Document:

EXHIBIT 10.9

 

FIRST AMENDMENT TO CREDIT AND
SECURITY AGREEMENT

 

THIS FIRST
AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this “Amendment”), dated as
of June 25, 2004, is entered into by and among WELLS FARGO BUSINESS CREDIT,
INC., a Minnesota corporation (“Lender”), on the one hand, and SMTEK,
INC., a California corporation (“SI”), SMTEK NEW ENGLAND, INC., a
Massachusetts corporation (“SNEI”), SMTEK SANTA CLARA, INC., a
California corporation (“SSCI”) and TECHNETICS, Inc., a California
corporation (“Technetics” and together with SI, SNEI and SSCI, the “Borrowers”,
and each a “Borrower”), on the other.

 

RECITALS

 

A.            The Borrowers and the Lender are parties to a Credit and
Security Agreement dated as of September 19, 2003, as amended by that certain
Consent dated as of January 9, 2004, and as amended by that certain consent
letter executed by the Lender, dated as of January 13, 2004 (as amended,
supplemented, restated and modified from time to time, the “Credit Agreement”).  Capitalized terms used in these recitals
have the meanings given to them in the Credit Agreement unless otherwise
specified.

 

B.            The Borrowers and the Lender now wish to amend the Credit
Agreement on the terms and conditions set forth herein;

 

C.            The Borrowers are entering into this Amendment with the
understanding and agreement that, except as specifically provided herein, none
of the Lender’s rights or remedies as set forth in the Credit Agreement are
being waived or modified by the terms of this Amendment.

 

AMENDMENT

 

NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

 

1.             Defined Terms. 
Capitalized terms used in this Amendment which are defined in the Credit
Agreement shall have the same meanings as defined therein, unless otherwise
defined herein.

 

2.             Amendments to Loan Agreement.

 

(a)           The
definition of “Maturity Date” contained in Section 1.1 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:

 

“ ‘Maturity Date’ means September 30, 2007.”

 

 

(b)           The
definition of “Maximum Line” contained in Section 1.1 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:

 

“ ‘Maximum Line’ means Fifteen Million Dollars
($15,000,000).”

 

(c)           The
first sentence of Section 2.2(a) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:

 

“Each Advance shall be funded as either a Floating
Rate Advance or a LIBO Rate Advance, as the Administrative Borrower shall
specify in the related notice of borrowing or notice of conversion pursuant to
this Subsection (a) or Section 2.3(a), provided that during Default Periods, no
LIBO Rate Advances shall be made, provided further, that the maximum amount of
the LIBO Rate Advances outstanding at any one time shall not exceed Seven
Million Five Hundred Thousand Dollars ($7,500,000).”

 

(d)           The
first sentence of Section 2.13(b) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:

 

 

“The Margins through and including the first
adjustment occurring as specified below shall be three-quarters of one (.75)
percentage point for Advances that are Floating Rate Advances and three and
one-half of one (3.50) percentage points for Advances that are LIBO Rate
Advances.”

 

(e)           Section
2.10(a) of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:

 

“(a)         The
Lender agrees, subject to the terms and conditions of this Agreement, to make
advances to the Borrowers from time to time from the Funding Date to June 30,
2007 (each a “CapEx Advance”). 
The Lender shall have no obligation to make a CapEx Advance if, after
giving effect to such requested CapEx Advance: (a) the aggregate amount of all
CapEx Advances made would exceed Two Million Five Hundred Thousand Dollars
($2,500,000), (b) the Debt Service Coverage Ratio would be less than 1.20 to 1,
or (c) the amount of the requested CapEx Advance would exceed 80% of the
purchase price (excluding tax, freight and installation charges) for the new
Equipment purchased by Borrowers in anticipation of such CapEx Advance.  Lender may in its discretion, confirm the
purchase price values of such new Equipment by any means deemed appropriate by
Lender.  The Borrowers’ obligation to
pay the CapEx Advances shall be further evidenced by the CapEx Note and shall
be secured by the Collateral as provided in Article III.”

 

(f)            Section
2.10(b)(3) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:

 

“The Administrative Borrower may only request and
Lender shall only provide CapEx Advances through June 30, 2007,

 

 

and no more than ten (10) CapEx Advances shall be
provided by Lender in such period.”

 

(g)           Section
2.11(b)(i) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:

 

“(i)          (1)           Beginning on March 31 of each fiscal
year of the Borrowers, and on the last day of each month thereafter, in
substantially equal monthly installments equal to an amount sufficient to fully
amortize the principal balance of the CapEx Advances made during the period
beginning on September 19 of such fiscal year and ending on March 18 of such
fiscal year, over an assumed term of thirty six (36) months; and

 

(2)           Beginning on September 30 of each
fiscal year of the Borrowers, and on the last day of each month thereafter, in
substantially equal monthly installments equal to an amount sufficient to fully
amortize the principal balance of the CapEx Advances made during the period
beginning on March 19 of the previous fiscal year of the Borrowers and ending
on September 18 of the present fiscal year, over an assumed term of thirty six
(36) months.”

 

(h)           Section
2.14(c) of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:

 

“(c)         Audit Fees.  The Borrowers shall pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted by or
on behalf of the Lender of any Collateral or the Borrowers’ operations or
business at the rates established from time to time by the Lender as its audit
fees (which fees are currently $95.00 per hour per auditor), together with all
actual out-of-pocket costs and expenses incurred in conducting any such audit
or inspection provided, however, that except during Default
Periods, the Borrowers shall not have to reimburse the Lender for such fees,
costs and expenses to the extent that they relate to more than three (3) such
audits per calendar year.”

 

(i)            Section
2.14(d) of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:

 

“(d)         Termination Fees.  If the Credit Facility is
terminated (i) by the Lender during a Default Period that begins before a
Maturity Date, (ii) by the Borrowers (A) as of a date other than a
Maturity Date or (B) as of a Maturity Date but without the Lender having
received written notice of such termination at least forty-five (45) days
before such Maturity Date, the Borrowers shall pay to the Lender a fee in an
amount equal to a percentage of the Aggregate Credit Limit  as follows: (A) three
percent (3.0%) if the termination occurs on or before September 30, 2004;
(B) two percent (2.0%) if the termination occurs after September 30, 2004
but on or before September 30, 2006; and (C) one percent (1.0%) if the
termination occurs after September 30, 2006.”

 

 

(j)            Section
6.2(a) of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:

 

“(a)         Minimum Debt Service Coverage Ratio.  The Borrowers will maintain their Debt
Service Coverage Ratio, measured as at the end of each fiscal quarter of the
Borrowers, at not less than the 1.20 to 1.00.”

 

(k)           Section 6.2(b) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:

 

“(b)         Minimum Book Net Worth. 
The Borrowers will maintain, during each month described below, their
Book Net Worth, determined as at the end of each month, at an amount not less
than the amount set forth opposite such month:

 

	
  Period

  	
   

  	
  Minimum Book Net Worth

  
	
  June 2004

  	
   

  	
  $

  	
  4,700,000

  
	
  July 2004

  	
   

  	
  $

  	
  4,700,000

  
	
  August 2004

  	
   

  	
  $

  	
  4,950,000

  
	
  September 2004

  	
   

  	
  $

  	
  5,100,000

  
	
  October 2004

  	
   

  	
  $

  	
  5,350,000

  
	
  November 2004

  	
   

  	
  $

  	
  5,500,000

  
	
  December
  2004

  	
   

  	
  $

  	
  5,500,000

  
	
  January 2005

  	
   

  	
  $

  	
  5,650,000

  
	
  February
  2005

  	
   

  	
  $

  	
  5,900,000

  
	
  March 2005

  	
   

  	
  $

  	
  6,150,000

  
	
  April 2005

  	
   

  	
  $

  	
  6,400,000

  
	
  May 2005

  	
   

  	
  $

  	
  6,650,000

  
	
  June 2005
  and every month thereafter

  	
   

  	
  $

  	
  6,750,000”

  

 

(l)            Section 6.2(c) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:

 

“(c)         Minimum Net Income. 
The Borrowers will achieve Net Income, measured at the end of each of
Borrowers’ fiscal quarters on a fiscal year-to-date basis, of not less than the
amount set forth opposite such quarter:

 

	
  Quarter
  Ending In

  	
   

  	
  Minimum Net Income

  
	
  June 2004

  	
   

  	
  $

  	
  490,000

  
	
  September
  2004

  	
   

  	
  $

  	
  400,000

  
	
  December
  2004

  	
   

  	
  $

  	
  800,000

  
	
  March 2005

  	
   

  	
  $

  	
  1,450,000

  
	
  June 2005

  	
   

  	
  $

  	
  2,050,000”

  

 

(m)          Section 6.2(d) of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:

 

 

“(d)         Capital Expenditures. 
The Borrowers will not incur or contract to incur financed or unfinanced
Capital Expenditures of more than: (i) Two Million Four Hundred Thousand
Dollars ($2,400,000) in the aggregate for the Borrowers’ 2004 fiscal year, (ii)
Three Million Dollars ($3,000,000) in the aggregate for the Borrowers’ 2005
fiscal year, and (iii) such amounts as determined by the Lender in its sole
discretion during any subsequent fiscal year.”

 

(n)           Schedule
5.2 of the Credit Agreement is hereby amended by adding the following:

 

“In September, 2003, Parent sold in a private
placement 250,000 shares of non-redeemable, convertible Series A Preferred
Stock for $500,000.  The holders of the
Preferred Stock have exercised their right to convert the Preferred Stock into
268,369 shares of Common Stock of Parent.”

 

(o)           Schedule
6.4 of the Credit Agreement is hereby amended by adding the following:

 

“In May, 2004, SMTEK International (Thailand) Limited
(“SMTEK Thailand”) entered into a credit agreement with BankThai Public
Company Limited and Parent unconditionally guaranteed the liabilities and
obligations under this credit agreement. 
The credit agreement includes a $750,000 mortgage loan, a $440,000
construction loan, and a $500,000 working capital line.

 

SMTEK Thailand has entered into financing arrangements
related to the acquisition of property, equipment and improvements.”

 

(p)           Effective
as of July 31, 2004, Schedule 6.4 of the Credit Agreement shall be amended to
delete therefrom the reference to the indebtedness owed by the Borrowers to the
United States Internal Revenue Service.

 

3.             Accommodation
Fee.  The Borrowers shall pay the
Lender an accommodation fee in the amount of Forty-Two Thousand Five Hundred
Dollars ($42,500) in consideration of Lender’s execution of this Amendment (the
“Accommodation Fee”).  The
Accommodation Fee shall be fully earned and non-refundable upon the execution
of this Amendment by the Lender. 
$21,250 of the Accommodation Fee shall be due and payable in cash upon
the execution of this Amendment by Lender, and $21,250 of the Accommodation Fee
shall be due and payable in cash on or before December 31, 2004.

 

4.             No
Other Changes.  Except as explicitly
amended by this Amendment, all of the terms and conditions of the Credit
Agreement shall remain in full force and effect and shall apply to any Advance
thereunder.

 

5.             Effectiveness
of this Amendment.  The Lender must
have received the following items, in form and content acceptable to the
Lender, before this Amendment is effective and before the Lender is required to
extend any credit to the Borrowers as provided for by this Amendment:

 

 

(a)           Amendment.  This Amendment and the Consent attached to
this Amendment, fully executed in a sufficient number of counterparts for
distribution to the Lender and the Borrowers.

 

(b)           Accommodation Fee.  The first installment of the Accommodation
Fee as set forth in Section 3 hereof.

 

(c)           Amended and Restated Notes.

 

(1)                                  An original Amended and Restated
Revolving Note, substantially in the form of Exhibit A to this
Amendment, duly executed by the Borrowers.

 

(2)                                  An original Amended and Restated CapEx
Note, substantially in the form of Exhibit B to this Amendment, duly
executed by the Borrowers.

 

(d)           Representations and Warranties.  The representations and warranties set forth
herein and in the Credit Agreement must be true and correct.

 

(e)           Other Required Documentation.  All other documents and legal matters in
connection with the transaction contemplated by this Amendment shall have been
delivered or executed or recorded and shall be in form and substance
satisfactory to Lender.

 

6.             Conditions Subsequent.  On or before July 31, 2004, Borrowers shall satisfy all but One
Hundred Fifty Thousand Dollars ($150,000) of their outstanding tax
reimbursement obligations owed to the United States Internal Revenue
Service.  The failure to satisfy such
condition by July 31, 2004 will constitute an Event of Default under the Credit
Agreement.

 

7.             Representations and Warranties.  Each Borrower represents and warrants as
follows:

 

(a)           Authority.  Each Borrower has the requisite corporate
power and authority to execute and deliver this Amendment, and to perform its
obligations hereunder and under the Loan Documents (as amended or modified
hereby) to which it is a party.  The
execution, delivery and performance by each Borrower of this Amendment have
been duly approved by all necessary corporate action, have received all
necessary governmental approval, if any, and do not contravene any law or any
contractual restrictions binding on each Borrower.  No other corporate proceedings are necessary to consummate such
transactions.

 

(b)           Enforceability.  This Amendment has been duly executed and
delivered by each Borrower. This Amendment and each Loan Document (as amended
or modified hereby) is the legal, valid and binding obligation of each
Borrower, enforceable against each Borrower in accordance with its terms, and
is in full force and effect.

 

 

(c)           Representations
and Warranties.  The representations
and warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically made as of
a date other than the date hereof) are correct on and as of the date hereof as
though made on and as of the date hereof.

 

(d)           No Default.  After giving effect to this Amendment, no
event has occurred and is continuing that constitutes an Event of Default, and
by entering into this Amendment, Lender is not waiving and shall not be deemed
to have waived any Event of Default that may exist.

 

8.             Choice
of Law.  The validity of this
Amendment, its construction, interpretation and enforcement, and the rights of
the parties hereunder, shall be determined under, governed by, and construed in
accordance with the internal laws of the State of California governing
contracts entered into and wholly performed in that State.

 

9.             Counterparts.  This Amendment may be executed in any number
of counterparts and by different parties and separate counterparts, each of
which when so executed and delivered, shall be deemed an original, and all of
which, when taken together, shall constitute one and the same instrument.  Delivery of an executed counterpart of a
signature page to this Amendment by telefacsimile shall be effective as delivery
of a manually executed counterpart of this Amendment.

 

10.           Reference to and Effect on the
Loan Documents.

 

(a)           Upon and after the effectiveness of
this Amendment, each reference in the Credit Agreement to “this Agreement”,
“hereunder”, “hereof” or words of like import referring to the Credit
Agreement, and each reference in the other Loan Documents to “the Credit
Agreement”, “thereof” or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as modified
and amended hereby.

 

(b)           Except as specifically amended above,
the Credit Agreement and all other Loan Documents, remain unchanged, each is
and shall continue to be in full force and effect, and each is hereby in all
respects ratified and confirmed and constitutes the legal, valid, binding and
enforceable obligations of each Borrower to Lender without defense, offset,
claim or contribution.

 

(c)           Except as provided herein, the
execution, delivery and effectiveness of this Amendment shall not operate as a
waiver of any right, power or remedy of Lender under any of the Loan Documents
or constitute a waiver of any provision of any of the Loan Documents.

 

(d)           To the extent that any terms and
conditions in any of the Loan Documents shall contradict or be in conflict with
any terms or conditions of the Credit Agreement after giving effect to this
Amendment, such terms and conditions are hereby deemed modified or amended
accordingly to reflect the terms and conditions of the Credit Agreement as
modified or amended hereby.

 

 

11.           No
Waiver.  The execution of this
Amendment and acceptance of any documents related hereto shall not be deemed to
be a waiver of any under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Lender, whether
or not known to the Lender and whether or not existing on the date of this
Amendment.

 

12.           Ratification.  Each Borrower hereby restates, ratifies and
reaffirms each and every term and condition set forth in the Credit Agreement
as amended hereby and in the Loan Documents effective as of the date hereof.

 

13.           Estoppel.  To induce Lender to enter into this
Amendment and to continue to make advances to Borrowers under the Credit
Agreement, each Borrower hereby acknowledges and agrees that to its knowledge
after due inquiry, after giving effect to this Amendment, as of the date
hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of any Borrower as against Lender with
respect to the Obligations.

 

14.           Release.  Each Borrower hereby absolutely and
unconditionally releases and forever discharges the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which such
Borrower has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Amendment, whether
such claims, demands and causes of action are matured or unmatured or known or
unknown.  It is the intention of the
parties in executing this release that the same shall be effective as a bar to
each and every claim, demand and cause of action specified and in furtherance
of this intention each waives and relinquishes all rights and benefits under
Section 1542 of the Civil Code of the State of California, which provides:

 

“A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM MIGHT HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

 

The parties
acknowledge that each may hereafter discover facts different from or in
addition to those now known or believed to be true with respect to such claims,
demands, or causes of action and agree that this instrument shall be and remain
effective in all respects notwithstanding any such differences or additional
facts.

 

 

15.           Costs and Expenses.  Each Borrower hereby reaffirms its agreement
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Loan Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of legal
counsel.  Without limiting the
generality of the foregoing, each Borrower specifically agrees to pay all fees
and disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto.  Each
Borrower hereby agrees that the Lender may, at any time or from time to time in
its sole discretion and without further authorization by any Borrower, make a
loan to the Borrowers under the Credit Agreement, or apply the proceeds of any
loan, for the purpose of paying any such fees, disbursements, costs and
expenses.

 

[Remainder of page intentionally blank.]

 

 

IN WITNESS
WHEREOF, the parties have entered into this Amendment as of the date first
above written.

 

	
  “BORROWERS”

  	
  “LENDER”

  
	
   

  	
   

  
	
  SMTEK, INC.,

  	
  WELLS FARGO BUSINESS CREDIT, INC.,

  
	
  a California corporation

  	
  a Minnesota corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Kirk A. Waldron

  	
   

  	
  By:

  	
  /s/ Jeffrey Cristol

  	
   

  
	
  Name:  Kirk
  A. Waldron

  	
  Name: Jeffrey Cristol

  
	
  Title:  CFO

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  SMTEK NEW ENGLAND, INC.,

  	
   

  
	
  a Massachusetts corporation

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Kirk A. Waldron

  	
   

  	
   

  
	
  Name:  Kirk
  A. Waldron 

  	
   

  
	
  Title:  CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  SMTEK SANTA CLARA, INC.,

  	
   

  
	
  a California corporation

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Kirk A. Waldron

  	
   

  	
   

  
	
  Name:  Kirk
  A. Waldron 

  	
   

  
	
  Title:  CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  TECHNETICS, INC.,

  	
   

  
	
  a California corporation

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ Kirk A. Waldron

  	
   

  	
   

  
	
  Name:  Kirk
  A. Waldron

  	
   

  
	
  Title:  CFO

  	
   

  

 

 

CONSENT

 

Dated as of June 25, 2004

 

The undersigned
SMTEK INTERNATIONAL, INC., a Delaware corporation (“GUARANTOR”), in
consideration of the continued extension of credit to SMTEK, INC., a California
corporation, SMTEK NEW ENGLAND, INC., a Massachusetts corporation, SMTEK SANTA
CLARA, INC., a California corporation and TECHNETICS, Inc., a California
corporation by WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (“WELLS”),
hereby consents and agrees to the foregoing First Amendment to Credit and
Security Agreement (the “Amendment”) and hereby confirms and agrees that
each of the Guaranty (the “Guaranty”) and the Security Agreement (the “Security
Agreement”), each dated as of September 19, 2003 in favor of WELLS is, and
shall continue to be, in full force and effect and is hereby ratified and
confirmed in all respects except that, upon the effectiveness of, and on and
after the date of the Amendment, each reference in the Guaranty or the Security
Agreement to the Credit Agreement (as defined in the Amendment), “thereunder”,
“thereof” or words of like import referring to the “Credit Agreement”, shall
mean and be a reference to the Credit Agreement as amended or modified by the
Amendment.  Although WELLS has informed
GUARANTOR of the matters set forth above, and GUARANTOR has acknowledged the
same, GUARANTOR understands and agrees that WELLS has no duty under the Credit
Agreement, Guaranty or any other agreement with GUARANTOR to so notify
GUARANTOR or to seek such an acknowledgement, and nothing contained herein is
intended to or shall create such a duty as to any advances or transaction
hereafter.

 

 

	
   

  	
  SMTEK INTERNATIONAL, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kirk A.
  Waldron

  	
   

  
	
   

  	
  Name:  Kirk A. Waldron

  
	
   

  	
  Title:  CFO

  

 

 

EXHIBIT A

 

AMENDED AND RESTATED REVOLVING NOTE

 

	
  $15,000,000

  	
   

  	
  Los Angeles, California

  
	
   

  	
   

  	
  June 25, 2004

  

 

For value
received, the undersigned, SMTEK, INC., a California corporation (“SI”),
SMTEK NEW ENGLAND, INC., a Massachusetts corporation (“SNEI”), SMTEK
SANTA CLARA, INC., a California corporation (“SSCI”), and TECHNETICS,
INC., a California corporation (“Technetics”) (SI, SNEI, SSCI, and
Technetics are each referred to herein as a “Borrower” and collectively
as the “Borrowers”), hereby jointly and severally promise to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the “Lender”),
at its main office in Minneapolis, Minnesota, or at any other place designated
at any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of Fifteen
Million Dollars ($15,000,000) or, if less, the aggregate unpaid principal
amount of all Revolving Advances made by the Lender to the Borrowers under the
Credit Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Amended and Restated Revolving Note (this “Note”) is fully paid at
the rate from time to time in effect under the Credit and Security Agreement,
dated as of September 19, 2003 (the “Credit Agreement”) by and among the
Lender and the Borrowers.  The principal
hereof and interest accruing thereon shall be due and payable as provided in
the Credit Agreement.  This Note may be
prepaid only in accordance with the Credit Agreement.

 

This Note is
issued pursuant, and is subject, to the Credit Agreement, which provides, among
other things, for acceleration hereof. 
This Note is the Revolving Note referred to in the Credit Agreement.

 

This Note is
secured, among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or
more other security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.

 

The Borrowers
shall pay all costs of collection, including reasonable attorneys’ fees and
legal expenses if this Note is not paid when due, whether or not legal
proceedings are commenced.

 

Presentment or
other demand for payment, notice of dishonor and protest are expressly waived.

 

 

This Note amends,
restates, replaces and supersedes that certain Revolving Note, dated as of
September 19, 2003, in the original principal amount of Ten Million Dollars
($10,000,000), executed by the Borrowers and Jolt Technology, Inc., a Delaware
corporation, to the order of the Lender, which note is null, void and of no
further legal force or effect.

 

 

	
   

  	
  SMTEK,
  INC.,

  
	
   

  	
  a
  California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kirk A. Waldron

  	
   

  
	
   

  	
  Name:  Kirk
  A. Waldron

  
	
   

  	
  Title:  CFO

  
	
   

  	
   

  
	
   

  	
  SMTEK
  NEW ENGLAND, INC.,

  
	
   

  	
  a
  Massachusetts corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kirk A. Waldron

  	
   

  
	
   

  	
  Name:  Kirk
  A. Waldron

  
	
   

  	
  Title:  CFO

  
	
   

  	
   

  
	
   

  	
  SMTEK
  SANTA CLARA, INC.,

  
	
   

  	
  a
  California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   /s/ Kirk A.
  Waldron

  	
   

  
	
   

  	
  Name:  Kirk
  A. Waldron

  
	
   

  	
  Title:  CFO

  
	
   

  	
   

  
	
   

  	
  TECHNETICS,
  INC.,

  
	
   

  	
  a
  California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   /s/ Kirk A.
  Waldron

  	
   

  
	
   

  	
  Name:  Kirk
  A. Waldron

  
	
   

  	
  Title:  CFO

  

 

 

EXHIBIT B

 

AMENDED AND RESTATED CAPEX NOTE

 

	
  $2,500,000

  	
   

  	
  Los Angeles, California

  
	
   

  	
   

  	
  June 25, 2004

  

 

For value
received, each of the undersigned, SMTEK, INC., a California corporation (“SI”),
SMTEK NEW ENGLAND, INC., a Massachusetts corporation (“SNEI”), SMTEK
SANTA CLARA, INC., a California corporation (“SSCI”), and TECHNETICS,
INC., a California corporation (“Technetics”) (SI, SNEI, SSCI, and
Technetics are each referred to herein as a “Borrower” and collectively
as the “Borrowers”), hereby jointly and severally promise to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the “Lender”),
at its main office in Minneapolis, Minnesota, or at any other place designated
at any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of Two Million
Five Hundred Thousand Dollars ($2,500,000) or, if less, the aggregate unpaid
principal amount of all CapEx Advances made by the Lender to the Borrowers
under the Credit Agreement (defined below) together with interest on the
principal amount hereunder remaining unpaid from time to time, computed on the
basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Amended and Restated CapEx Note (this “Note”) is fully
paid at the rate from time to time in effect under the Credit and Security
Agreement, dated as of September 19, 2003 (as the same may hereafter be
amended, supplemented or restated from time to time, the “Credit Agreement”)
by and between the Lender and the Borrowers. 
The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. 
This Note may be prepaid only in accordance with the Credit Agreement.

 

This Note is
issued pursuant, and is subject, to the Credit Agreement, which provides, among
other things, for acceleration hereof. 
This Note is the CapEx Note referred to in the Credit Agreement.

 

This Note is
secured, among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or
more other security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.

 

The Borrowers
hereby agree to pay all costs of collection, including attorneys’ fees and
legal expenses in the event this Note is not paid when due, whether or not
legal proceedings are commenced.

 

Presentment or
other demand for payment, notice of dishonor and protest are expressly waived.

 

 

This Note amends,
restates, replaces and supersedes that certain CapEx Note, dated as of
September 19, 2003, in the original principal amount of One Million Dollars
($1,000,000), executed by the Borrowers, and Jolt Technology, Inc., a Delaware
corporation, to the order of the Lender, which note is null, void and of no
further legal force or effect.

 

 

	
   

  	
  SMTEK,
  INC.,

  
	
   

  	
  a
  California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:  

  	
  /s/ Kirk A. Waldron

  	
   

  
	
   

  	
  Name:  Kirk
  A. Waldron

  
	
   

  	
  Title:  CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SMTEK
  NEW ENGLAND, INC.,

  
	
   

  	
  a
  Massachusetts corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   /s/ Kirk A.
  Waldron

  	
   

  
	
   

  	
  Name:  Kirk
  A. Waldron

  
	
   

  	
  Title:  CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SMTEK
  SANTA CLARA, INC.,

  
	
   

  	
  a
  California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:  

  	
  /s/ Kirk A. Waldron

  	
   

  
	
   

  	
  Name:  Kirk
  A. Waldron

  
	
   

  	
  Title:  CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TECHNETICS,
  INC.,

  
	
   

  	
  a
  California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:  

  	
  /s/ Kirk A. Waldron

  	
   

  
	
   

  	
  Name:  Kirk
  A. Waldron

  
	
   

  	
  Title:  CFOExhibit 10.14

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), by
and between SMTEK INTERNATIONAL, INC., a Delaware corporation (the “Company”),
and Edward
J. Smith (“Employee”), is effective as of July 1, 2004 (the
“Effective Date”), and amends and restates the Employment Agreement, effective
as of May 14, 2002, by and between the Company and Employee (the “Old
Employment Agreement”).

 

WHEREAS, the Company desires to continue
the employment of Employee in the position of Chief Executive Officer and
President, and

 

WHEREAS, Employee agrees to be employed by the Company in such position
pursuant to the terms and conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

 

1.  EMPLOYMENT POSITION.

 

While employed
by the Company, Employee shall (a) serve as the Company’s Chief Executive Officer
and President, (b) report directly to the Company’s Board of Directors (the
“Board”), and (c) perform the duties and functions assigned to him by the
Board.

 

2.  COMPENSATION AND BENEFITS.

 

2.1  BASE SALARY.  While employed by the Company, Employee’s base salary shall be
$250,000 per year payable in accordance with the Company’s standard payroll
schedule; provided, however, that this base salary will be reviewed for merit
and cost of living increases by the Board and/or the Compensation Committee of
the Board, but shall not be decreased without Employee’s prior written consent.

 

2.2  BONUSES. 
During each fiscal year that Employee is employed with the Company,
Employee shall be eligible for an incentive bonus at the Company’s sole
discretion.  Employee shall be eligible
to receive annual bonus compensation based upon criteria and the achievement of
such objectives as the Board may from time to time establish, in the exercise
of its discretion.  This bonus, if any,
is intended to reward contribution to the Company’s performance over an entire
fiscal year, and consequently will be paid only if the Company still employs
Employee, Employee is in good standing at the time the bonus is determined and
Employee is in full compliance with this Agreement.

 

2.3  OTHER BENEFITS.  Employee shall, while employed by the Company, be eligible to
participate in the employee benefits and benefit plans that the Company
generally makes available to its full-time regular employees, subject to the
terms and conditions of such plans, as they may be modified from time to
time.  In addition, while employed by
the Company, Employee shall be entitled to the following benefits: a car
allowance of $950 per month; a cell phone with monthly charges reasonably
limited by the Board; and a corporate credit card with charges reasonably
limited by the Board.

 

2.4  EXPENSE REIMBURSEMENT.  While employed by the Company, Employee
shall be entitled, in accordance with the reimbursement policies in effect from
time to time, to receive reimbursement from the Company for reasonably business
expenses incurred by Employee in the performance of Employee’s duties
hereunder, provided Employee furnishes the Company with vouchers, 

 

 

receipts and other details of such
expenses in the form required by the Company, sufficient to substantiate a
deduction for such business expenses under all applicable rules and regulations
of federal and state taxing authorities.

 

2.5  WITHHOLDING.  The Company shall deduct and withhold from the compensation
payable to Employee hereunder any and all applicable federal, state and local
income and employment withholding taxes and any other amounts require to be
deducted or withhold by the Company under applicable statutes, regulations,
ordinances or orders governing or requiring the withholding or deduction of
amounts otherwise payable as compensation or wages to employees.

 

3.  TERMINATION.

 

3.1  AT WILL. Employee and the Company
acknowledge and agree that Employee’s employment with the Company is expressly
“at will.”  This means that either party
may terminate Employee’s employment with or without Cause (as defined in
Section 3.3(d) below) upon written notice. 
Any termination of Employee’s employment is, however, subject to the
terms and provisions of this Agreement as to severance pay and other
obligations.

 

3.2  VOLUNTARY RESIGNATION.

 

(a)  NO SEVERANCE.  In the event that Employee’s employment with the Company
terminates as a result of his voluntary resignation, Employee shall be entitled
only to accrued but unpaid salary and vacation as of the date of termination.

 

(b)  RELOCATION OF HEADQUARTERS/DIRECTED
RESIGNATION NOT VOLUNTARY RESIGNATION. 
For purposes of this Agreement, the term “voluntary resignation” shall not
include any situation where:  (1)
Employee terminates his employment with the Company within 60 days after the
Company (A) relocates the Corporate headquarters more than 20 miles from
Moorpark, California or (B) requires Employee to physically
report for his employment duties more than 20 miles from Moorpark, California;
or (2) Employee resigns pursuant to a direct request of the Board.  A termination or resignation under such
circumstances shall be treated as an involuntary termination without Cause, and
Employee’s entitlement to severance pay and additional benefits in accordance
with the provisions of Sections 3.3(a), 3.3(b) and 3.3(c) below shall apply
unless, and only if, such termination was for Cause.

 

3.3  INVOLUNTARY TERMINATION.

 

(a)  INVOLUNTARY TERMINATION.  The Company shall be deemed to have terminated
the employment of Employee involuntarily and without Cause if (1) Employee’s
full-time employment is terminated by the Company without Cause; or (2)
Employee terminates his employment with the Company within 60 days after the
Company materially reduces Employee’s functions, duties or responsibilities or
reporting relationships or otherwise demotes Employee.

 

(b) 
SEVERANCE PAY.  In the event
Employee’s employment is involuntarily terminated without Cause as stated in
Section 3.2(b) or 3.3(a) above, Employee shall be entitled to severance pay
equal to one year of his salary at his highest base salary with the Company
payable in a lump sum no later than 30 days after the termination date.

 

(c)  ADDITIONAL BENEFITS.  In the event of termination because of any
of the events described in Section 3.2(b), Employee’s benefits as outlined in
Section 2.3 shall continue for a period of one year following the occurrence of
either of those events.  In the event of
termination of Employee’s employment pursuant to Section 3.3(a), Employee’s
benefits as outlined in Section 2.3 shall continue for 30 days from the date of
termination of his employment with the Company.  Otherwise, Employee’s benefits terminate upon the date of Employee’s
termination from the Company.

 

(d)  CAUSE. 
For purposes of this Agreement, “Cause” shall mean (1) the willful and
deliberate refusal or failure of Employee to comply with a lawful written
instruction of the Board, which refusal is not remedied by Employee within 30
days after his receipt of written notice from the Company identifying the
refusal; (2) an act or acts of personal dishonesty by Employee that were
intended to result in personal enrichment of Employee at the expense of the
Company; (3) Employee’s conviction of any felony 

 

 

involving
an act of moral turpitude; or (4) Employee’s material breach of any
representation or covenant contained in Section 5, 6 or 7 of this
Agreement.  In the event that the
Company terminates Employee’s employment for Cause, Employee shall be entitled
only to accrued but unpaid salary and vacation as of the date of termination.

 

3.4  DEATH. 
In the event of Employee’s death, the Employment Period shall
automatically terminate.  Termination of
Employee’s employment as a result of his death shall not result in any
obligation by the Company to pay severance pay (unless the obligation to pay
severance exists as of the date of Employee’s death).  However, Employee shall be entitled to accrued but unpaid salary
and vacation earned through the date of termination.

 

3.5  DISABILITY. 
In the event of Employee’s Disability (as defined below) during the
Employment Period for any period of at least six consecutive months, the
Company shall have the right, which may be exercised in its sole discretion, to
terminate Employee’s employment.  In the
event the Company elects to terminate Employee, Employee shall not be entitled
to any severance pay at any time but shall be entitled to (a) accrued but
unpaid salary and vacation earned through the date of termination and (b) normal
disability benefits in accordance with the policies established from time to
time by the Company.  For purposes of
this Agreement, “Disability” shall mean the inability of Employee to perform
his employment services hereunder by reason of physical or mental illness or
incapacity as determined by a physician chosen by the Company and reasonably
satisfactory to Employee or his legal representative.

 

3.6  CHANGE OF CONTROL BENEFITS.  With respect to any outstanding options to purchase stock of the Company granted to
Employee, Employee shall be entitled to accelerated vesting and other
change of control benefits subject to the
terms of the Company’s 2003 Equity Incentive Plan (the “Plan”) and
Employee’s option agreements under the Plan.

 

4.  TERM.

 

The term during which Employee will provide services
to the Company pursuant to this Agreement will commence on the Effective Date
and will expire on the third anniversary of the Effective Date (the “Employment
Period”), unless terminated earlier pursuant to the provisions of Section 3
provided that the term shall “evergreen” commencing on the second anniversary
of the Effective Date so that until and unless Company notifies Employee that
the term will be permitted to expire, there will at all times be one year remaining
in the term.

 

5.  NONDISCLOSURE OF INFORMATION AND NON-SOLICITATION OF EMPLOYEES.

 

5.1  NONDISCLOSURE OF CONFIDENTIAL
INFORMATION.  Except in the performance
of his duties hereunder, Employee shall not, either during or subsequent to the
Employment Period, disclose, directly or indirectly, to any person or entity or
use for his own direct or indirect benefit any Confidential Information (as
defined below) pertaining to the Company obtained by Employee in the course of
his employment with the Company.  For
purposes of this Agreement, “Confidential Information” shall include any
proprietary or confidential information of any kind, nature or description
concerning any matters affecting or relating to the business of the Company,
including, without limitation, the Company’s products, services, processes,
suppliers, customers, customers’ account executives, financial, sales and
distribution information, price lists, identity and list of actual and
potential customers, trade secrets, technical information, business plans and
strategies to the extent that such information has not been publicly
disseminated by the Company, other than through a breach hereof.  The Company shall have available to it all
remedies, including, but not limited to suits for injunctive relief and/or
damages, as a result of Employee’s breach of confidentiality.  This provision shall survive the termination
of the employment relationship between the Company and Employee.

 

5.2  NON-SOLICITATION.  Employee agrees that, so long as he is employed by the Company
and for a period of one year after termination of his employment for any
reason, he or she shall not (a) directly or indirectly solicit, induce or
attempt to solicit or induce any Company employee to discontinue his or her
employment with the Company, (b) usurp any opportunity of the Company that
Employee 

 

 

became aware of during his
tenure at the Company, or (c) directly or indirectly solicit or induce or
attempt to influence any person or business that is an account, customer or client
of the Company to restrict or cancel the business of any such account, customer
or client with the Company.

 

6.  NON-COMPETITION.

 

So long as
Employee is employed by the Company and for a period of one year after
termination of his employment for any reason, Employee shall not, without the
prior written consent of the Board, either directly or indirectly engage in any
business engaged in by the Company wherever the Company conducts its
business.  The term “directly” means
Employee is acting on his own or is acting as a consultant, employee, director,
agent, representative or associate with or for any other person or entity.  The term “indirectly” means Employee is
acting through any partnership, joint venture, corporation or other entity or
person.

 

7.  REPRESENTATIONS AND COVENANTS OF EMPLOYEE
& COMPANY

 

7.1  BEST EFFORTS.  In consideration of the payments to be made hereunder, Employee
agrees to devote his entire business time and attention to the performance of
his duties hereunder, and to serve the Company diligently and to the best of
his abilities.  Notwithstanding the
foregoing, Employee shall have the continuing right to (a) make passive
investments in the securities of any publicly-owned corporation, (b) make any
other passive investments with respect to which he is not obligated or required
to, and does not in fact, devote any managerial efforts, and (c) serve as a
director or consultant for other companies or entities provided that they are
not in a business that competes with the Company.

 

7.2  NO RESTRICTIONS.  Employee represents that he is under no actual or alleged
restriction, limitation or other prohibition (whether as a result of his prior
employment or otherwise) to perform his duties as described herein.

 

7.3  AUTHORITY. 
The individual signing this Agreement on behalf of the Company hereby
represents and warrants that he has full authority to do so on behalf of the
Company.

 

7.4  DUTIES UPON TERMINATION.  Upon termination of his employment with the
Company for any reason, Employee agrees to deliver promptly to the Company all
equipment, notebooks, documents, reports, files, samples, books,
correspondence, lists, computes disks or files and the like relating to the
Company’s business, which are or have ever been in his possession or under his
control.

 

8.  MISCELLANEOUS

 

8.1  NO WAIVER. 
The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.

 

8.2  NOTICES. 
Any and all notices referred to herein shall be sufficiently furnished
if in writing, and sent by registered or certified mail, postage prepaid, to
the respective parties at the following addresses or such other address as
either party may from time to time designate in writing:

 

	
   

  	
  To
  the Company:

  	
  SMTEK
  International, Inc.

  
	
   

  	
   

  	
  200 Science
  Drive

  
	
   

  	
   

  	
  Moorpark,
  CA  93021-2003

  
	
   

  	
   

  	
  Attention:
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  To Employee:

  	
  Edward J.
  Smith

  
	
   

  	
   

  	
  1031
  Westranch Place

  
	
   

  	
   

  	
  Simi Valley,
  CA  93065

  

 

 

8.3  ENTIRE AGREEMENT/RELEASE UNDER OLD
EMPLOYMENT AGREEMENT.  This Agreement
supersedes any and all prior written or oral agreements between Employee and
the Company, including the Old Employment Agreement, and contains the entire
understanding of the parties hereto, with respect to the terms and conditions
of Employee’s employment with the Company. 
Except as provided in Section 3.6 of this Agreement, if this Agreement
is inconsistent with, or contradicts any term or provision in, any option plan
or agreement, including the Plan, the terms and provisions of such option plan
and/or agreement shall govern and supercede the terms and provisions of this
Agreement.  The Employee acknowledges
and agrees that the Company has fully performed and complied with its
obligations under the Old Employment Agreement, and Employee releases the
Company from any claims he may have against the Company arising out of the Old
Employment Agreement.

 

8.4  GOVERNING LAW.  This Agreement shall be construed and enforced in accordance with
the laws and decisions of the State of California.

 

8.5  COUNTERPARTS.  This Agreement may be executed in one or more counterparts, each
of which shall be deemed to constitute an original, but all of which shall
constitute one and the same instrument.

 

8.6  AMENDMENT. 
This Agreement may not be modified, amended, altered or supplemented
except by written agreement between Employee and the Company.

 

8.7  ASSIGNMENT AND PARTIES IN
INTEREST.  This Agreement shall inure to
the benefit of and be binding upon the parties named herein and their
respective successors and assigns; provided, however, Employee may not assign
any of his rights or obligations hereunder. 
Further, the Company will not consolidate or merge into or with another
corporation, or transfer all or substantially all of its assets to another corporation
or entity or person, unless such shall assume and be able to satisfy all the
duties and obligations of the Company under this Agreement.

 

8.8  ATTORNEY’S FEES &
COSTS.  In the event an action in law or
in equity is required to enforce or interpret the terms and conditions of this
Agreement, the prevailing party shall be entitled to reasonable attorneys fees
and costs in addition to any other relief to which that party may be entitled.

 

8.9  INTERPRETATION.   No provision of this document is to be interpreted
for or against any party because that party or party’s legal representative
drafted it.

 

8.10  SEVERABILITY.  In the event that any covenant, condition or
other provision herein contained is held to be invalid, void or illegal by any
court of competent jurisdiction, the same shall be deemed severable from the
remainder of this Agreement and shall in no way affect, impair or invalidate
any other covenant, condition or other provision herein contained.  If such condition, covenant or other
provision shall be deemed invalid due to its scope or breadth, such covenant,
condition or other provision shall be deemed valid to the extent of the scope
or breadth permitted by law.

 

8.11  CAPTIONS/HEADINGS.  The captions or headings in each section or
sub-section are only for convenience purposes. 
Such captions or headings shall not be used to interpret the sections or
sub-sections of this Agreement.

 

 

IN
WITNESS HEREOF, THE PARTIES TO THIS AGREEMENT AGREE TO THE ABOVE AND BIND
THEMSELVES ACCORDINGLY.

 

The “Company”:

 

	
  SMTEK
  International, Inc., a Delaware corporation

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ James P. Burgess

  	
   

  	
   

  
	
  By:

  	
  James P. Burgess

  	
   

  
	
  Its:

  	
  Chairman of
  the Board

  	
   

  
	
  Date:

  	
  August 24,
  2004

  	
   

  
				

 

 

	
  “Employee”:  EDWARD J. SMITH

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
    /s/ Edward
  J. Smith

  	
   

  	
   

  
	
  By:

  	
  Edward J. Smith

  	
   

  
	
  Date:

  	
  August 24,
  2004

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