The existing Section A.6 is hereby deleted and replaced with the following new Section A.6: "6. Debtor's agreement to diligently pursue the sale of Debtor's property in Arab, Alabama and obtain and deliver to Agent by September 20, 2002 a copy of either: (i) an executed written bona fide purchase offer from a qualified purchaser, such offer and such purchaser to be acceptable to Debtor, Agent and the Lenders, or (ii) an executed written auction agreement with a qualified auctioneer to conduct a commercially reasonable auction of such property by November 1, 2002, such auction agreement and auctioneer to be acceptable to the Debtor, Agent and the Lenders." In order to signify your agreement to, and acceptance of, the above modifications, please sign and return to us today the enclosed four duplicate originals of this letter whereupon this letter shall become effective as of the date hereof. HSBC BANK USA, as Agent By /s/ Vincent J. Harper - ------------------------ Vincent J. Harper First Vice President Accepted and Agreed as of August 23, 2002 IEC ELECTRONICS CORP., as Debtor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC ELECTRONICS S. de. R.L. de C.V. By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC ELECTRONICS FOREIGN SALES CORPORATION, as Guarantor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer Page 6 Page 82 of 104 IEC Electronics Corp. 105 Norton Street Newark, NY 14513 Attn: W. Barry Gilbert, Chief Executive Officer Re: Acterna Settlement Gentlemen: In conjunction with your proposed settlement of the action IEC Electronics Corp. ("IEC") commenced against Acterna Corporation in New York State Supreme Court, Wayne County under Index No. 50447 ("Action"), you have requested that the Secured Parties under the Loan and Security Agreement among IEC and the Secured Parties dated as of December 28, 1999, as amended ("LSA") agree to certain modifications under the LSA. The Secured Parties are willing to make the modifications set forth herein on the following conditions: 1. The Agent receives funds in the amount of not less than $1,940,063.09 from the proceeds paid by Acterna Corporation in settlement of the Action with such funds to be applied to prepay principal installments of the Term Loans in inverse order of maturity. 2. As additional collateral security for the indebtedness of IEC under the LSA, IEC pledges to the Agent, for the benefit of the Agent and the Secured Parties, the Promissory Note of Acterna Corporation payable to the order of IEC dated August 23, 2002 in the face principal amount of $1,113,996, such pledge to be evidenced by a pledge security agreement in form and content acceptable to the Agent, and such original note to be endorsed in blank by IEC and delivered to Agent. 3. The Agent receives a complete copy of the executed settlement agreement with respect to the Action and also receives four executed originals of this letter signed by IEC and the Guarantors. Provided the above conditions are satisfied, the Secured Parties agree that: A. (i) A $500,000 portion of the $1,000,000 Term Loan Reserve against the Revolving Credit will be cancelled upon the Agent's receipt and review of satisfactory evidence confirming that IEC has: (a) adopted the proposed trade creditor settlement program in the form shared with the Agent and the Secured Parties on the date hereof ("Vendor Program"); and (b) sent notice of the Vendor Program to all vendors classified as Group 1 or 2 under the Vendor Program; and (ii) the remaining $500,000 portion of the Term Loan Reserve will be cancelled upon the Agent's receipt and review of satisfactory evidence confirming that IEC has received acceptances of the Vendor Program from vendors holding not less than fifty percent (50%) of the aggregate outstanding dollar amount of balances due all Group 1 and Group 2 vendors under the Vendor Program. Page 7 Page 83 of 104 B. (i) upon the cancellation of the first $500,000 portion of the Term Loan Reserve as set forth in "A(i)" above, and provided IEC has sufficient availability under the Borrowing Capacity at the applicable time and is otherwise in compliance with the terms of the LSA, then up to $500,000 can be borrowed by IEC under the Revolving Credit to fund working capital needs and to fund the cash payments provided for in the Vendor Program to vendors owed less than $5,000 other than cash payments to any Director for Director fees; (ii) upon cancellation of the second $500,000 portion of the Term Loan Reserve as set forth in "A (ii)" above and provided IEC has sufficient availability under the Borrowing Capacity at the applicable time and is otherwise in compliance with the LSA, then up to $500,000 can be borrowed by IEC under the Revolving Credit to fund the cash payments provided for in the Vendor Program to vendors owed $5,000 or more but no one vendor may be paid more than ten percent (10%) of the outstanding dollar amount of the balance owed any such vendor as reflected in the Vendor Program unless consented to in writing by the Agent. Nothing herein shall limit or impair the ability of the Agent and the Secured Parties to require such reserves as they deem appropriate from time to time in accordance with the terms of the LSA. In order to signify your agreement to, and acceptance of, the above terms and LSA modifications, please sign and return to us the enclosed duplicate original of this letter whereupon this letter shall become effective as of the date hereof. HSBC BANK USA, as Agent By /s/ Vincent J. Harper ------------------------ Vincent J. Harper First Vice President Accepted and Agreed as of August 22, 2002 IEC ELECTRONICS CORP., as Debtor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC ELECTRONICS S. de. R.L. de C.V., as Guarantor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC FOREIGN SALES CORPORATION, as Guarantor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer Page 8 Page 84 of 104 September 17, 2002 IEC Electronics Corp. 105 Norton Street Newark, NY 14513 Attn: W. Barry Gilbert, Chief Executive Officer Re: Loan and Security Agreement Modifications Gentlemen: Pursuant to our discussions with you, we are willing to modify certain of the provisions set forth in the Loan and Security Agreement dated as of December 28, 1999 with the present parties thereto being you, HSBC Bank USA as Agent, and HSBC Bank USA and General Electric Capital Corporation as the Lenders (as amended and modified prior to the date hereof, the "LSA"), and we are also willing to temporarily modify one of the reserves established under the LSA. Capitalized terms used in this letter and not otherwise defined are used with the defined meanings set forth in the LSA. As a condition to the modifications made herein, you and we agree to the revocation of the provisions regarding the Vendor Payment Program and the Term Loan Reserve as set forth in Parts A(ii) and B(ii) of the Acterna Settlement letter dated August 22, 2002 between the Agent and you. As Agent, we agree that the LSA is hereby modified as follows: 1. Part (A) of Item 1 of the Schedule regarding the Maximum Limit of the Borrowing Capacity is hereby deleted and replaced with the following new Part (A): "(A) The applicable Maximum Limit of $2,000,000;" 2. Section A.6 of Amendment 9 is hereby deleted and two new Negative Covenants are hereby added to the LSA as Sections 10.20 and 10.21 as follows: "10.20 Sale of Alabama Property. Debtor shall not fail to sell the Debtor's property in Arab, Alabama by September 30, 2002 for a purchase price of approximately $600,000 and wire the net proceeds of approximately $550,000 to the Agent by September 30, 2002 as a prepayment on the Term Loans to be applied to installments thereof in inverse order of maturity." "10.21 Sale of Texas Property. Debtor shall not fail to diligently pursue the sale of Debtor's property in Edinburgh, Texas and obtain and deliver to Agent by October 18, 2002 a copy of either (i) an executed bona fide purchase offer from a qualified purchaser, such offer and purchaser to be acceptable to Debtor, Agent and the Lenders, or (ii) an executed written auction agreement with a qualified auctioneer to conduct a commercially reasonable auction of such property by December 31, 2002, such auction agreement and auctioneer to be acceptable to the Debtor, Agent and the Lenders." We also hereby temporarily modify the existing $500,000 Term Loan Reserve under the LSA by reducing the amount thereof to $300,000 for the period from the date hereof through September 23, 2002. Assuming delivery by the Debtor to the Agent and the Lenders on or before September 23, 2002 of a satisfactory letter of intent or complete refinancing with a new lender for the sale of Debtor's business and the absence of any Event of Default under the LSA, Agent and the Lenders will further reduce the Term Loan Reserve to $100,000 as of September 24, 2002, and provided the Renewal Term of the LSA is extended past September 30, 2002, the Term Loan Reserve will be increased to $300,000 as of October 7, 2002, and restored to $500,000 as of October 14, 2002. Nothing herein shall limit or impair the ability of the Agent and the Secured Parties to require such reserves in such amounts as they deem appropriate, in their sole discretion, from time to time. Page 9 Page 85 of 104 In order to signify your agreement to, and acceptance of, the above modifications, please sign and return to us today the enclosed duplicate original of this letter whereupon this letter shall become effective as of the date hereof. HSBC BANK USA, as Agent By /s/ Vincent J. Harper ------------------------ Vincent J. Harper First Vice President Accepted and Agreed as of September 17, 2002 IEC ELECTRONICS CORP., as Debtor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC ELECTRONICS S. de. R.L. de C.V. By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC ELECTRONICS FOREIGN SALES CORPORATION, as Guarantor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer Page 10 Page 86 of 104 September 24, 2002 IEC Electronics Corp. 105 Norton Street Newark, NY 14513 Attn: W. Barry Gilbert, Chief Executive Officer Re: Amendment 9 Further Modification Gentlemen: Pursuant to your request, we are willing to modify certain of the deadlines set forth in Amendment No. 9 dated June 20, 2002 ( as modified prior to the date hereof, "Amendment No. 9") to the Loan and Security Agreement dated as of December 28, 1999 with the present parties thereto being you, HSBC Bank USA as Agent, and HSBC Bank USA and General Electric Capital Corporation as the Lenders (as amended prior to the date hereof, the "LSA"). As a condition to the modification made herein, we require your affirmation evidenced by your signature hereon that the approximately $21,000 on deposit in your account with the Texas State Bank will be used by you only to pay severance due Robert Norris in connection with the closing of the IEC-Mexico facility in Reynosa, Mexico. As Agent, we agree that Amendment No. 9 is hereby modified as follows: 1. Section 10.19 is hereby deleted and replaced with the following new Section 10.19: "10.19 SALE OF DEBTOR'S BUSINESS OR STOCK. Unless the Indebtedness is sooner repaid in its entirety through a refinancing with third party lenders or otherwise, Debtor will obtain and deliver to Agent and the Lenders by October 7, 2002 a satisfactory executed letter of intent from a satisfactory purchaser to purchase substantially all of the assets or business or stock of Debtor ("Sale"), and providing for such Sale to be closed on or before November 29, 2002; and will immediately upon such closing pay to Agent, for the benefit of the Agent and the Lenders, a sufficient amount of the net proceeds from such Sale to repay in full all of the Indebtedness, if any, which remains unpaid." If you deliver to the Agent and the Lenders by October 7, 2002 a letter of intent that satisfies the requirements of Section 10.19, the Lenders would then be willing to amend Item 32 of the Schedule to extend the Initial Term of the LSA from September 30, 2002 until October 31, 2002. In order to signify your agreement to, and acceptance of, the above modification, please sign and return to us today the enclosed duplicate original of this letter whereupon this letter shall become effective as of the date hereof. HSBC BANK USA, as Agent By /s/ Vincent J. Harper ------------------------ Vincent J. Harper First Vice President Accepted and Agreed as of September 24, 2002 IEC ELECTRONICS CORP., as Debtor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC ELECTRONICS S. de. R.L. de C.V. By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer IEC ELECTRONICS FOREIGN SALES CORPORATION, as Guarantor By: /s/ W. Barry Gilbert - ------------------------ W. Barry Gilbert Chief Executive Officer Page 11 Page 87 of 104 EX-10.31 8 bankamend10.txt BANK AMENDMENT 10 EXHIBIT 10.31 AMENDMENT NO. 10 TO LOAN AND SECURITY AGREEMENT Amendment No. 10 dated as of October 1, 2002 ("Amendment") to Loan and Security Agreement originally dated as of December 28, 1999 and originally among IEC ELECTRONICS CORP. ("IEC" or "Debtor") and IEC ELECTRONICS-EDINBURG, TEXAS INC. ("IEC-Edinburg") and HSBC BANK USA, as Agent ("Agent") and HSBC BANK USA ("HSBC Bank") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital") as lenders (collectively, the "Lenders"). BACKGROUND 1. Debtor, Agent and Lenders entered into a Loan and Security Agreement dated as of December 28, 1999 ("LSA") and Amendment Nos. 1 through 9 thereto dated as of March 30, 2000, December 1, 2000, April 24, 2001, December 21, 2001, February 15, 2002, February 28, 2002, March 15, 2002, April 8, 2002 and June 20, 2002, respectively, ("Amendments"), and certain modification letters to Amendment 9 dated August 9, 2002, August 23, 2002, September 17, 2002 and September 24, 2002 ("Modifications"), (collectively, the LSA, the Amendments and the Modifications are referred to herein as the "Agreement"). On or about January 27, 2000, IEC-Edinburg merged into IEC leaving IEC as the sole Debtor under the Agreement. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Agreement. 2. Debtor has requested that Agent and Lenders consider extending the term of the Agreement through December 31, 2002 and has represented to Agent and the Lenders that Debtor has undertaken efforts to cause certain asset sales to occur in the immediate future, and is pursuing with third-party lenders a refinancing of all of the indebtedness of Debtor to Agent and the Lenders under the Agreement ("Indebtedness"). 3. In response to Debtor's request and subject to all of the terms and conditions set forth herein, the Agent and the Lenders are willing to make certain amendments to the Agreement as set forth below on the conditions set forth below. NOW, THEREFORE, Debtor, the Agent and the Lenders for good and valuable consideration, receipt of which is hereby acknowledged, and in contemplation of the foregoing, hereby agree as follows: A. Conditions. The amendments and waivers contained herein shall be granted upon satisfaction of the following terms and conditions: 1. Debtor shall have executed, and shall have caused IEC Electronics, S. de R.L. de C.V. ("IEC-Mexico") and IEC Electronics Foreign Sales Corporation ("IEC-FSC") to have executed, this Amendment to indicate their consent hereto, and four executed duplicate originals of this Agreement shall have been delivered to Agent. 2. Debtor's continuing agreement, evidenced by Debtor's signature on this Amendment, that Debtor will: (i) continue to cooperate with Getzler & Company, Inc. ("Getzler") so that Getzler may review Debtor's business and business plans in order to report thereon to Agent's counsel and the Lenders; (ii) permit Getzler to access Debtor's places of business and its books and records in order to complete such review and report; (iii) reimburse the Agent or its counsel, upon demand, for the cost and expenses of Getzler; and (iv) promptly advise in writing, any professionals engaged by Debtor or its Affiliates to advise Debtor or its Affiliates with respect to their business or financial prospects, including, without limitation, Lincoln Partners LLC (individually, an "Investment Banker" and collectively, the "Investment Bankers"), that Debtor (a) consents to Agent and the Lenders communicating with such Investment Bankers on a weekly basis for the purpose of being advised by, and discussing with, such Investment Bankers, the Investment Bankers' timeline, process, recommendations and proposals for any asset or stock sales, or the refinancing of Debtor's indebtedness, or for the recapitalization of Debtor or any Affiliate, or any other plans for increasing Debtor's equity, reducing the indebtedness of Debtor and its Affiliates, or otherwise improving the financial condition or business of Debtor and its Affiliates, and (b) agrees that such Investment Bankers provide such information to the Agent and the Lenders, and also provide to Agent and the Lenders a copy of any contact, or other reports prepared by such Investment Bankers for Debtor when such reports are delivered to Debtor, and deliver to Agent and the Lenders duplicate copies of any proposal letters, term sheets or written communications received from any prospective purchaser of any of IEC's assets when any such documents are delivered to Debtor by or on behalf of such Investment Bankers. Page 1 Page 88 of 104 3. Debtor's agreement evidenced by Debtor's signature on this Amendment, to pay to Agent, for the account of the Lenders, an additional $150,000 extension fee ("Extension Fee"), with such fee being earned upon execution of this Agreement by all parties, and payable in the amounts and on the due dates listed below: The Extension Fee consists of two components, namely, a fee amounting to $100,000 in the aggregate ("Base Fee") and an additional fee amounting to $50,000 in the aggregate ("Additional Fee"). The Base Fee shall be due and payable as follows: $15,000 payable on the date of execution of this Amendment; $15,000 payable on November 15, 2002; $30,000 payable on December 16, 2002; and $40,000 payable on December 31, 2002. The Additional Fee shall be due and payable as follows: $25,000 payable on October 31, 2002 and $25,000 payable on November 27, 2002; provided, however, if Debtor delivers to the Agent and the Lenders by either October 31, 2002 or November 27, 2002 either (i) the Purchase Offer required by Section 10.19 of the Agreement as modified by this Amendment, or (ii) a commitment or term sheet accepted by Debtor and satisfactory to Debtor's Board of Directors and the Lenders which provides for adequate financing from a third-party lender to repay the Indebtedness in full ("Financing Commitment), then the Agent and the Lenders shall waive payment of any portion of the Additional Fee which is scheduled to be payable on or after the date of receipt of such Purchase Offer or Financing Commitment. In the event the Indebtedness is fully and irrevocably paid in full ("Full Payment") as of a particular date prior to the end of the Initial Term ("Full Payment Date"), then payment of any of the above amounts which were scheduled to be payable after the Full Payment Date shall be waived by the Agent and the Lenders. B. Amendments. Debtor, the Agent and the Lenders agree that upon Debtor's satisfaction of, or agreement to, as appropriate, the conditions set forth in Section A above, the Agreement and the Schedule are amended in the following respects: 1. Item 1 of the Schedule to the Agreement is hereby deleted in its entirety as of the date hereof and replaced by the following: "1. Borrowing Capacity ((1.1(e)) Borrowing Capacity at any time shall be the net amount determined by taking the lesser of the following amounts: (A) The applicable Maximum Limit of $1,750,000; or (B) The amount equal to the sum of the IEC Borrowing Capacity (as defined below) and subtracting from the lesser of (A) and (B) above, the sum of (a) banker's acceptances, plus (b) letters of guaranty, plus (c) Letters of Credit. 'IEC Borrowing Capacity' at any time shall be the amount equal to the sum of up to 85% of the IEC Receivables Borrowing Base. The Lenders, in their sole discretion, may from time to time permit Debtor to borrow in excess of the IEC Borrowing Capacity (each, an "Overadvance" and collectively, the "Overadvances") provided, however, in no event may the aggregate amount of all Advances and all such Overadvances outstanding at any one time exceed the Maximum Limit, and in no event may the aggregate outstanding amount of such Overadvances at any one time exceed $300,000 from October 1, 2002 to October 13, 2002; or exceed $400,000 from October 14, 2002 to October 20, 2002; or exceed $300,000 from October 21, 2002 to October 27, 2002; and from and after October 28, 2002 no Overadvances shall be permitted; and provided further that in no event may the aggregate amount of the Overadvances outstanding at any one time ever exceed the amount of the Term Loan Reserve then in effect. Nothing herein shall detract from the discretionary nature of any Advances or Overadvances requested, or made, under this Agreement." Page 2 Page 89 of 104 2. Item 18(g) of the Schedule to the Agreement is hereby deleted in its entirety and replaced with the following new text: "(g) Pricing Grid - Advances and Term Loan. The applicable rates of interest to be charged during each time period listed below for each Prime Rate Loan and Libor Loan made or outstanding hereunder as an Advance or under the Term Notes are listed below: PRICING GRIDS A. ADVANCES Period Prime Rate Option Libor Rate Option ------ ----------------- ----------------- 10/1/02 - 12/31/02 Prime Rate plus 3.5% None B. TERM LOAN Period Prime Rate Option Libor Rate Option ------ ----------------- ----------------- 10/1/02 - 12/31/02 Prime Rate plus 4.0% None." 3. Item 32 of the Schedule to the Agreement is hereby deleted in its entirety and replaced with the following new text: "Initial Term: To expire on December 31, 200 Renewal Term: NONE" 4. The existing Section 10.19 of the Agreement is hereby deleted and replaced with the following new text: "10.19. SALE OF DEBTOR'S BUSINESS OR STOCK. Unless the Indebtedness is sooner repaid in its entirety through a refinancing with one or more third- party lenders or otherwise, Debtor will obtain and deliver to Agent and the Lenders by October 31, 2002 a satisfactory letter of intent or term sheet from a satisfactory purchaser to purchase substantially all of the assets or business or stock of Debtor on terms satisfactory to Debtor's Board of Directors and the Agent and the Lenders ("Purchase Offer"), and Debtor will immediately upon closing of the sale pursuant to the Purchase Offer pay to Agent, for the benefit of the Agent and the Lenders, a sufficient amount of the net proceeds from such sale to repay in full all of the Indebtedness." 5. The existing Section 10.21 of the Agreement is hereby deleted and replaced with the following new text: "10.21. SALE OF TEXAS PROPERTY. Debtor shall not fail to diligently pursue the sale of Debtor's property in Edinburgh, Texas and obtain and deliver to Agent by October 25, 2002 a copy of either (i) an executed bona fide purchase offer from a qualified purchaser, such offer and purchaser to be acceptable to Debtor, Agent and the Lenders, or (ii) an executed written auction agreement with a qualified auctioneer to conduct a commercially reasonable auction of such property by December 31, 2002, such auction agreement and auctioneer to be acceptable to the Debtor, Agent and the Lenders." D. Reaffirmations and Release. 1. The Agreement, except as specifically modified hereby, shall remain in full force and effect and Debtor hereby reaffirms the Agreement, as modified by this Amendment, and all collateral and other documents executed and delivered to Agent and the Lenders in connection with the Agreement. 2. Debtor reaffirms that Debtor intends to refinance the Advances and the Term Loans under the Agreement with one or more different lenders on or before the expiration of the Initial Term as amended herein, and agrees that, upon such payment of the Advances under the Agreement, the Term Notes of the Debtor dated December 28, 1999 in favor of the Lenders become due and payable by the terms thereof since such financing would not come from internally generated funds in the ordinary course of business. 3. IEC-Mexico and IEC-FSC, by their execution hereof, consent hereto and hereby reaffirm the execution and delivery of their respective Guaranties dated December 28, 1999 and each agrees that its respective guaranty shall continue in full force and effect and shall be applicable to all indebtedness, obligations and liabilities of Debtor to Agent and the Lenders, including without limitation, all indebtedness evidenced by or arising under the Agreement, as modified by this Amendment. Page 3 Page 90 of 104 4. By their execution hereof, each of Debtor, IEC-Mexico and IEC-FSC, (each individually a "Releasor", and collectively, the "Releasors"), for good and valuable consideration, and by these presents does for itself, and its representatives, successors and assigns, remise, release and forever discharge the Agent and the Lenders in any and every capacity, their predecessors, successors, assigns, directors, officers, shareholders, employees, attorneys, advisors and agents (collectively, the "Releasees") of and from all, and all manner of action and actions, cause and causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law or in equity, which against such Releasees or any one or more of them, any Releasor ever had, now has or which any Releasor or any of any Releasor's representatives, successors or assigns hereafter can, shall or may claim to have for or by reason of any cause, matter or thing whatsoever, arising from the beginning of time to and through and including the date hereof. E. Other Provisions. 1. Debtor agrees to pay on demand by Agent all expenses of Agent and Lenders including without limitation, fees and disbursements of counsel for Agent and the Lenders, in connection with the transactions contemplated by this Amendment, the negotiations for and preparation of this Amendment and any other documents related hereto, and the enforcement of the rights of Agent and the Lenders under the Agreement as amended by this Amendment. 2. This Amendment shall be governed by and construed under the internal laws of the State of New York, as the same may from time to time be in effect, without regard to principles of conflicts of law. Agreed to as of the date first set forth above. IEC ELECTRONICS CORP. HSBC BANK USA, as Agent as Debtor By: /s/ W. Barry Gilbert By: /s/ Gary T. Fowler - ------------------------ ---------------------- W. Barry Gilbert Gary T. Fowler Chief Executive Officer Senior Vice President GENERAL ELECTRIC CAPITAL HSBC BANK USA, as a Lender CORPORATION, as a Lender By: /s/ Donald J. Cavanagh By: /s/ Gary T. Fowler - -------------------------- ---------------------- Donald J. Cavanagh Gary T. Fowler Duly Authorized Signatory Senior Vice President CONSENTED TO AND AGREED AS OF THIS 1st DAY OF OCTOBER, 2002. IEC ELECTRONICOS, S. de R.L. de C.V. IEC ELECTRONICS FOREIGN SALES as Guarantor CORPORATION, as Guarantor By: /s/ W. Barry Gilbert By: /s/ W. Barry Gilbert - ------------------------ ------------------------ W. Barry Gilbert W. Barry Gilbert Chief Executive Officer Chief Executive Officer Page 4 Page 91 of 104 EX-10.32 9 bankamend11.txt BANK AMENDMENT 11 EXHIBIT 10.32 AMENDMENT NO. 11 TO LOAN AND SECURITY AGREEMENT Amendment No. 11 dated as of November 12, 2002 ("Amendment") to Loan and Security Agreement originally dated as of December 28, 1999 and originally among IEC ELECTRONICS CORP. ("IEC" or "Debtor") and IEC ELECTRONICS-EDINBURG, TEXAS INC. ("IEC-Edinburg") and HSBC BANK USA, as Agent ("Agent") and HSBC BANK USA ("HSBC Bank") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital") as lenders (collectively, the "Lenders"). BACKGROUND 1. Debtor, Agent and Lenders entered into a Loan and Security Agreement dated as of December 28, 1999 ("LSA") and Amendment Nos. 1 through 10 thereto dated as of March 30, 2000, December 1, 2000, April 24, 2001, December 21, 2001, February 15, 2002, February 28, 2002, March 15, 2002, April 8, 2002, June 20, 2002 and October 1, 2002, respectively, ("Amendments"), and certain modification letters to Amendment 9 dated August 9, 2002, August 23, 2002, September 17, 2002 and September 24, 2002 ("Modifications"), (collectively, the LSA, the Amendments and the Modifications are referred to herein as the "Agreement"). On or about January 27, 2000, IEC-Edinburg merged into IEC leaving IEC as the sole Debtor under the Agreement. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Agreement. 2. Debtor has requested that Agent and Lenders consider revising certain terms of the Agreement to provide the Debtor with increased Borrowing Capacity; has represented to the Lenders that the Debtor is actively pursuing with third-party lenders a refinancing of all of the indebtedness of Debtor to Agent and the Lenders under the Agreement ("Indebtedness"); and has delivered to Agent and the Lenders a Term Sheet from Keltic Financial Partners LP ("Keltic") which was accepted by Debtor after approval by Debtor's Board of Directors and was acceptable to Agent and the Lenders. 3. In response to Debtor's request and subject to all of the terms and conditions set forth herein, the Agent and the Lenders are willing to make certain amendments to the Agreement as set forth below on the conditions set forth below. NOW, THEREFORE, Debtor, the Agent and the Lenders for good and valuable consideration, receipt of which is hereby acknowledged, and in contemplation of the foregoing, hereby agree as follows: A. Conditions. The amendments and waivers contained herein shall be granted upon satisfaction of the following terms and conditions: 1. Debtor shall have executed, and shall have caused IEC Electronics, S. de R.L. de C.V. ("IEC-Mexico") and IEC Electronics Foreign Sales Corporation ("IEC-FSC") to have executed, this Amendment to indicate their consent hereto, and four executed duplicate originals of this Agreement shall have been delivered to Agent. 2. Debtor's continuing agreement, evidenced by Debtor's signature on this Amendment, that Debtor will: (i) continue to cooperate with Getzler & Company, Inc. ("Getzler") so that Getzler may review Debtor's business and business plans in order to report thereon to Agent's counsel and the Lenders; (ii) permit Getzler to access Debtor's places of business and its books and records in order to complete such review and report; (iii) reimburse the Agent or its counsel, upon demand, for the cost and expenses of Getzler; and (iv) promptly advise in writing, any professionals engaged by Debtor or its Affiliates to advise Debtor or its Affiliates with respect to their business or financial prospects, including, without limitation, Lincoln Partners LLC (individually, an "Investment Banker" and collectively, the "Investment Bankers"), that Debtor (a) consents to Agent and the Lenders communicating with such Investment Bankers on a weekly basis for the purpose of being advised by, and discussing with, such Investment Bankers, the Investment Bankers' timeline, process, recommendations and proposals for any asset or stock sales, or the refinancing of Debtor's indebtedness, or for the recapitalization of Debtor or any Affiliate, or any other plans for increasing Debtor's equity, reducing the indebtedness of Debtor and its Affiliates, or otherwise improving the financial condition or business of Debtor and its Affiliates, and (b) agrees that such Investment Bankers provide such information to the Agent and the Lenders, and also provide to Agent and the Lenders a copy of any contact, or other reports prepared by such Investment Bankers for Debtor when such reports are delivered to Debtor, and deliver to Agent and the Lenders duplicate copies of any proposal letters, term sheets or written communications received from any prospective purchaser of any of IEC's assets when any such documents are delivered to Debtor by or on behalf of such Investment Bankers. Page 1 Page 92 of 104 3. Debtor's agreement evidenced by Debtor's signature on this Amendment, to pay to Agent, for the account of the Lenders, an additional $25,000 amendment fee, with such fee being earned upon execution of this Agreement by all parties, and payable on December 31, 2002 or such earlier date as the Lenders are paid in full, at which time the Base Fee earned in connection with Amendment No. 10 shall also be payable. The Additional Fee provided for in Amendment No. 10 has been waived by the Agent and the Lenders. B. Amendments. Debtor, the Agent and the Lenders agree that upon Debtor's satisfaction of, or agreement to, as appropriate, the conditions set forth in Section A above, the Agreement and the Schedule are amended in the following respects: 1. Item 1 of the Schedule to the Agreement regarding Borrowing Capacity is hereby deleted in its entirety as of the date hereof and replaced by the following: "1. Borrowing Capacity (1.1(e)) Borrowing Capacity at any time shall be the net amount determined by taking the lesser of the following amounts: (A) The applicable Maximum Limit of $2,000,000 which amount may be: (i)increased to $2,300,000 on November 15, 2002 provided:(a) Debtor obtains and delivers to Agent and the Lenders satisfactory written evidence from Keltic Financial Partners LP ("Keltic") confirming that Keltic has completed its due diligence review of the assets and records of the Debtor, is satisfied with the results thereof, and is continuing to proceed with its credit underwriting toward a loan commitment for a $4,700,000 senior secured facility to refinance all of the Revolving Loan and part of the Term Loans ("Keltic Refinancing"), and (b) Debtor obtains and delivers to Agent and the Lenders from other third-party lenders a satisfactory confirmation that such lenders are proceeding to document a loan to Debtor to refinance the balance of the Term Loans not being refinanced in the Keltic Refinancing ("Third-Party Confirmation"); and (ii) decreased to (a) $1,750,000 on November 22, 2002 if on or before November 22, 2002, the Company has not obtained and delivered to Agent and the Lenders: (x) a commitment letter from Keltic for the Keltic Refinancing providing for a Closing not later than December 31, 2002 with such commitment to be satisfactory to Debtor and its Board of Directors and to Agent and the Lenders, and to have been accepted by Debtor, and (y) an updated Third-Party Confirmation; and (b) decreased to $2,000,000 as of December 2, 2002 if not sooner decreased below such amount as a result of (b)(ii) above or otherwise; and (c) decreased to $1,750,000 as of December 9, 2002 in any event. or (B) The amount equal to the sum of the IEC Borrowing Capacity (as defined below) and subtracting from the lesser of (A) and (B) above, the sum of (a) banker's acceptances, plus (b) letters of guaranty, plus (c) Letters of Credit. 'IEC Borrowing Capacity' at any time shall be the amount equal to the sum of up to 85% of the IEC Receivables Borrowing Base. Nothing herein shall detract from the discretionary nature of any Advances requested, or made, under this Agreement." Page 2 Page 93 of 104 2. Item 18(g) of the Schedule to the Agreement regarding Pricing Grids is hereby deleted in its entirety and replaced with the following new text: "(g) Pricing Grid - Advances and Term Loan. The applicable rates of interest to be charged during each time period listed below for each Prime Rate Loan and Libor Loan made or outstanding hereunder as an Advance or under the Term Notes are listed below: PRICING GRIDS A. ADVANCES Period Prime Rate Option Libor Rate Option 11/7/02 - 12/31/02 Prime Rate plus 6.0% None B. TERM LOAN Period Prime Rate Option Libor Rate Option 11/7/02 - 12/31/02 Prime Rate plus 6.0% None." 3. The existing Section 10.19 of the Agreement regarding Sale of Debtor's Business or Stock is hereby deleted in its entirety. 4. The existing Section 10.21 of the Agreement regarding Sale of Texas Property is hereby deleted and replaced with the following new text: "10.21. SALE OF TEXAS PROPERTY. Debtor shall not fail to diligently pursue the sale of Debtor's property in Edinburgh, Texas and cause Michael J. Fox International to conduct a commercially reasonable auction of such property by December 17, 2002, pursuant to the accepted auction agreement heretofore delivered by Debtor to Agent and the Lenders." 5. The Term Loan Reserve and the Principal Payment Reserve will be cancelled upon execution of this Amendment by all parties hereto. D. Reaffirmations and Release. 1. The Agreement, except as specifically modified hereby, shall remain in full force and effect and Debtor hereby reaffirms the Agreement, as modified by this Amendment, and all collateral and other documents executed and delivered to Agent and the Lenders in connection with the Agreement. 2. Debtor reaffirms that Debtor intends to refinance the Advances and the Term Loans under the Agreement with one or more different lenders on or before the expiration of the Initial Term of the Agreement, and agrees that, upon such payment of the Advances under the Agreement, the Term Notes of the Debtor dated December 28, 1999 in favor of the Lenders become due and payable by the terms thereof since such financing would not come from internally generated funds in the ordinary course of business. 3. IEC-Mexico and IEC-FSC, by their execution hereof, consent hereto and hereby reaffirm the execution and delivery of their respective Guaranties dated December 28, 1999 and each agrees that its respective guaranty shall continue in full force and effect and shall be applicable to all indebtedness, obligations and liabilities of Debtor to Agent and the Lenders, including without limitation, all indebtedness evidenced by or arising under the Agreement, as modified by this Amendment. Page 3 Page 94 of 104 4. By their execution hereof, each of Debtor, IEC-Mexico and IEC-FSC, (each individually a "Releasor", and collectively, the "Releasors"), for good and valuable consideration, and by these presents does for itself, and its representatives, successors and assigns, remise, release and forever discharge the Agent and the Lenders in any and every capacity, their predecessors, successors, assigns, directors, officers, shareholders, employees, attorneys, advisors and agents (collectively, the "Releasees") of and from all, and all manner of action and actions, cause and causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law or in equity, which against such Releasees or any one or more of them, any Releasor ever had, now has or which any Releasor or any of any Releasor's representatives, successors or assigns hereafter can, shall or may claim to have for or by reason of any cause, matter or thing whatsoever, arising from the beginning of time to and through and including the date hereof. E. Other Provisions. 1. Debtor agrees to pay on demand by Agent all expenses of Agent and Lenders including without limitation, fees and disbursements of counsel for Agent and the Lenders, in connection with the transactions contemplated by this Amendment, the negotiations for and preparation of this Amendment and any other documents related hereto, and the enforcement of the rights of Agent and the Lenders under the Agreement as amended by this Amendment. 2. This Amendment shall be governed by and construed under the internal laws of the State of New York, as the same may from time to time be in effect, without regard to principles of conflicts of law. Agreed to as of the date first set forth above. IEC ELECTRONICS CORP. HSBC BANK USA, as Agent as Debtor By: /s/ W. Barry Gilbert By: /s/ Vincent J. Harper - ------------------------ ------------------------- W. Barry Gilbert Vincent J. Harper Chief Executive Officer First Vice President GENERAL ELECTRIC CAPITAL HSBC BANK USA, as a Lender CORPORATION, as a Lender By: /s/ Donald J. Cavanagh By: /s/ Vincent J. Harper - -------------------------- ------------------------- Donald J. Cavanagh Vincent J. Harper Duly Authorized Signatory First Vice President CONSENTED TO AND AGREED AS OF THIS 12th DAY OF NOVEMBER, 2002. IEC ELECTRONICOS, S. de R.L. de C.V. IEC ELECTRONICS FOREIGN SALES as Guarantor CORPORATION, as Guarantor By: /s/ W. Barry Gilbert By: /s/ W. Barry Gilbert - ------------------------ ------------------------ W. Barry Gilbert W. Barry Gilbert Chief Executive Officer Chief Executive Officer Page 4 Page 95 of 104 EX-10.33 10 bankamend12.txt BANK AMENDMENT NUMBER 12 EXHIBIT 10.33 AMENDMENT NO. 12 TO LOAN AND SECURITY AGREEMENT Amendment No. 12 dated as of January 1, 2003 ("Amendment") to Loan and Security Agreement originally dated as of December 28, 1999 and originally among IEC ELECTRONICS CORP. ("IEC" or "Debtor") and IEC ELECTRONICS-EDINBURG, TEXAS INC. ("IEC-Edinburg") and HSBC BANK USA, as Agent ("Agent") and HSBC BANK USA ("HSBC Bank") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital") as lenders (collectively, the "Lenders"). BACKGROUND 1. Debtor, Agent and Lenders entered into a Loan and Security Agreement dated as of December 28, 1999 ("LSA") and Amendment Nos. 1 through 11 thereto dated as of March 30, 2000, December 1, 2000, April 24, 2001, December 21, 2001, February 15, 2002, February 28, 2002, March 15, 2002, April 8, 2002, June 20, 2002, October 1, 2002 and November 12, 2002, respectively, ("Amendments"), and certain modification letters to Amendment 9 dated August 9, 2002, August 23, 2002, September 17, 2002 and September 24, 2002 ("Modifications"), (collectively, the LSA, the Amendments and the Modifications are referred to herein as the "Agreement"). On or about January 27, 2000, IEC-Edinburg merged into IEC leaving IEC as the sole Debtor under the Agreement. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Agreement. 2. Debtor has requested that Agent and Lenders consider extending the term of the Agreement to provide the Debtor with financing while Debtor is actively pursuing with Keltic Financial Partners LP and Suntrust Bank a refinancing of all of the indebtedness of Debtor to Agent and the Lenders under the Agreement as outlined in term sheets previously delivered to the Agent and Lenders and accepted by Debtor and approved by Debtor's Board of Directors. 3. In response to Debtor's request and subject to all of the terms and conditions set forth herein, the Agent and the Lenders are willing to extend the Agreement provided certain amendments are made to the Agreement as set forth below. NOW, THEREFORE, Debtor, the Agent and the Lenders for good and valuable consideration, receipt of which is hereby acknowledged, and in contemplation of the foregoing, hereby agree as follows: A. Conditions. The amendments and waivers contained herein shall be granted upon satisfaction of the following terms and conditions: 1. Debtor shall have executed, and shall have caused IEC Electronics, S. de R.L. de C.V. ("IEC-Mexico") and IEC Electronics Foreign Sales Corporation ("IEC-FSC") to have executed, this Amendment to indicate their consent hereto, and four executed duplicate originals of this Agreement shall have been delivered to Agent. 2. Debtor's continuing agreement, evidenced by Debtor's signature on this Amendment, that Debtor will: (i) continue to cooperate with Getzler & Company, Inc. ("Getzler") so that Getzler may review Debtor's business and business plans in order to report thereon to Agent's counsel and the Lenders; (ii) permit Getzler to access Debtor's places of business and its books and records in order to complete such review and report; (iii) reimburse the Agent or its counsel, upon demand, for the cost and expenses of Getzler; and (iv) promptly advise in writing, any professionals engaged by Debtor or its Affiliates to advise and assist in the sale of any of Debtor's property or to advise Debtor or its Affiliates with respect to their business or financial prospects, including, without limitation, Lincoln Partners LLC and Michael Fox International, Inc. (individually, an "Advisor" and collectively, the "Advisors"), that Debtor (a) consents to Agent and the Lenders communicating with such Advisors for the purpose of being advised by, and discussing with, such Advisors, the Advisors' timeline, process, recommendations and proposals for any asset or stock sales, or the refinancing of Debtor's indebtedness, or for the recapitalization of Debtor or any Affiliate, or any other plans for increasing Debtor's equity, reducing the indebtedness of Debtor and its Affiliates, or otherwise improving the financial condition or business of Debtor and its Affiliates, and (b) agrees that such Advisors provide such information to the Agent and the Lenders, and also provide to Agent and the Lenders a copy of any contact, or other reports prepared by such Advisors for Debtor when such reports are delivered to Debtor, and deliver to Agent and the Lenders duplicate copies of any proposal letters, contracts, term sheets or written communications received from any prospective purchaser of any of IEC's assets when any such documents are delivered to Debtor by or on behalf of such Advisors. Page 1 Page 96 of 104 3. Debtor shall have: (i) paid to the Agent, on or before January 4, 2003, the $112,143.49 in expenses of the Agent and the Lenders which Agent has requested Debtor to pay; (ii) paid to the Agent, on or before January 4, 2003, the $92,833.33 monthly payment on the pledged Acterna Note which payment was received in January 2003 and which payment will be applied as a prepayment of principal on the Term Notes by agreement with the Debtor; and (iii) agreed to pay to the Agent upon receipt thereof all of the net proceeds received by the Debtor in payment for the $280,000 B. Braun Receivables generated in January 2003 in connection with excess Inventory purchases made by B. Braun with such net proceeds to be applied by the Lenders as a prepayment of principal on the Term Notes. Debtor's agreement to all of the foregoing payments and the application thereof is evidenced by Debtor's signature on this Amendment. In consideration of the foregoing, and upon execution of this Amendment by all parties hereto, Agent and the Lenders agree that the principal payments in the amount of $175,438.60 on the Term Notes which were due on January 1, 2003 are deferred until January 15, 2003, and $110,000 in fees, consisting of the $85,000 unpaid portion of the Base Fee required by Amendment No. 10 and the unpaid $25,000 Amendment Fee required by Amendment No. 11, both of which were due on December 31, 2002, are also deferred until January 15, 2003. B. Amendments. Debtor, the Agent and the Lenders agree that upon Debtor's satisfaction of, or agreement to, as appropriate, the conditions set forth in Section A above, the Agreement and the Schedule are amended in the following respects: 1. Item 1 of the Schedule to the Agreement regarding Borrowing Capacity is hereby deleted in its entirety as of the date hereof and replaced by the following: "1. Borrowing Capacity (1.1(e)) Borrowing Capacity at any time shall be the net amount determined by taking the lesser of the following amounts: (A) The applicable Maximum Limit of $1,000,000. or (B) The amount equal to the sum of the IEC Borrowing Capacity (as defined below) and subtracting from the lesser of (A) and (B) above, the sum of (a) banker's acceptances, plus (b) letters of guaranty, plus (c) Letters of Credit. 'IEC Borrowing Capacity' at any time shall be the amount equal to the sum of up to 85% of the IEC Receivables Borrowing Base. Nothing herein shall detract from the demand, discretionary nature of any Advances requested, or made, under this Agreement." Page 2 Page 97 of 104 2. Item 18(g) of the Schedule to the Agreement regarding Pricing Grids is hereby deleted in its entirety and replaced with the following new text: "(g) Pricing Grid - Advances and Term Loan. The applicable rates of interest to be charged during each time period listed below for each Prime Rate Loan and Libor Loan made or outstanding hereunder as an Advance or under the Term Notes are listed below: PRICING GRIDS A. ADVANCES Period Prime Rate Option Libor Rate Option ------ ----------------- ----------------- 1/1/03 through 1/17/03 Prime Rate plus 6.0% None B. TERM LOAN Period Prime Rate Option Libor Rate Option ------ ----------------- ----------------- 1/1/03 through 1/17/03 Prime Rate plus 6.0% None." 3. The existing Section 10.21 of the Agreement regarding Sale of Texas Property is hereby deleted and replaced with the following new text: "10.21. SALE OF TEXAS PROPERTY. Debtor shall not fail to (i) diligently pursue the sale of Debtor's property in Edinburgh, Texas and obtain a sale contract acceptable to Debtor, Agent and the Lenders on or before January 15, 2003; (ii) promptly thereafter assign to the Agent for the benefit of the Lenders the net proceeds under any such contract ("Net Proceeds"); and (iii) pay to the Agent for the benefit of the Lenders, upon receipt, the Net Proceeds with such Net Proceeds to be applied firstly to the repayment in full of the Term Notes and thereafter to repayment of the Revolving Notes. 4. Item 32 of the Schedule to the Agreement is hereby deleted in its entirety and replaced with the following new text: "Initial Term: January 17, 2003. Renewal Term: None" D. Reaffirmations and Release. 1. The Agreement, except as specifically modified hereby, shall remain in full force and effect and Debtor hereby reaffirms the Agreement, as modified by this Amendment, and all collateral and other documents executed and delivered to Agent and the Lenders in connection with the Agreement. 2. Debtor reaffirms that Debtor intends to refinance the Advances and the Term Loans under the Agreement with one or more different lenders, and agrees that, upon such payment of the Advances under the Agreement, the Term Notes of the Debtor dated December 28, 1999 in favor of the Lenders become due and payable by the terms thereof since such financing would not come from internally generated funds in the ordinary course of business. 3. IEC-Mexico and IEC-FSC, by their execution hereof, consent hereto and hereby reaffirm the execution and delivery of their respective Guaranties dated December 28, 1999 and each agrees that its respective guaranty shall continue in full force and effect and shall be applicable to all indebtedness, obligations and liabilities of Debtor to Agent and the Lenders, including without limitation, all indebtedness evidenced by or arising under the Agreement, as modified by this Amendment. 4. By their execution hereof, each of Debtor, IEC-Mexico and IEC-FSC, (each individually a "Releasor", and collectively, the "Releasors"), for good and valuable consideration, and by these presents does for itself, and its representatives, successors and assigns, remise, release and forever discharge the Agent and the Lenders in any and every capacity, their predecessors, successors, assigns, directors, officers, shareholders, employees, attorneys, advisors and agents (collectively, the "Releasees") of and from all, and all manner of action and actions, cause and causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law or in equity, which against such Releasees or any one or more of them, any Releasor ever had, now has or which any Releasor or any of any Releasor's representatives, successors or assigns hereafter can, shall or may claim to have for or by reason of any cause, matter or thing whatsoever, arising from the beginning of time to and through and including the date hereof. Page 3 Page 98 of 104 E. Other Provisions. 1. Debtor agrees to pay on demand by Agent all expenses of Agent and Lenders including without limitation, fees and disbursements of counsel for Agent and the Lenders, in connection with the transactions contemplated by this Amendment, the negotiations for and preparation of this Amendment and any other documents related hereto, and the enforcement of the rights of Agent and the Lenders under the Agreement as amended by this Amendment. 2. This Amendment shall be governed by and construed under the internal laws of the State of New York, as the same may from time to time be in effect, without regard to principles of conflicts of law. Agreed to as of the date first set forth above. IEC ELECTRONICS CORP. HSBC BANK USA, as Agent as Debtor By: /s/ W. Barry Gilbert By: /s/ Vincent J. Harper - ------------------------ ------------------------- W. Barry Gilbert Vincent J. Harper Chief Executive Officer First Vice President GENERAL ELECTRIC CAPITAL HSBC BANK USA, as a Lender CORPORATION, as a Lender By: /s/ Donald Cavanagh By: /s/ Vincent J. Harper - ----------------------- ---------------------------- Donald J. Cavanagh Vincent J. Harper Duly Authorized Signatory First Vice President CONSENTED TO AND AGREED AS OF THE FIRST DAY OF JANUARY, 2003. IEC ELECTRONICOS, S. de R.L. de C.V. IEC ELECTRONICS FOREIGN SALES as Guarantor CORPORATION, as Guarantor By: /s/ W. Barry Gilbert By:By: /s/ W. Barry Gilbert - ------------------------ --------------------------- W. Barry Gilbert W. Barry Gilbert Chief Executive Officer Chief Executive Officer Page 4 Page 99 of 104 EX-10.34 11 iec401kamend.txt AMENDMENT TO IEC'S SAVINGS AND SECURITY PLAN EXHIBIT 10.34 Amendment to IEC Electronics Corp. Savings and Security Plan EMPLOYER'S RESOLUTION OF PLAN AMENDMENT The undersigned hereby certifies that the following resolutions have not been modified or rescinded as of the date hereof: WHEREAS, the Employer did establish a defined contribution plan for its employees known as the IEC Electronics Corporation Savings & Security Plan (the "Plan"), Taxpayer ID# 13-3458455, Plan Number 001, effective October 1, 1985 and, WHEREAS, after appropriate discussion and due consideration, the Employer has decided to amend the Plan effective April 1, 2002, as follows: Plan Participants, including those who are employed or who have previously separated from service with the Employer, are no longer required to furnish spousal consent to the Administrator, as a condition for receiving payment under the Plan. Payment under the Plan includes loans, in-service withdrawals before and after age 59 1/2 as well as distribution payments to terminated Participants. In addition, the annuity payment option and under the Plan is hereby removed with this amendment. Lump Sum and installment payment options are allowed. Eligibility will be limited to employees at least 21 years of age. Participants may enroll in the plan the first of the following quarter upon completion of six (6) months of service. Participants who do not enroll and have not signed an acknowledgement to refuse enrollment, will automatically be enrolled at a deferral percentage of 1%. Participants shall have a vested percentage in his or her matching 401(k) contributions using a graded vesting schedule of 20% per completed year of service to reach 100% after 5 years. Effective April 1, 2002 deferral percentages and contributions may only be changed on a quarterly basis, effective the first payroll period of each quarter. FURTHER RESOLVED, that the proper officers of the Employer are hereby authorized and directed in the name of and on behalf of the Corporation, to execute and deliver such amendment, and to execute any documents which may be otherwise deemed necessary and proper in order to implement the foregoing resolutions. Date: ----- -------------------- Employer's Signature --------------------- Title Page 1 Page 100 of 104 EX-22.1 12 subsidiaries.txt IEC SUSIDIARIES EXHIBIT 21.1 Subsidiaries of IEC Electronics Corp. IEC Electronicos de Mexico, S. De R.L. De C.V., wholly-owned by IEC Electronics Corp. IEC Electronics Foreign Sales Corporation, a Barbados corporation, wholly-owned by IEC Electronics Corp. Page 1 Page 101 of 104 EX-23.1 13 rotenbergconsent.txt CONSENT OF ROTENBERG, LLP AUDITOR Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this From 10-K, into the Company's previously filed Registration Statements on Form S-8 File Nos. 33-63816, 33-79360, 333-4634, 333-84471 and 333-84469. /s/ Rotenberg and Co., LLP -------------------------- Rotenberg and Co., LLP Rochester, New York January 14, 2003 Page 1 Page 102 of 104 EX-99.1 14 ceosect906cert.txt CEO SECTION 906 CERTIFICATION EXHIBIT 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended September 30, 2002 (the "Report") by IEC Electronics Corp. ("Registrant"), the undersigned hereby certifies that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. Dated: January 14, 2003 By:/s/ W. Barry Gilbert ----------------------- W. Barry Gilbert Acting Chief Executive Officer Page 1 Page 103 of 104 EX-99.2 15 cfosect906cert.txt CFO SECTION 906 CERTIFICATION EXHIBIT 99.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended September 30, 2002 (the "Report") by IEC Electronics Corp. ("Registrant"), the undersigned hereby certifies that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. Dated: January 14, 2003 By:/s/ Kevin J. Monacelli -------------------------- Kevin J. Monacelli Controller, Chief Accounting Officer and Principal Financial Officer Page 1 Page 104 of 104 -----END PRIVACY-ENHANCED MESSAGE-----