-----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, HgAPMFiuUDMjuAPwb+lc0hgZd6CQ+f9mR6T/DZZATfnkMIL1rjudmhrx6AW7ylRj 3bCHzbZLHHtiJJ7hvaRpvw== 0000950124-97-006656.txt : 19971230 0000950124-97-006656.hdr.sgml : 19971230 ACCESSION NUMBER: 0000950124-97-006656 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLEXUS CORP CENTRAL INDEX KEY: 0000785786 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 391344447 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14824 FILM NUMBER: 97745326 BUSINESS ADDRESS: STREET 1: 55 JEWELERS PARK DR CITY: NEENAH STATE: WI ZIP: 54957-0156 BUSINESS PHONE: 4147223451 MAIL ADDRESS: STREET 1: PLEXUS CORP STREET 2: 55 JEWELERS PARK DR CITY: NEENAH STATE: WI ZIP: 54957-0156 10-K405 1 FORM 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X Annual Report Pursuant to Section 13 or 15(d) ----- of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-14824 PLEXUS CORP. (Exact name of registrant as specified in its charter) WISCONSIN 39-1344447 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 JEWELERS PARK DRIVE, NEENAH, WISCONSIN 54957-0156 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (920) 722-3451 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 report(s)) 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 the 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] As of December 12, 1997, 14,810,353 shares of Common Stock were outstanding, and the aggregate market value of the shares of Common Stock (based upon the $23.00 closing sale price on that date, as reported on the NASDAQ National Market System) held by non-affiliates (excludes shares reported as beneficially owned by directors and officers - does not constitute an admission as to affiliate status) was approximately $313 million. DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH PORTIONS OF DOCUMENT DOCUMENT ARE INCORPORATED -------- ------------------------- Proxy Statement for 1998 Annual Meeting of Shareholders Part III
2 PART I ITEM 1. BUSINESS GENERAL Plexus Corp., through its subsidiaries (together "Plexus" or the "Company"), offers contract development, design, manufacturing and test services primarily to original equipment manufacturers in the computer (primarily mainframes, servers and peripherals), medical, industrial, telecommunications and transportation electronics industries. Plexus offers a full range of services including product development, printed circuit board (PCB) design, material procurement and management, prototyping, PCB and higher level assembly, functional and in-circuit testing, final system box build and distribution. The contract manufacturing services are provided on either a turnkey basis, where the Company procures certain or all of the materials required for product assembly, or on a consignment basis, where the customer supplies materials necessary for product assembly. Turnkey services include material procurement and warehousing, in addition to manufacturing, and involve greater resource investment then consignment services. Other than test equipment products, the Company does not design or manufacture its own proprietary products. Plexus is a Wisconsin corporation incorporated in 1979. Its principle subsidiaries are Electronic Assembly Corporation and Technology Group, Inc. The Company's principle office is located at 55 Jewelers Park Drive, Neenah, Wisconsin 54957-0156, and its telephone number is (920) 722-3451. RECENT DEVELOPMENTS On November 14, 1997, through the Company's recently formed PAC Acquisition Corp. subsidiary, the Company acquired substantially all of the electronic manufacturing-related assets of Nguyen Electronics, Inc. and Tertronics, Inc. (together, "NEI"), electronic manufacturing and assembly companies operating in Minneapolis, Minnesota and Milpitas, California, respectively. The acquisitions provide the Company with assembly capabilities, facilities and sales offices in the Twin Cities and Silicon Valley, both of which have a concentration of technology-based companies which the Company believes constitute potential customers. The Company also expects to continue customer relationships which were assumed from NEI. In the NEI acquisition, the Company acquired substantially all of NEI's assets (other than assets of an unrelated Tertronics business), as well as related real estate in Minnesota, and assumed certain specified related liabilities. The NEI acquisition represented, individually and combined, less than 3% of the Company's total assets. Total combined sales of NEI were approximately $3.0 million in the 12-month period ended September 30, 1997. Because the NEI acquisition is being accounted for as a purchase transaction, results of the acquired operations will be included in Plexus financial information only from and after the date of the acquisition. In September 1997, the Company occupied an engineering design center, with approximately 5,000 square feet, in Raleigh, North Carolina. This expansion establishes a new engineering and sales facility to further develop, support and strengthen the Company's technological capabilities and customer base on the East Coast. This facility will also provide the Company with another avenue for attracting additional human resources. In April 1997, the Company occupied its new manufacturing center near Green Bay, Wisconsin. The new Green Bay facility is leased under an operating agreement with the Oneida tribe of Indians. See "Properties" (Item 2) below. ELECTRONIC PRODUCTS GENERAL BACKGROUND. The Company's services involve the design of electronic products and systems, the arrangement of electronic components thereon, and the assembly and testing of such products including the incorporation of the electronic assemblies into the final product housing. The products designed and assembled by the Company consist primarily of electronic components assembled on printed circuit boards and programmed to perform 3 specific functions. The electronic components include computer memory chips, microprocessors, integrated circuits, resistors, capacitors, transformers, and switches. Printed circuit boards are the basic element in the manufacture of most electronic products and act as the interconnection platforms for various integrated circuits and electronic components. In addition to the Company's ability to design and manufacture complete electronic products, the Company also has the capacity of designing and assembling printed circuitry products and products utilizing circuit boards with multiple layers of circuitry. The various types of electronic product services offered by the Company are discussed below. A customer of the Company may utilize any or all of these services. The Company charges for these services under a variety of pricing methods that vary accordingly to the customer or type of service involved. PRODUCT DESIGN. The Company, primarily through its Technology Group, Inc. subsidiary, provides product design and engineering services. These services include software development, circuit design, printed circuit board layout, and product housing design. The Company's design services provide customers with a product which is capable of performing an intended function and which can be manufactured in an efficient and economical manner. The Company's technologies involve the design of electronic systems, including printed circuit boards and the arrangement of electronic components thereon, and the development and/or programming of the application software necessary to control the functions of those components. The Company's personnel design printed circuit boards using computer assisted design equipment and software. This equipment permits the design of complex multi-layered printed circuit boards which not only have wiring on the top and bottom surfaces but also incorporate multiple inside layers of circuitry. The Company's design services may include initial feasibility studies, product concept definition, development or specifications for product feature and functions, product engineering specifications, microprocessor design, design of circuit and custom or semi-custom computer chips, software development, drafting, prototype production and testing, and development of test specifications and procedures. The NEI acquisition added additional design and prototyping/quick turn capabilities in California. See "Engineering, Testing and Development." PRODUCT MANUFACTURE. The Company, primarily through its Electronic Assembly Corporation subsidiary, manufactures electronic products and assemblies for use in a wide variety of industries and applications. The NEI acquisition added additional assembly capability in Minnesota. The Company's assembly processes involve the fabrication of products from components manufactured to specification by others. Electronic components such as memory chips, microprocessing units, integrated circuits, resistors, capacitors, transformers, switches, wire and related items are purchased as stock items from a variety of manufacturers and distributors. The Company is not dependent upon any single supplier for such material. The Company's printed circuit boards and certain other components are manufactured for it to its customers' specifications. The Company believes these products would be available from a variety of sources and that the loss of any single source of supply would not materially affect the Company's business. The Company's manufacturing operations include printed circuit board assembly, testing, and final system box build into the final product housing. While the Company has automated various aspects of many processes, the assembly of components into electronic products remains a labor-intensive process generally requiring a high degree of precision and dexterity in the assembly stage and integration of quality control checks into the manufacturing processes. The Company utilizes specially designed equipment and techniques to maintain its ability to assemble efficiently a wide variety of electronic products. PRODUCT TESTING. The increasingly complex design and assembly techniques for production of electronic products have created a need for the Company's services in designing and assembling test equipment for electronic -2- 4 assemblies. Such test equipment includes functional test fixtures for testing printed circuit assemblies; in-circuit component measurement testers; and intelligent burn-in chambers, which temperature cycle products under load. The Company designs and assembles test products for testing customers' products. The Company believes that the design and production of test equipment is an important factor in its ability to provide products of consistent and high quality. CUSTOMERS AND MARKETING The Company performs services for a wide variety of customers ranging from large multi-national companies to smaller companies. Because of the variety of services it offers, its flexibility in design and manufacturing, and its ability to timely respond to customer needs, the Company believes it is well positioned to offer its services to customers in its market segments. For many customers, the Company functions as both a design and production arm, thus permitting customers to concentrate on concept development and marketing and to avoid the expense of development of manufacturing capacity. This method provides an economical and efficient alternative to in-house production. The Company markets its services primarily through its own employees. It also employs several sales representative agencies covering selected customer accounts. The representatives are paid commissions based upon sales. During fiscal 1997, the Company's services were sold to approximately 113 customers. Three customers represented over 10% of the Company's fiscal 1997 net sales, as follows:
Fiscal Year % of Net Sales -------------------------- Customer 1997 1996 1995 - ------------------------------------------- ---- ---- ---- International Business Machines Corporation 12% 26% 26% General Electric Company 13% 13% 17% Motorola, Inc. 10% * * __________________ *Less than 10%
Many large customers, including those above, contract independently through multiple divisions, subsidiaries or production facilities. The Company believes that in many cases its sales to one such subsidiary, division or facility are not dependent on sales to others. Although the complete loss of any major customer could have a significant negative impact on the Company, the Company does not believe the loss of all divisions, subsidiaries or facilities of a major customer to be likely. For a further discussion of sales to these and other large customers, see "Management's Discussion and Analysis -- Results of Operations -- Net Sales" (Item 7) which is incorporated herein by reference. Substantially all of Plexus' business is done on a project by project basis for its customers. Although Plexus has several projects and customers for which it provides services on a continuing basis, the timing and nature of particular customer projects can vary significantly from period to period. Substantial changes in the nature or timing of these projects affect the Company's sales and profitability from period to period. The Company also from time to time considers strategic acquisitions, joint ventures and strategic partnerships with other companies. Under certain circumstances, and subject to identification of appropriate candidates, the Company believes that such transactions may provide an attractive means of growth by providing access to additional customers and/or by adding new capabilities, capacity or locations. -3- 5 COMPETITION The market for electronic products and services provided by the Company is highly competitive, primarily on the basis of engineering, testing and production capability, and the capacity for prompt delivery, quality and price. The capability to design in a timely manner and the capacity to produce quality items and to assure prompt delivery are particularly important in the electronics industry. The average product designed and assembled by the Company has a technologically useful life of only 18 months to three years. Through its design and production services, the Company serves as an extension or replacement for its customers' engineering, testing and manufacturing operations. Competitors in the electronics design and assembly field are numerous and range in size from several very large multi-national companies with substantially greater resources than the Company to many smaller companies competing only in specific aspects of the Company's business. The Company also competes against companies which determine to manufacture items in-house rather than contract with a third-party manufacturer. The Company estimates that it controls less than one percent of the global market in the outsourced electronics manufacturing services industry. EMPLOYEES As of December 1, 1997, the Company employed full time approximately 2,168 persons. These employees included approximately 834 professional, technical and engineering employees and approximately 1,334 employees who work in assembly. The Company also employed 71 temporary employees through various temporary employment agencies. The Company has never experienced a work stoppage due to a labor dispute, considers its relations with employees to be very good, and is not a party to any labor contract. To date, the Company has not had any difficulty fulfilling its employment needs. PATENTS AND TRADEMARKS The Company does not own any material patents or copyrights. The Company owns the servicemark "Plexus" and has applied for (and is using) the servicemark "Plexus, the Product Realization Company". ENGINEERING, TESTING AND DEVELOPMENT The Company believes that its engineering, testing and development capabilities are significant factors in the success of its business. The Company maintains a design team of 164 employees, including 146 hardware and software design engineers and support staff, and utilizes an integrated design system in the Company's engineering services. To supplement its internal capabilities, Plexus has formed a strategic alliance with Battelle, a leading private independent research and development organization. The Company believes that Battelle will make available to Plexus a wide spectrum of advanced technology and innovative product development experience, to complement the Company's capacities in electronic product design, testing and manufacturing. In selected circumstances in which the Company and Battelle believe use of the alliance is appropriate, the Company believes it will be able to use this alliance to accelerate new product introduction for its customers. The Company has also recently entered into a similar arrangement with Cadence Design Systems, a world leader in software design, for cooperative design and marketing programs. MATERIALS AND COMPONENTS The Company does not generally fabricate the component parts which it uses for the products which it assembles. However, the Company uses various component parts which are manufactured by others. Important components include integrated circuits (primarily logic and memory devices), resistors, capacitors and printed circuit boards; these components may be either custom or standard. The Company has numerous suppliers for these -4- 6 components and has generally not experienced difficulties in fiscal 1997 in obtaining the components needed for its assemblies. ENVIRONMENTAL COMPLIANCE The Company believes that it is in compliance with all federal, state and local environmental laws, and does not anticipate any significant expenditures in maintaining its compliance. ITEM 2. PROPERTIES The Company owns its headquarters, the Plexus Technology Center, in Neenah, Wisconsin, which consists of approximately 45,000 square feet and includes Plexus' headquarters office. The Technology Center provides office, design and testing space for the Company. Three of the Company's manufacturing facilities are located at Neenah, Wisconsin, and the fourth at Richmond, Kentucky. The facilities in the original Neenah complex, which are owned by the Company and were built in the period from 1980 to 1985, contain an aggregate of approximately 80,000 square feet of assembly and office space. In 1990, the Company occupied an additional assembly facility in Neenah, Wisconsin, with approximately 110,000 square feet of assembly and office space, which provides additional capacity. The Company leases this facility under a fifteen year lease. In January 1994, the Company occupied a newly constructed surface mount assembly facility in Neenah, Wisconsin. This facility is approximately 175,000 square feet, and is used for manufacturing purposes. The Company leases the facility, designated the "Advanced Manufacturing Center" as a result of its design by the Company to incorporate advanced assembly processes, under a twenty year lease. In 1985, the Company opened an assembly facility with approximately 45,000 square feet of assembly and office space, which it owns in Richmond, Kentucky. In February 1996, the Company entered into a lease agreement with Oneida Nation Electronics ("ONE"), corporation chartered by the Oneida tribe of Indians of Wisconsin. Pursuant to the lease agreement, ONE agreed to construct and equip an approximately 110,000 square foot manufacturing facility located in the Green Bay, Wisconsin area for the use by the Company. The facility was occupied by the Company in April 1997. Annual lease payments by the Company for the building and equipment will be based on the profitability of the facility pursuant to a formula defined in the lease agreement. There are no required minimum lease payments. Company management believes this lease provides a financial arrangement under which the Company's earnings would be less likely to be negatively impacted during the start-up phase of the facility than under conventional financing methods and capital commitments would be minimized, although it involves a sharing of potential future profits (if any) from the facility. In July 1996, the Company occupied an additional office building, with approximately 19,000 square feet of office space, in Neenah, Wisconsin. The Company leases this office building under a ten-year lease. In March 1997, the Company occupied another additional office building, with approximately 13,000 square feet of office space, in Neenah, Wisconsin. The Company leases this office building under a ten-year lease. In September 1997, the Company occupied an engineering design center, with approximately 5,000 square feet, in Raleigh, North Carolina. The Company leases this building under a six-year lease. In November 1997, the Company purchased an approximately 14,000 square foot manufacturing and office facility in Minneapolis, Minnesota as part of the NEI acquisition. In addition, as part of the NEI transaction, the Company has leased an approximately 5,000 square foot manufacturing and office facility in Milpitas, California for a five-year term, to house its west coast assembly and sales operations. -5- 7 The Company also uses substantial specialized equipment in its operations. The Company leases a substantial amount of this equipment. The Company believes that its equipment and facilities are modern, well maintained and adequate for its present needs. However, continued expansion of the Company's business may require additional facility expansion in the future. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1997. EXECUTIVE OFFICERS OF THE REGISTRANT The following table contains certain information regarding the present executive officers of the Company, who are elected by the Board of Directors after each annual meeting of shareholders for one-year terms or until replaced by the Board of Directors.
Present Office Name Age Position Held Since ---- --- -------- ---------- Peter Strandwitz 60 Chairman, Chief Executive Office, Director 1979 John L. Nussbaum 55 President, Chief Operating Officer, Director 1996(1) Gerald A. Pitner 56 Executive Vice President, Director 1989 Charles C. Williams 61 Vice President 1989 Thomas B. Sabol 38 Vice President-Finance and Chief Financial 1996(2) Officer Joseph D. Kaufman 40 Vice President, Secretary and General Counsel 1990 William F. Denney 64 Vice President and Treasurer 1995(3)
(1) Mr. Nussbaum has served as President and a director of the Company since 1980. Mr. Nussbaum became Chief Operating Officer in 1996. (2) Mr. Sabol joined the Company in January 1996. From 1993 to 1995, Mr. Sabol served as Vice President and General Auditor for Kemper Corporation. Prior to that time, Mr. Sabol served as Business Assurance Manager for Coopers & Lybrand, LLP. (3) Mr. Denney has served as the Vice President of the Company since 1990, and became Treasurer in 1995. He was the Company's Controller from 1990 to 1997. -6- 8 * * * "SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: The statements contained in this Form 10-K which are not historical facts (such as statements which are in the future tense or which include terms such as "believe," "expect," "plan," "look forward to" or "anticipate") are forward looking statements that involve risks and uncertainties, including, but not limited to, the Company's ability to integrate acquired operations, the Company's ability to secure new customers and maintain its current customer base, the risk of customer reductions, delays or cancellations in both on-going and new programs, the results of cost reduction efforts, the adequate availability of components and related parts for production, the effect of economic conditions, the ability to successfully integrate acquired operations, the impact of technological changes and increased competition, design and manufacturing deficiencies, and other risks detailed herein and in the Company's other Securities and Exchange Commissions filings. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS INFORMATION ON COMMON STOCK For the years ended September 30, 1997 and 1996, the Company's Common Stock has traded on the NASDAQ National Market System; the price information for that period represents high and low sale prices. The Company has not paid any cash dividends. See "Management's Discussion and Analysis of Operations" for a discussion of the Company's dividend intentions.
PRICE RANGE OF COMMON STOCK FISCAL YEAR ENDED SEPTEMBER 30, 1997 FISCAL YEAR ENDED SEPTEMBER 30, 1996 High Low High Low ----------------------------------------------------------------------------------------------- First Quarter 10 3/8 6 7/8 First Quarter 9 3/8 7 3/8 ----------------------------------------------------------------------------------------------- Second Quarter 17 5/8 8 3/8 Second Quarter 8 5/8 6 1/4 ----------------------------------------------------------------------------------------------- Third Quarter 28 12 1/2 Third Quarter 7 5/8 5 5/8 ----------------------------------------------------------------------------------------------- Fourth Quarter 38 1/4 23 1/2 Fourth Quarter 8 6 1/2 ----------------------------------------------------------------------------------------------- YEAR 38 1/4 6 7/8 Year 9 3/8 5 5/8 -----------------------------------------------------------------------------------------------
INVESTOR INFORMATION Plexus Corp. Common Stock is traded over-the-counter on the NASDAQ National Market Sytem, symbol PLXS. As of September, 30, 1997, there were approximately 6,000 shareholders of record. On December 19, 1997, the Company announced that it may repurchase up to 2,000,000 shares (or $25 million in value) of its Common Stock in market purchases. -7- 9 ITEM 6. SELECTED FINANCIAL DATA. FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share amounts) For the Years Ended September 30, OPERATING STATEMENT DATA 1997 1996 1995 1994 1993 -------------------------------------------------------------------------------------------------------------------------- Net sales $386,431 $316,124 $283,134 $242,483 $159,597 -------------------------------------------------------------------------------------------------------------------------- Gross profit 44,016 27,333 23,696 16,170 13,074 -------------------------------------------------------------------------------------------------------------------------- Gross margin 11.4% 8.6% 8.4% 6.7% 8.2% -------------------------------------------------------------------------------------------------------------------------- Operating income 26,817 13,987 12,435 7,926 6,310 -------------------------------------------------------------------------------------------------------------------------- Operating margin 6.9% 4.4% 4.4% 3.3% 4.0% -------------------------------------------------------------------------------------------------------------------------- Net income 16,400 7,431 6,343 3,057 2,570 -------------------------------------------------------------------------------------------------------------------------- Fully diluted net income per share $ 1.04 $ .52 $ .44 $ .23 $ .20 -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS STATEMENT DATA -------------------------------------------------------------------------------------------------------------------------- Cash flows provided by operations $ 20,361 $ 29,243 $ 4,188 $(11,171) $ (9,548) -------------------------------------------------------------------------------------------------------------------------- Capital equipment additions 10,738 4,144 2,106 5,288 8,233 -------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA -------------------------------------------------------------------------------------------------------------------------- Working capital $ 53,258 $ 51,425 $ 71,302 $ 62,784 $ 45,169 -------------------------------------------------------------------------------------------------------------------------- Total assets 121,817 107,374 115,088 122,021 95,149 -------------------------------------------------------------------------------------------------------------------------- Long-term debt 3,516 15,372 41,734 40,691 40,064 -------------------------------------------------------------------------------------------------------------------------- Stockholders' equity 67,583 48,017 41,009 34,879 24,801 -------------------------------------------------------------------------------------------------------------------------- Return on average assets 14.3% 6.7% 5.4% 2.8% 3.2% -------------------------------------------------------------------------------------------------------------------------- Return on average equity 28.4% 16.7% 16.7% 10.2% 10.7% -------------------------------------------------------------------------------------------------------------------------- Inventory turnover ratio 6.7x 5.6x 4.8x 4.1x 3.7x --------------------------------------------------------------------------------------------------------------------------
NOTE: All share and per share information reported throughout this 10-K has been restated (except where noted) to give effect to the Company's two-for-one stock split effective August 25, 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONDITION AND RESULTS OF OPERATIONS. STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations, with the exception of historical matters, contains forward-looking statements (such as statements in the future tense and those including the terms "believe," "expect," "anticipate," "intend" and similar concepts) which involve risks and uncertainties. Actual results may differ materially from these statements as a result of various factors, including those discussed in further detail below (in particular "General"). GENERAL Plexus Corp. is a contract provider of design, manufacturing and testing services to the electronics industry. Headquartered in Neenah, Wisconsin, the Company provides product realization services and is one of the largest electronic assembly organizations in the United States. Through its wholly owned subsidiaries, Plexus Technology Group, Inc., and Plexus Electronic Assembly Corporation, the Company offers a full range of services including product development and design, material procurement and management, prototyping, assembly, testing, manufacturing, final system box build and distribution. Services are provided to original equipment manufacturers in the computer (primarily mainframe, server and peripheral products), medical, industrial, telecommunications and transportation electronics industries. -8- 10 The Company has operations in Wisconsin and Kentucky, and recently expanded to North Carolina, Minnesota and California. The expansion in Raleigh, N.C., in September 1997 established a new engineering and sales facility to further develop, support and strengthen the Company's technological capabilities and customer base on the East Coast. In November 1997, the Company acquired the assets of two related companies located in Minneapolis, Minn., and Milpitas, Calif., in a cash transaction made through the Company's newly formed PAC Acquisition Corp. subsidiary. The assets acquired, individually and combined, were less than 3 percent of the Company's total assets. Total combined sales of the acquired companies were approximately $3 million in the 12-month period ended September 30, 1997. The Minneapolis location strengthens the Company's presence in the medical industry. The California location puts the Company in the heart of Silicon Valley. The acquisitions are intended to support the Company's growth as the product realization company. Because the acquisitions were accounted for using the purchase method of accounting, the effects of the acquisitions will only be included in the Company's financial statements from the acquisition date. The acquisitions are not expected to have a material impact on the Company's financial condition and results of operations. The Company continues to look for other opportunities for geographical expansion that will improve the Company's ability to provide services to its customers. The Company's contract manufacturing services are provided on either a turnkey basis, where the Company procures certain or all of the materials required for product assembly, or on a consignment basis, where the customer supplies some or, occasionally, all materials necessary for product assembly. Turnkey services include material procurement and warehousing, in addition to manufacturing, and involve greater resource investment and inventory risk management than consignment services. Turnkey manufacturing currently represents almost all of the Company's sales. Turnkey sales typically generate higher net sales and higher gross profit dollars with lower gross margin percentages than consignment sales due to the inclusion of component costs, and related markup, in the Company's net sales. Variations in the Company's turnkey sales have caused, and could continue to cause, the Company's gross margin and profitability to fluctuate year to year and quarter to quarter. Since a substantial portion of the Company's sales are derived from turnkey manufacturing, net sales can be negatively impacted by component shortages. Shortages of key electronic components which are provided directly from customers or suppliers can cause manufacturing interruptions, customer rescheduling issues, production downtime and production set-up and restart inefficiencies. From time to time, allocations of components can be an integral part of the electronics industry. Shortages that occurred in the past, including the first half of fiscal 1996, mainly in logic and memory devices, were mitigated in the second half of fiscal year 1996, as well as in fiscal 1997, due to a shift in the supply-demand cycle for such components. While in general the marketplace for such components has eased, allowing greater availability, key component shortage issues can still occur with respect to specific industries or particular components. In response to this dynamic environment, the Company has a corporate procurement organization whose primary purpose is to create strong supplier alliances to assure a steady flow of components at competitive prices and mitigate shortages. Strategic relationships have been established with international purchasing offices to improve shortage and pricing issues. However, because of the limited number of suppliers for certain electronic components and other supply and demand concerns, the Company can neither eliminate component shortages nor determine the timing or impact of such shortages on the Company's results. As a result, the Company's sales and profitability can be affected from period to period. -9- 11 Many of the industries for which the Company currently provides electronic products are subject to rapid technological change, product obsolescence, increased competition, and pricing pressures. In fiscal 1997, approximately 6 percent of the Company's total sales were foreign, with less than 2 percent going into the Southeast Asian market, which is currently experiencing unfavorable currency and economic conditions. These and other factors which affect the industries or the markets that the Company serves, and which affect any of the Company's major customers in particular, could have a material adverse effect on the Company's results of operations. The Company has no long-term volume commitments from its customers, and lead-times for customer orders and product-life cycles continue to contract. Customer programs can be canceled and volume levels can be changed or delayed at any time. The timely replacement of delayed, canceled or reduced programs with new business cannot be assured. Because of these and other factors, there can be no assurance that the Company's recent historical sales growth rate will continue. In fiscal 1998, sales growth, when compared to like periods in fiscal 1997, is expected to be more pronounced in the second half of the year due to the effect of the timing of certain programs on first half sales, and anticipated new customers and new programs ramping production up in the second half of the fiscal year. See "Results of Operations -- Net Sales" below for certain factors affecting net sales to the Company's largest customers. The Company believes that its growth has been achieved in significant part by its approach to partnering with customers mainly through its product design and development services. Approximately 20 percent of the Company's contract manufacturing sales are a direct result of these services. The Company intends to continue to leverage this aspect of its product design and development services for continued growth in contract manufacturing revenues. Currently, the design and development services are less than 10 percent of total sales. In order to achieve expanded sales growth, the Company must continue to generate additional sales from existing customers from both current and future programs, and must successfully market to new customers. The Company must also successfully integrate and leverage its new regional product design centers into this strategy. In addition, the Company must continue to attract and retain top quality product development engineers in order to continue to expand its design and development services. Because of these and other factors, there can be no assurance that the Company's historic growth rates will continue. Start-up costs and the management of labor and equipment efficiencies for new programs and new customers can have an effect on the Company's gross margins. Due to these and other factors, gross margins can be negatively impacted early on in the life cycle of new programs. In addition, labor efficiency and equipment utilization rates ultimately achieved and maintained by the Company for new and current programs impact the Company's gross margins. Geographical expansion and growth by acquisition can have an effect on the Company's operations. The successful operation of an acquired business will require communication and cooperation among key managers, along with the transition of customer relationships. There can be no assurance that the Company will successfully manage the integration of new locations or acquired operations and may experience certain inefficiencies which could negatively impact the results of operations. Additionally, no assurance can be given that any past or future acquisition by the Company will enhance the Company's business. The Company has a corporate information technology organization whose primary purpose is to ensure vision and direction of information systems to meet internal and external needs. The Company must keep pace with rapid technological developments in its management information systems and its production facilities and equipment, and can experience costs and conversion difficulties in connection with the implementation of new systems and processes. In addition, like all other companies, the Company must assure that its computer and software systems, and other machinery and systems that depend upon computer-driven operations or which have embedded chips or micro-processors, are capable of accurately functioning and accurately recognizing and processing data in the year 2000 and beyond ("Year 2000 Compliant"). The Company expects to be Year 2000 Compliant in calendar 1998, although certain functions are subject to the efforts of third-party suppliers. The costs associated with implementing year 2000 applications currently are not expected to be material, although there can be no assurances. -10- 12 The Company operates in a highly competitive industry. The Company faces competition from a number of domestic and foreign electronic manufacturing services companies, some with financial and manufacturing resources greater than the Company's. The Company also faces competition in the form of current and prospective customers that have the capabilities to develop and manufacture products internally. In order to remain a viable alternative, the Company must continue to enhance its total engineering and manufacturing technologies. Other factors that could adversely affect forward-looking statements include the Company's ability to maintain and expand its customer base, gross margin pressures, the effect of start-up costs related to new facilities, the overall economic conditions affecting the electronics industry, and other factors and risks detailed herein and in the Company's other Securities and Exchange Commission filings. RESULTS OF OPERATIONS NET SALES In fiscal 1997, net sales grew to $386 million, an increase of $70 million, or 22 percent, over the previous year. Net sales in fiscal 1996 were $316 million, an increase of $33 million, or 12 percent, over fiscal 1995. The increase in net sales in fiscal 1997 was due both to increased orders from existing customers, including ongoing and new programs, and the addition of new customers, the largest of which was Unisys Corporation (Unisys). However, sales to International Business Machines Corporation (IBM), the Company's largest customer in fiscal 1996, were significantly below the prior year as certain low-margin programs, primarily disk drive business, transitioned to low-cost labor markets overseas and other programs reached end-of-life status or were transitioned by IBM into in-house manufacturing facilities. The reduction in IBM sales was more than offset by the above-mentioned sales gains with other current and new customers. The sales increase in fiscal 1996 was due to increased orders from existing customers, including ongoing and new programs, and the addition of new customers. However, the increases were not as extensive as originally anticipated by Company management primarily due to delays in several new programs caused by customer cutbacks in original forecasts, component shortages and customer time-to-market issues caused by design changes or other customer-specific factors. In addition, certain ongoing programs had volume reductions from prior years based on revised customer forecasts. Finally, certain customers adjusted production schedules because of their own internal excess manufacturing capacity. While the Company experienced sales growth in fiscal 1997 across all the industries it services, except the computer industry which had essentially flat sales, growth was more pronounced in the telecommunications, industrial and transportation industries of the electronics market. Sales to the computer industry were impacted primarily by the reduction in sales to IBM, offset by the addition of Unisys as a new customer. As a result, the percentage of overall computer industry sales declined to 31 percent from 38 percent of total sales. Sales for fiscal 1997 for the other industries were as follows: Medical 21 percent (21 percent in fiscal 1996), Industrial 21 percent (18 percent), Transportation 12 percent (11 percent), Telecommunications 11 percent (9 percent), and Other 4 percent (3 percent). Currently, the Company does not expect there will be any material changes in the breakdown of its sales by industry in fiscal 1998. -11- 13 The Company's largest customers continue to be IBM and General Electric Company (GE). Sales to IBM (including up to six subsidiaries or divisions) were 12 percent, 26 percent and 26 percent of total sales for fiscal 1997, 1996, and 1995, respectively. Sales to GE (including up to four subsidiaries or divisions) were 13 percent, 13 percent and 17 percent of total sales for fiscal 1997, 1996, and 1995, respectively. Sales to Motorola, Inc. (including up to five subsidiaries or divisions) reached 10 percent of total sales for the first time in fiscal 1997. Finally, fiscal 1997 sales to Unisys were slightly less than 10 percent of the Company's total sales. These results reflect the Company's dedication to continue diversifying its customer base, and decrease its dependence on any particular customer or customers. Each division or subsidiary of these customers contracts independently of the other divisions or subsidiaries. The Company has continued to obtain new business from other customers that has resulted in a reduced dependency on IBM and GE. The reduction in IBM sales was discussed above. Sales in dollar terms to GE were up over 19 percent from fiscal 1996, the decrease as a percentage of net sales resulted from the Company's increasing sales to other customers. This dollar volume increase was primarily due to increased sales to GE Medical Systems. The increase in sales to Motorola resulted from new programs commenced in fiscal 1997. Sales to Unisys resulted from the transition of programs during the year to the Company. Currently the Company expects sales from IBM, GE and Unisys to remain steady in fiscal 1998. However, their percentage of total Company sales could continue to decline as other customers grow. The timing and amount of sales to Motorola vary due to its in-house manufacturing capacity. Sales to the Company's ten largest customers accounted for 68 percent, 70 percent, and 75 percent of total revenues in fiscal 1997, 1996, and 1995, respectively. The decline has occurred primarily due to the Company's ability to obtain new business from other customers, thereby reducing its dependency on these customers. The Company remains dependent upon continued sales to IBM, GE, Motorola, Unisys and its other significant customers. Any material change in orders from these or other customers could have a material effect on the Company's results of operations. GROSS PROFIT Gross profit increased by $16.7 million, or 61 percent, in fiscal 1997 compared to fiscal 1996 and by $3.6 million, or 15 percent, during fiscal 1996 compared to fiscal 1995. The gross margin increased to 11.4 percent in fiscal 1997, from 8.6 percent in fiscal 1996. The gross margin in fiscal 1995 was 8.4 percent. The increase in gross margin in fiscal 1997 compared to fiscal 1996 reflects the leverage generated by higher sales volumes, continued cost savings from initiatives instituted in the second quarter of fiscal 1996, the increased utilization of the Company's Advanced Manufacturing Facility, better component pricing, improved product mix, and the Company's integration of its flexible labor force within its Wisconsin operations. These were partially offset by increased start-up costs associated with new programs, primarily Unisys, and increased hiring in the Company's engineering and technical manufacturing areas in order to continue to expand its capabilities and meet customer demands. The slight increase in gross margin in fiscal 1996 over fiscal 1995 was due to the cost-saving initiatives, together with enhanced procurement management, the continued broadening of the Company's customer base, declining material pricing and the increased utilization of the Company's Advanced Manufacturing Facility resulting from increased sales. These factors were mitigated by slower first half sales growth, and increased reserves and write-offs of inventories and accounts receivable, primarily due to improved inventory management procedures instituted in fiscal 1996. -12- 14 The fiscal 1996 cost-saving initiatives included reductions in production and administrative personnel, and equipment lease reductions. Specifically, the Company reduced production and administrative personnel by approximately 140 since February 1, 1996, through layoffs and attrition. These reductions amounted to an approximate 6 percent decrease in overall employment at the Company. In addition to the staffing decreases, the Company reduced fixed expenses, primarily through equipment lease reductions. Severance and related costs with respect to staff reductions and equipment lease reductions were not material. In the second half of fiscal 1996, the Company realized pre-tax cost savings of approximately $1.5 million. The Company also implemented tighter controls over the monitoring and addition of both variable and fixed costs. Future savings, which can not be assured, have continued but at reduced levels because of certain increases which were necessary to support the Company's continued growth in fiscal 1997. Most of the research and development conducted by the Company is paid for by customers and is, therefore, included in cost of sales. Other research and development is conducted by the Company, but is not specifically identified, as the Company believes such expenses are less than 1 percent of its total sales. The Company's gross margin also reflects a number of other factors, including product mix, the level of start-up costs and efficiencies of new programs, sales volume, capacity utilization of surface mount and other equipment, labor costs and efficiencies, the management of inventories, component pricing and shortages, fluctuations and timing of customer orders, changing demand for customer's products and competition within the electronics business. These and other factors can cause variations in the Company's operating results. While the Company's focus is on maintaining and expanding gross margins, there can be no assurance that gross margins will not decrease in future periods. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative (S&A) expenses increased to $17.2 million in fiscal 1997, compared to $13.3 million in fiscal 1996, and $11.3 million in fiscal 1995. As a percentage of sales, S&A expenses were 4.5 percent, 4.2 percent and 4.0 percent in fiscal 1997, 1996 and 1995, respectively. These increases reflect the Company's planned expansion of its sales and marketing efforts, enhancement of its information systems to support the Company's continued growth, and increase in its customer support function. In addition, fiscal 1997 amounts include provisions for attainment of the Company's management bonus plan. The Company anticipates that future S&A expenses will increase in absolute dollars but should remain between 4.5 percent and 4.7 percent of sales, as the Company continues to expand these support areas. OTHER INCOME (EXPENSE) Interest expense was $0.8 million in fiscal 1997, compared to $1.9 million in fiscal 1996 and $2.5 million in fiscal 1995. The continuous decrease in interest expense is primarily due to reduced borrowings required to support working capital, coupled with lower interest rates. See "Liquidity and Capital Resources." Miscellaneous income was $1.0 million in fiscal 1997, compared to $0.3 million in fiscal 1996 and 1995. The increase in 1997 includes approximately $600,000 in gains from the buyout and sale of certain leased manufacturing equipment. INCOME TAXES Income taxes increased to $10.7 million in fiscal 1997, from $4.9 million in fiscal 1996, and $3.9 million in fiscal 1995, as a result of increased earnings. The Company's effective income tax rate has remained constant at rates between 38 percent to 40 percent in fiscal 1997, 1996, and 1995. These rates approximate the blended Federal and state statutory rate as a result of the Company's operations being located within the United States. -13- 15 LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities were $20.4 million in fiscal 1997, compared to $29.2 million in fiscal 1996. Cash from operations was provided primarily by improved net profits. Accounts receivable increases have occurred primarily due to increased sales volumes. The changes in inventory and customer deposits reflect improved materials management. Inventory turnover improved to 6.7 turns as of September 30, 1997, from 5.6 turns as of September 30, 1996. The cash generated from operating activities was utilized primarily to purchase additional manufacturing equipment and to reduce outstanding debt. Borrowings under the Company's long-term revolving credit agreement have been reduced by approximately $12 million to $3.3 million as of September 30, 1997, from $15.2 million as of September 30, 1996. The Company also obtained $3.5 million in net capital as a result of stock option exercises, which were significant due to the increase in the Company's stock price in fiscal 1997. In 1997, the Company's $40 million revolving credit agreement was amended resulting in an unsecured arrangement and a reduction in the Company's borrowing rates. All other major terms were unchanged from the previous agreement. The new borrowing rates are LIBOR plus 0.875 percent and prime less 1/4 percent (previously LIBOR plus 0.875 percent to LIBOR plus 2 percent and prime less 1/4 percent to prime plus 1/4 percent). The Company's revolving credit agreement extends through July 2002. Capital additions of $10.7 million for fiscal 1997 were primarily concentrated in surface mount assembly equipment, engineering workstations and related software, and management information systems hardware and software. Payments for property, plant and equipment for fiscal 1996 and 1995 were $4.1 million and $2.1 million, respectively. These acquisitions were financed from working capital. The Company has historically utilized operating leases to fund the majority of its manufacturing equipment needs. The Company now anticipates utilizing operating leases primarily in situations where technical obsolescence concerns are determined to outweigh the benefits of financing the equipment purchase. The Company estimates that capital expenditures for fiscal 1998 to be similar to fiscal 1997 at approximately $10 to $12 million, which the Company expects to fund through cash flows from operations and the revolving credit agreement. A new 110,000-square-foot manufacturing facility located in Green Bay, Wisconsin, began production in April 1997. The facility is the result of a partnership with Oneida Nation Electronics (ONE), a corporation chartered by the Oneida Tribe of Indians of Wisconsin. Pursuant to a lease agreement, ONE constructed and equipped the facility for use by the Company. Annual lease payments by the Company for the building and the equipment are based on the profitability of the facility pursuant to a formula defined in the lease agreement. Company management believes this lease provides a financial arrangement under which the Company's earnings would be less likely to be negatively impacted during the start-up phase of the facility than under conventional financing methods, and capital commitments would be minimized, although it involves a sharing of potential future profits from the facility. The Company's Series A Preferred Stock was converted into 554,454 shares (pre-split) of Company Common Stock on February 28, 1997. (See footnote 6 to the Company's consolidated financial statements.) The ratio of total debt-to-equity as of September 30, 1997, was 0.8 to 1, compared to 1.2 to 1 as of September 30, 1996. -14- 16 The Company anticipates increases in working capital in order to facilitate growth. However, because of the dynamics of the Company's industry, the exact timing and amount of these increases cannot be determined. The Company believes that its credit facilities, leasing capabilities and projected cash flows from operations will be sufficient to meet its anticipated working capital needs and its anticipated short-term and long-term capital requirements. The Company's recent acquisitions did not have a material effect on the Company's cash flows. The Company has not paid dividends on its common stock, but has reinvested its earnings to support its working capital and expansion requirements. The Company intends to continue to utilize its earnings in the development and expansion of the business and does not expect to pay cash dividends in the foreseeable future. NEW ACCOUNTING PRINCIPLES The Company is required to adopt Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," in the first quarter of fiscal 1998. The Company is also required to adopt SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," in fiscal 1999. (See footnotes 1 and 9 to the Company's consolidated financial statements.) ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See following "List of Financial Statements and Financial Statement Schedules", and accompanying reports, statements and schedules, which follow beginning on page F.1, all of which are incorporated by reference herein. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this item is incorporated herein by reference to "Election of Directors" in the Registrant's Proxy Statement for its 1998 Annual Meeting of Shareholders ("1998 Proxy Statement") and from "Security Ownership of Certain Beneficial Owners and Management--Section 16(a) Beneficial Ownership Reporting Compliance" in the 1998 Proxy Statement and "Executive Officers of the Registrant" in Part I hereof. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the paragraph under "Election of Directors --Directors' Compensation" and "Executive Compensation" in the 1998 Proxy Statement. -15- 17 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to "Security Ownership of Certain Beneficial Owners and Management" in the 1998 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed: 1. and 2. Financial Statements and Financial Statement Schedules. See following List of Financial Statements and Financial Statement Schedules, on page F-1, which is incorporated herein by reference. 3. Exhibits. See Exhibit Index included as the last pages of this report, which index is incorporated herein by reference. (b) Reports on Form 8-K. No reports on Form 8-K filed by the Company during the last quarter of fiscal 1997. -16- 18 PLEXUS CORP. 10-K LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE SEPTEMBER 30, 1997
CONTENTS Pages -------- ----- Report of Independent Accountants F-2 Consolidated Statements of Operations for the three years ended F-3 September 30, 1997, 1996 and 1995. Consolidated Balance Sheets as of September 30, 1997 and 1996. F-4 Consolidated Statements of Stockholders' Equity for the three years F-5 ended September 30, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the three years ended F-6 September 30, 1997, 1996 and 1995. Notes to Consolidated Financial Statements F-7 TO F-11 Financial Statement Schedule: Report of Independent Accountants F-12 Schedule II - Valuation and Qualifying Accounts F-13
F-1 19 REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS PLEXUS CORP. We have audited the accompanying consolidated balance sheets of Plexus Corp. and Subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mistatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Plexus Corp. and Subsidiaries as of September 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin October 30, 1997 F-2 20 =============================================================================== PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATMENTS OF OPERATIONS for the years ended September 30, 1997, 1996 and 1995 (in thousands, except share data) 1997 1996 1995 - -------------------------------------------------------------------------------- Net sales $386,431 $316,124 $283,134 - -------------------------------------------------------------------------------- Cost of sales 342,415 288,791 259,438 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Gross profit 44,016 27,333 23,696 - -------------------------------------------------------------------------------- Selling and adminstrative expenses 17,199 13,346 11,261 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Operating income 26,817 13,987 12,435 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Other income (expense): - -------------------------------------------------------------------------------- Interest expense (787) (1,924) (2,470) - -------------------------------------------------------------------------------- Miscellaneous 1,050 314 317 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Income before income taxes 27,080 12,377 10,282 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Income taxes 10,680 4,946 3,939 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET INCOME $ 16,400 $ 7,431 $ 6,343 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Net income per common and common equivalent share: - -------------------------------------------------------------------------------- Primary $ 1.08 $ 0.52 $ 0.45 - -------------------------------------------------------------------------------- Fully diluted $ 1.04 $ 0.52 $ 0.44 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Weighted average common and common equivalent shares: - -------------------------------------------------------------------------------- Primary 15,014,423 13,264,726 13,166,064 - -------------------------------------------------------------------------------- Fully diluted 15,790,885 14,376,428 14,498,572 - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 21 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS as of September 30, 1997 and 1996 (in thousands, except share data)
ASSETS 1997 1996 - ------------------------------------------------------------------------------ Current assets: - ------------------------------------------------------------------------------ Cash and cash equivalents $ 3,655 $ 1,847 - ------------------------------------------------------------------------------ Accounts receivable, net of allowance of $360 and $275 in 1997 and 1996, respectively 47,648 35,312 - ------------------------------------------------------------------------------ Inventories 47,931 54,386 - ------------------------------------------------------------------------------ Deferred income taxes 2,571 1,753 - ------------------------------------------------------------------------------ Prepaid expenses and other 981 1,451 - ------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 102,786 94,749 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Property, plant and equipment, net 18,687 12,423 - ------------------------------------------------------------------------------ Other 344 202 - ------------------------------------------------------------------------------ TOTAL ASSETS $ 121,817 $ 107,374 - ------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------ Current liabilities: - ------------------------------------------------------------------------------ Current portion of long-term debt $ 214 $ 63 - ------------------------------------------------------------------------------ Accounts payable 35,099 27,758 - ------------------------------------------------------------------------------ Customer deposits 3,414 8,614 - ------------------------------------------------------------------------------ Accrued liabilities: - ------------------------------------------------------------------------------ Salaries and wages 5,908 3,148 - ------------------------------------------------------------------------------ Other 4,893 3,741 - ------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 49,528 43,324 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Long-term debt 3,516 15,372 - ------------------------------------------------------------------------------ Deferred income taxes 998 661 - ------------------------------------------------------------------------------ Other liabilities 192 - - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Stockholders' equity: - ------------------------------------------------------------------------------ Series A preferred stock, $.01 par value, $1,000 face value, 7,000 shares authorized, 0 and 7,000 issued and outstanding, respectively - 0 - ------------------------------------------------------------------------------ Preferred stock, $.01 par value, 4,993,000 shares authorized, none issued or outstanding - - - ------------------------------------------------------------------------------ Common stock, $.01 par value, 20,000,000 shares authorized, 14,739,914 and 6,501,196 issued and outstanding, respectively 147 65 - ------------------------------------------------------------------------------ Additional paid-in capital 17,675 14,253 - ------------------------------------------------------------------------------ Retained earnings 49,761 33,699 - ------------------------------------------------------------------------------ 67,583 48,017 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 121,817 $ 107,374 - ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 22 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the years ended September 30, 1997, 1996 and 1995 (in thousands, except share data)
SERIES A ADDITIONAL TOTAL PREFERRED STOCK COMMON STOCK PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY - ----------------------------------------------------------------------------------------------------------------------------- Balances, October 1, 1994 7,000 $ 0 6,460,498 $ 65 $ 13,829 $ 20,985 $ 34,879 - ----------------------------------------------------------------------------------------------------------------------------- Exercise of stock options - - 30,834 - 331 - 331 - ----------------------------------------------------------------------------------------------------------------------------- Net income - - - - - 6,343 6,343 - ----------------------------------------------------------------------------------------------------------------------------- Preferred stock dividends ($77.69 per share) - - - - - (544) (544) - ----------------------------------------------------------------------------------------------------------------------------- Balances, September 30, 1995 7,000 0 6,491,332 65 14,160 26,784 41,009 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Exercise of stock options - - 9,864 - 93 - 93 - ----------------------------------------------------------------------------------------------------------------------------- Net income - - - - - 7,431 7,431 - ----------------------------------------------------------------------------------------------------------------------------- Preferred stock dividends ($73.71 per share) - - - - - (516) (516) - ----------------------------------------------------------------------------------------------------------------------------- Balances, September 30, 1996 7,000 0 6,501,196 65 14,253 33,699 48,017 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Exercise of stock options - - 346,049 3 3,501 - 3,504 - ----------------------------------------------------------------------------------------------------------------------------- Net income - - - - - 16,400 16,400 - ----------------------------------------------------------------------------------------------------------------------------- Preferred stock dividends ($48.33 per share) - - - - - (338) (338) - ----------------------------------------------------------------------------------------------------------------------------- Preferred stock conversion (7,000) 0 554,454 6 (6) - 0 - ----------------------------------------------------------------------------------------------------------------------------- Two-for-one common stock split - - 7,338,215 73 (73) - 0 - ----------------------------------------------------------------------------------------------------------------------------- BALANCES, SEPTEMBER 30, 1997 - $ - 14,739,914 $147 $ 17,675 $ 49,761 $ 67,583 - -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 23 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended September 30, 1997, 1996 and 1995 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 1995 - ------------------------------------------------------------------------------ Net income $ 16,400 $ 7,431 $ 6,343 - ------------------------------------------------------------------------------ Adjustments to reconcile net income to net cash flows from operating activities: - ------------------------------------------------------------------------------ Depreciation and amortization 4,487 3,653 3,237 - ------------------------------------------------------------------------------ Provision for inventories and accounts receivable allowances 2,253 2,145 341 - ------------------------------------------------------------------------------ Deferred income taxes (481) (906) 92 - ------------------------------------------------------------------------------ Non-operating gains (620) - - - ------------------------------------------------------------------------------ Changes in assets and liabilities: - ------------------------------------------------------------------------------ Accounts receivable (12,432) 12,060 (4,050 - ------------------------------------------------------------------------------ Inventories 4,298 (7,377) 10,929 - ------------------------------------------------------------------------------ Prepaid expenses and other 470 479 1,270 - ------------------------------------------------------------------------------ Accounts payable 7,341 4,479 (13,612 - ------------------------------------------------------------------------------ Customer deposits (5,200) 5,084 29 - ------------------------------------------------------------------------------ Accrued liabilities 3,912 2,178 (333 - ------------------------------------------------------------------------------ Other (67) 17 (58 - ------------------------------------------------------------------------------ CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 20,361 29,243 4,188 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------------------------------------------------ Payments for property, plant and equipment (10,738) (4,144) (2,106 - ------------------------------------------------------------------------------ Proceeds on sale of property, plant and equipment 724 8 19 - ------------------------------------------------------------------------------ CASH FLOWS USED IN INVESTING ACTIVITIES (10,014) (4,136) (2,087 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------------------------------------------------ Proceeds from debt 96,442 196,300 121,900 - ------------------------------------------------------------------------------ Payments on debt (108,147) (222,706) (121,300 - ------------------------------------------------------------------------------ Proceeds from exercise of stock options 3,504 93 331 - ------------------------------------------------------------------------------ Payments of preferred stock dividends (338) (516) (544 - ------------------------------------------------------------------------------ CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,539) (26,829) 387 - ------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 1,808 (1,722) 2,488 - ------------------------------------------------------------------------------ Cash and cash equivalents, beginning of year 1,847 3,569 1,081 - ------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,655 $ 1,847 $ 3,569 - ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 24 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE I. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Description of Business: Plexus Corp. provides product realization services to original equipment manufacturers (OEMs) in the computer (primarily mainframes, servers and peripherals), medical, industrial, telecommunications and transportation electronics industries. The Company offers a full range of services including product development and design services, material procurement and management, prototyping, assembly, testing, manufacturing, final system box build and distribution. The contract manufacturing services are provided on either a turnkey basis, where the Company procures certain or all of the materials required for product assembly, or on a consignment basis, where the customer supplies materials necessary for product assembly. Turnkey services include material procurement and warehousing, in addition to manufacturing, and involve greater resource investment than consignment services. Turnkey manufacturing currently represents almost all of the Company's sales. The Company has operations in Wisconsin, Kentucky and North Carolina. Consolidation Principles: The consolidated financial statements include the accounts of Plexus Corp. and its subsidiaries (together "the Company"). All significant intercompany transactions have been eliminated. Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories: Inventories are valued primarily at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Property, Plant and Equipment and Depreciation: These assets are stated at cost. Depreciation, determined on the straight-line method, is based on lives assigned to the major classes of depreciable assets as follows: Buildings and improvements 18-40 years Machinery and equipment 3-10 years Revenue Recognition: Revenue is recognized primarily when inventory is shipped. Revenue and profit relating to product design and development contracts (such sales are less than 10% of total revenue) are recognized as costs are incurred utilizing the percentage-of-completion method; any losses are recognized when anticipated. Progress towards completion of product design and development contracts are based on units of work for labor content and cost for component content. Income Taxes: Deferred income taxes are provided for differences between the bases of assets and liabilities for financial and tax reporting purposes. Stock Options: Proceeds from the sale of newly issued common stock to employees under the Company's stock option plan are credited to common stock to the extent of par value and the excess to additional paid-in capital. Income tax benefits attributable to stock options exercised are recorded as an increase in additional paid-in captial. Net Income Per Common and Common Equivalent Share: The computation of primary net income per common share is based upon the weighted average number of common shares outstanding plus the effect of common shares contingently issuable relating to outstanding stock options using the treasury stock method and net income reduced for preferred stock dividends. The computation of fully diluted net income per common share reflects additional dilution from stock options and convertible preferred shares using if-converted method. The Company is required to adopt Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" in the first quarter of fiscal 1998. SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share. Under SFAS No. 128, the Company will be required to present both basic net income per share and diluted net income per share. Basic net income per share is expected to be higher than the currently presented primary net income per share as the effect of dilutive stock options will not be considered in computing basic net income per share. Diluted net income per share is expected to be comparable to the currently presented fully diluted net income per share. Upon adoption of this statement, all prior-period earnings per share data will be restated to conform to the provisions of SFAS No. 128. The Company is required to adopt SFAS No. 130, "Reporting Comprehensive Income" in fiscal 1999. SFAS No. 130 requires reporting comprehensive income in a financial statement, which includes, in addition to net income, other items that are reported as direct adjustments to stockholders' equity. Such items include foreign currency translation items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. Presently the Company does not have any items that would require inclusion under this statement. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-7 25 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. INVENTORIES Inventories as of September 30, 1997 and 1996 consist of (in thousands):
1997 1996 - ------------------------------------------------------------------------ Assembly parts $ 28,828 $ 37,941 - ------------------------------------------------------------------------ Work-in-process 18,557 16,281 - ------------------------------------------------------------------------ Finished goods 546 164 - ------------------------------------------------------------------------ $ 47,931 $ 54,386 ========================================================================
NOTE 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of September 30, 1997 and 1996 consist of (in thousands):
1997 1996 - ------------------------------------------------------------------------ Land, buildings and improvements $ 8,583 $ 8,414 - ------------------------------------------------------------------------ Machinery and equipment 35,439 25,262 - ------------------------------------------------------------------------ 44,022 33,676 - ------------------------------------------------------------------------ Less accumulated depreciation 25,335 21,253 - ------------------------------------------------------------------------ $ 18,687 $ 12,423 ========================================================================
NOTE 4. DEBT Long-term debt as of September 30, 1997 and 1996 consists of (in thousands):
1997 1996 - ------------------------------------------------------------------------ Revolving credit arrangement $ 3,250 $ 15,200 - ------------------------------------------------------------------------ Other notes and obligations with a weighted average interest rate of 3.0% and 5.5%, respectively 480 235 - ------------------------------------------------------------------------ 3,730 15,435 - ------------------------------------------------------------------------ Less current portion 214 63 - ------------------------------------------------------------------------ $ 3,516 $ 15,372 ========================================================================
The Company's revolving credit arrangement was amended in March 1997. The agreement provides for maximum borrowings of $40 million with all or a portion of the principal bearing interest at a LIBOR based or a prime based rate as elected by the Company. These rates are LIBOR plus 0.875% and prime less 1/4% (previously rates ranged from LIBOR plus 0.875% to LIBOR plus 2% and prime less 1/4% to prime plus 1/4%). The weighted average interest rate of borrowings under this agreement was 6.6% as of September 30, 1997. The credit arrangement is unsecured (previously was limited to the sum of 80% of qualified accounts receivable and the lesser of 50% or $27.5 million of qualified inventory, and was collateralized by accounts receivable and inventories). A commitment fee of 1/8 of 1% per annum on the unused portion of this agreement is payable quarterly. The agreement matures in July 2002. The revolving credit agreement, as amended, includes covenants which require the maintenance of various debt to net worth ratios. The carrying amount of the Company's long-term debt approximates fair value. The aggregate scheduled maturities of long-term debt in subsequent years are as follows (in thousands): - ------------------------------------------------------------------------ 1998 $ 214 - ------------------------------------------------------------------------ 1999 114 - ------------------------------------------------------------------------ 2000 10 - ------------------------------------------------------------------------ 2001 11 - ------------------------------------------------------------------------ 2002 3,261 - ------------------------------------------------------------------------ Thereafter 120 - ------------------------------------------------------------------------ $ 3,730 ========================================================================
Cash paid for interest in fiscal 1997, 1996 and 1995 was $0.9 million, $2.0 million and $3.0 million, respectively. F-8 26 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INCOME TAXES Income tax expense (benefit) consists of (in thousands):
1997 1996 1995 - -------------------------------------------------------------- Currently payable: Federal $ 9,422 $ 4,983 $ 3,209 - -------------------------------------------------------------- State 1,739 869 638 - -------------------------------------------------------------- 11,161 5,852 3,847 - -------------------------------------------------------------- Deferred: - -------------------------------------------------------------- Federal (422) (800) 52 - -------------------------------------------------------------- State (59) (106) 40 - -------------------------------------------------------------- (481) (906) 92 - -------------------------------------------------------------- $ 10,680 $ 4,946 $ 3,939 - --------------------------------------------------------------
Following is a reconciliation of the Federal statutory income tax rate to the effective tax rates reflected in the consolidated statements of operations for fiscal 1997, 1996 and 1995:
1997 1996 1995 - -------------------------------------------------------------- Federal statutory income tax rate 34.0% 34.0% 34.0% - -------------------------------------------------------------- Increase (decrease) resulting from: - -------------------------------------------------------------- State income taxes, net of Federal income tax benefit 4.2 4.1 4.4 - -------------------------------------------------------------- Other, net 1.2 1.9 (0.1) - -------------------------------------------------------------- EFFECTIVE INCOME - -------------------------------------------------------------- TAX RATE 39.4% 40.0% 38.3% - --------------------------------------------------------------
The components of the net deferred income tax asset as of September 30, 1997 and 1996, consist of (in thousands):
1997 1996 - ----------------------------------------------------------------------- Deferred tax assets: - ----------------------------------------------------------------------- Inventories $ 1,423 $ 713 - ----------------------------------------------------------------------- Accrued benefits 753 582 - ----------------------------------------------------------------------- Capital loss carryforwards 160 207 - ----------------------------------------------------------------------- Other 395 458 - ----------------------------------------------------------------------- 2,731 1,960 - ----------------------------------------------------------------------- Less valuation allowance (160) (207) - ----------------------------------------------------------------------- 2,571 1,753 - ----------------------------------------------------------------------- Deferred tax liabilities: - ----------------------------------------------------------------------- Property, plant and equipment 998 661 - ----------------------------------------------------------------------- NET DEFERRED INCOME TAX ASSET $ 1,573 $ 1,092 - -----------------------------------------------------------------------
The Company records a valuation allowance to reflect the estimated amount of deferred income tax assets which relate to the realization of capital losses. Cash paid for income taxes in fiscal 1997, 1996 and 1995 was $11.1 million, $5.0 million and 4.6 million, respectively. 6. STOCKHOLDERS' EQUITY On February 4, 1997, the Company gave notice to the holders of its Series A Preferred stock ("Preferred Shares") that the shares would be redeemed unless the 7,000 Preferred Shares were converted into shares of the Company's common stock. On February 28, 1997, the holders of the Preferred Shares converted all such shares, in accordance with their terms, into a total of 554,454 (pre-split) shares of the Company's common stock. The Preferred Shares, with a face value of $1,000 per share were issued in 1994. Dividends were earned on the face value of the Preferred Shares at the prime rate less 1%. Dividends were cumulative and payable semiannually in arrears when and as declared by the Company's Board of Directors. On July 17, 1997, the Company declared a two-for-one stock split payable in the form of a stock dividend of one share of common stock for every share of common stock outstanding. The new stock was issued on August 25, 1997, to holders of record as of August 14, 1997. Share and per share amounts, where required, have been restated to reflect this stock split. 7. LEASE COMMITMENTS The Company has a number of operating lease agreements primarily involving manufacturing equipment, computerized design equipment and manufacturing facilities. These leases are noncancelable and expire on various dates through 2014. Rent expense under all operating leases for fiscal 1997, 1996 and 1995 was approximately $10.2 million, $13.5 million and $12.5 million, respectively. Renewal and purchase options are available on certain of these leases. The subsequent sale of equipment obtained through the exercise of the purchase option on certain leases resulted in miscellaneous income of $620,000 in fiscal 1997. In April 1997, the Company began leasing a new 110,000-square-foot manufacturing facility located in Green Bay, Wisconsin. The facility was constructed and equipped by Oneida Nation Electronics (ONE), a corporation chartered by the Oneida Tribe of Indians of Wisconsin. All lease payments for the building and equipment are based on the profitability of the facility pursuant to a formula defined in the lease agreement. There are no required minimum lease payments. Future minimum annual payments on operating leases are as follows (in thousands): 1998 $ 7,311 - --------------------------------------- 1999 5,380 - --------------------------------------- 2000 4,153 - --------------------------------------- 2001 2,056 - --------------------------------------- 2002 1,926 - --------------------------------------- Thereafter 15,827 - --------------------------------------- $ 36,653 -------------------------------------- F-9 27 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. BENEFIT PLANS 401(K) Savings Plan: The Company's 401(k) savings plan covers all employees with 90 days or more of service. The Company matches employee contributions, for those employees who have one or more years of service, up to 2.5% of eligible earnings. The Company's contributions for the fiscal 1997, 1996 and 1995 totaled $966,000, $828,000 and $644,000, respectively. Stock Option Plans: The company has reserved 3.8 million shares of common stock for grant to officers and key employees under employee stock options plans. The exercise price of each option granted shall not be less than the fair market values on the date of grant and options vest over a three-year period from date of grant. The plans also authorize the Company to grant 1,500,000 stock appreciation rights, none of which have been granted. Additionally, under a separate plan, each independent outside director is granted 1,500 stock options each December 1 with options pricing similar to the employee plans, that are fully vested upon grant and can be exercised after a minimum six-month holding period. The 200,000 shares of common stock authorized under this plan may come from any combination of authorized but unissued shares, treasury stock or the open market. A summary of the stock option activity follows (shares in thousands):
1997 1996 1995 WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE - ------------------------------------------------------------------------------------------------------------------------------------ Options outstanding at beginning of year 2,029 $ 6.16 1,501 $ 5.90 1,122 $ 5.42 - ------------------------------------------------------------------------------------------------------------------------------------ Granted 668 $ 12.12 563 $ 6.80 490 $ 6.92 - ------------------------------------------------------------------------------------------------------------------------------------ Canceled (32) $ 6.68 (16) $ 6.40 (50) $ 5.63 - ------------------------------------------------------------------------------------------------------------------------------------ Exercised ($1.27 - $8.31 per share) (632) $ 5.57 (19) $ 4.69 (61) $ 5.37 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ OPTIONS OUTSTANDING AT END OF YEAR 2,033 $ 8.29 2,029 $ 6.16 1,501 $ 5.90 - ------------------------------------------------------------------------------------------------------------------------------------ OPTIONS EXERCISABLE AT END OF YEAR 883 $ 6.23 1,061 $ 5.72 700 $ 5.44 - ------------------------------------------------------------------------------------------------------------------------------------ SHARES AVAILABLE FOR FUTURE - ------------------------------------------------------------------------------------------------------------------------------------ OPTIONS AT END OF YEAR 576 1,212 1,759 - ------------------------------------------------------------------------------------------------------------------------------------
The following table summarizes outstanding stock option information at September 30, 1997 (shares in thousands):
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE EXERCISE PRICES OUTSTANDING EXERCISE PRICE REMAINING LIFE EXERCISABLE EXERCISE PRICE - ------------------------------------------------------------------------------------------------------------------------------------ $ $ 1.27 5 $ 1.27 0.6 Years 5 $ 1.27 - ------------------------------------------------------------------------------------------------------------------------------------ $ 2.42- $ 2.46 88 $ 2.45 3.7 Years 88 $ 2.45 - ------------------------------------------------------------------------------------------------------------------------------------ $ 5.21- $ 7.03 1,159 $ 6.49 7.8 Years 649 $ 6.24 - ------------------------------------------------------------------------------------------------------------------------------------ $ 8.31- $ 12.31 781 $ 11.66 8.7 Years 141 $ 8.70 - ------------------------------------------------------------------------------------------------------------------------------------ $ 1.27- $ 12.31 2,033 $ 8.29 7.9 Years 883 $ 6.23 - ------------------------------------------------------------------------------------------------------------------------------------
The Company has elected to continue to account for its stock option plans under the guidelines of Accounting Principles Board Opinion No. 25. Accordingly, no compensation cost related to the stock option has been recognized in the statement of operations. Had the Company recognized compensation expense based on the fair value at the grant date for awards under the plans, consistent with the method prescribed by SFAS No. 123 "Accounting for Stock-Based Compensation," the Company's net income for fiscal 1997 and 1996 would have been reduced by approximately $5.1 million and $0.7 million, respectively. Primary earnings per share would have been reduced by $0.36 and $0.05, respectively. these pro forma results will not be representative of the impact in future years because only grants made since October 1, 1995 were considered. The fair value of each option grant is estimated at the date of grant using the Black-Scholes prorated straight line option-pricing method with the following assumptions: 45% volatility, 0% annual dividend yield, and risk-free interest rates ranging from 5.3% to 6.6% based on expected terms and grant dates. F-10 28 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred Compensation Plan: In September 1996, the Company entered into agreements with certain of its officers under a nonqualified deferred compensation plan. Under the plan the Company has agreed to pay certain amounts annually for the first 15 years subsequent to retirement or to a designated beneficiary upon death. It is management's intent that life insurance contracts owned by the Company will fund this plan. Expense for this plan totaled $315,000 and $29,000 in fiscal 1997 and 1996, respectively. Other: The Company is not obligated to provide any post-retirement medical or life insurance benefits to employees. 9. BUSINESS SEGMENT AND MAJOR CUSTOMERS The Company its subsidiaries operate in one business segment, the production and sale of electronic products including the designing, manufacturing, programming and testing of computerized electronic assemblies. The following table summarizes the percentage of net sales to customers that account for more than 10% of net sales in fiscal 1997, 1996 and 1995: 1997 1996 1995 - -------------------------------------------------------------------------------- IBM 12% 26% 26% - -------------------------------------------------------------------------------- General Electric 13% 13% 17% - -------------------------------------------------------------------------------- Motorola 10% * * - -------------------------------------------------------------------------------- (*represents sales less than 10%) Accounts receivable related to these customers represented 28% of the Company's trade accounts receivable as of September 30, 1997. The Company is required to adopt SFAS NO. 131, "Disclosure about Segments of an Enterprise and Related Information" in fiscal 1999. SFAS No. 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic area and major customers. The Company is evaluating the effect of this pronouncement on its consolidated financial statements. 10. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for fiscal 1997 and 1996 consists of (in thousands, except per share amounts):
1997 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $ 87,366 $ 96,750 $ 99,092 $ 103,223 $ 386,431 - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 8,653 10,420 11,943 13,000 44,016 - ------------------------------------------------------------------------------------------------------------------------------------ Net income 2,864 3,597 4,419 5,520 16,400 - ------------------------------------------------------------------------------------------------------------------------------------ Income per common share* - ------------------------------------------------------------------------------------------------------------------------------------ Primary $ 0.20 $ 0.24 $ 0.29 $ 0.34 $ 1.08 - ------------------------------------------------------------------------------------------------------------------------------------ Fully diluted 0.20 0.23 0.28 0.34 1.04 - ------------------------------------------------------------------------------------------------------------------------------------ 1996 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $ 71,308 $ 75,286 $ 86,066 $ 83,464 $ 316,124 - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 4,673 5,176 7,923 9,561 27,333 - ------------------------------------------------------------------------------------------------------------------------------------ Net income 805 839 2,604 3,183 7,431 - ------------------------------------------------------------------------------------------------------------------------------------ Income per common share* - ------------------------------------------------------------------------------------------------------------------------------------ Primary $ 0.06 $ 0.06 $ 0.18 $ 0.23 $ 0.52 - ------------------------------------------------------------------------------------------------------------------------------------ Fully diluted 0.06 0.06 0.18 0.22 0.52 - ------------------------------------------------------------------------------------------------------------------------------------
(*) Income per common share is computed independently for each quarter. The annual per share amount may not equal the sum of the quarterly amounts do to rounding. F-11 29 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Plexus Corp. Our report on the consolidated financial statements of Plexus Corp. is included on page F-2 of the Form 10-K. In connection with our audits of such financial statements, we have also audited the related consolidated financial statement schedule listed in the index on page F-1 of this Form 10-K. In our opinion, the consolidated financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand LLP - ------------------------- Milwaukee, Wisconsin October 30, 1997 F-12 30 PLEXUS CORP. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS for the years ended September 30, 1997, 1996 and 1995 (Dollars in thousands)
Additions Balance at Charged to Balance Beginning Costs and Deductions At End of Descriptions of Period Expenses (A) Period - ------------------------------ ---------- ---------- ---------- --------- 1997: Allowance for losses on accounts receivable (deducted from the asset to which it relates) $ 275 $ 96 $ 11 $ 360 Allowance for inventory obsolescence (deducted from the asset to which it relates) 1,466 2,157 589 3,034 ------- ------- ------- ------- $ 1,741 $ 2,253 $ 600 $ 3,394 ======= ======= ======= ======= 1996: Allowance for losses on accounts receivable (deducted from the asset to which it relates) $ 145 $ 188 $ 58 $ 275 Allowance for inventory obsolescence (deducted from the asset to which it relates) 307 1,957 798 1,466 ------- ------- ------- ------- $ 452 $ 2,145 $ 856 $ 1,741 ======= ======= ======= ======= 1995: Allowance for losses on accounts receivable (deducted from the asset to which it relates) $ 130 $ 189 $ 174 $ 145 Allowance for inventory obsolescence (deducted from the asset to which it relates) 735 152 580 307 ------- ------- ------- ------- $ 865 $ 341 $ 754 $ 452 ======= ======= ======= =======
F-13 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. December 23, 1997 PLEXUS CORP. (Registrant) By /s/ Peter Strandwitz -------------------------- (Registrant) Peter Strandwitz, Chairman POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Peter Strandwitz, John L. Nussbaum and Joseph D. Kaufman, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and any other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirement of the Security Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.* SIGNATURE AND TITLE /s/ Peter Strandwitz /s/ Rudolph T. Hoppe - ----------------------------------- ---------------------------------------- Peter Strandwitz, Rudolph T. Hoppe, Director Chairman and Chief Executive Officer, and Director /s/ John L. Nussbaum /s/ Harold R. Miller - ----------------------------------- ---------------------------------------- John L. Nussbaum, President Harold R. Miller, Director and Chief Operating Officer, and Director /s/ Thomas B. Sabol /s/ Gerald A. Pitner - ----------------------------------- ---------------------------------------- Thomas B. Sabol, Gerald A. Pitner, Director Vice President-Finance and Chief Financial Officer /s/ William F. Denney /s/ Thomas J. Prosser - ----------------------------------- ---------------------------------------- William F. Denney, Vice President Thomas J. Prosser, Director and Treasurer (Principal Accounting Officer) ________________ * Each of the above signatures is affixed as of December 23, 1997. 32 EXHIBIT INDEX PLEXUS CORP. 10-K FOR YEAR ENDED SEPTEMBER 30, 1997
INCORPORATED BY FILED EXHIBIT NO. EXHIBIT REFERENCE TO HEREWITH - ----------- ------- ------------ -------- 3(i) Restated Articles of Exhibit 3(i) to Plexus' Plexus Corp., as amended Quarterly Report on through June 29, 1994 Form 10-Q for the quarter ended June 30, 1994 ("6/30/94 10-Q") 3(ii) Bylaws of Plexus Corp., Exhibit 3(ii) to as amended through Plexus' Report on Form November 14, 1996 10-K for the year ended September 30, 1996 ("1996 10-K") 4.1 Restated Articles of Exhibit 3(i) to 6/30/94 10-Q Incorporation of Plexus Corp. 10.1 Supplemental Executive Retirement Agreements dated as of September 19, 1996** (a) Peter Strandwitz Exhibit 10.1(a) to 1996 10-K (b) John Nussbaum Exhibit 10.1(b) to 1996 10-k (c) Gerald Pitner x 10.2 Employment Agreements dated 11/15/88** with (a) William F. Denney Exhibit 10.10(b) to 1988 10-K (b) Joseph D. Kaufman Exhibit 10.10(c) to 1988 10-K 10.3 Employee Savings Plan and Trust**: (a) Plan Document Exhibit 10.3(a) to 1996 10-K (b) Non-Standardized Form Exhibit 10.3(b) to 1996 10-K Adoption Agreement 10.4 1988 Stock Option Plan, Exhibit 12.12 to as amended** Plexus' Annual Report on Form 10-K for the year ended September 30, 1992 ("1992 10-K")
33
INCORPORATED BY FILED EXHIBIT NO. EXHIBIT REFERENCE TO HEREWITH - ----------- ------- ------------ -------- 10.5(a) Credit Agreement dated X as of March 20, 1997 among Firstar Bank Milwaukee, National Association, Harris Trust and Savings Bank, and Bank One, Wisconsin (the "Credit Agreement")* (b) Corporate Guarantee Agreements related thereto dated as of March 20, 1997 by: (i) EAC X (ii) Technology Group, Inc. X 10.6(a) Lease Agreement between Neenah (WI) QRS 11-31, Inc. ("QRS: 11-31") and EAC, dated August 11, 1994* Exhibit 10.8(a) to 1994 10-K (b) Bill of Sale of EAC to Exhibit 10.8(b) to 1994 10-K QRS: 11-31 dated August 31, 1994, together with related Seller's/Lessee's Certificate of EAC (c) Guaranty and Suretyship Exhibit 10.8(c) to 1994 10-K Agreement between Plexus Corp. and QRS: 11-31 dated August 11, 1994, together with related Guarantor's Certificate of Plexus Corp. 10.7 Plexus Corp. 1995 Exhibit 10.9 to 1994 10-K Executive Stock Option Plan** 10.8 Plexus Corp. 1995 Exhibit 10.10 to 1994 10-K Directors' Stock Option Plan** 10.9 Plexus Corp. 1995 Senior Exhibit 10.11 to 1994 10-K Executive Incentive Compensation Plan** 10.10 Plexus Corp. 1998 X Management Incentive Compensation Plan** 10.11 Plexus Corp. 1998 Option Exhibit A to the Plan** Registrant's definitive proxy statement for its 1998 Annual Meeting of Shareholders 10.12 Lease Agreement dated Exhibit 10.16 to 3/31/96 10-Q February 12, 1996 between Plexus and Oneida Nation Electronics
34
INCORPORATED BY FILED EXHIBIT NO. EXHIBIT REFERENCE TO HEREWITH - ----------- ------- ------------ -------- 11 Statement regarding computation of Per Share Earnings X 21 List of Subsidiaries X 23 Consent of Coopers X & Lybrand L.L.P. 24 Power of Attorney (Signature Page Hereto) 27 Financial Data Schedule X
______________________ * Excludes certain schedules and/or exhibits, which will be furnished to the Commission upon request. ** Designates management compensatory plans or agreements. EX-10.1(C) 2 RETIREMENT AGREEMENT 1 Exhibit 10.1(c) Plexus 1997 10-K SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT THIS AGREEMENT is made as of this 19th day of September, 1996 between PLEXUS CORP., a Wisconsin corporation (the "Company"), and GERALD PITNER (the "Employee"). WHEREAS, the Employee is a key executive officer of the Company and the Company wishes to continue to receive the benefit of the Employee's knowledge and experience and is willing to offer the Employee certain deferred compensation arrangements as set forth herein as an inducement for continued service. NOW, THEREFORE, in consideration of the premises, the parties hereto agree as follows: SECTION 1 DEFINITIONS 1.1 "Account" means the bookkeeping reserve account for the Employee which shall be established by the Company solely as a device for determining the amounts which may become payable to or on behalf of the Employee hereunder. The Company shall keep a record in the Account of the current fair values of all contributions and any Policy or other property or funds held therein from time to time. Such Account shall not constitute or be treated as a trust fund of any kind, it being expressly provided that the amounts credited to such Account shall at all time be and remain the sole property of the Company. The Employee shall have no proprietary rights of any nature whatsoever with respect thereto but shall simply be an unsecured creditor of the Company, unless and until such time as a payment under this Agreement is made to or on behalf of the Employee. 1.2 "Annual Contribution" means the sum of $58,917.62. 1.3 "Beneficiary" means any one or more primary or secondary beneficiaries designated in writing by the Employee on a form provided by the Company to receive any benefits which may become payable under this Agreement on or after the Employee's death. The Employee shall have the right to name, change or revoke his designation of Beneficiary on a form provided by the Company. The designation on file with the Company at the time of the Employee's death shall be controlling. Should the Employee 2 fail to make a valid Beneficiary designation or leave no named Beneficiary surviving, any benefits due shall be paid to the Employee's spouse, if living; or if not living, then to the Employee's estate. 1.4 "Board" means the Board of Directors of the Company. 1.5 "Cause" in connection with any termination of the Employee's employment by the Company means (i) the willful and continued failure of the Employee to substantially perform the duties of his position with the Company (other than as a result of physical or mental illness or injury), after the Board has given written notice to the Employee demanding substantial performance, which notice specifically identifies the manner in which the Board believes the Employee has not substantially performed such duties, (ii) commission or conviction of any felony, misdemeanor or other offense, the circumstance of which substantially relate to the circumstances of the Employee's job, or (iii) the willful engaging by the Employee in illegal or gross misconduct resulting in a demonstrably material injury to the Company. No act or failure to act on the Employee's part shall be considered to be "willful" unless it is done, or permitted to be done, by the Employee in bad faith or without reasonable belief that the Employee's action or omission was in the best interests of the Company. 1.6 "Change of Control" with respect to the Company means the occurrence of any one of the following events, as a result of one transaction or a series of transaction: (a) any "person (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding the Company, its affiliates as of the date of this Agreement, and any qualified or non-qualified plan maintained by the Company or its affiliates), becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under such Act) of securities of the Company representing more than 25% of the combined voting power of the Company's then outstanding voting securities; (b) individuals who constitute a majority of the Board immediately prior to a contested election for positions in the Board cease to constitute a majority as a result of such contested election; -2- 3 (c) the Company is combined with or acquired by (by merger, share exchange, consolidation, tender offer or otherwise) another corporation or business entity and a result thereof, less than 67% of the outstanding securities of or voting power in the surviving or resulting corporation or other business entity is owned in the aggregate by the former shareholders of the Company; (d) the Company sells, leases, or otherwise transfers all or substantially all of its properties or assets not in the ordinary course of business to another person or entity; (e) the Board determines in its sole and absolute discretion either that there has been a change in control of the Company or that such change in control is imminent; or (f) the outstanding voting securities of the Company are no longer listed on either the NASDAQ National Market System, the New York Stock Exchange or the American Stock Exchange or the Company is no longer registered under Section 12 of the Securities Exchange Act of 1934, as amended. 1.7 "Disability" means the absence of the Employee from the Employee's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness or accident which is determined to be of continued and indefinite duration and to render the Employee unable to continue in the regular duties of his job. When used in the context of the Employee's duties under a consulting agreement entered into after employment has ceased, the term means such incapacity due to mental illness or accident which is determined to be of continued and indefinite duration and to render the former Employee unable to perform his duties under the consulting agreement. If necessary, such determination shall be made by a physician selected by the Employee or his legal representatives and acceptable to the Company, with the Company's agreement as to acceptability not to be withheld unreasonably. 1.8 "Good Reason" in connection with any termination of the Employee's employment with the Company means any termination because of Disability, any termination at or after attainment of age 55 and completion of 10 years of service with the Company, or -3- 4 any termination at any time on or after the occurrence of a Change of Control. The term also means in connection with any termination by the Employee of his employment with the Company (i) the Employee's duties and responsibilities are materially and adversely diminished in comparison to the duties and responsibilities enjoyed by him on the date this Agreement is signed, (ii) any reduction of the Employee's base salary below the level in effect on the date this Agreement is signed, without the consent of the Employee, (iii) any request by the Company that the Employee's services be rendered primarily at a location or locations outside Winnebago County, Wisconsin, or (iv) any material breach of this Agreement shall occur that either is not taken by the Company in good faith or is not remedied by the Company promptly after receipt of written notice thereof from the Employee. The Employee may terminate his employment with the Company for Good Reason by giving the Company written notice of termination setting forth the specific conduct of the Company that constitutes Good Reason. Any termination of employment covered by this paragraph shall be referred to as a "Good Reason Termination." 1.9 "Hypothetical Cash Values" means the term as it is defined in paragraph 3.1 hereof. 1.10 "Policy" means any policy or policies of life insurance which the Company may purchase on the life of the Employee or a substitute insured and hold in the Account. As of the date of this Agreement, the Employee acknowledges that investment of the Annual Contribution in a Policy on his life may be less effective than in a Policy on the life of a substitute insured in whom the Company has an insurable interest under applicable law and acknowledges that the Company intends to so invest the Annual Contribution in a Policy on the life of a substitute insured. While any such Policy may be used as a device for measuring the amounts which may become payable to or on behalf of the Employee under this Agreement, the Company (or the trustee of any grantor Trust established by the Company) shall be the applicant, owner and sole beneficiary of the Policy, with all rights and all incidents of ownership. The Employee shall have no proprietary rights of any nature whatsoever with respect to the Policy. 1.11 "Trust" means such grantor trust (a "rabbi trust") as the Company shall establish to serve as a vehicle to hold any Policy or contributions held in the Account as the Company may choose to make in connection with this Agreement, but the Trust shall be designed so that all assets therein are subject to the -4- 5 claims of the Company or any of its affiliates which have used such rabbi trust in the event of insolvency, consistent with the provision of Revenue Procedure 92-64 issued by the Internal Revenue Service. Notwithstanding the existence of such a rabbi trust, this Agreement shall remain an unfunded agreement, with the Employee's rights to benefits hereunder being those of an unsecured creditor. SECTION 2 CONTRIBUTIONS TO ACCOUNT 2.1 Contributions. The Company will credit annually to the Employee's Account an amount equal to the Annual Contribution, starting on the date hereof and continuing on the anniversary thereof thereafter for the next ten years, provided that the Employee is continuing in employ of the Company on each such anniversary date or has entered into a consulting agreement with the Company in the form attached hereto as Exhibit A and made a part hereof and continues in the absence of Disability to comply with the terms thereof. 2.2 Credits to Account. Any amounts credited to the Employee's Account shall be invested in a Policy which shall be held in the Trust. 2.3 Special Contribution in the Event of a Change of Control. Upon the occurrence of a Change of Control, the Company shall, as soon as possible, but in no event later than thirty (30) days following the Change of Control, make a contribution to the Trust and credit the Account in a lump sum amount equal to the present value of all Annual Contributions that would have been made under the provisions of paragraph 2.1 above, discounted at 5%, and the Company shall have no further contribution obligations thereafter. SECTION 3 PAYMENT OF SUPPLEMENTAL RETIREMENT BENEFITS 3.1 Retirement or Termination Other Than For Cause At or After 65. Upon the Employee's retirement or termination other than for Cause at or after attainment of age 65, the Company shall pay the Employee fifteen (15) annual installments, with the -5- 6 first installment to be made within sixty (60) days of the date of such retirement or termination, in an annual amount equal to the sum of the following: (a) an amount equal to one-fifteenth (1/15) of the cash values in each Policy as of the date the Employee retires or terminates, plus (b) an amount equal to the increase, if any, in the cash values in each Policy, over those in the immediately prior Policy year. For purposes of calculation of the amount of such annual payments, should the substitute insured referred to in paragraph 1.10 above die during the Employee's lifetime and before all fifteen annual payments have been made or before all Annual Contributions required under paragraph 2.1 been completed, the Company shall obtain information from the insurer which has issued any Policy on the life of the substitute insured and held in the Employee's Account as to what the cash values in such Policy would have been (the "Hypothetical Cash Values") had the substitute insured continued to live during the Employee's lifetime and had all required Annual Contributions been invested in such Policy. However, no Annual Contribution shall be deemed to be made for this purpose unless it is in fact a required Annual Contribution under the terms of paragraph 2.1. Under the circumstances described, the Hypothetical Cash Values shall be used for purposes of calculating the amount of annual payments required under this paragraph 3.1. 3.2 Death Before Employee has Begun Receiving Payments. Should the Employee die while in the employ of the Company before he has begun to receive the payments provided in under paragraph 3.1 above, the Company shall make a lump sum payment to the Employee's Beneficiary in an amount equal to the greater of (i) the actual cash values under each Policy held in his Account, or (ii) the Hypothetical Cash Values of each such Policy if the substitute insured has predeceased the Employee. 3.3 Death After the Employee has Begun Receiving Payments. Should the Employee die after he has begun to receive the payments provided in under paragraph 3.1 above, but before all fifteen annual payments have been made, the Company shall continue to make such payments to his Beneficiary until an aggregate total of fifteen annual payments have been made. -6- 7 3.4 Termination of Employment by the Company Other Than for Cause or Good Reason Termination. Should the Company terminate the Employee's employment, other than for Cause or death, or if a Good Reason Termination occurs, and provided that the Employee continues in the absence of Disability to comply with the terms of the consulting agreement attached hereto as Exhibit A and made a part hereof, the Company shall continue to credit the Employee's Account annually with an amount equal to the Annual Contribution for the number of years specified in paragraph 2.1 above, just as if the Employee had remained employed pursuant to this Agreement until the end of such period, or until the Employee's death, if earlier. Thereafter, if the Employee survives to age 65, the payments called for by paragraph 3.1 shall be made, just as if the Employee had continued in the employ of the Company and had retired upon reaching age 65. Paragraph 3.3 shall apply should the Employee die after he has begun to receive such payments, but before all of the same have been made. If the Employee does not survive to age 65 but dies before he has begun to receive the payments provided for in paragraph 3.1, paragraph 3.2 shall apply. If the Employee fails in the absence of Disability to comply with the terms of the consulting agreement attached as Exhibit A, the provisions of Paragraph 3.5 below shall apply, as if the Employee had voluntarily terminated other than for Good Reason prior to the commencement of payments under this Agreement. 3.5 Termination of Employment for Cause by the Company or By the Employee Other Than for Good Reason. Notwithstanding any other provision of this Agreement, should the Company terminate the Employee's employment for Cause at any time prior to the occurrence of a Change of Control and prior to the commencement of payments under this Agreement, the Company shall have no obligation to make any payments whatsoever under this Agreement to or on behalf of the Employee. Should the Employee voluntarily terminate other than for Good Reason prior to the commencement of payments under this Agreement, the Employee shall become entitled to receive fifteen (15) annual installment payments from the Company, with the first installment to be made within sixty (60) days of the date such termination, in annual amounts calculated in the same manner as provided in paragraph 3.1 above. Paragraph 3.3 shall apply should the Employee die after he has begun to receive any installments payments, but before all of the same have been made. 3.6 Payment of Account Under Certain Circumstances. If at any time on or after the occurrence of a Change of Control, -7- 8 either the Company's Consolidated Tangible Net Worth declines below thirty-five million dollars ($35,000,000.00) or the ratio of the Company's Consolidated Total Debt to the Company's Consolidated Tangible Net Worth becomes greater than 2.5 to 1, then the Employee (or former Employee if he is no longer in the Company's employ but is either receiving or entitled to receive payment hereunder at some future date) shall become entitled to receive an immediate payment from the Company of an amount equal to the greater of (i) the actual cash values under each Policy held in his Account, or (ii) the Hypothetical Cash Values of each such Policy if the substitute insured has predeceased the Employee. For purposes of this paragraph, the Company's "Consolidated Tangible Net Worth" means the excess, if any, of all consolidated assets of the Company and all subsidiaries (excluding goodwill patents, trademarks, tradenames, copyrights and other assets properly classified as intangible assets) over all consolidated liabilities of the Company and all subsidiaries determined in accordance with generally accepted accounting principles; and the Company's "Consolidated Total Debt" means the total of all consolidated liabilities of the Company and all subsidiaries which would appear as liabilities on a consolidated balance sheet of the Company and all subsidiaries in accordance with generally accepted accounting principles. 3.7 Payment of Account on Company Breach. Should the Company fail to make any payments when due hereunder to the Employee or his Beneficiary or otherwise materially breach any provision of this Agreement and such failure or breach continue for a period of ten (10) days after written notice and demand for payment or cure by the Employee (or Beneficiary, as the case may be) is received by the Company, then the Employee (or Beneficiary) shall become entitled, without prejudice to any other right or remedy the Employee (or Beneficiary) may have for breach of this Agreement, to receive an immediate payment from the Company of an amount equal to the greater of (i) the actual cash values under each Policy held in his Account, or (ii) the Hypothetical Cash Values of each such Policy if the substitute insured has predeceased the Employee. SECTION 4 CLAIMS PROCEDURE 4.1 Claim Review. If the Employee or his Beneficiary (a "Claimant") is denied all or a portion of a benefit under this Agreement, he or she may file a written claim for benefits with the Company. The Company shall review the claim and notify the -8- 9 Claimant of the Company's decision within sixty (60) days of receipt of such claim, unless the Claimant receives written notice prior to the end of the sixty (60) day period stating that special circumstances require an extension of the time for decision. The Company's decision shall be in writing, sent by mail to the Claimant's last known address, and if a denial of the claim, must contain the specific reasons for the denial, reference to pertinent provisions of this Agreement on which the denial is based, a designation of any additional material necessary to perfect the claim, and an explanation of the claim review procedure. 4.2 Appeal Procedure to the Board. A Claimant is entitled to request a review of any denial by the full Board by written request to the Chair of the Board within 60 days of receipt of the denial. Absent a request for review within the 60-day period, the claim will be deemed to be conclusively denied. The Board shall afford the Claimant the opportunity to review all pertinent documents and submit issues and comments in writing and shall render a review decision in writing, all within sixty (60) days after receipt of a request for review (provided that, in special circumstances the Board may extend the time for decision by not more than sixty (60) days upon written notice to the Claimant.) The Board's review decision shall contain specific reasons for the decision and reference to the pertinent provisions of this Agreement. 4.3 Attorney's Fees. The Company agrees to pay, as incurred, to the fullest extent permitted by law, all legal fees and expenses that the Employee may reasonably incur as a result of any contest (regardless of the outcome) by the Company, the Employee or others of the validity or enforceability of, or liability under, or otherwise involving any provision of this Agreement. -9- 10 SECTION 5 MISCELLANEOUS 5.1 Non-Assignability. This Agreement is personal to the Employee and, without the prior written consent of the Company, shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and shall also be enforceable by the Employee's legal representatives. 5.2 Successors. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. 5.3 Taxes. No later than the date as of which an amount first becomes includible in the income of the Employee for purposes of employment or income taxes, the Employee agrees to pay to the Company, or make satisfactory arrangements with the Company regarding the payment of any federal, state or other taxes of any kind required to be withheld with respect to such amount. 5.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Wisconsin, without reference to principles of conflict of laws, to the extent preempted by federal law. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. 5.5 Notices. All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: -10- 11 If to the Employee: Gerald Pitner E902 South Tammy Trail Waupaca, WI 54981 If to the Company: Plexus Corp. Attn: Corporate Secretary 55 Jewelers Park Drive Neenah, WI 54957-0156 or to such other address as either party furnishes to the other in writing in accordance with this paragraph. Notices and communications shall be effective when actually received by the addressee. 5.6 Construction. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. Nothing contained in this Agreement shall give the Employee the right to be retained in the employment of the Company or affect the right of the Company to dismiss the Employee. 5.7 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this paragraph 5.7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest -11- 12 and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of paragraph 5.7 (c), all determinations required to be made under this paragraph 5.7, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by such certified public accounting firm as may be designated by the Employee (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this paragraph 5.7, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph 5.7 (c) and the Employee thereafter is required to make payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be -12- 13 paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such a claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) Give the Company any information reasonably requested by the Company relating to such claim, (ii) Take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) Cooperate with the Company in good faith in order to effectively contest such claim, and (iv) Permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph 5.7 (c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax including interest or penalties with respect to any imputed income with respect to such advance; and further provided that -13- 14 any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to paragraph 5.7 (c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of paragraph 5.7 (c) ) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to paragraph 5.7 (c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 5.8 Amendment; Entire Agreement. This Agreement may be amended by a written instrument signed by both parties. This Agreement contains the entire agreement between the parties on the subjects covered and replaces all prior writings, proposals, specifications or other oral or written materials relating thereto. IN WITNESS WHEREOF, the Employee has signed this Agreement and, pursuant to the authorization of the Board, the Company has caused this Agreement to be signed, all as of the date first set forth above. /s/ Gerald Pitner GERALD PITNER PLEXUS CORP. By: /s/ Jos. D. Kaufman, V.P. Law and Admin. -14- EX-10.5 3 CREDIT AGREEMENT 1 Exhibit 10.5(a) 1997 Plexus 10-K PLEXUS CORP. 55 Jewelers Park Drive Neenah, Wisconsin 54956 CREDIT AGREEMENT March 20, 1997 Firstar Bank Milwaukee, National Association 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60603 Bank One, Wisconsin 111 East Wisconsin Avenue P.O. Box 2033 Milwaukee, Wisconsin 53201 Ladies/Gentlemen: Plexus Corp., a Wisconsin corporation with its principal offices located in the City of Neenah, Wisconsin, (the "Company"), hereby requests that each of you (collectively the "Banks" and individually a "Bank") agree to lend the Company the amount of the commitment (the "Commitment") set opposite your name below, to wit:
Name of Bank Amount Percent of Total ------------ ------ ---------------- Firstar Bank Milwaukee, National Association $18,000,000 45% Harris Trust and Savings Bank $15,000,000 37.5% Bank One, Wisconsin $ 7,000,000 17.5% ----------- ----- $40,000,000 100%
2 The failure of any one or more of the Banks to lend in accordance with its Commitment shall not relieve the other Banks of their several obligations hereunder, but no Bank shall be liable in respect to the obligation of any other Bank hereunder or be obligated in any event to lend in excess of its Commitment. Such loans shall be on the terms and conditions set forth below: ARTICLE I LOANS AND NOTES 1.1 Revolving Credit. From time to time prior to July 31, 2002 or the earlier termination in full of the Commitments (in either case the "Termination Date"), and subject to all of the terms and conditions of this Agreement, the Company may obtain loans from each of the Banks, pro rata up to the amount of such Bank's outstanding Commitment, repay such loans and reborrow hereunder. Each loan from each Bank shall be in a minimum principal amount of $100,000 or a multiple of $50,000 in excess of such amount (except as provided in Section 2.1 with respect to Adjusted LIBOR Rate Loans), and shall be evidenced by a single promissory note of the Company (a "Revolving Credit Note" or a "Note") in the form of Exhibit 1.1 annexed hereto, payable to the order of the lending Bank. The Notes shall be executed by the Company and delivered to the Banks prior to the initial loans. Although the Notes shall be expressed to be payable in the full amounts specified above, the Company shall be obligated to pay only the amounts actually disbursed to or for the account of the Company, together with interest on the unpaid balance of sums so disbursed which remains outstanding from time to time, at the rates and on the dates specified herein or in the Notes, together with the other amounts provided herein. 1.2 Use of Proceeds. The Company represents, warrants and agrees that: (a) The proceeds of the loans made hereunder will be used solely for the following purposes: (i) contemporaneously with the making of the initial loans hereunder, except as otherwise provided in Section 1.7, the proceeds of such initial loans shall be used to the extent necessary to pay all indebtedness outstanding under the Amended and Restated Revolving Credit Agreement dated as of March 18, 1996 among Electronic Assembly Corporation and the Banks, as amended (the "EAC Credit Agreement"); and (ii) all other proceeds shall be used for working capital and other lawful corporate purposes. (b) No part of the proceeds of any loan made hereunder will be used to "purchase" or "carry" any "margin stock" or to extend credit to others for the purpose of "purchasing" or "carrying" any "margin stock" (as such terms are defined in the Regulation U of the Board of Governors of the Federal Reserve System), and the assets of the Company and its Subsidiaries do not include, and neither the Company nor any Subsidiary has any present intention of acquiring, any such security. 2 3 1.3 Agent's Fees. The Company shall pay to the Agent, for the Agent's own account, such fees as the Company and the Agent may agree upon in writing for the Agent's services as such hereunder (the "Agent's Fees"). 1.4 Commitment Fee. The Company shall pay to the Agent for the account of each Bank a commitment fee computed at the rate of 1/8 of 1% per annum on the difference existing from time to time between (a) the amount of such Bank's Commitment (as reduced pursuant to section 1.5), and (b) the outstanding unpaid principal balance of sums disbursed to the Company by such Bank hereunder. Such commitment fees shall accrue for the period from the date of this Agreement to the Termination Date, and shall be payable quarterly in arrears on the later of (i) the twentieth day of the first month in each calendar quarter or (ii) five days after the Company's receipt of an invoice for such fees from the Agent. 1.5 Termination or Reduction of the Commitments. The Company shall have the right, upon five Business Days' prior written notice to each Bank, to ratably reduce in part the Commitments on any interest payment date, provided, however, that each partial reduction of the Commitment of each Bank shall be in the amount of $1,000,000 or an integral multiple thereof, and provided, further, that no reduction shall reduce the Commitment of any Bank to an amount less than the aggregate amount of the loans of such Bank outstanding hereunder at the time. The entire Commitments of all of the Banks may be terminated in whole at any time upon five Business Days' prior written notice to each Bank. 1.6 Optional Prepayment. The Notes may be prepaid in whole or in part at the option of the Company on any interest payment date without premium or penalty; provided, however, that prepayment of an Adjusted LIBOR Rate Loan prior to the last day of the Interest Period applicable thereto shall be subject to the provisions of Sections 2.11 and 2.12. All prepayments of Adjusted LIBOR Rate Loans shall be accompanied by interest accrued on the amount prepaid through the date of prepayment. 1.7 Special Provisions for Assumption of Certain LIBOR Rate Loans. Notwithstanding any contrary provision of this Agreement, on the date of the initial loans made hereunder, the Company shall assume the obligations of Electronic Assembly Corporation with respect to all LIBOR-based loans then outstanding under the EAC Credit Agreement for the remainder of the interest periods then in effect for such loans, so that such loans shall not be considered to have been prepaid under the EAC Credit Agreement. Such loans shall continue to bear interest at the rates determined pursuant to the EAC Credit Agreement for the remainder of the interest periods then in effect, and such loans shall be deemed to be Adjusted LIBOR Rate Loans to the Company hereunder in all other respects and for all purposes of this Agreement. ARTICLE II ADMINISTRATION OF CREDIT 3 4 2.1 Elective Rates of Interest on Loans. The unpaid principal balance of the Notes may be comprised of Variable Rate Loans and/or Adjusted LIBOR Rate Loans as elected by the Company from time to time in accordance with the procedures set forth below; provided, however, that each Adjusted LIBOR Rate Loan must be in a minimum amount of $1,500,000 or a multiple of $50,000 in excess of that amount; provided, further, that no election of an Adjusted LIBOR Rate Loan shall become effective if any Default or Event of Default has occurred and is continuing; and provided, further, that no more than ten different Interest Periods for Adjusted LIBOR Rate Loans may be outstanding at any one time. Each notice of election of an Adjusted LIBOR Rate Loan shall be irrevocable. 2.2 Borrowing Procedure. The Company will request a loan hereunder by written notice in the form of Exhibit 2.2 annexed hereto, or by telephonic notice (which notice shall be confirmed in writing if the Agent so requests), which notices will be irrevocable, to the Agent not later than 12:00 noon, Milwaukee time, on the proposed Borrowing Date, or, in the case of an Adjusted LIBOR Rate Loan, not later than 10:30 a.m. (Milwaukee time) on the date three Business Days before the proposed Borrowing Date. In the event of any inconsistency between the telephonic notice and the written confirmation thereof, the telephonic notice will control. Each such request will be effective upon receipt by the Agent and will specify (i) the amount of the requested loan; (ii) the proposed Borrowing Date; (iii) whether such loan will bear interest at the Variable Rate or at the Adjusted LIBOR Rate; and (iv) in the case of an Adjusted LIBOR Rate Loan, the Interest Period therefor. Upon its receipt of such notice from the Company, the Agent shall give notice of such borrowing request to the other Banks not later than 1:30 p.m. (Milwaukee time) on the Borrowing Date. Each Bank shall have its respective portion of the loans available to the Agent in Milwaukee in immediately available funds not later than 3:30 p.m., Milwaukee time, on the Borrowing Date. Out of the funds received from each Bank for the making of the loans hereunder, the Agent will make a loan to the Company in such amount on behalf of such Bank. Notes and other required documents delivered to the Agent for the account of each Bank shall be promptly delivered to such Bank, or in accordance with instructions received from it, together with copies of such other documents received in connection with the borrowing as such Bank shall request. Unless the Agent shall have been notified by telephone, confirmed promptly thereafter in writing, by a Bank not later than 3:30 p.m., Milwaukee time, on a Borrowing Date that such Bank will not make available to the Agent such Bank's pro rata share of the requested loan, the Agent may assume that such Bank has made such amount available to the Agent and, in reliance upon such assumption, make available to the Company on such Borrowing Date a corresponding amount. If and to the extent that such Bank, without giving such notice, shall not have so made such amount available to the Agent, such Bank and the Company severally agree to repay the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Agent made such amount available to the Company to the date such amount is repaid to the Agent, at (i) in the case of the Company, the Variable Rate, and (ii) in the case of such Bank, the Federal Funds Rate for each of the first three days (or fraction 4 5 thereof) after the date of demand and the Variable Rate for each day (or fraction thereof) thereafter. 2.3 Conversion. The Company may elect from time to time, subject to the terms and conditions of the Notes and this Agreement, to convert all or a portion of a Variable Rate Loan into an Adjusted LIBOR Rate Loan or to convert all or a portion of an Adjusted LIBOR Rate Loan into a Variable Rate Loan; provided, however, that any conversion of an Adjusted LIBOR Rate Loan will occur on the last day of the Interest Period applicable thereto. 2.4 Automatic Conversion. A Variable Rate Loan will continue as a Variable Rate Loan unless and until converted into an Adjusted LIBOR Rate Loan. At the end of the applicable Interest Period for an Adjusted LIBOR Rate Loan, such Adjusted LIBOR Rate Loan will automatically be converted into a Variable Rate Loan unless the Company shall have given the Agent notice in accordance with section 2.5 requesting that, at the end of such Interest Period, all or a portion of such Adjusted LIBOR Rate Loan be continued as an Adjusted LIBOR Rate Loan for an additional Interest Period. 2.5 Conversion and Continuation Procedure. The Company will give the Agent written notice in the form of Exhibit 2.5 annexed hereto, or telephonic notice (confirmed in writing if the Agent so requests), which notices will be irrevocable, of each conversion of a Variable Rate Loan or continuation of an Adjusted LIBOR Rate Loan not later than 10:30 a.m., Milwaukee time, on a Business Day which is not less than three Business Days before the date of the requested conversion or continuation, specifying (i) the requested date (which must be a Business Day) of such conversion or continuation; (ii) the amount of the loan to be converted or continued; (iii) whether such loan currently bears interest at the Variable Rate or the Adjusted LIBOR Rate; and (iv) the duration of the Interest Period to be applicable thereto. 2.6 Basis for Determining Interest Rate Inadequate or Unfair. If with respect to an Interest Period for any Adjusted LIBOR Rate Loan: (i) any Bank determines in good faith (which determination will be binding and conclusive on the Company) that by reason of circumstances affecting the London interbank market adequate and reasonable means do not exist for ascertaining the applicable Adjusted LIBOR Rate; or (ii) any Bank reasonably determines (which determination will be binding and conclusive on the Company) that the Adjusted LIBOR Rate will not adequately and fairly reflect the cost of maintaining or funding such Adjusted LIBOR Rate Loan for such Interest Period, or that the making or funding of Adjusted LIBOR Rate Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Bank materially affects Adjusted LIBOR Rate Loans; 5 6 then, [a] such Bank will promptly notify the Company thereof, and [b] so long as such circumstances continue, such Bank will not be under any obligation to make any new Adjusted LIBOR Rate Loan so affected. 2.7 Changes in Law Rendering Certain Loans Unlawful. In the event that any Regulatory Change should make it (or, in the good faith judgment of a Bank, should raise substantial questions as to whether it is) unlawful for such Bank to make, maintain or fund an Adjusted LIBOR Rate Loan, (i) such Bank will promptly notify each of the other parties hereto; (ii) the obligation of such Bank to make Adjusted LIBOR Rate Loans shall, upon the effectiveness of such event, be suspended for the duration of such unlawfulness; and (iii) upon such notice, any outstanding Adjusted LIBOR Rate Loan made by such Bank will automatically convert into a Variable Rate Loan. 2.8 Increased Costs. If any Regulatory Change, (a) shall subject any Bank to any tax, duty or other charge with respect to any of its loans hereunder, or shall change the basis of taxation of payments to any Bank of the principal or interest on its loans hereunder, or any other amounts due under this Agreement in respect of such loans, or its obligation to make loans hereunder (except for changes in the rate of tax on the overall net income of such Bank); (b) shall impose, modify or make applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve included in the determination of the Adjusted LIBOR Rate), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank; or (c) shall impose on any Bank any other condition affecting its loans hereunder; and the result of any of the foregoing is to increase the cost to (or in the case of Regulation D or any other analogous law, rule or regulation, to impose a cost on) such Bank of making or maintaining any loans hereunder, or to reduce the amount of any sum received or receivable by such Bank under this Agreement and any document or instrument related hereto; then upon 15 days' notice from such Bank (which notice shall be sent to the Agent and the Company and shall be accompanied by a statement setting forth in reasonable detail the basis of such increased cost or other effect on the loans), the Company shall pay directly to such Bank, on demand, such additional amount or amounts as will compensate such Bank for such increased cost or such reduction. 2.9 Discretion of Banks as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its funding of all or any part of its loans hereunder in any manner it sees fit. 6 7 2.10 Capital Adequacy. If any Regulatory Change affects the treatment of any loan hereunder of a Bank as an asset or other item included for the purpose of calculating the appropriate amount of capital to be maintained by such Bank or any corporation controlling such Bank and has the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of the obligations of such Bank hereunder to a level below that which such Bank or such corporation could have achieved but for such Regulatory Change (taking into account such Bank's or such corporation's policies with respect to capital adequacy) by an amount deemed in good faith by such Bank to be material, then, upon 15 days' notice from such Bank, the Company shall pay to such Bank, on demand, such additional amount or amounts as will compensate such Bank or such corporation, as the case may be, for such reduction. 2.11 Limitation on Prepayment. A Variable Rate Loan may be prepaid at the option of the Company in whole or in part on any interest payment date without premium or penalty. An Adjusted LIBOR Rate Loan may be prepaid at any time at the option of the Company; provided, however, that prepayment prior to the last day of the Interest Period applicable thereto will require the payment by Company of the amount (if any) required by section 2.12. 2.12 Funding Losses. The Company hereby agrees that upon demand by any Bank (which demand shall be sent to the Agent and the Company and shall be accompanied by a statement setting forth in reasonable detail the basis for the calculations of the amount being claimed) the Company will indemnify such Bank against any loss or expense which such Bank may sustain or incur (including, without limitation, any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain Adjusted LIBOR Rate Loans and any loss of anticipated return), as reasonably determined by such Bank, as a result of (i) any payment, prepayment or conversion of any Adjusted LIBOR Rate Loan on a date other than the last day of an Interest Period for such loan whether not required by any other provisions of this Agreement, or (ii) any failure of the Company to obtain an Adjusted LIBOR Rate Loan on a Borrowing Date or to convert a Variable Rate Loan to an Adjusted LIBOR Rate Loan or to continue an Adjusted LIBOR Rate Loan at the end of any Interest Period, as specified by the Company in a notice to the Agent as set forth above. 2.13 Conclusiveness of Statements; Survival of Provisions. Determinations and statements of any Bank pursuant to sections 2.7, 2.8, 2.10 and 2.12 shall be rebuttably presumptive evidence of the correctness of the determinations and statements and shall be conclusive absent manifest error. The provisions of section 2.8, 2.10 and 2.12 shall survive the obligation of the Banks to extend credit under this Agreement and the repayment of the loans. 2.14 Computations of Interest. All computations of interest and other amounts due under the Notes and fees and other amounts due under this Agreement will be based on a 360-day year using the actual number of days occurring in the period for which such interest, fees or other amounts are payable. 7 8 2.15 Payments. Interest on all loans will be due and payable (i) in the case of a Variable Rate Loan, monthly beginning on the last Business Day of the month in which the Company obtains such Variable Rate Loan and on the last Business Day of each month thereafter; (ii) in the case of an Adjusted LIBOR Rate Loan, on the last Business Day of the applicable Interest Period; and (iii) in the case of any loan, at the respective maturity of such loan, whether by acceleration or otherwise. All payments and prepayments of principal, interest and fees (other than Agent's Fees) under this Agreement and the Notes shall be made to the Agent prior to 12:00 noon, Milwaukee time, in immediately available funds for the ratable account of the Banks and the holders of the Notes then outstanding, as appropriate. 2.16 Application of Payments. The Agent shall promptly distribute to each such Bank or holder pro rata the amount of principal, interest or fees (other than Agent's Fees) received by the Agent for the account of such holder. Any payment to the Agent for the account of a Bank or a holder of a Note under this Agreement shall constitute a payment by the Company to such Bank or holder of the amount so paid to the Agent, and any Notes or portions thereof so paid shall not be considered outstanding for any purpose after the date of such payment to the Agent. 2.17 Pro Rata Treatment. In the event that any Bank shall receive from the Company or any other source (other than the sale of a participation to another commercial lender in the ordinary course of business) any payment (other than a payment of Agent's fees) of, on account of, or for any obligation of the Company hereunder or under the Notes (whether pursuant to the exercise of any right of set off, banker's lien, realization upon any security held for or appropriated to such obligation, counterclaim or otherwise) other than as above provided, then such Bank shall immediately purchase, without recourse and for cash, an interest in the obligations of the same nature held by the other Banks so that each Bank shall thereafter have a percentage interest in all of such obligations equal to the percentage interest which such Bank held in the Notes outstanding immediately before such payment; provided, that if any payment so received shall be recovered in whole or in part from such purchasing Bank, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. The Company specifically acknowledges and consents to the preceding sentence. 2.18 Interest Following Event of Default. From and after the occurrence and during the continuance of an Event of Default, the unpaid principal amount of all loans and all other amounts due and unpaid under this Agreement and the Notes will bear interest until paid computed at a rate equal to 2% per annum in excess of the rate or rates otherwise payable hereunder. 2.19 Deposits; Set Off. The Company grants each Bank, as security for the Notes, a lien and security interest in any and all monies, balances, accounts and deposits (including certificates of deposit) of the Company at such Bank now or at any time hereafter. If any Event of Default occurs hereunder or any attachment of any balance of the Company occurs, each Bank may offset and apply any such security toward the payment of the Note or Notes held by such Bank, whether or not such Note or Notes, or any part thereof, shall then be due. 8 9 Promptly upon its charging any account of the Company pursuant to this section, such Bank shall give the Company notice thereof. ARTICLE III CONDITIONS OF BORROWING Without limiting any of the other terms of this Agreement, none of the Banks shall be required to make any loan to the Company hereunder: 3.1 Representations. Unless the representations and warranties contained in Article IV hereof continue to be true and correct on the date of such loan; no Default or Event of Default hereunder shall have occurred and be continuing; and there has been no material adverse change in the business operations or financial condition of the Company and its Subsidiaries, taken as a whole, since September 30, 1996. 3.2 Guaranties. Unless prior to the initial loan each of Electronic Assembly Corporation and Technology Group, Inc. (each a "Guarantor" and collectively the "Guarantors"), shall have executed and delivered to each Bank a guaranty agreement in the form attached hereto as Exhibit 3.2 (each a "Guaranty" and collectively the "Guaranties"). 3.3 Insurance Certificate. Unless prior to the initial loan the Banks shall have received evidence satisfactory to them that the Company maintains hazard and liability insurance coverage reasonably satisfactory to the Banks. 3.4 Form U1. Unless prior to the initial loan the Company shall have executed and delivered to the Banks a Federal Reserve Form U1 provided for in Regulation U of the Board of Governors of the Federal Reserve System, and the statements made therein shall be such, in the opinion of the Banks, as to permit the transactions contemplated hereby without violation of Regulation U. 3.5 Counsel Opinion. Unless prior to the initial loan the Banks shall have received from their special counsel and from Company's counsel, satisfactory opinions as to such matters relating to the Company and its Subsidiaries, the validity and enforceability of this Agreement, the loans to be made hereunder and the other documents required by this Article III as the Banks shall reasonably require. The Company shall execute and/or deliver to the Banks or their respective counsel such documents concerning its corporate status and the authorization of such transactions as may be requested. 3.6 Proceedings Satisfactory. Unless all proceedings taken in connection with the transactions contemplated by this Agreement, and all instruments, authorizations and other documents applicable thereto, shall be satisfactory in form and substance to the Banks and their respective counsel. 9 10 3.7 Violation of Environmental Laws. If in the opinion of the Banks there exists any uncorrected violation by the Company or any Subsidiary of an Environmental Law or any condition which requires, or may require, a cleanup, removal or other remedial action by the Company or any Subsidiary under any Environmental Laws. ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Banks to make the loans as provided herein, the Company represents and warrants to the Banks as follows as of the date of this Agreement and each request by the Company for a loan or other extension of credit hereunder shall constitute a representation and warranty by the Company that all such representations and warranties remain true on and as of the date of such requested loan or extension of credit: 4.1 Organization. The Company and each of its Subsidiaries is a corporation duly organized and existing in good standing or active status under the laws of the jurisdiction under which it was incorporated, and has all requisite power and authority, corporate or otherwise, to conduct its business and to own its properties. Set forth in Schedule 4.1 hereto is a complete and accurate list of all of its Subsidiaries, showing as of the date hereof (as to each such Subsidiary) the jurisdiction of its incorporation, the number of shares of each class of capital stock authorized, the number outstanding and the percentage of the outstanding shares of each such class owned (directly or indirectly) by the Company. All of the outstanding stock of each Subsidiary has been legally and validly issued, is fully paid and non-assessable except as provided by Section 180.0622 of the Wisconsin Business Corporation Law, and is owned by the Company free and clear of all pledges, liens, security interests and other charges or encumbrances. The Company and each of its Subsidiaries is duly licensed or qualified to do business in all jurisdictions in which such qualification is required, and failure to so qualify could have a material adverse effect on the property, financial condition or business operations of the Company or any Subsidiary. 4.2 Authority. The execution, delivery and performance of this Agreement and the Notes are within the corporate powers of the Company, have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Company, (ii) violate any provision of the articles of incorporation or by-laws of the Company or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Company or any Subsidiary; (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; or (iv) result in a breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of the Company or any Subsidiary pursuant to, any indenture or other agreement or instrument under which the Company or any Subsidiary is a party or by which it or its properties may be bound or affected. This Agreement constitutes, and each of the Notes and Loan Documents when executed and delivered hereunder will constitute, legal, valid and binding obligations of the Company or other 10 11 signatory enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy or similar laws affecting the enforceability of creditors' rights generally. 4.3 Investment Company Act of 1940. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.4 Employee Retirement Income Security Act. All Plans are in compliance in all material respects with the applicable provisions of ERISA. Neither the Company nor any Subsidiary has incurred any material "accumulated funding deficiency" within the meaning of section 302(a)(2) of ERISA in connection with any Plan. There has been no Reportable Event for any Plan, the occurrence of which would have a materially adverse effect on the Company or any Subsidiary, nor has the Company or any Subsidiary incurred any material liability to the Pension Benefit Guaranty Corporation under section 4062 of ERISA in connection with any Plan. There are no Unfunded Liabilities relating to any Plans. Neither the Company nor any Subsidiary is a member of any Multiemployer Plan. 4.5 Financial Statements. The audited consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1996, and the audited consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries for the year ended on that date, as certified by Coopers & Lybrand L.L.P. and heretofore furnished to the Banks, are correct and complete and truly represent the financial condition of the Company and such Subsidiaries as of September 30, 1996, and the results of their operations for the fiscal year ended on that date. Since such date there has been no material adverse change in the property, financial condition or business operations of the Company or any Subsidiary. 4.6 Dividends and Redemptions. The Company has not, since September 30, 1996, paid or declared any dividend, or made any other distribution on account of any shares of any class of its stock, or redeemed, purchased or otherwise acquired, directly or indirectly, any shares of any class of its stock, except as permitted by this Agreement. The Company is not a party to any agreement which may require it to redeem, purchase or otherwise acquire any shares of any class of its stock. 4.7 Liens. The Company and each Subsidiary has good and marketable title to all of its assets, real and personal, free and clear of all liens, security interests, mortgages and encumbrances of any kind, except Permitted Liens. All owned and leased buildings and equipment of the Company and its Subsidiaries are in good condition, repair and working order in all material respects and, to the best of the Company's knowledge and belief, conform in all material respects to all applicable laws, regulations and ordinances. 4.8 Contingent Liabilities. Neither the Company nor any Subsidiary has any guarantees or other contingent liabilities outstanding (including, without limitation, liabilities by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss), except those permitted by section 5.9 hereof. 11 12 4.9 Taxes. Except as expressly disclosed in the financial statements referred to in section 4.5 above, neither the Company nor any Subsidiary has any material outstanding unpaid tax liability (except for taxes which are currently accruing from current operations and ownership of property, which are not delinquent), and no tax deficiencies have been proposed or assessed against the Company or any Subsidiary. The most recent completed audit of the Company's federal income tax returns was for the Company's income tax year ending September 30, 1993, and all taxes shown by such returns (together with any adjustments arising out of such audit, if any) have been paid. 4.10 Absence of Litigation. Neither the Company nor any Subsidiary is a party to any litigation or administrative proceeding, nor so far as is known by the Company is any litigation or administrative proceeding threatened against it or any Subsidiary, which in either case (i) relates to the execution, delivery or performance of this Agreement, the Notes, or any of the Loan Documents, (ii) could, if adversely determined, cause any material adverse change in the property, financial condition or the conduct of the business of the Company or any Subsidiary, (iii) asserts or alleges the Company or any Subsidiary violated Environmental Laws, (iv) asserts or alleges that Company or any Subsidiary is required to cleanup, remove, or take remedial or other response action due to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials, (v) asserts or alleges that Company or any Subsidiary is required to pay all or a portion of the cost of any past, present or future cleanup, removal or remedial or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials by Company or any Subsidiary. 4.11 Absence of Default. No event has occurred which either of itself or with the lapse of time or the giving of notice or both, would give any creditor of the Company or any Subsidiary the right to accelerate the maturity of any indebtedness of the Company or any Subsidiary for borrowed money. Neither the Company nor any Subsidiary is in default under any other lease, agreement or instrument, or any law, rule, regulation, order, writ, injunction, decree, determination or award, non-compliance with which could materially adversely affect its property, financial condition or business operations. 4.12 No Burdensome Agreements. Neither the Company nor any Subsidiary is a party to any agreement, instrument or undertaking, or subject to any other restriction, (i) which materially adversely affects or may in the future so affect the property, financial condition or business operations of the Company or any Subsidiary, or (ii) under or pursuant to which the Company or any Subsidiary is or will be required to place (or under which any other person may place) a lien upon any of its properties securing indebtedness either upon demand or upon the happening of a condition, with or without such demand. 4.13 Trademarks, etc. The Company and its Subsidiaries possess adequate trademarks, trade names, copyrights, patents, permits, service marks and licenses, or rights thereto, for the present and planned future conduct of their respective businesses substantially as now conducted, without any known conflict with the rights of others which might result in a material adverse effect on the Company or any Subsidiary. 12 13 4.14 Full Disclosure. No information, exhibit or report furnished by the Company or any Subsidiary to any Bank in connection with the negotiation or execution of this Agreement contained any material misstatement of fact as of the date when made or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading as of the date when made. 4.15 Fiscal Year. The fiscal year of the Company and each Subsidiary ends on September 30 of each year. 4.16 Environmental Conditions. To the Company's knowledge after reasonable investigation, there are no conditions existing currently or likely to exist during the term of this Agreement which would subject the Company or any Subsidiary to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws by the Company or any Subsidiary. Neither the Company nor any Subsidiary is subject to any judgment, decree, order or citation related to or arising out of Environmental Laws and neither the Company nor any Subsidiary has been named or listed as a potentially responsible party by any governmental body or agency in a matter arising under any Environmental Laws. 13 14 ARTICLE V NEGATIVE COVENANTS While any part of the credit granted to the Company is available and while any part of the principal of or interest on any Note remains unpaid, the Company shall not do any of the following, or permit any Subsidiary to do any of the following, without the prior written consent of the Required Banks: 5.1 Restriction of Indebtedness. Create, incur, assume or have outstanding any indebtedness for borrowed money or the deferred purchase price of any asset (including obligations under Capitalized Leases), except: (a) the Notes issued under this Agreement; (b) other indebtedness outstanding on September 30, 1996, and shown on the financial statements referred to in section 4.5 above, including renewals, extensions and refundings of such indebtedness, provided that the principal amount of such indebtedness shall not be increased; (c) indebtedness secured by liens described in section 9.1(w)(iv), provided such indebtedness does not exceed an aggregate of $7,000,000 outstanding at any one time; and (d) unsecured indebtedness which has been subordinated in right of payment to the Company's obligations under this Agreement and the Notes in a manner satisfactory to the Banks. 5.2 Restriction on Liens. Create or permit to be created or allow to exist any mortgage, pledge, encumbrance or other lien upon or security interest in any property or asset now owned or hereafter acquired by the Company or any Subsidiary, except Permitted Liens. 5.3 Sale and Leaseback. Enter into any agreement providing for the leasing by the Company or a Subsidiary of property which has been or is to be sold or transferred by the Company or a Subsidiary to the lessor thereof, or which is substantially similar in purpose to property so sold or transferred. 5.4 Dividends and Redemptions. Pay or declare any dividend, or make any other distribution on account of any shares of any class of its stock, or redeem, purchase or otherwise acquire directly or indirectly, any shares of any class of its stock, except for: (a) dividends payable in shares of stock of the Company; (b) dividends paid to the Company by a wholly-owned Subsidiary; 14 15 (c) redemptions of stock of the Company made with the proceeds of sales of stock of the Company occurring within 30 days of the date of any such redemption; and (d) so long as no Default or Event of Default has occurred and is continuing, cash dividends paid by the Company which do not exceed in the aggregate for all such dividends paid after September 30, 1996, 40% of the Consolidated Net Earnings of the Company and its Subsidiaries, after subtracting all net losses, accumulated during the period after September 30, 1996 and prior to the payment of the dividend with respect to which the determination is made, taken as a single accounting period. 5.5 Acquisitions and Investments. Acquire any other business or make any loan, advance or extension of credit to, or investment in, any other person, corporation, partnership or other entity, including investments acquired in exchange for stock or other securities or obligations of any nature of the Company or any Subsidiary, or create or participate in the creation of any Subsidiary or joint venture, except: (a) investments in accounts, chattel paper, and notes receivable, arising or acquired in the ordinary course of business; (b) investments in bank certificates of deposit (but only with FDICinsured commercial banks having a combined capital and surplus in excess of $1 billion), open market commercial paper maturing within one year having the highest rating of either Standard & Poors Corporation or Moody's Investors Service, Inc., U.S. Treasury Bills subject to repurchase agreements and shortterm obligations issued or guaranteed by the United States Government or any agency thereof; (c) Investments in openend diversified investment companies of recognized financial standing investing solely in shortterm money market instruments consisting of securities issued or guaranteed by the United States Government, its agencies or instrumentalities, time deposits and certificates of deposit issued by domestic banks or London branches of domestic banks, bankers acceptances, repurchase agreements, high grade commercial paper and the like; (d) loans and advances made to suppliers, employees, officers and agents of the Company and its Subsidiaries in the ordinary course of business, consistent with the Company's past practices; (e) investments in a Guarantor by the Company and investments in the Company by a Subsidiary; (f) cash investments in Plexus General Partnership Corp., a wholly-owned subsidiary of the Company ("General Partner"), provided that (A) 15 16 the General Partner shall not make any investments of the kind described above in any Person except for a cash investment of up to $750,000 in Plexus Home Automation Limited Partnership, a Wisconsin limited partnership ("Partnership"), of which General Partner shall be the managing general partner, or engage in any business other than through its investment in the Partnership, and (B) such investments by Company in the General Partner shall be limited to the amounts necessary to enable the General Partner to make such permitted investments in the Partnership and other amounts reasonably required by the General Partner in the ordinary course of its business; (g) other investments outstanding on September 30, 1996, and shown on the financial statements referred to in section 4.5 above, provided that such investments shall not be increased; and (h) other investments which may not exceed $1,000,000 in the aggregate in any fiscal year without the consent of the Required Banks. 5.6 Liquidation; Merger; Disposition of Assets. Liquidate or dissolve; or merge with or into or consolidate with or into any other corporation or entity except a merger of a wholly-owned Subsidiary into the Company or another wholly-owned Subsidiary; or sell, lease, transfer or otherwise dispose of all or any substantial part of its property, assets or business (other than sales made in the ordinary course of business), or any stock of any Subsidiary. 5.7 Accounts Receivable. Discount or sell with recourse, or sell for less than the face amount thereof, any of its notes or accounts receivable, whether now owned or hereafter acquired. 5.8 Contingent Liabilities. Guarantee or become a surety or otherwise contingently liable (including, without limitation, liable by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss) for any obligations of others, except (i) the Guaranties, (ii) pursuant to the deposit and collection of checks and similar items in the ordinary course of business, and (iii) guaranties by the Company of the trade obligations of the Guarantors incurred in the ordinary course of business. 5.9 Affiliates. Suffer or permit any transaction with any Affiliate, except on terms not less favorable to the Company or Subsidiary than would be usual and customary in similar transactions with non-affiliated persons. 5.10 Fiscal Year. Change its fiscal year. 5.11 Derivatives. Enter into any interest rate, commodity or foreign currency exchange, swap, collar, floor, cap, option or similar agreement except to hedge against actual interest rate, foreign currency or commodity exposure. Notwithstanding the foregoing or any other provision of this Agreement, the Company may from time to time enter into hedging 16 17 arrangements of the type described above with one or more of the Banks (or their affiliates), provided that the Company's obligations in respect of such hedging arrangements shall at all times be unsecured. ARTICLE VI AFFIRMATIVE COVENANTS While any part of the credit granted to the Company is available and while any part of the principal of or interest on any Note remains unpaid, and unless waived in writing by the Required Banks, the Company shall: 6.1 Financial Status. Maintain: (a) Consolidated Tangible Net Worth at all times in the amount of at least $48,000,000; and (b) Consolidated Debt to Worth Ratio at all times of not more than 1.50 to 1.0; and (c) Consolidated Fixed Charge Coverage Ratio as of each fiscal quarter-end of at least 2.00 to 1.0 for the four fiscal quarters then ended. 6.2 Insurance. Maintain insurance in such amounts and against such risks as is customary by companies engaged in the same or similar businesses and similarly situated. 6.3 Corporate Existence; Obligations. Do, and cause each Subsidiary to do, all things necessary to: (i) maintain its corporate existence (except for mergers permitted by section 5.6) and all rights and franchises necessary or desirable for the conduct of its business; (ii) comply with all applicable laws, rules, regulations and ordinances, and all restrictions imposed by governmental authorities, including those relating to environmental standards and controls; and (iii) pay, before the same become delinquent and before penalties accrue thereon, all taxes, assessments and other governmental charges against it or its property, and all of its other liabilities, except to the extent and so long as the same are being contested in good faith by appropriate proceedings in such manner as not to cause any material adverse effect upon its property, financial condition or business operations, with adequate reserves provided for such payments. 6.4 Business Activities. Continue to carry on its business activities in substantially the manner such activities are conducted on the date of this Agreement and not make any material change in the nature of its business. 6.5 Properties. Keep and cause each Subsidiary to keep its properties (whether owned or leased) in good condition, repair and working order, ordinary wear and tear and 17 18 obsolescence excepted, and make or cause to be made from time to time all necessary repairs thereto (including external or structural repairs) and renewals and replacements thereof. 6.6 Accounting Records; Reports. Maintain and cause each Subsidiary to maintain a standard and modern system for accounting in accordance with generally accepted principles of accounting consistently applied throughout all accounting periods and consistent with those applied in the preparation of the financial statements referred to in section 4.5; and furnish to the Banks such information respecting the business, assets and financial condition of the Company and its Subsidiaries as any Bank may reasonably request and, without request, furnish to the Banks: (a) Within 45 days after the end of each of the first three quarters of each fiscal year of the Company (i) consolidated balance sheets of the Company and all of its Subsidiaries as of the close of such quarter and of the comparable quarter in the preceding fiscal year; and (ii) consolidated statements of income and cash flow of the Company and all of its Subsidiaries for such quarter and for that part of the fiscal year ending with such quarter and for the corresponding periods of the preceding fiscal year; all in reasonable detail and certified as true and correct (subject to audit and normal year-end adjustments) by the chief financial officer of the Company; and (b) As soon as available, and in any event within 90 days after the close of each fiscal year of the Company, a copy of the audit report for such year and accompanying consolidated financial statements of the Company and its Subsidiaries, as prepared by independent public accountants of recognized standing selected by the Company and satisfactory to the Required Banks, which audit report shall be accompanied by an opinion of such accountants, in form satisfactory to the Required Banks, to the effect that the same fairly present the financial condition of the Company and its Subsidiaries and the results of its and their operations as of the relevant dates thereof; and (c) As soon as available, copies of all reports or materials submitted or distributed to shareholders of the Company or filed with the SEC or other governmental agency having regulatory authority over the Company or any Subsidiary or with any national securities exchange; and (d) Promptly after the furnishing thereof, copies of any statement or report furnished to any other holder of obligations of the Company or any Subsidiary pursuant to the terms of any indenture, loan or similar agreement and not otherwise required to be furnished to the Banks pursuant to any other clause of this section 6.6; and (e) Promptly, and in any event within 10 days, after Company has knowledge thereof a statement of the chief financial officer of the Company describing: (i) any event which, either of itself or with the lapse of time or the 18 19 giving of notice or both, would constitute a Default hereunder or a default under any other material agreement to which the Company or any Subsidiary is a party, together with a statement of the actions which the Company proposes to take with respect thereto; (ii) any pending or threatened litigation or administrative proceeding of the type described in section 4.10; and (iii) any fact or circumstance which is materially adverse to the property, financial condition or business operations of the Company or any Subsidiary; and (f)(i) Promptly, and in any event within 30 days, after the Company knows that any Reportable Event with respect to any Plan has occurred, a statement of the chief financial officer of the Company setting forth details as to such Reportable Event and the action which the Company proposes to take with respect thereto, together with a copy of any notice of such Reportable Event given to the Pension Benefit Guaranty Corporation if a copy of such notice is available to the Company, (ii) promptly after the filing thereof with the Internal Revenue Service, copies of each annual report with respect to each Plan administered by the Company and (iii) promptly after receipt thereof, a copy of any notice (other than a notice of general application) the Company, any Subsidiary or any member of the Controlled Group may receive from the Pension Benefit Guaranty Corporation or the Internal Revenue Service with respect to any Plan administered by the Company. The financial statements referred to in (a) and (b) above shall be accompanied by a certificate by the chief financial officer or controller of the Company setting forth detailed computations demonstrating compliance with Section 6.1 and further stating that, as of the close of the last period covered in such financial statements, no condition or event had occurred which constitutes a Default or an Event of Default hereunder (or if there was such a condition or event, specifying the same). 6.7 Inspection of Records. Permit representatives of the Banks to visit and inspect any of the properties and examine any of the books and records of the Company and its Subsidiaries at any reasonable time and as often as may be reasonably desired. 6.8 Compliance with Environmental Laws. Timely comply, and cause each Subsidiary to comply, with all applicable Environmental Laws. 6.9 Orders, Decrees and Other Documents. Provide to the Banks, immediately upon receipt, copies of any correspondence, notice, pleading, citation, indictment, complaint, order, decree, or other document from any source asserting or alleging a circumstance or condition which requires or may require a financial contribution by Company or any Subsidiary or a cleanup, removal, remedial action, or other response by or on the part of the Company or any Subsidiary under Environmental Laws, or which seeks damages or civil, criminal or punitive penalties from Company or any Subsidiary for an alleged violation of Environmental Laws, which in any case might reasonably be expected to have a material adverse effect on the business, assets or financial condition of the Company or any Subsidiary. 19 20 6.10 Agreement to Update. Advise the Banks in writing as soon as Company becomes aware of any condition or circumstance which makes the environmental warranties contained in this Agreement incomplete or inaccurate. 6.11 Environmental Audit. Upon the occurrence or existence of any event, condition or circumstance which would require notification from the Company or any Subsidiary pursuant to Section 6.9 or Section 6.10 hereof, at the request of any Bank the Company shall permit, at its expense, an Environmental Audit solely for the benefit of the Banks, to be conducted by the Banks or an independent agent selected by the Banks; provided, however, that the initial stage of such Environmental Audit shall be limited to those activities normally included in a "Phase I" investigation, and if such initial investigation discloses the possibility of a condition which, in the reasonable judgment of the Banks, may subject the Company or any Subsidiary to a material liability, cost or expense, then such Environmental Audit shall be expanded to include those activities normally associated with a "Phase II" investigation. ARTICLE VII DEFAULTS 7.1 Defaults. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) The Company shall fail to pay (i) any interest due on any Note, or any other amount payable hereunder (other than a principal payment on any Note) by five days after the same becomes due; or (ii) any principal amount due on any Note when due; (b) The Company shall default in the performance or observance of any agreement, covenant, condition, provision or term contained in Article V or section 6.1 of this Agreement; (c) The Company or other signatory other than any Bank shall default in the performance or observance of any of the other agreements, covenants, conditions, provisions or terms in this Agreement or any Loan Document continuing for a period of thirty days after written notice thereof is given to the Company by any of the Banks; (d) Any representation or warranty made by the Company herein or any certificate delivered pursuant hereto, or any financial statement delivered to any Bank hereunder, shall prove to have been false in any material respect as of the time when made or given; (e) The Company or any Subsidiary shall fail to pay as and when due and payable (whether at maturity, by acceleration or otherwise) all or any part of the principal of or interest on any indebtedness of or assumed by it having an 20 21 outstanding principal balance of $100,000 or more, or of the rentals due under any lease or sublease requiring aggregate rental payments of $100,000 or more, or of any other obligation for the payment of money in the amount of $100,000 or more, and such default shall not be cured within the period or periods of grace, if any, specified in the instruments governing such obligations; or default shall occur under any evidence of, or any indenture, lease, sublease, agreement or other instrument governing such obligations, and such default shall continue for a period of time sufficient to permit the acceleration of the maturity of any such indebtedness or other obligation or the termination of such lease or sublease; (f) A final judgment which, together with all other outstanding final judgments against the Company and its Subsidiaries, or any of them, exceeds an aggregate of $50,000 shall be entered against the Company or any Subsidiary and shall remain outstanding and unsatisfied, unbonded, unstayed or uninsured after 60 days from the date of entry thereof; or any judgment which exceeds $1,000,000 shall be entered against the Company or any Subsidiary and shall not be covered, for the benefit of the Company or such Subsidiary, by insurance provided by a financially responsible insurance carrier; (g) The Company, any Subsidiary or any Guarantor shall: (i) become insolvent; or (ii) be unable, or admit in writing its inability to pay its debts as they mature; or (iii) make a general assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its property; or (iv) become the subject of an "order for relief" within the meaning of the United States Bankruptcy Code; or (v) become the subject of a creditor's petition for liquidation, reorganization or to effect a plan or other arrangement with creditors; or (vi) apply to a court for the appointment of a custodian or receiver for any of its assets; or (vii) have a custodian or receiver appointed for any of its assets (with or without its consent); or (viii) have any of its assets garnished, seized or forfeited, or threatened with garnishment, seizure or forfeiture; or (ix) otherwise become the subject of any insolvency proceedings or propose or enter into any formal or informal composition or arrangement with its creditors; (h) This Agreement, any Note or any Loan Document shall, at any time after their respective execution and delivery, and for any reason, cease to be in full force and effect or be declared null and void, or be revoked or terminated, or the validity or enforceability thereof or hereof shall be contested by the Company or any shareholder of the Company, or the Company shall deny that it has any or further liability or obligation thereunder or hereunder, as the case may be; or (i) Any Reportable Event, which the Required Banks determine in good faith to constitute grounds for the termination of any Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United 21 22 States District Court of a trustee to administer any Plan, shall have occurred, or any Plan shall be terminated within the meaning of Title IV of ERISA, or a trustee shall be appointed by the appropriate United States District Court to administer any Plan, or the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan or to appoint a trustee to administer any Plan; or the Company or any Subsidiary shall become a member of a Multiemployer Plan. 7.2 Termination of Commitment and Acceleration of Obligations. Upon the occurrence of any Event of Default: (a) As to any Event of Default (other than an Event of Default under section 7.1(g)) and at any time thereafter, and in each case, the Required Banks (or the Agent with the written consent of the Required Banks) may, by written notice to the Company, immediately terminate the obligation of the Banks to make loans hereunder and/or declare the unpaid principal balance of the Notes, together with all interest accrued thereon, to be immediately due and payable; and the unpaid principal balance of and accrued interest on such Notes shall thereupon be due and payable without further notice of any kind, all of which are hereby waived, and notwithstanding anything to the contrary herein or in the Notes contained; (b) As to any Event of Default under section 7.1(g), the obligation of the Banks to make loans hereunder shall immediately terminate and the unpaid principal balance of all Notes, together with all interest accrued thereon, shall immediately and forthwith be due and payable, all without presentment, demand, protest, or further notice of any kind, all of which are hereby waived, notwithstanding anything to the contrary herein or in the Notes contained; and (c) As to each Event of Default, the Banks shall have all the remedies for default provided by the Loan Documents, as well as applicable law. 7.3 Amendments, Etc. No waiver, amendment, settlement or compromise of any of the rights of any Bank under this Agreement, any Note or any of the Loan Documents shall be effective for any purpose unless it is in a written instrument executed and delivered by the parties authorized to act by this section 7.3. Subject to the provisions of this section 7.3, the Required Banks (or the Agent with the written consent of the Required Banks) and the Company may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to this Agreement, the Notes, or the Loan Documents or changing in any manner the rights of the Banks or the Company hereunder or thereunder or waiving any Event of Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of all of the Banks: (a) Extend the maturity of any Note or reduce the principal amount thereof, or reduce the rate or amount or change the time of payment of principal, interest or fees payable on any Note or otherwise under this Agreement; 22 23 (b) Amend the definition of Required Banks; (c) Extend the Termination Date, or increase the amount of the Commitment of any Bank hereunder, or permit the Company to assign its rights under this Agreement; (d) Alter the provisions of section 2.19 of this Agreement; (e) Amend any provision of this Agreement requiring a pro rata sharing among the Banks; (f) Amend this section 7.3; or (g) Release any of the Guaranties. No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. ARTICLE VIII THE AGENT 8.1 Appointment and Powers. Each of the Banks hereby appoints Firstar Bank Milwaukee, National Association as Agent for the Banks hereunder, and authorizes the Agent to take such action as Agent on its behalf and to exercise such powers as are specifically delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The duties of the Agent shall be entirely ministerial; the Agent shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, the Notes or any related document, or to enforce such performance, or to inspect the property (including the books and records) of the Company or any of its Subsidiaries; and the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or the Notes or applicable law. Firstar Bank Milwaukee, National Association agrees to act as Agent upon the express terms and conditions contained in this Article VIII. 8.2 Responsibility. The Agent (i) makes no representation or warranty to any Bank and shall not be responsible to any Bank for any oral or written recitals, reports, statements, warranties or representations made in or in connection with this Agreement or any Note; (ii) shall not be responsible for the due execution, legality, validity, enforceability, genuineness, sufficiency, collectibility or value of this Agreement or any Note or any other instrument or document furnished pursuant thereto; (iii) may treat the payee of any Note as the owner thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (iv) may execute any of its duties under this Agreement by or through employees, agents and attorneys in fact and shall not be answerable for 23 24 the default or misconduct of any such employee, agent or attorney in fact selected by it with reasonable care; (v) may (but shall not be required to) consult with legal counsel (including counsel for the borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with advice of such counsel, accountants or experts; (vi) shall be entitled to rely upon any Note, notice, consent, waiver, amendment, certificate, affidavit, letter, telegram, telex, cable or other document or communication believed by it to be genuine and signed or sent by the proper party or parties, and may rely on statements contained therein without further inquiry or investigation. Neither the Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the Notes, except for its or their own gross negligence or willful misconduct. 8.3 Agent's Indemnification. The Banks agree to indemnify and reimburse the Agent (to the extent not reimbursed by the Company), ratably in accordance with their respective Commitments from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent as such in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, administration or enforcement of, or the preservation of any rights under, this Agreement to the extent that the Agent is not reimbursed for such expenses by the Company. 8.4 Rights as a Lender. With respect to its Commitment and the Notes issued to it, Firstar Bank Milwaukee, National Association, in its individual capacity as a Bank, shall have, and may exercise, the same rights and powers under this Agreement and the Notes payable to it as any other Bank has under this Agreement and Notes, and the terms "Bank" and "Banks", unless the context otherwise requires, shall include Firstar Bank Milwaukee, National Association in its individual capacity as a Bank. Firstar Bank Milwaukee, National Association and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of banking or trust business with, the Company or any of its Subsidiaries and any person, firm or corporation who may do business with or own securities of the Company or any Subsidiary, all as if it were not the Agent, and without any duty to account therefor to the Banks. 8.5 Credit Investigation. Each of the Banks severally represents and warrants to each of the other Banks and to the Agent that it has made its own independent investigation and evaluation of the financial condition and affairs of the Company and its Subsidiaries in connection with such Bank's execution and delivery of this Agreement and the making of its loans and has not relied on any information or evaluation provided by any other Bank or the Agent in connection with any of the foregoing (other than information provided by 24 25 the Company to the Agent for transmittal to the Banks in connection with the foregoing); and each Bank represents and warrants to each other Bank and to the Agent that it shall continue to make its own independent investigation and evaluation of the credit-worthiness of the Company and its Subsidiaries while the Commitments and/or the Notes are outstanding. 8.6 Resignation. The Agent may resign as such at any time upon ten calendar days' prior written notice to the Company and the Banks, effective at the end of said ten days or upon the earlier appointment of a successor. If the Agent resigns, the Banks shall appoint a successor which shall be one of the Banks, and such Bank, upon its acceptance of such appointment, shall become the Agent upon the express conditions contained in this Article VIII. If at any time there is no Agent acting hereunder, the Company shall make all required payments to, and otherwise deal directly with, the Banks and/or the holders of the Notes, as the case may be. ARTICLE IX MISCELLANEOUS 9.1 Accounting Terms; Definitions. Except as otherwise provided, all accounting terms shall be construed in accordance with generally accepted accounting principles consistently applied and consistent with those applied in the preparation of the financial statements referred to in section 4.5, and financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. As used herein: (a) the term "Adjusted LIBOR Rate" means, for any Interest Period with respect to an Adjusted LIBOR Rate Loan, a rate per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBOR Rate Adjusted LIBOR Rate = ------------------------------------------ + LIBOR Margin 1 - LIBOR Reserve Requirement (b) the term "Adjusted LIBOR Rate Loan" means all or part of any loan which bears interest at or by reference to the Adjusted LIBOR Rate. (c) the term "Affiliate" means any person, firm or corporation, which, directly or indirectly, controls, is controlled by, or is under common control with, the Company or a Subsidiary. 25 26 (d) the term "Borrowing Date" means each date (which must be a Business Day) on which a loan is made to the Company or on which any loan bearing interest at one rate is converted into a loan bearing interest at another interest rate or is continued. (e) the term "Business Day" means any date other than a Saturday, Sunday or other day on which banks in the States of Wisconsin or Illinois are required or authorized to close; provided, however, that for purposes of determining the applicable Interest Period for an Adjusted LIBOR Rate Loan, references to Business Day will include only those days on which dealings in United States Dollar deposits are carried out by United States financial institutions in the London interbank market. (f) the term "Capitalized Lease" means any lease which is capitalized on the books of the lessee, or should be so capitalized under generally accepted accounting principles. (g) the term "Consolidated Debt to Worth Ratio" means the relationship, expressed as a numerical ratio, between: (i) the total of all liabilities of the Company and its Subsidiaries which would appear on a consolidated balance sheet of the Company and its Subsidiaries in accordance with generally accepted principles of accounting, including capitalized lease obligations, but excluding liabilities or obligations for payments made by customers of the Company or any Subsidiary for goods to be purchased from the Company or such Subsidiary, prior to the time of shipment by the Company or such Subsidiary; and (ii) Consolidated Tangible Net Worth. (h) the term "Consolidated Fixed Charge Coverage Ratio" means, for any period, the relationship, expressed as a numerical ratio, between: (i) the sum of (A) Consolidated Net Earnings of the Company and its Subsidiaries for such period before payment or provision for applicable income and other taxes, plus (B) depreciation, amortization and all other non-cash deductions arising in the normal course of operations and shown on the Company's financial statements for such period, plus (C) net interest expense on indebtedness of the Company and its Subsidiaries (including the interest component of Capitalized Leases) for such period, plus (D) rental expense under leases other than Capitalized Leases for such period, and (ii) the sum of (A) net interest expense on indebtedness of the Company and its Subsidiaries (including the interest component of Capitalized Leases) for such period, (B) scheduled principal payments on indebtedness of the Company and its Subsidiaries during such period, (C) the principal component of required payments in respect of Capitalized Leases during such period and (D) rental expense under leases other than Capitalized Leases for such period, all as determined in accordance with generally accepted accounting principles applied on a consolidated basis to the Company and its Subsidiaries. (i) the term "Consolidated Net Earnings" means: 26 27 (i) all revenues and income derived from operation in the ordinary course of business (excluding extraordinary gains and profits upon the disposition of investments and fixed assets), Minus: (ii) all expenses and other proper charges against income (including payment or provision for all applicable income and other taxes, but excluding extraordinary losses and losses upon the disposition of investments and fixed assets), all as determined in accordance with generally accepted accounting principles as applied on a consolidated basis to the Company and its Subsidiaries. (j) the term "Consolidated Tangible Net Worth" means the total of all assets properly appearing on the consolidated balance sheet of the Company and its Subsidiaries in accordance with generally accepted accounting principles, less the sum of the following: (i) the book amount of all such assets which would be treated as intangibles under generally accepted accounting principles, including, without limitation, all such items as good will, trademarks, trademark rights, trade names, tradename rights, brands, copyrights, patents, patent rights, licenses, deferred charges and unamortized debt discount and expense; (ii) anywrite-up in the book value of any such assets resulting from a revaluation thereof subsequent to September 30, 1996; (iii) all reserves (to the extent not already deducted from assets), including reserves for depreciation, obsolescence, depletion, insurance, and inventory valuation, but excluding contingency reserves not allocated for any particular purpose and not deducted from assets; (iv) the amount, if any, at which any shares of stock of the Company or any Subsidiary appear on the asset side of such consolidated balance sheet; (v) all liabilities of the Company and its Subsidiaries shown on such balance sheet, other than liabilities subordinated to obligations owed to the Banks by subordination agreements in form and substance satisfactory to the Banks; and (vi) all investments in foreign affiliates and nonconsolidated domestic affiliates. (k) the term "Controlled Group" means a controlled group of corporations as defined in Section 1563 of the Internal Revenue Code of 1986, as amended, of which the Company is a part. (l) the term "Default" means any condition or event which with the passage of time or the giving of notice or both would constitute an Event of Default. 27 28 (m) the term "Environmental Audit" means a review for the purpose of determining whether the Company and each Subsidiary complies with Environmental Laws and whether there exists any condition or circumstance which requires or will require a cleanup, removal, or other remedial action under Environmental Laws on the part of the Company or any Subsidiary including, but not limited to, some or all of the following: (i) on site inspection including review of site geology, hydrogeology, demography, land use and population; (ii) taking and analyzing soil borings and installing ground water monitoring wells and analyzing samples taken from such wells; (iii) taking and analyzing of air samples and testing of underground tanks; (iv) reviewing plant permits, compliance records and regulatory correspondence, and interviewing enforcement staff at regulatory agencies; (v) reviewing the operations, procedures and documentation of the Company and its Subsidiaries; and (vi) interviewing past and present employees of the Company and its Subsidiaries. (n) the term "Environmental Laws" means all federal, state and local laws including rules of common law, statutes, regulations, ordinances, codes, rules and other governmental restrictions and requirements relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or hazardous substances including, but not limited to, the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Toxic Substances Control Act, the Hazardous Materials Transportation Act, regulations of the Environmental Protection Agency, regulations of the Nuclear Regulatory Agency, and regulations of any state department of natural resources or state environmental protection agency now or at any time hereafter in effect. (o) the term "ERISA" means the Employee Retirement Income Security Act of 1974, as the same may be in effect from time to time. (p) the term "Federal Funds Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight federal funds transactions conducted by brokers in federal funds, as published for such day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. In the case of a day which is not a Business Day, the Federal Funds Rate for such day shall be the Federal Funds Rate for the preceding Business Day. (q) the term "Interest Period" means with respect to each Adjusted LIBOR Rate Loan, the period commencing on the applicable Borrowing Date and ending one, two, three or six months thereafter, as specified by the Company in the related notice of borrowing pursuant to section 2.2, and with respect to a Variable Rate Loan converted to an Adjusted LIBOR Rate 28 29 Loan, or in the case of a continuation of an Adjusted LIBOR Rate Loan for an additional Interest Period, the period commencing on the date of such conversion or continuation and ending one, two, three or six months thereafter, as specified by the Company in the related notice pursuant to section 2.5, provided that: (i) any Interest Period which would otherwise end on a day which is not a Business Day will be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period will end on the immediately preceding Business Day; (ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in a calendar month at the end of such Interest Period) will, subject to clause (iii) below, end on the last Business Day of a calendar month; and (iii) in no event may any Interest Period extend beyond the Termination Date. (r) the term "LIBOR Margin" means 7/8 of 1% per annum. (s) the term "LIBOR Rate" means, for any Interest Period with respect to an Adjusted LIBOR Rate Loan, the per annum rate of interest determined by the Agent to be the arithmetic average (rounded upward, if necessary, to the nearest 1/16 of 1%) of the offered rates for deposits in United States Dollars for the applicable Interest Period which appear on the Telerate Screen Page 3750 (or such other page of Telerate or such other service on which the appropriate information may be displayed), on the electronic communications terminals in the Agent's money center, as of 11 a.m., London time, on the Business Day which is two Business Days before the applicable Borrowing Date ("Calculation Date"), except as provided below. If fewer than two offered rates appear for the applicable Interest Period or if the appropriate screen is not accessible as of such time, the term "LIBOR Rate" shall mean the per annum rate of interest determined by the Agent to be the average (rounded up, if necessary, to the nearest 1/16 of 1%) of the rates at which deposits in U.S. dollars are offered to the Agent by four major banks in the London interbank market, as selected by the Agent ("Reference Banks"), at approximately 11 a.m., London time, on the Calculation Date for the applicable Interest Period and in an amount equal to the principal amount of the applicable Adjusted LIBOR Rate Loan. The Agent will request the principal London office of each of such Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, the applicable rate will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the applicable rate will be the arithmetic mean of the rates quoted by major banks in New York City, selected by the Agent, at approximately 11 a.m., New York City time, on the Calculation Date for loans in United States Dollars to leading European banks for the applicable Interest Period and in an amount equal to the principal amount of the applicable Adjusted LIBOR Rate Loan. (t) the term "LIBOR Reserve Requirement" means, for any Interest Period with respect to an Adjusted LIBOR Rate Loan, the stated maximum rate of all reserve requirements (including all basic, supplemental, marginal, emergency and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements during such Interest Period) that is specified on the first day of 29 30 such Interest Period by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board of Governors) applicable to the class of banks of which any Bank is a member. (u) the term "Loan Document" means each of this Agreement, the Notes and the Guaranties, and the term "Loan Documents" means this Agreement, the Notes and the Guaranties collectively. (v) the term "Multiemployer Plan" means a multiemployer pension plan within the meaning of the Multiemployer Pension Plan Amendment Act, as amended from time to time. (w) the term "Permitted Liens" means: (i) liens outstanding on September 30, 1996, and shown on the financial statements referred to in section 4.5 above, and liens described on Schedule 9.1(w); (ii) liens for taxes, assessments or governmental charges, and liens incident to construction, which are either not delinquent or are being contested in good faith by the Company or a Subsidiary by appropriate proceedings which will prevent foreclosure of such liens, and against which adequate reserves have been provided; and easements, restrictions, minor title irregularities and similar matters which have no adverse effect as a practical matter upon the ownership and use of the affected property by the Company or any Subsidiary; (iii) liens or deposits in connection with worker's compensation or other insurance or to secure customs' duties, public or statutory obligations in lieu of surety, stay or appeal bonds, or to secure performance of contracts or bids (other than contracts for the payment of money borrowed), or deposits required by law or governmental regulations or by any court order, decree, judgment or rule as a condition to the transaction of business or the exercise of any right, privilege or license; or other liens or deposits of a like nature made in the ordinary course of business; and (iv) purchase money liens on property (other than inventory) acquired in the ordinary course of business, to finance or secure a portion of the purchase price thereof, and liens on property acquired existing at the time of acquisition; provided that in each case such lien shall be limited to the property so acquired and the liability secured by such lien does not exceed either the purchase price or the fair market value of the asset acquired. (x) the term "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, limited liability company, joint venture, governmental agency or authority or other entity of whatever nature. (y) the term "Plan" means any employee pension benefit plan subject to Title IV of ERISA maintained by the Company, any of its Subsidiaries, or any member of the Controlled Group, or any such plan to which the Company, any of its Subsidiaries, 30 31 or any member of the Controlled Group is required to contribute on behalf of any of its employees. (z) the term "Prime Rate" means the rate of interest announced by the Agent as its prime or reference rate for interest rate calculations, as such rate may change from time to time. The Prime Rate may not be the lowest interest rate charged by the Agent. (aa) the term "Regulatory Change" means any change enacted or issued after the date of this Agreement of any (or the adoption after the date of this Agreement of any new) federal or state law, regulation, interpretation, direction, policy or guideline, or any court decision, which affects the treatment of any extensions of credit of the Banks. (ab) the term "Reportable Event" means a reportable event as that term is defined in Title IV of ERISA. (ac) the term "Required Banks" means Banks holding at least 66 b% of the aggregate Commitment, or if the Commitments have been terminated, Banks holding at least 66 b% of the aggregate principal amount owed by the Company hereunder. (ad) the term "Subsidiary" means a corporation, partnership or other entity of which the Company owns, directly or through another Subsidiary, at the date of determination, more than 50% of the outstanding stock (or other shares of beneficial interest) having ordinary voting power for the election of directors, irrespective of whether or not at such time stock of any other class or classes might have voting power by reason of the happening of any contingency, or holds at least a majority of partnership or similar interests, or is a general partner, and any other Affiliate that is included in the Company's consolidated financial statements furnished to the Bank pursuant to section 6.6 hereof. (ae) the term "Unfunded Liabilities" means, with regard to any Plan, the excess of the current value of the Plan's benefits guaranteed under ERISA over the current value of the Plan's assets allocable to such benefits. (af) the term "Variable Rate" means the rate per annum equal to the Prime Rate minus 1/4 of 1% per annum. (ag) the term "Variable Rate Loan" means any loan which bears interest at or by reference to the Variable Rate. 9.2 Expenses; Indemnity. () The Company shall pay or reimburse each Bank and the Agent for all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) paid or incurred by the Agent or such Bank in connection with (i) the negotiation, preparation, execution, delivery, and administration of this Agreement, the Notes, the Loan Documents and any other document required hereunder or thereunder, including without limitation any amendment, supplement, modification or waiver of or to any of the foregoing, (ii) the enforcement, protection or preservation of its rights under this Agreement, the Notes, the Loan Documents and any other document required hereunder or thereunder, before and after judgment, including without limitation defending against any claim made against the Agent or such Bank by the Company, any 31 32 Subsidiary or any third party as a result of or in any way relating to any matter referred to in subsection (i) or (ii) of this section; and (iii) any and all taxes, other than taxes levied upon the net income of such Bank by the federal government or the state (or political subdivision of a state) where such Bank's principal office is located, which may be payable or determined to be payable in connection with the negotiation, preparation, execution, delivery, administration or enforcement of this Agreement, the Notes, the Loan Documents or any other document required hereunder or thereunder or any amendment, supplement, modification or waiver of or to any of the foregoing, or consummation of any of the transactions contemplated hereby or thereby. (b) The Company agrees to indemnify the Agent and each Bank against any and all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by the Agent or such Bank arising out of, in any way connected with, or as a result of (i) any acquisition or attempted acquisition of stock or assets of another person or entity by the Company or any Subsidiary, (ii) the use of any of the proceeds of any loans made hereunder by the Company or any Subsidiary for the making or furtherance of any such acquisition or attempted acquisition, (iii) any breach or alleged breach by the Company of or any liability or alleged liability of the Company under any Environmental Law, or any liability or alleged liability incurred by the Agent or such Bank under any Environmental Law in connection with this Agreement, any Loan Document or the transactions contemplated hereunder or thereunder, (iv) the negotiation, preparation, execution, delivery, administration, and enforcement of this Agreement, the Notes, the Loan Documents and any other document required hereunder or thereunder, including without limitation any amendment, supplement, modification or waiver of or to any of the foregoing or the consummation or failure to consummate the transactions contemplated hereby or thereby, or the performance by the parties of their obligations hereunder or thereunder. (c) The foregoing agreements and indemnities shall remain operative and in full force and effect regardless of termination of this Agreement, the consummation of or failure to consummate either the transactions contemplated by this Agreement or any amendment, supplement, modification or waiver, the repayment of any loans made hereunder, the invalidity or unenforceability of any term or provision of this Agreement or any of the Notes or any Loan Document, or any other document required hereunder or thereunder, any investigation made by or on behalf of the Agent, any Bank, the Company or any Subsidiary, or the content or accuracy of any representation or warranty made under this Agreement, any Loan Document or any other document required hereunder or thereunder. 9.3 Securities Act of 1933. Each Bank represents that it is acquiring the Notes payable to it without any present intention of making a sale or other distribution of such Notes, provided each Bank reserves the right to sell participations in its Notes to the extent permitted by section 9.10. 9.4 No Agency. Except as expressly provided herein, nothing in this Agreement and no action taken pursuant hereto shall cause any Bank to be treated as the agent of any other Bank, or shall be deemed to constitute the Banks a partnership, association, joint venture or other entity. 9.5 Successors. The provisions of this Agreement shall inure to the benefit of any holder of one or more of the Notes, and shall inure to the benefit of and be binding upon any successor to any of the parties hereto. No delay on the part of any Bank or any holder of any of the Notes in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder preclude other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein specified are cumulative and are not exclusive of any rights or remedies which the Banks or the holder of any of the Notes would otherwise have. 32 33 9.6 Survival. All agreements, representations and warranties made herein shall survive the execution of this Agreement, the making of the loans hereunder and the execution and delivery of the Notes. 9.7 Wisconsin Law. This Agreement and the Notes issued hereunder shall be governed by and construed in accordance with the internal laws of the State of Wisconsin, except to the extent superseded by federal law. 9.8 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. 9.9 Notices. All communications or notices required under this Agreement shall be deemed to have been given on the date when deposited in the United States mail, postage prepaid, and addressed as follows (unless and until any of such parties advises the other in writing of a change in such address): (a) if to the Company, with the full name and address of the Company as shown on this Agreement below; and (b) if to any of the Banks with the full name and address of such Bank as shown on this Agreement above, to the attention of the officer of the Bank executing the form of acceptance of this Agreement. 9.10 Participations. Neither the Company nor any Bank may assign its rights under this Agreement. The Company agrees that each Bank may, at its option, sell participations in its Notes to another financial institution or institutions, provided each such institution has been approved in writing by the Company and the Agent, and, in connection with each such sale, and thereafter, disclose to any such purchaser or potential purchaser of such interest any financial information such Bank may have concerning such Company and its Subsidiaries. 9.11 Entire Agreement; No Agency. This Agreement and the other documents referred to herein contain the entire agreement between the Banks and the Company with respect to the subject matter hereof, superseding all previous communications and negotiations, and no representation, undertaking, promise or condition concerning the subject matter hereof shall be binding upon the Banks unless clearly expressed in this Agreement or in the other documents referred to herein. Nothing in this Agreement or in the other documents referred to herein and no action taken pursuant hereto shall cause the Company to be treated as an agent of any Bank, or shall be deemed to constitute the Banks and the Company a partnership, association, joint venture or other entity. 9.12 No Third Party Benefit. This Agreement is solely for the benefit of the parties hereto and their permitted successors and assigns. No other person or entity shall have any rights under, or because of the existence of, this Agreement. 9.13 CONSENT TO JURISDICTION. THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN MILWAUKEE COUNTY, WISCONSIN, AND WAIVES ANY OBJECTION BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS, WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATING TO THIS AGREEMENT, ANY NOTE, ANY OF THE LOAN DOCUMENTS, OR ANY OTHER DOCUMENT DELIVERED HEREUNDER OR IN CONNECTION HEREWITH, OR ANY TRANSACTION ARISING FROM OR CONNECTED TO ANY OF THE FOREGOING. THE COMPANY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS TO ALL SUCH SERVICE OF PROCESS MADE BY MAIL OR BY MESSENGER DIRECTED TO IT AT THE ADDRESS SPECIFIED BELOW. Nothing herein shall affect the right of the Banks, or any of them, to serve process in any manner permitted by law, or limit the right of any Banks, or any of them, to bring proceedings against the Company or its property or assets in the competent courts of any other jurisdiction or jurisdictions. 33 34 9.14 WAIVER OF JURY TRIAL. THE COMPANY AND THE BANKS HEREBY JOINTLY AND SEVERALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY NOTE, ANY OF THE LOAN DOCUMENTS, OR ANY OTHER DOCUMENT DELIVERED HEREUNDER OR IN CONNECTION HEREWITH, OR ANY TRANSACTION ARISING FROM OR CONNECTED TO ANY OF THE FOREGOING. THE COMPANY AND THE BANKS EACH REPRESENT THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN. 9.15 LIMITATION OF LIABILITY. THE COMPANY, THE AGENT AND THE BANKS HEREBY WAIVE ANY RIGHT ANY OF THEM MAY NOW OR HEREAFTER HAVE TO CLAIM OR RECOVER FROM ANY OTHER PARTY HERETO ANY CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES. If the foregoing is satisfactory to you, please sign the form of acceptance below and return a signed counterpart hereof to the Company. When this instrument has been executed nand delivered by all of the Banks, it will evidence a binding agreement between the Banks and the Company. Very truly yours, (CORPORATE SEAL) PLEXUS CORP. Address:55 Jewelers Park Drive Neenah, Wisconsin 54956 By: /s/ Name: Title: The foregoing Agreement is hereby confirmed and accepted as of the date thereof. FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION, as the Agent and as a Bank By: /s/ Title: HARRIS TRUST AND SAVINGS BANK By: /s/ Title: BANK ONE, WISCONSIN By: /s/ Title: 34 35 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT 1.1 PROMISSORY NOTE $____________ March 20, 1997 FOR VALUE RECEIVED, PLEXUS CORP., a Wisconsin corporation, promises to pay to the order of ____________________ ________________________, without setoff or counterclaim, the principal sum of __________________ Dollars ($____________) at the Main Office of Firstar Bank Milwaukee, National Association, in Milwaukee, Wisconsin, on July 31, 2002. This Note shall bear interest payable on the dates and at the rate or rates set forth in the Credit Agreement referred to below. All amounts payable under this Note and the Agreement shall be payable in lawful money of the United States of America. This Note constitutes one of the Revolving Credit Notes issued under a Credit Agreement dated as of March 20, 1997 (the "Credit Agreement"), among the undersigned and Firstar Bank Milwaukee, National Association, for itself and as Agent, and the other Banks from time to time party thereto, to which Credit Agreement reference is hereby made for a statement of the terms and conditions on which loans in part evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated. This Note is entitled to the benefits of the Credit Agreement and all of the Loan Documents referred to in the Credit Agreement. This Note shall be construed in accordance with the laws (without regard to principles of conflict of laws) of the State of Wisconsin. The undersigned waives presentment, protest and notice of dishonor, and agrees, in the event of default hereunder, to pay all costs and expenses of collection, including reasonable attorneys' fees. PLEXUS CORP. By: Name: Title: (CORPORATE SEAL) 35 36 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT 2.2 LOAN REQUEST _______________, 19__ Firstar Bank Milwaukee, National Association 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Re: Credit Agreement Dated as of March 20, 1997 (the "Agreement") Gentlemen: The undersigned hereby applies to you, as Agent, for a loan under the above Agreement to be made on ____________, 19__ in the principal amount of $_____________________. The undersigned hereby certifies as follows: () All of the representations and warranties set forth in Article IV of such Agreement continue to be true on the date hereof. () At the date hereof, no Default or Event of Default under said Agreement has occurred and is continuing. () There has been no material adverse change in the business operations or financial condition of the undersigned and its Subsidiaries, taken as a whole, since ________________, 19__. The loans will bear interest at the: [check appropriate box] [_____] Variable Rate [_____] Adjusted LIBOR Rate If the loans will bear interest at the Adjusted LIBOR Rate, the Interest Period shall be ____ months (one, two, three or six months). Capitalized definitional terms used and not otherwise defined herein shall have the meanings ascribed to them in the Agreement. 36 37 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Very truly yours, PLEXUS CORP. By: Title: (CORPORATE SEAL) 37 38 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT 2.5 CONVERSION/CONTINUATION REQUEST _______________, 19__ Firstar Bank Milwaukee, National Association 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Re: Credit Agreement Dated as of March 20, 1997 (the "Agreement") Gentlemen: The undersigned elects to convert/continue the following portion of the outstanding loans under the Agreement: . The type of loans to be converted/continued is currently: [check appropriate box] [_____] Variable Rate Loans [_____] Adjusted LIBOR Rate Loans . The amount of loans to be converted/continued: $_________________________ . The type of loans into which the current loans shall be converted: [check appropriate box] [_____] Variable Rate Loans [_____] Adjusted LIBOR Rate Loans . Date of Conversion/Continuation: ________________ . Duration of Interest Period: _____ months [one, two, three or six months] (applicable only to Adjusted LIBOR Rate Loans). 38 39 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- . The amount of the Adjusted LIBOR Rate Loans into which such loans are converted/continued: $_____________________ (applicable only to Adjusted LIBOR Rate Loans) . Capitalized definitional terms used and not otherwise defined herein shall have the meanings ascribed to them in the Agreement. Very truly yours, PLEXUS CORP. By: Title: (Corporate Seal) 39 40 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 4.1 SUBSIDIARIES 40 41 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 9.1(w) PERMITTED LIENS 41 EX-10.5(D)(I) 4 CORPORATE GUARANTEE 1 Exhibit 10.5(b)(i) 1997 Plexus 10-K CORPORATE GUARANTEE AGREEMENT THIS AGREEMENT is made as of March 20, 1997, by Electronic Assembly Corporation, a Wisconsin corporation (hereinafter called "Guarantor"). R E C I T A L S : A. Firstar Bank Milwaukee, National Association, Harris Trust and Savings Bank and Bank One, Wisconsin (collectively, the "Banks"), and Firstar Bank Milwaukee, National Association, as Agent (the "Agent") have entered into a Credit Agreement dated as of the date hereof (the "Credit Agreement") with Plexus Corp. (the "Company") providing for revolving credit loans to the Company in an aggregate principal amount of up to $40,000,000. B. The Banks have required, as a condition to making credit available to the Company pursuant to the Credit Agreement, that the Guarantor guarantee the Obligations (as hereinafter defined) on the terms stated herein. C. It is necessary for the business purposes of the Guarantor that the Company continue to obtain such credit from the Banks. The Guarantor is a wholly-owned subsidiary of the Company. It is expected that substantially all of the credit extended to the Company pursuant to the Credit Agreement will be advanced to the Guarantor and Technology Group, Inc., another wholly-owned subsidiary of the Company (the "Co-Guarantor") to meet the needs of the Guarantor and the Co-Guarantor for working capital and other general corporate purposes. D. The term "Obligations" is used herein in its most comprehensive sense and includes any and all debts, obligations, and liabilities of Company to the Banks, or any of them, whether heretofore, now, or hereafter made, incurred, or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, secured or unsecured, whether Company is liable individually or jointly with others, whether for principal, interest or other debts, obligations or liabilities, and whether or not any or all such debts, obligations and liabilities are or 2 become barred by any statute of limitations or otherwise unenforceable. Without limitation of the foregoing, "Obligations" shall include all indebtedness and other obligations of Company to the Banks under (i) the Credit Agreement as from time to time in effect, including all extensions, renewals and refundings thereof, and (ii) any agreements of Company with one or more of the Banks (or their affiliates) relating to interest rate, currency or commodity swaps, caps, floors, collars, options or similar hedging arrangements. C O V E N A N T S : IN CONSIDERATION OF these premises and any credit or financial accommodation now or hereafter granted by the Banks to Company, it is agreed that: 1. Guarantee. The Guarantor hereby (a) unconditionally guarantees the full and prompt payment and performance of the Obligations when due, whether by acceleration or otherwise, or (if earlier) at the time Company becomes the subject of bankruptcy or other insolvency proceedings; (b) agrees to pay all costs, expenses and reasonable attorneys' fees incurred by the Banks or the Agent in enforcing this Agreement and the Obligations and realizing on any collateral for either; and (c) agrees to pay to the Banks the amount of any payments made to the Banks or another in connection with any of the Obligations which are recovered from the Banks by a trustee, receiver, creditor or other party pursuant to applicable law. 2. Guarantee of Payment. This is a guarantee of payment, and not of collection. The Banks shall not be obligated to: (a) take any steps whatsoever to collect from, or to file any claim of any kind against, the Company, any other guarantor, or any other person or entity liable for payment or performance of any of the Obligations; or (b) take any steps whatsoever to protect, accept, obtain, enforce, take possession of, perfect any interest in, foreclose or realize on collateral or security, if any, for the payment or performance of any of the Obligations or any guarantee of any of the Obligations; or (c) in any other respect exercise any diligence whatever in collecting or attempting to collect any of the Obligations by any means. 3 3. Guarantee Absolute and Unconditional. The Guarantor's liability for payment and performance of the Obligations shall be absolute and unconditional; the Guarantor unconditionally and irrevocably waives each and every defense which, under principles of guarantee or suretyship law, would otherwise operate to impair or diminish such liability; and nothing whatever except actual full payment and performance to the Banks of the Obligations (and all other debts, obligations and liabilities of Guarantor under this Agreement) shall operate to discharge the Guarantor's liability hereunder. Without limiting the generality of the foregoing, the Banks shall have the exclusive right, which may be exercised from time to time without diminishing or impairing the liability of the Guarantor in any respect, and without notice of any kind to the Guarantor, to: (a) extend any additional credit to Company; (b) accept any collateral, security or guarantee for any Obligations or any other credit; (c) determine how, when and what application of payments, credits and collections, if any, shall be made on the Obligations and any other credit and accept partial payments; (d) determine what, if anything, shall at any time be done with respect to any collateral or security; subordinate, sell, transfer, surrender, release or otherwise dispose of all or any of such collateral or security; and purchase or otherwise acquire any such collateral or security at foreclosure or otherwise; and (e) with or without consideration grant, permit or enter into any waiver, amendment, extension, modification, refinancing, indulgence, compromise, settlement, subordination, discharge or release of: (i) any of the Obligations and any agreement relating to any of the Obligations, (ii) any obligations of any guarantor or other person or entity liable for payment or performance of any of the Obligations, and any agreement relating to such obligations and (iii) any collateral or security or agreement relating to collateral or security for any of the foregoing. 4. Guarantor Waivers. The Guarantor hereby unconditionally waives (a) presentment, notice of dishonor, protest, demand for payment and all notices of any kind, including without limitation: notice of acceptance hereof; notice of the creation of any of the Obligations; notice of nonpayment, nonperformance or other default on any of the Obligations; and notice of any action taken to collect 4 upon or enforce any of the Obligations; (b) any subrogation to the rights of the Banks against the Company, any other claim against the Company which arises as a result of payments made by the Guarantor pursuant to this Agreement, and any claim for contribution against any co-guarantor, until the Obligations have been paid or performed in full and such payments are not subject to any right of recovery; and (c) any setoffs or counterclaims against the Banks which would otherwise impair the Banks' rights against the Guarantor hereunder. 5. Independent Investigation. Guarantor has made an independent investigation and evaluation of the financial condition of the Company and the value of any collateral, and has not relied (and will not rely) on any information or evaluation provided by the Banks regarding such condition or value. 6. Representations and Warranties. Guarantor represents and warrants that: a. The execution, delivery and performance of this Agreement by the Guarantor are within the corporate powers of the Guarantor, have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Guarantor which has not been obtained, (ii) violate any provision of the articles of incorporation or by-laws of the Guarantor or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Guarantor or any subsidiary of the Guarantor, (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority, or (iv) result in a breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of the Guarantor or any subsidiary of the Guarantor pursuant to, any indenture or other agreement or instrument under which the Guarantor or any subsidiary of the Guarantor is a party or by which it or any of its properties may be bound or affected. 5 b. This Agreement constitutes the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, except that such enforceability may be limited by bankruptcy or similar laws affecting the enforceability of creditors' rights generally. c. The financial statements of the Guarantor furnished to the Banks fairly present the financial condition of the Guarantor for the periods shown therein, and since the dates covered by the most recent of such financial statements, there has been no material adverse change in the Guarantor's assets or the conduct of its business. Except as expressly shown on such financial statements, the Guarantor owns all of its assets free and clear of all liens; is not a party to any litigation, nor is any litigation threatened to the knowledge of the Guarantor which would, if adversely determined, cause any material adverse change in its business or assets; and has no delinquent tax liabilities, nor have any tax deficiencies been proposed against it. 7. Financial Information. The Guarantor shall provide to the Banks such information regarding the financial condition of the Guarantor as the Banks may reasonably request from time to time. 8. Continuing Guarantee. This Agreement shall inure to the benefit of the Banks and their respective successors and assigns, including every holder or owner of any of the Obligations, and shall be binding upon the Guarantor and Guarantor's successors and assigns. This is a continuing guarantee and shall continue in effect until the Banks shall have received written notice of termination from Guarantor; provided that this guarantee shall continue in effect thereafter with respect to all Obligations which arise or are committed for prior to Banks' receipt of such notice of termination (including all subsequent extensions and renewals thereof, including extensions and renewals at increased rates, and all subsequently accruing interest and other charges thereon) until all such Obligations and all obligations of Guarantor hereunder shall be paid or performed in full and such payments are not subject to any right of recovery. 6 9. Miscellaneous. This Agreement constitutes the entire agreement between the Banks and Guarantor with respect to the subject matter hereof, superseding all previous communications and negotiations, and no representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon the Banks unless expressed herein. This Agreement shall be governed by the internal laws of the State of Wisconsin. ELECTRONIC ASSEMBLY CORPORATION By: Title: (CORPORATE SEAL) Attest: Title: EX-10.5(D)(II) 5 CORPORATE GUARANTEE 1 Exhibit 10.5(b)(ii) 1997 Plexus 10-K CORPORATE GUARANTEE AGREEMENT THIS AGREEMENT is made as of March 20, 1997, by Technology Group, Inc., a Wisconsin corporation (hereinafter called "Guarantor"). R E C I T A L S : A. Firstar Bank Milwaukee, National Association, Harris Trust and Savings Bank and Bank One, Wisconsin (collectively, the "Banks"), and Firstar Bank Milwaukee, National Association, as Agent (the "Agent") have entered into a Credit Agreement dated as of the date hereof (the "Credit Agreement") with Plexus Corp. (the "Company") providing for revolving credit loans to the Company in an aggregate principal amount of up to $40,000,000. B. The Banks have required, as a condition to making credit available to the Company pursuant to the Credit Agreement, that the Guarantor guarantee the Obligations (as hereinafter defined) on the terms stated herein. C. It is necessary for the business purposes of the Guarantor that the Company continue to obtain such credit from the Banks. The Guarantor is a wholly-owned subsidiary of the Company. It is expected that substantially all of the credit extended to the Company pursuant to the Credit Agreement will be advanced to the Guarantor and Electronic Assembly Corporation, another wholly-owned subsidiary of the Company (the "Co-Guarantor") to meet the needs of the Guarantor and the Co-Guarantor for working capital and other general corporate purposes. In addition, the Guarantor provides engineering and design services to customers of the Company and the Co-Guarantor and expansion of the business of the Company and the Co-Guarantor will indirectly benefit the business of the Guarantor. D. The term "Obligations" is used herein in its most comprehensive sense and includes any and all debts, obligations, and liabilities of Company to the Banks, or any of them, whether heretofore, now, or hereafter made, incurred, or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, secured or unsecured, whether Company is liable individually or jointly with others, whether for principal, interest or other debts, obligations or liabilities, and whether or 2 not any or all such debts, obligations and liabilities are or become barred by any statute of limitations or otherwise unenforceable. Without limitation of the foregoing, "Obligations" shall include all indebtedness and other obligations of Company to the Banks under (i) the Credit Agreement as from time to time in effect, including all extensions, renewals and refundings thereof, and (ii) any agreements of Company with one or more of the Banks (or their affiliates) relating to interest rate, currency or commodity swaps, caps, floors, collars, options or similar hedging arrangements. C O V E N A N T S : IN CONSIDERATION OF these premises and any credit or financial accommodation now or hereafter granted by the Banks to Company, it is agreed that: 1. Guarantee. The Guarantor hereby (a) unconditionally guarantees the full and prompt payment and performance of the Obligations when due, whether by acceleration or otherwise, or (if earlier) at the time Company becomes the subject of bankruptcy or other insolvency proceedings; (b) agrees to pay all costs, expenses and reasonable attorneys' fees incurred by the Banks or the Agent in enforcing this Agreement and the Obligations and realizing on any collateral for either; and (c) agrees to pay to the Banks the amount of any payments made to the Banks or another in connection with any of the Obligations which are recovered from the Banks by a trustee, receiver, creditor or other party pursuant to applicable law. 2. Guarantee of Payment. This is a guarantee of payment, and not of collection. The Banks shall not be obligated to: (a) take any steps whatsoever to collect from, or to file any claim of any kind against, the Company, any other guarantor, or any other person or entity liable for payment or performance of any of the Obligations; or (b) take any steps whatsoever to protect, accept, obtain, enforce, take possession of, perfect any interest in, foreclose or realize on collateral or security, if any, for the payment or performance of any of the Obligations or any guarantee of any of the Obligations; or (c) in any other respect exercise any diligence whatever in collecting or attempting to collect any of the Obligations by any means. 3 3. Guarantee Absolute and Unconditional. The Guarantor's liability for payment and performance of the Obligations shall be absolute and unconditional; the Guarantor unconditionally and irrevocably waives each and every defense which, under principles of guarantee or suretyship law, would otherwise operate to impair or diminish such liability; and nothing whatever except actual full payment and performance to the Banks of the Obligations (and all other debts, obligations and liabilities of Guarantor under this Agreement) shall operate to discharge the Guarantor's liability hereunder. Without limiting the generality of the foregoing, the Banks shall have the exclusive right, which may be exercised from time to time without diminishing or impairing the liability of the Guarantor in any respect, and without notice of any kind to the Guarantor, to: (a) extend any additional credit to Company; (b) accept any collateral, security or guarantee for any Obligations or any other credit; (c) determine how, when and what application of payments, credits and collections, if any, shall be made on the Obligations and any other credit and accept partial payments; (d) determine what, if anything, shall at any time be done with respect to any collateral or security; subordinate, sell, transfer, surrender, release or otherwise dispose of all or any of such collateral or security; and purchase or otherwise acquire any such collateral or security at foreclosure or otherwise; and (e) with or without consideration grant, permit or enter into any waiver, amendment, extension, modification, refinancing, indulgence, compromise, settlement, subordination, discharge or release of: (i) any of the Obligations and any agreement relating to any of the Obligations, (ii) any obligations of any guarantor or other person or entity liable for payment or performance of any of the Obligations, and any agreement relating to such obligations and (iii) any collateral or security or agreement relating to collateral or security for any of the foregoing. 4. Guarantor Waivers. The Guarantor hereby unconditionally waives (a) presentment, notice of dishonor, protest, demand for payment and all notices of any kind, including without limitation: notice of acceptance hereof; notice of the creation of any of the Obligations; notice of nonpayment, nonperformance or other default on any of the 4 Obligations; and notice of any action taken to collect upon or enforce any of the Obligations; (b) any subrogation to the rights of the Banks against the Company, any other claim against the Company which arises as a result of payments made by the Guarantor pursuant to this Agreement, and any claim for contribution against any co-guarantor, until the Obligations have been paid or performed in full and such payments are not subject to any right of recovery; and (c) any setoffs or counterclaims against the Banks which would otherwise impair the Banks' rights against the Guarantor hereunder. 5. Independent Investigation. Guarantor has made an independent investigation and evaluation of the financial condition of the Company and the value of any collateral, and has not relied (and will not rely) on any information or evaluation provided by the Banks regarding such condition or value. 6. Representations and Warranties. Guarantor represents and warrants that: a. The execution, delivery and performance of this Agreement by the Guarantor are within the corporate powers of the Guarantor, have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Guarantor which has not been obtained, (ii) violate any provision of the articles of incorporation or by-laws of the Guarantor or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Guarantor or any subsidiary of the Guarantor, (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority, or (iv) result in a breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of the Guarantor or any subsidiary of the Guarantor pursuant to, any indenture or other agreement or instrument under which the Guarantor or any subsidiary of the Guarantor is a party or by which it or any of its properties may be bound or affected. 5 b. This Agreement constitutes the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, except that such enforceability may be limited by bankruptcy or similar laws affecting the enforceability of creditors' rights generally. c. The financial statements of the Guarantor furnished to the Banks fairly present the financial condition of the Guarantor for the periods shown therein, and since the dates covered by the most recent of such financial statements, there has been no material adverse change in the Guarantor's assets or the conduct of its business. Except as expressly shown on such financial statements, the Guarantor owns all of its assets free and clear of all liens; is not a party to any litigation, nor is any litigation threatened to the knowledge of the Guarantor which would, if adversely determined, cause any material adverse change in its business or assets; and has no delinquent tax liabilities, nor have any tax deficiencies been proposed against it. 7. Financial Information. The Guarantor shall provide to the Banks such information regarding the financial condition of the Guarantor as the Banks may reasonably request from time to time. 8. Continuing Guarantee. This Agreement shall inure to the benefit of the Banks and their respective successors and assigns, including every holder or owner of any of the Obligations, and shall be binding upon the Guarantor and Guarantor's successors and assigns. This is a continuing guarantee and shall continue in effect until the Banks shall have received written notice of termination from Guarantor; provided that this guarantee shall continue in effect thereafter with respect to all Obligations which arise or are committed for prior to Banks' receipt of such notice of termination (including all subsequent extensions and renewals thereof, including extensions and renewals at increased rates, and all subsequently accruing interest and other charges thereon) until all such Obligations and all obligations of Guarantor 6 hereunder shall be paid or performed in full and such payments are not subject to any right of recovery. 9. Miscellaneous. This Agreement constitutes the entire agreement between the Banks and Guarantor with respect to the subject matter hereof, superseding all previous communications and negotiations, and no representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon the Banks unless expressed herein. This Agreement shall be governed by the internal laws of the State of Wisconsin. TECHNOLOGY GROUP, INC. By: /s/ Title: (CORPORATE SEAL) Attest: /s/ Title: EX-10.10 6 MANAGEMENT INCENTIVE 1 Exhibit 10.10 Plexus 1997 10-K PLEXUS CORP. 1998 MANAGEMENT INCENTIVE COMPENSATION PLAN - -------------------------------------------------------------------------------- PLAN OBJECTIVE The underlying objectives of this Plan are to enhance the position of the stockholders and assist the corporation to attract, retain and motivate management personnel by providing annual incentive award opportunities. The Plan provides annual variable incentive compensation opportunities to participants who attain high levels of performance, thus contributing to the overall success of the Corporation. Increasing sales growth and earnings are the two essential elements of this Plan. ELIGIBILITY FOR PLAN PARTICIPATION Participation in this Plan is limited to the corporation's management positions. Only listed employees are to be included in Plan Year 1998 (October 1, 1997 through September 30, 1998). Criteria for inclusion in the Plan include, but are not limited to, the following: 1. Positions which have the ability to significantly influence results. 2. Individuals who have demonstrated leadership and influencing skills. 3. Sales personnel and others closely linked with customers. 4. Positions for which it is difficult to attract and retain qualified candidates. (See Exhibit A for a list of participants by participation level.) Additions to or deletions from the attached list are to be made by the Chief Executive Officer or the Chief Operating Officer, and will only be made for prudent reasons. It is anticipated that additions will be made during the Plan Year to accommodate new employees or promotions of existing employees. LEAVING THE PLAN Plan participants who leave the employ of the corporation (whether voluntarily or involuntarily) and employees who cease to be full-time employees (defined as regularly scheduled 40 hours per week) prior to the end of a Plan Year (except in the case of an intracompany transfer, retirement, disability, death or approval by either the CEO or the COO) forfeit all rights to incentive awards 2 accrued during the Plan Year in which the termination or change in status occurs. Participants who receive an intracompany transfer to a position ineligible to participate under the Plan, and Participants terminated because of retirement, disability or death will receive all accrued awards prorated by length of service during the course of the Plan Year following the end of the Plan year and based upon full year results. "Retirement" means eligible for retirement under Plexus Corp.'s retirement guidelines. In the event of death, any payable award will be paid to the participant's estate following the end of the Plan Year and based upon full year results. INCENTIVE COMPENSATION - LEVELS OF PARTICIPATION The Plan will be divided into four categories of participation, each with a different incentive level: 1. Level 1-CEO/COO/Executive Vice Presidents/Chief Financial Officer at a target level of 40% of each participant's Annualized Base Salary. 2. Level 2-Senior Management (e.g., Vice Presidents) at a target level of 30% of each participant's Annualized Base Salary. 3. Level 3-Middle Management (e.g., directors, cost center managers) at a target level of 20% of each participant's Annualized Base Salary. 4. Level 4-Junior Management (e.g., selected managers) at a target level of 10% of each participant's Annualized Base Salary. The target goals of the two main elements of the Plan are Corporate Aftertax Earnings Per Share of $2.89 [PRIOR TO THE 1997 STOCK SPLIT] and Corporate Sales Growth of 23%. If these two targets are achieved, participants will be entitled to receive the above percentage according to their Level (assuming satisfactory individual performance). If these targets are exceeded, participants could potentially double the above percentage consistent with their Level (again, assuming satisfactory individual performance). (See Exhibit A for a detailed list of participants by participation level and Exhibit B for your individual matrix.) INCENTIVE COMPENSATION - MEASUREMENTS Each participant's incentive compensation is based on a combination of overall corporate performance and individual performance, as follows: A. Forty percent (40%) of each participant's incentive compensation shall be based on Corporate Aftertax Earnings Per Share growth (on a pre-bonus basis) as detailed in Exhibit B. B. Forty percent (40%) of each participant's incentive compensation shall be based on Corporate Sales Growth as detailed in Exhibit B. C. Twenty percent (20%) of each participant's incentive compensation shall be based on the individual performance rating of the manager as detailed in Exhibit B. Note: any incentive distribution under this Plan is contingent upon the Company's achieving an 3 acceptable "ability to pay calculation" which is estimated to be approximately $2.64 [pre-split] Corporate Aftertax Earnings Per Share (on a pre-bonus basis) in fiscal 1998. ADMINISTRATION Overall policy direction shall be provided by the Board of Directors. Plan administration shall be the responsibility of the Chief Executive Officer and the Chief Operating Officer with support and guidance from the Compensation Committee. EXCEPTIONS AND REVISIONS It is conceivable that there may be particular situations which are not properly accommodated by the regular criteria and boundaries of the prevailing incentive program, e.g. the effect an acquisition, a secondary offering, or the like, may have on the corporation's financial performance. Should these occur, they will be examined by the Compensation Committee, and if adjustments are made, the reason for special treatment will be explicitly set forth in Committee Minutes. TIME OF PAYMENT Payment will be made no later than two and one half (2.5) months after the corporation's fiscal 1998 year end. EFFECTIVE DATE The effective date of this Plan is October 1, 1997, and it ends September 30, 1998. 4 PLEXUS CORP. MANAGEMENT INCENTIVE COMPENSATION PLAN GLOSSARY OF TERMS - -------------------------------------------------------------------------------- PLAN YEAR In conjunction with the corporation's fiscal year, each Plan Year shall begin on October 1 and end on September 30. PARTICIPANT Means any employee who is selected to participate in the Plan. ANNUALIZED BASE SALARY For incentive purposes means participant's annualized base salary (excluding bonuses, paid commissions, reimbursed relocation expenses, 401(k) plan, or other special pay) on September 30 of the Plan Year, or the last day worked in the case of retirement, disability or death. Annualized Base Salary will be calculated on a pro-rated basis for participants who are not in the Plan the entire Plan Year. AFTERTAX PRE-BONUS EARNINGS PER SHARE Aftertax pre-bonus earnings per share is aftertax income for the current fiscal year (excluding Plan accruals) divided by the weighted average number of common shares outstanding on a fully diluted basis in accordance with GAAP. SALES GROWTH Sales growth is the year-to-year percentage increase in Net Sales. EX-11 7 STATEMENT 1 EXHIBIT 11 1997 10-K PLEXUS CORP. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS for the year ended September 30, 1997 (In thousands, except per share amounts)
Primary Fully Diluted ---------- ------------- Net income $ 16,400 $ 16,400 Adjustment for preferred stock dividends earned 211 - --------- ----------- Adjusted net income $ 16,189 $ 16,400 ========= =========== Weighted average number of common shares outstanding 13,989 13,989 Adjustments: Assumed issuances under stock option plan 1,025 1,340 Assumed conversion of preferred stock - 462 --------- ----------- 15,014 15,791 ========= =========== Net income per common share $ 1.08 $ 1.04 ========= ===========
EX-21 8 SUBSIDARIES 1 Exhibit 21 1997 10-K Subsidiaries of Plexus Corp. 1. Electronic Assembly Corporation, a Wisconsin corporation 2. Technology Group, Inc., a Wisconsin corporation 3. PAC Acquisition Corp. (d/b/a in certain locations as "Plexus NEI Corp."), a Wisconsin corporation EX-23 9 CONSENT 1 EXHIBIT 23 1997 10-K CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Plexus Corp. and Subsidiaries on Form S-8 (File No.'s 333-06469, 33-23490, 33-28309, 33-56932, 33-89862 and 33-89864) of our reports dated October 30, 1997 on our audits of the consolidated financial statements and the financial statement schedule of Plexus Corp. and Subsidiaries as of September 30, 1997 and 1996, and for each of the three years in the period ended September 30, 1997, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin December 29, 1997 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR SEP-30-1997 OCT-01-1996 SEP-30-1997 1 3,655 0 47,648 360 47,931 102,786 44,022 25,335 121,817 49,528 0 0 0 147 67,436 121,817 386,431 386,431 342,415 342,415 17,199 0 787 27,080 10,680 16,400 0 0 0 16,400 1.08 1.04
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