Exhibit 10.3

 

THIRD AMENDMENT TO FINANCING AGREEMENT

 

This Third Amendment to Financing Agreement (“Amendment”) is made and entered
into as of this 19th day of November, 2002 between Key Tronic Corporation
(“Company”) and The CIT Group/Business Credit, Inc. (“CIT”) in reference to that
certain Financing Agreement between Company and CIT dated August 22, 2001, (as
amended, modified or otherwise supplemented from time to time, the “Financing
Agreement”). Capitalized terms herein, unless otherwise defined herein, shall
have the meaning set forth in the Financing Agreement.

 

A. One or more Events of Default resulted from the entry of a judgment in the
amount of $16,500,000 (“Judgment Lien”) in favor of F&G Scrolling Mouse, LLC,
Fernando Falcon and Federico Gilligan (collectively, “F&G”) as more fully
described in that certain letter agreement between CIT and Company dated January
3, 2002 (“January Letter”).

 

B. Company and F&G intend to enter into a settlement agreement (the “Settlement
Agreement” whereby: (i) Company shall pay to F&G $2,500,000 on the date three
days after the date of such agreement and further pay an amount equal to the
greater of: (x) 50% of Company’s reported operating income for such quarter or
(y) $200,000 not to exceed $7,000,000 in the aggregate so long as all payments
are received by December 15, 2005 or such greater amounts as are set forth in
the Settlement Agreement if all payments are not received by December 15, 2005
(such payments to be payable quarterly on the first day of the third month
following such fiscal quarter end (the first payment being for the fiscal
quarter ending September 30, 2002 due on December 2, 2002)) and (ii) each party
thereto shall release all claims it may have against the other party arising
prior to the date of the Settlement Agreement (subparagraphs (i) and (ii)
collectively, the “Settlement”).

 

C. Company has requested CIT permit Company’s payments to F&G under the
Settlement in accordance with the terms and subject to the conditions set forth
below.

 

NOW, THEREFORE, the parties hereto do hereby agree as follows:

 

1. Incorporation by Reference. Recitals A through C above are incorporated
herein as though set forth in full.

 

2. Limited Consent. On the terms and subject to the conditions set forth in
Section 3 hereof and notwithstanding anything in the Financing Agreement to the
contrary, CIT hereby consents to the Settlement and the payments to F&G
expressly set forth in the Settlement Agreement, a copy of which is attached
hereto as Schedule 1 and by this reference incorporated herein.

 

The foregoing consent is a one-time consent and not a continuing consent and
shall apply only to the matter and time periods specifically set forth in this
Amendment. Without limiting the generality of the foregoing, this consent shall
not apply to any future failure by Company to comply with those provisions
referenced in the January Letter nor to any failure by Company to comply with
any other provision of the Financing Agreement at any time.

 

3. Limitations. CIT’s consent to the Settlement is conditioned upon each of the
following:

 

(a) Each of the representations and warranties set forth in the Financing
Agreement being true and correct as of the date hereof.

 

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(b) Other than the Specified Defaults (as defined in the January Letter), no new
Default or Event of Default has occurred or is continuing.

 

(c) Termination of that certain letter of credit in the face amount of
$1,930,000 issued for the benefit of F&G by Company and delivery of the original
thereof to CIT concurrent with the payment of $2,500,000 as set forth in Recital
B hereof.

 

4. Definitions. Each of the following definitions set forth in Section 1 of the
Financing Agreement are hereby amended as follows:

 

(a) The definition of Anniversary Date is hereby amended by replacing “three (3)
years” with “four (4) years” therein.

 

(b) The definition of Availability is hereby amended by adding “and the
Equipment Term Loan” at the end thereof.

 

(c) The definition of EBITDA is hereby amended and restated in its entirety as
follows:

 

“EBITDA” shall mean, in any period, all Operating Income of the Company plus the
sum of: (a) depreciation and amortization (each to the extent deducted in the
calculation of Operating Income) and (b) without duplication, non-cash charges
associated with the amortization of capitalized manufacturing variances booked
prior to the Closing Date, all as determined in accordance with GAAP on a
consistent basis with the latest audited financial statements of the Company.

 

(d) The following definition is hereby added in Section 1 of the Financing
Agreement in alphabetical order:

 

“Equipment Term Loan” shall mean the term loan in the principal amounts of
$500,000 made by CIT pursuant to, and repayable in accordance with, the
provisions of Section 4 of this Financing Agreement

 

(e) The following definition is hereby added in Section 1 of the Financing
Agreement in alphabetical order:

 

“Equipment Term Loan Promissory Note” shall mean the promissory note in the form
of Exhibit B attached hereto and executed by the Company to evidence the
Equipment Term Loan made by CIT under Section 4 hereof.

 

(f) The definition of Fixed Charge Coverage Ratio is hereby amended and restated
in its entirety as follows:

 

“Fixed Charge Coverage Ratio shall mean, for the relevant period, the ratio
determined by dividing (A) EBITDA minus cash Capital Expenditures by (B) the sum
of: (a) all scheduled interest obligations paid and (b) the amount of all
scheduled principal repaid on Indebtedness and (c) the aggregate amount of all
payments (other than the initial $2,500,000 payment) made to F&G pursuant to the
Settlement Agreement” at the end thereof.”

 

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(g) The definition of Line of Credit is hereby amended by replacing “and” with
“,” prior to subparagraph “(c)” therein, and is further amended by adding “and
(d) make the Equipment Term Loan pursuant to Section 4 of this Financing
Agreement.” at the end thereof.

 

(h) The definition of Obligations is hereby amended by adding “, the Term Loan,
the Equipment Term Loan” prior to “and Letter of Credit Guaranties” in the third
line thereof.

 

(i) The following definition is hereby added in Section 1 of the Financing
Agreement in alphabetical order:

 

“Operating Income” shall mean income from ongoing operations and shall be
measured as: revenue minus cost of goods sold and operating expense as defined
in accordance with GAAP.

 

(j) The definition of Tangible Net Worth is hereby deleted.

 

(k) The following definition is hereby added in Section 1 of the Financing
Agreement in alphabetical order:

 

“Total Equity” shall mean the total equity of the Company and its subsidiaries
(determined on a consolidated basis without duplication in accordance with
GAAP), minus goodwill.

 

5. Equipment Term Loan. Section 4 of the Financing Agreement is hereby amended
and restated in its entirety as follows:

 

“SECTION 4. Term Loans

 

4.1 The Company hereby agrees to execute and deliver to CIT Equipment Term Loan
Promissory Note to evidence the Equipment Term Loan to be extended by CIT.

 

4.2 Upon receipt of such Equipment Term Loan Promissory Note and subject to
Section 2.2 of this Financing Agreement, CIT hereby agrees to extend to the
Company the Equipment Term Loan on February 1, 2003; provided, that the
outstanding principal amount of Revolving Loans (including Letters of Credit),
the outstanding principal amounts under the Term Loan and the outstanding
principal amounts under the Equipment Term Loan shall not exceed the Line of
Credit at any time. The Company may not reborrow the principal amount of the
Equipment Term Loan after repayment or prepayment thereof.

 

4.3 The principal amount of the Equipment Term Loan shall be repaid to CIT by
the Company by: twelve (12) equal installments of $42,000 each, whereof the
first such installment shall be due and payable on March 1, 2003 and subsequent
installments shall be due and payable on the first Business Day of each month
thereafter until this Note is paid in full; provided, that the entire remaining
principal amount then outstanding, together with any accrued and unpaid interest
and any and all other amounts due hereunder, shall be due and payable on
February 1, 2004.

 

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4.4 In the event this Financing Agreement or the Line of Credit is terminated by
either CIT or the Company for any reason whatsoever, the Equipment Term Loan
shall become due and payable on the effective date of such termination
notwithstanding any provision to the contrary in the Equipment Term Loan
Promissory Note or this Financing Agreement.

 

4.5 The Company may prepay at any time, at its option, in whole or in part, the
Term Loan or the Equipment Term Loan, provided that on each such prepayment, the
Company shall pay accrued interest on the principal so prepaid to the date of
such prepayment.

 

4.6 Each prepayment shall be applied to the then last maturing installments of
principal of the Term Loan or Equipment Term Loan, as applicable.

 

4.7 The Company hereby authorizes CIT to charge its Revolving Loan Account with
the amount of all obligations owing under this Section 4 as such amounts become
due. The Company confirms that any charges which CIT may so make to its
Revolving Loan Account as herein provided will be made as an accommodation to
the Company and solely at CIT’s discretion.

 

4.8 Paragraphs 5 and 6 of that certain Second July, 2002 Amendment to Financing
Agreement dated as of July 15, 2002 between Company and CIT are hereby
incorporated by reference as though set forth in this Section 4.8 of the
Financing Agreement.”

 

6. Insurance Proceeds. Section 7.5(b) of the Financing Agreement is hereby
amended by adding “then the Equipment Term Loan,” prior to “then any other
Obligations” in the second line thereof.

 

7 Financial Covenants. Each of Sections 7.11(a), (b) and (c) of the Financing
Agreement are hereby amended as follows:

 

(a) Section 7.11(a) of the Financing Agreement is hereby amended and restated in
its entirety as follows:

 

“(a) maintain at all times Total Equity of not less than $21,000,000, to be
measured on a monthly basis in accordance with the methodology set forth in
Exhibit A hereto.”

 

(b) Section 7.11(b) of the Financing Agreement is hereby amended and restated in
its entirety as follows:

 

“‘(b) maintain at all times EBITDA of not less than $4,000,000, to be measured
monthly on a rolling twelve month basis in accordance with the methodology set
forth in Exhibit A hereto.”

 

(c) Section 7.11(c) of the Financing Agreement is hereby amended and restated in
its entirety as follows: “(c) maintain a Fixed Charge Coverage Ratio of not less
than 0.70:1 at all times to and including June 30, 2003 and 1.0:1 at all times
thereafter, to be measured monthly on a rolling twelve month basis in accordance
with the methodology set forth in Exhibit A hereto.”

 

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8. Interest. Section 8.2 of the financing Agreement is hereby amended and
restated in its entirety as set forth below:

 

“8.2(a) Interest on the Equipment Term Loan shall be payable monthly as of the
end of each month on the unpaid balance or on payment in full prior to maturity,
and shall bear interest at an amount equal to the JP Morgan Chase Bank Rate plus
the Applicable Margin. The Applicable Margin shall be calculated quarterly after
the date 12 months from the Closing Date, and shall be calculated based on the
EBITDA for the prior four quarters. In the event of any change in said JP Morgan
Chase Bank Rate the rate hereunder shall change, as of the date of such change,
so as to maintain the Applicable Margin. The rate hereunder shall be calculated
based on a 360 day year. CIT shall be entitled to charge the Revolving Loan
Account at the rate provided for herein when due until all Obligations have been
paid in full.”

 

9. Exhibit A Exhibit A to the Financing Agreement is hereby amended and restated
in its entirety as set forth on Exhibit A hereto.

 

10. Exhibit B Exhibit B attached hereto is hereby incorporated by reference as
Exhibit B to the Financing Agreement.

 

11. Accommodation Fee. In consideration for this Amendment, Borrower shall pay
to CIT a fee in an amount equal to $5,000 (“Accommodation Fee”), which fee shall
be due and fully payable to CIT on the date hereof and shall be in addition to
all other fees payable by Borrower.

 

12. Conditions. The initial and continued effectiveness of this Amendment are
further conditioned upon receipt by CIT of each of the following (except to the
extent expressly waived by CIT in writing):

 

(a) the fully executed Settlement Agreement in the form of Schedule 1 hereto.

 

(b) this fully executed Amendment.

 

(c) within 45 days after the date of the Settlement Agreement, a copy of the
amended judgment and filed dismissal of the appeal filed in connection with the
F&G lawsuit.

 

(d) the Accommodation Fee.

 

13. Counterparts. This Amendment may be signed in counterparts with the same
affect as if the signatures to each counterpart were upon a single instrument.

 

14. Reaffirmation. Except as modified by the terms herein, the Financing
Agreement and the Loan Documents remain m full force and effect in accordance
with their terms without offset, counterclaim or recoupment.

 

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15. Governing Law. This Amendment shall be governed by the laws of the State of
California.

 

16. Fees and Expenses. Company agrees to pay, on demand, all reasonable
attorneys’ fees and costs incurred in connection with the negotiation,
documentation and execution of this Amendment. If any legal action or proceeding
shall be commenced at any time by any party to this Amendment in connection with
its interpretation or enforcement, the prevailing party or parties in such
action or proceeding shall be entitled to reimbursement of its reasonable
attorneys’ fees and costs in connection therewith.

 

17. Waiver of Jury Trial. COMPANY AND CIT HEREBY WAIVE ALL RIGHTS EITHER MAY
HAVE TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE, DEFEND,
INTERPRET OR OTHERWISE CONCERNING THIS AMENDMENT.

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.

 

KEY TRONIC CORPORATION

     

By:

 

  /S/

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Its:

 

  Exec. V.P. & CFO

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THE CIT GROUP/BUSINESS

CREDIT, INC.

     

By:

 

  /S/

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Its:

 

  Vice President

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Exhibit A

 

  1.   Total Equity Calculation:

 

As of September 28, 2002, the Total Equity of Key Tronic Corporation was
$21,425,000, calculated as follows:

 

    

Common Stock

       

$

48,121,000

 

Plus:

                       

Treasury Stock

       

$

(9,728,000

)

Plus:

                       

Retained Earnings

       

$

(16,203,000

)

    

Total Shareholders’ Equity

  

    =    

  

$

22,190,000

 

Minus

                       

Goodwill

       

$

765,000

 

    

Total Equity

  

    =    

  

$

21,425,000

 

 

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Exhibit A

(continued)

 

  2.   EBITDA Calculation:

 

The rolling twelve month EBITDA as of September 28, 2002 for Key Tronic
Corporation was $7,496,000, calculated as follows:

 

Operating Income

       

$

2,652,000

Plus:

           

Depreciation

       

$

3,064,000

Amortization

       

$

851,000

Amortization of Capitalized

           

Manufacturing Variances

           

(without duplication)

       

$

929,000

Total EBITDA

  

    =                

  

$

7,496,000

 

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Exhibit A

(continued)

 

  3.   Fixed Charge Coverage Ratio Calculation:

 

The rolling twelve month Fixed Charge Coverage Ratio as of September 28, 2002
for Key Tronic Corporation was 6.0 : 1.0 calculated as follows:

 

EBITDA

       

$

7,496,000

Minus:

           

Cash Capital Expenditures

       

$

1,483,000

Total (A)

       

$

6,013,000

 

Divided by:

 

All Scheduled Interest Obligations

       

$

993,000

Plus:

           

Scheduled Principal Payments on Indebtedness

  

$

9,000

Plus:

           

Payments to F&G

       

$

0

Total (B)

       

$

1,002,000

Fixed Charge

           

Coverage Ratio (A ÷ B)

  

    =    

  

 

6.0 : 1.0

 

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Exhibit B

 

FORM OF

EQUIPMENT LOAN PROMISSORY NOTE

 

February 1, 2003

 

$500,000

 

FOR VALUE RECEIVED, the undersigned, Key Tronic Corporation a Washington
corporation (the “Company”), promises to pay to the order of THE CIT GROUP
BUSINESS CREDIT, INC. (herein “CIT”) at its office located at 300 S. Grand Ave.,
3rd Floor, Los Angeles, California 90071, in lawful money of the United States
of America and in immediately available funds, the principal amount of Five
Hundred Thousand Dollars ($500,000) as follows: twelve (12) equal installments
of $42,000 each, whereof the first such installment shall be due and payable on
March 1, 2003 and subsequent installments shall be due and payable on the first
Business Day of each month thereafter until this Note is paid in full; provided,
that the entire remaining principal amount then outstanding, together with any
accrued and unpaid interest and any and all other amounts due hereunder, shall
be due and payable on February 1, 2004.

 

Notwithstanding the foregoing, the entire unpaid principal balance and accrued
interest on this Note shall be due and payable immediately upon any termination
of the Financing Agreement by Borrower or by CIT in accordance with the terms
thereof.

 

The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder from time to time from the date hereof
on the date and at the rate specified in Section 8 of the Financing Agreement,
dated August 22, 2001 between the Company and CIT (as amended, modified or
otherwise supplemented from time to time, the “Financing Agreement”).
Capitalized terms used herein and defined in the Financing Agreement shall have
the same meanings as set forth therein unless otherwise specifically defined
herein.

 

If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.

 

This “Note” is Equipment Term Loan Promissory Note referred to in the Financing
Agreement, evidences the Equipment Term Loan thereunder, and is subject to, and
entitled to, all provisions and benefits thereof and is subject to prepayment,
in whole or in part, as provided therein.

 

 

Upon the occurrence of any Event of Default specified in the Financing Agreement
or upon termination of the Financing Agreement, all amounts then remaining
unpaid on this Note may become, or be declared to be, at the sole election of
CIT, immediately due and payable as provided in the Financing Agreement.

 

KEY TRONIC CORPORATION

 

By:                                         
                                           

Title:                                         
                                       

 

 

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Schedule 1

 

(See Attached)

 

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SETTLEMENT AGREEMENT

 

This Settlement Agreement (“Agreement”), effective as of the 4th day of November
2002, is entered between F&G Scrolling Mouse, LLC and Fernando Falcon and
Federico Gilligan on the one hand (collectively referred to as “F&G”) and Key
Tronic Corporation (“‘Key Tronic”) on the other hand.

 

WHEREAS, this Agreement relates to a settlement and compromise of all claims
that were or could have been brought by the parties in Civil Action No. C99-995C
entitled F&G Scrolling Mouse L.L.C Fernando Falcon and Federico Gilligan V.
Microsoft Corp. and Key Tronic Corporation now on appeal in the United States
Court of Appeals for the Ninth Circuit, previously before the United States
District Court for the District of Washington at Seattle (“the Lawsuit”).

 

WHEREAS, the parties seek an amicable and final business resolution and
settlement of the Lawsuit, on the terms and conditions set forth below;

 

NOW, THEREFORE, in accordance with the foregoing recitals, and in consideration
of the mutual covenants contained herein, F&G and Key Tronic agree as follows:

 

1. In full settlement of all claims that F&G brought or could have made against
Key Tronic in the Lawsuit, and in consideration of the release contained in this
Agreement, Key Tronic shall pay to F&G, within three (3) days of the effective
date of this Agreement, Two Million Five Hundred Thousand Dollars ($2,500,000.00
U.S.) by wire transfer to F&G and its attorneys, Niro, Scavone, Haller & Niro,
to the following client trust account:

 

CITIBANK FSB—Chicago, Illinois

ABA No. 271070801

Niro, Scavone, Haller & Niro Client Trust Account

Account No.0980023222

 

Upon receipt of this initial payment, the parties shall dismiss the pending
appeal and the Lawsuit through entry of the Amended Judgment and Agreed Order
attached as Exhibit A.

 

2. In addition to the above initial payment, Key Tronic shall pay F&G by wire
transfer to the client trust account identified above, the following additional
continuing & quarterly payments due on or before the first day of the third
calendar month following the end of each fiscal quarter:

 

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(a) For each quarter beginning for the quarter ending September 30, 2002 (making
the first additional payment due December 2, 2002), fifty percent (50%) of Key
Tronic’s reported operating income or Two Hundred Thousand Dollars ($200,000.00
U.S.), whichever is greater. The Two Hundred Thousand Dollars ($200,000 U.S.)
quarterly payment, therefore, shall be a minimum payment due each quarter no
matter what Key Tronic1s reported operating income is for any particular
quarter,

 

(b) Such quarterly payments shall continue until Seven Million Dollars
($7,000,000.00 U.S.) total has been paid to F&G (Four Million Five Hundred
Thousand Dollars ($4,500,000.00 U.S.) in addition to the Two Million Five
Hundred Thousand Dollars ($2,500,000.00 U.S.) initial payment), provided such
total payment of Seven Million Dollars $7,000,000.00 U.S.) is paid in full by
December 15, 2005.

 

(c) If Seven Million Dollars ($7,000,000.00 U.S.) has not been paid to F&G by
December 15, 2005, then the total payments due F&G shall increase each year as
follows and the quarterly payments as set forth in paragraph 2(a) above shall
continue until:

 

  •   Seven Million Six Hundred Thousand Dollars ($7,600,000.00 U.S.) is paid by
December 15, 2006; or

 

  •   Eight Million Two Hundred Thousand Dollars ($8,200,000.00 U.S.) is paid by
December 15, 2007; or

 

  •   Eight Million Eight Hundred Thousand Dollars ($8,800,000.00 U.S.) is paid
by December 15, 2003; or

 

  •   Nine Million Seven Hundred Thousand Dollars ($9,700,000.00 U.S.) is paid
by December 15, 2009; or

 

  •   Ten Million Six Hundred Thousand Dollars ($10,600,000.00 U.S.) is paid by
December 15, 2010; or

 

  •   Eleven Million Five Hundred Thousand Dollars ($11,500,000.00 U.S.) is paid
by December 15, 2011.

 

(d) If Key Tronic makes total payments in the agreed amounts by the dates due,
then no additional payments need be made. In other words, if total payments of
Seven Million Six Hundred Thousand Dollars ($7,600,000.00 U.S.) are made by
December 15, 2006, no further payments need be made. The same is true, for
example, if, total payments of Eight Million Eight Hundred Thousand Dollars
($8,800,000.00 U.S.) are made by December 15, 2008. If Eleven Million Five
Hundred Thousand Dollars ($1 l,500,000.00 U.S.) has not been paid by December
15, 201 1, however, then Key Tronic shall continue to make quarterly payments as
required m paragraph 2(a) above interest at prime plus and at one-half percent
(1 1/2%), for as long as it takes for Eleven Million Five Hundred Thousand
Dollars ($11,500,000.00 U.S.), plus interest, to be paid to F&G. The prime rate
shall the prime rate as published from time to time in the Wall Street Journal.

 

3 . In the event that Key Tronic fails to make any minimum quarterly payment of
Two Hundred Thousand Dollars ($200,000.00 U.S.) when due, then Key Tronic will
automatically be deemed in breach of this Agreement. F&G shall then have the
right to accelerate all remaining payments in the amount of Eleven Million Five
Hundred Thousand Dollars ($11,500,000.00 U.S.), less any amounts previously
paid, and shall, be entitled to judgment for breach of this Agreement in that
agreed amount plus prejudgment interest and reasonable attorneys’ fees.

 

 

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4. In the event Key Tronic is the subject of proceedings under Chapter 11 or
Chapter 7 of the federal bankruptcy laws or otherwise voluntarily or
involuntarily makes an assignment for the benefit of creditors under RCW Chapter
7.08 or similar state statutes, then F&G shall have the right, in addition to
any other remedies it might have, to pursue a claim in bankruptcy court or with
the assignee for benefit of creditors in the amount of Eleven Million Five
Hundred Thousand Dollars ($11,500,000.00 U.S.) less any payments previously made
to F&G under this Agreement. If Key Tronic is the subject of proceedings under
Chapter 11 or Chapter 7 of the federal bankruptcy laws within 90 days of making
the initial payment of Two Million Five Hundred Thousand Dollars ($2,500,000
U.S.), then F&G shall have the right, in addition to any other remedies it might
have, to pursue a claim in bankruptcy court in the amount of Nineteen Million
Two Hundred Thousand Dollars ($l9,200,000.00 U.S.)

 

5. Effective upon the execution of this Agreement, F&G and Key Ironic each
hereby release and forever discharge the other together with its past; present
and future officers, directors, shareholders, employees, agents,
representatives, customers, subsidiaries, patent companies and affiliates and
their successors, heirs and assigns, from any and all claims, demands, damages,
actions, causes of action, suits, debts, liabilities and obligations, liens,
costs and expenses of any nature, character and description, known or unknown,
accrued or not yet accrued, anticipated or unanticipated, arising out of
anything occurring prior to the effective date of this Agreement, including
without limitation all claims raised or which could have been raised in the
Lawsuit that are not disposed of by this Agreement or the Amended Judgment and
Agreed Order.

 

6. F&G and Key Tronic each hereby covenants that it will not file suit against
the other, together with its past, present and future officers, directors,
shareholders, employees, representatives, customers, subsidiaries, parent
companies and affiliates and their successors, heirs and assigns, over any
Claims released under this Agreement.

 

7. Each party hereto warrants and represents to the other that (a) its Execution
hereof has been duly authorized by all necessary corporation action of such
party; and (1,) it has all requisite legal rights necessary to grant the other
party all releases and covenants not to sue as set forth above. F&G further
warrants and represents that its rights include the right to sue for alleged
past infringement and that it has not entered into and shall not enter into any
agreement which would interfere with any of the releases and covenants not to
sue granted by this Agreement.

 

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8. Disclosure of this settlement to the public will be made only by Key Tronic.
Neither F&G nor its representatives will make any public statement or disclosure
regarding the settlement, other than to confirm that the matter has been
settled.

 

9. This Agreement and the rights and obligations herein shall be binding upon
and inure to the benefit of the parties (including their parents, subsidiaries)
affiliates and divisions), their successors and assigns.

 

10. This Agreement will become binding and effective upon the exchange off
facsimile copies of the requited signatures The parties will thereafter exchange
formal signed originals of this Agreement for their permanent records.

 

11. Within 10 days of the effective date of this Agreement, the parties agree to
file the Amended Judgment and Agreed Order attached as Exhibit A, which shall
provide for dismissal with prejudice, of the Lawsuit The Amended Judgment and
Agreed Order shall further state that the parties are to bear their own
attorney’s fees and costs regarding the Lawsuit. The patties further agree to
prepare and file the documents necessary to dismiss the appeal currently pending
before the United States court of Appeals for the Ninth Circuit.

 

12. This Agreement, including tile exhibits and any agreements contained
therein, constitutes the entire agreement of the parties with regard to the
subject matter of the Lawsuit. Notwithstanding the foregoing, the provisions of
the Stipulated Protective Order of record in the Lawsuit that relates to
continued confidentiality of documents and things produced in the Lawsuit shall
continue in force and shall be deemed to merge into this Agreement.

 

13. No modification or amendment of this Agreement or waiver of any right
hereunder shall be valid or binding upon a party hereto unless made in writing
and signed by the party against which enforcement of the modification, amendment
or waiver is sought.

 

14. F&G and Key Tronic agree to take such further actions, and to execute,
deliver and file such further documents and instruments, and to obtain such
consents, may be reasonably required or requested in order to fully effectuate
the purposes, terms and conditions of this Agreement.

 

15. The parties agree that the terms of this Agreement shall be governed in all
respects by the law of the State of Washington, without giving effect to any
conflicts or choice of law principles that otherwise might be applicable.

 

16. The parties agree that the United States District Court for the Western
District of Washington shall have jurisdiction to resolve any disputes
concerning this Agreement. If federal jurisdiction is not present, the parties
agree that any litigation concerning this Agreement must be filed in the state
courts of Washington. If litigation arises out of this Agreement, the prevailing
party shall be awarded its reasonable attorney’s fees and costs.

 

17. Neither party may terminate this Agreement under my circumstances F&G and
Key Tronic acknowledge that, in the event of a breach of this Agreement, this
Agreement shall continue in full force and effect Neither party shall be
entitled to terminate this Agreement as a result of such breach nor shall either
party be entitled to seek such a termination in any proceeding, including
without limitation, a proceeding, before any court or arbitrator.

 

15

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18. Counsel for both F&G and Key Tronic have participated in the drafting of
this Agreement, and it shall not be construed against either party as the
drafter.

 

19. If any provision of this Agreement is found to be prohibited by law or
unenforceable, in Whole or in part, such provision shall be ineffective to the
extent it is prohibited or unenforceable without invalidating or having any
oilier adverse effect upon any other provision of this Agreement.

 

WHEREFORE, the parties acknowledge their agreement and consent to the terms and
conditions set further above through their respective signatures as contained
below:

 

KEY TRONIC CORPORATION

     

F&G SCROLLING MOUSE, L.L.C.

By:

 

/S/            

--------------------------------------------------------------------------------

     

By:

 

/S/    

--------------------------------------------------------------------------------

Title:

 

Exec VP & CFO

--------------------------------------------------------------------------------

     

Title:

 

Tax Matters Partner

--------------------------------------------------------------------------------

Date:

 

November 4, 2002

--------------------------------------------------------------------------------

     

Date:

 

October 16, 2002

--------------------------------------------------------------------------------

       

FERNANDO FALCON

           

/S/    

--------------------------------------------------------------------------------

           

Date:

 

October 16, 2002

--------------------------------------------------------------------------------

           

FEDERICO GILLIGAN

           

/S/

--------------------------------------------------------------------------------

           

Date:

 

October 16, 2002

--------------------------------------------------------------------------------

 

 

16

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EXHIBIT A

 

THE HONORABLE JOHN C. COUGHENOUR

 

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

 

 

F&G SCROLLING MOUSE, L.L.C.,

FERNANDO FALCON, and FEDERICO

GILL1GAN,

 

NO. C99-995C

 

 

                    v.

 

 

                        Plaintiffs,

 

 

 

AMENDED JUDGMENT AND

AGREED ORDER

MICROSOFT CORP., HONEYWELL, INC

and KEY TRONIC CORPORATION,

                          Defendants.

--------------------------------------------------------------------------------

   

 

Plaintiffs F&G Scrolling Mouse, L.L.C., Fernando Falcon and Federico Gilligan
(collectively, “F&G”) and defendant Key Tronic Corporation (Key Tronic”)
(collectively, the Parties), having entered into a confidential Settlement
Agreement dated October              2002, that resolves all matters relating to
this case, IT IS STIPULATED AND ORDERED:

 

1. Under the Settlement Agreement, all claims that were made in this action, or
could have been made, have been settled and compromised. Accordingly, all such
claims and this action are hereby dismissed with prejudice and without costs to
any party. F&G and Key Tronic shall each be responsible for its own attorney’s
fees and costs incurred in connection with this case.

 

2. The Judgment entered in this case dated December 26, 2001, and the Amended
Judgment dated May 13, 2002, are both hereby vacated. Key Tronic’s only
obligations to F&G are those specified in the Settlement Agreement.

 

3. Under the Settlement Agreement, the parties have agreed to dismiss the appeal
taken by Key Tronic in this case, which is Appeal No. 02-35514 currently pending
before the United States Court of Appeals for the Ninth Circuit. Upon dismissal
of the appeal, this Court will have jurisdiction to resolve any disputes
concerning the Settlement Agreement.

 

17

--------------------------------------------------------------------------------

 

DATED: October 14,2002

 

PERKINS COIE LLP

     

By:

 

--------------------------------------------------------------------------------

   

Jerry A. Riedinger, WSBA #25828

Michael D. Broaddus, WSBA #19S33

Katrina R, Kelly, WSBA #28435

 

Attorneys for Defendant Key Tronic Corporation

 

DATED: October 14, 2002

 

NIRO, SCAVONE, HALLER & NIRO

     

By:

 

--------------------------------------------------------------------------------

   

Raymond P. Niro (Pro Hac Vice)

Paul K. Vickrey (Pro Hac Vice)

Gregory P. Casimer (Pro Hac Vice)

 

 

Attorneys for Plaintiffs F&G Scrolling

Mouse, L.L.C., Fernando Falcon and

Federico Gilligan

 

IT IS SO ORDERED.

 

DATED this         of                     , 2002.

 

,                                                                      

HONORABLE JOHN C. COUGHENOUR

UNITED STATES DISTRICT JUDGE

 

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