EXHIBIT 10.18
SUNTRON CORPORATION
MANAGEMENT AND CONSULTING AGREEMENT
XXXXXX-XXXX FUNDING III, L.L.C.
Suntron Corporation
0000 Xxxx Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxx
President and Chief Executive Officer
RE: MANAGEMENT AND CONSULTING SERVICES
Gentlemen:
This letter shall confirm the agreement between Xxxxxx-XXXX Funding III,
L.L.C., a Delaware limited liability company (the "Consultant") and Suntron
Corporation, a Delaware corporation (the "Company"), pursuant to which the
Consultant shall render to the Company certain management and consulting
services in connection with corporate development activities and the operation
and conduct of the Company's business. The Consultant shall commence providing
these services as of the effective date of the Company's proposed mergers with
EFTC Corporation and Xxxxxx-XXXX Funding II, L.L.C. (the "Effective Date").
1. Services. Subject to any limitations imposed by applicable law or
regulation, the Consultant shall render to the Company advice and assistance
concerning any and all aspects of the operations, strategic and capital planning
and financing of the Company and its subsidiaries as needed from time to time,
including conducting relations on behalf of the Company with accountants,
attorneys, financial advisors and other professionals. The Consultant shall also
make periodic reports to the Board of Directors of the Company (the "Board")
with respect to the services provided hereunder. Subject to the limitations set
forth herein, the Consultant shall use its best efforts to cause its employees
and agents to give the Company the benefit of their special knowledge, skill and
business expertise to the extent relevant to the Company's business and affairs.
In addition, the Consultant shall render advice and expertise in connection with
any acquisitions or dispositions undertaken by the Company.
2. Board Supervision. The activities of the Consultant to be performed
under this Agreement shall be subject to the supervision of the Board to the
extent required by applicable law or regulation and subject to reasonable
written policies not inconsistent with the terms of this Agreement adopted by
the Board and delivered to the Consultant from time to time. Where not required
by applicable law or regulation, the Consultant shall not require the prior
approval of the Board to perform its duties under this Agreement.
3. Compensation of Consultant.
(a) Base Compensation. During the term of this Agreement, the
Consultant shall receive annually with respect to the management of the business
operations of the Company and its subsidiaries a base cash consulting and
management fee, payable in advance in equal quarterly installments (the "Base
Compensation"). The amount of the annual Base Compensation shall be $750,000.
The Company acknowledges that the determination of the amount of the initial
Base Compensation payable to the Consultant hereunder is based upon the
Company's present business activities. The Base Compensation shall be prorated
for any partial calendar quarter during which the Consultant performs services
hereunder.
(b) Additional Incentive Compensation.
(i) As additional compensation, the Consultant shall be
entitled to a one-time fee (the "Additional Incentive Compensation") with
respect to (A) each acquisition of a business operation by the Company or its
subsidiaries introduced or negotiated by the Consultant or any of their
affiliates, and/or (B) each disposition of a business operation by the Company
or its subsidiaries negotiated by the Consultant or any of their affiliates. The
Additional Incentive Compensation shall be paid at the closing of the
acquisition or disposition of any such business operation. The Additional
Incentive Compensation shall be a cash sum equal to the following percentages of
the purchase price (which on acquisitions or dispositions of assets shall also
include the book value of the assumed liabilities, and on acquisitions or
dispositions of stock shall also include liabilities of the acquired entity that
are required to be paid with funds provided by the Company or any of its
subsidiaries in connection with such acquisition) for the acquisition or
disposition:
PURCHASE PRICE PERCENTAGE
-------------- ----------
$1 to $10,000,000 2.50%
$10,000,001 to $50,000,000 1.75%
$50,000,001 and over 1.00%
By way of illustration, an acquisition or disposition with a purchase price of
$60,000,000 would generate Additional Incentive Compensation of $1,050,000
(2.50% of the first $10,000,000, 1.75% of the next $40,000,000 and 1.00% of the
remaining $10,000,000. Notwithstanding the foregoing, the Additional Incentive
Compensation payable pursuant to this Section 3(b)(i) shall be offset
dollar-for-dollar by the amount of advisory fees paid by the Company to an
advisory firm in connection with such acquisition or disposition. This Section
3(b)(i) shall not apply to any transaction (a "Sale of the Company") which is
(x) the sale of all, or substantially all, of the Company's consolidated assets
in any single transaction or series of related transactions; (y) the sale or
issuance, or series of related sales or issuances, of equity securities of the
Company in any single transaction or series of related transactions which
results in any person or group of affiliated persons (other than affiliates of
the Consultant) owning (on a fully diluted basis) more than 50% of the Company's
securities having ordinary voting power to elect directors outstanding at the
time of such sale or issuance or such series of sales and/or issuances; or (z)
any merger or consolidation of the Company with or into another corporation
(regardless of which entity is the surviving corporation) if, after giving
effect to such merger or consolidation, the holders of the Company's securities
having ordinary voting power to elect directors (on a fully diluted basis)
immediately prior to the merger or consolidation own securities of the surviving
or resulting corporation representing 50% or less of the ordinary voting power
to elect directors of the surviving or resulting corporation (on a fully diluted
basis). The amount of any fee payable to the Consultant in connection with a
Sale of the Company shall be determined pursuant to the provisions of Section
3(b)(iii) below.
(ii) The Consultant shall also be entitled to a one-time fee (the
"Finance Transaction Fee") in connection with each public equity financing
consummated by the Company or any of its subsidiaries after the date hereof and
negotiated by the Consultant or any of their affiliates. The Finance Transaction
Fee shall be paid at the closing of each financing. The Finance Transaction Fee
shall be a cash amount equal to 1.00% of the gross proceeds from the Company's
first equity financing subsequent to the date hereof. The Finance Transaction
Fee shall be a cash amount equal to 0.75% of the gross proceeds from the
Company's second equity financing subsequent to the date hereof. The Finance
Transaction Fee shall be a cash amount equal to 0.50% of the gross proceeds from
the Company's third equity financing subsequent to the date hereof. The Finance
Transaction Fee shall be a cash amount equal to 0.25% of the gross proceeds from
the Company's fourth equity financing subsequent to the date hereof. This
Section 3(b)(ii) shall be effective subsequent to the fourth public equity
offering consummated by the Company.
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(iii) In the event of any other transaction not in the
ordinary course of business, including a Sale of the Company and/or unusual
efforts extended or results obtained by the Consultant on behalf or for the
benefit of the Company or its subsidiaries, the Board shall in good faith
negotiate with the Consultant to determine a fair compensation arrangement to
compensate the Consultant for such matters.
4. Reimbursement of Expenses. The Consultant shall also be entitled to
receive (or be reimbursed for) its and its representatives' reasonable
out-of-pocket expenses incurred in connection with the services performed
hereunder, upon submission of appropriate receipts and documentation in support
thereof. All obligations or expenses incurred by the Consultant in the
performance of their duties under this Agreement shall be for the account of, on
behalf of, and at the expense of the Company. The Consultant shall not be
obligated to make any advance to or for the account of the Company or to pay any
sums, except out of funds held in accounts maintained by the Company nor shall
the Consultant be obligated to incur any liability or obligation for the account
of the Company without assurance that the necessary funds for the discharge of
such liability or obligation shall be provided.
5. Independent Contractor. The Consultant shall be an independent
contractor, and nothing obtained in this Agreement shall be deemed or construed
(i) to create a partnership or joint venture between the Company and the
Consultant, or (ii) to cause the Consultant to be responsible in any way for the
debts, liabilities or obligations of the Company or any other party, or (iii) to
constitute the Consultant or any of its employees as employees, officers or
agents of the Company.
6. Other Activities of Consultant. The Company acknowledges and agrees
that neither the Consultant nor any of the Consultant's employees, officers,
directors, affiliates or associates shall be required to devote full time and
business efforts to the duties of the Consultant specified in this Agreement,
but instead shall devote only so much of such time and efforts as the Consultant
reasonably deems necessary. The Company further acknowledges and agrees that the
Consultant and its affiliates are engaged in the business of investing in,
acquiring and/or managing businesses for the Consultant's own account, for the
account of its affiliates and associates and for the account of unaffiliated
parties, and understands that the Consultant plans to continue to be engaged in
such business (and other business or investment activities) during the term of
this Agreement. No aspect or element of such activities shall be deemed to be
engaged in for the benefit or the Company or any of the Company's subsidiaries
nor to constitute a conflict of interest. Without limiting the generality of the
foregoing, the Consultant shall be required to bring only those investment
and/or business opportunities to the attention of the Company which the
Consultant, in its sole discretion, deems appropriate, and nothing herein shall
restrict the Consultant from investing or directly or indirectly engaging in
competitive businesses.
7. Standard of Care. The Consultant (including any person or entity acting
for or on behalf of the Consultant) shall not be liable for any mistakes of
fact, errors of judgment, for losses sustained by the Company or for any acts or
omissions of any kind (including acts or omissions of the Consultant's or any of
its employees or agents), unless and except to the extent that the Company's
losses (including expenses, costs and attorneys' fees) are finally and
judicially determined to have resulted from the willful misconduct of the
Consultant.
8. Indemnification of Consultant. The Company hereby agrees to indemnify
and hold harmless the Consultant and its present and future officers, directors,
affiliates, employees and agents ("Indemnified Parties") from and against any
and all claims, liabilities, losses and damages (or actions in respect thereof),
in any way related to or arising out of the performance by such Indemnified
Person of services under this Agreement, and to advance and reimburse each
Indemnified Person on a monthly basis for reasonable legal and other expenses
incurred by it in connection with or relating to investigating, preparing to
defend, or defending any actions, claims or other proceeding (including any
investigation or inquiry) arising in any manner out of or in connection with
such Indemnified Person's performance or non-performance under this Agreement
(whether or not such Indemnified Person is a named party in such proceedings);
provided, however, that the Company shall not be responsible under this
paragraph for any
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claims, liabilities, losses, damages, or expenses to the extent that they are
finally judicially determined to result from actions taken by such Indemnified
Person that constitute willful misconduct.
9. Term. This Agreement shall remain in effect for a period of 5 years
unless terminated earlier in accordance with the provisions of this Agreement;
provided, however, that this Agreement shall automatically terminate upon any
"Change in Control" (as hereinafter defined). For purposes hereof, the term
"Change in Control" means (1) a reorganization, merger or consolidation with
respect to which persons who were the stockholders of the Company immediately
prior to such reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's (or entity's) then outstanding voting securities in
substantially the same proportions as their ownership immediately prior to such
reorganization, merger or consolidation, (2) a liquidation or dissolution of the
Company, or (3) the sale of all or substantially all of the assets of the
Company. In addition, if Consultant and its affiliates collectively beneficially
own less than 50% of the Company's outstanding common stock, the Company's Board
shall have the right, upon the giving of six months prior written notice to
Consultant, to terminate this Agreement; provided, however, that during such
six-month period the Board shall in good faith negotiate with Consultant with
respect to an appropriate modification and/or extension of this Agreement.
10. Early Termination. The Company or the Consultant may terminate this
Agreement in the event of the breach of any of the material terms or provisions
of this Agreement by the other party, which breach is not cured within 10
business days after notice of the same is given to the party alleged to be in
breach.
11. No Assignment. Without the consent of the Consultant, the Company
shall not assign, transfer or convey any of its rights, duties or interest under
this Agreement, nor shall it delegate any of the obligations or duties required
to be kept or performed by it hereunder. Without the prior written consent of
the Company, the Consultant shall not assign, transfer or convey any of its
respective rights, duties or interests under this Agreement, nor shall it
delegate any of the obligations or duties required to be kept or performed by it
under this Agreement.
12. Notices. All notices, demands, consents, approvals and requests given
by either party to the other hereunder shall be in writing and shall be
personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses.
If to the Company: Suntron Corporation
0000 Xxxx Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxx
If to the Consultant: Xxxxxx-XXXX Funding III, L.L.C.
c/x Xxxxxx Capital Partners
0000 Xxxxxxxxxxxx Xxxxxx, X.X. #000
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxxx X. Xxxxxxxx
with a copy to:
XXXX Capital Partners
000 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
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13. No Third Party Beneficiary. Except for the parties to this Agreement
and their respective successors and assigns, nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or give any
person other than the parties hereto and their respective successor and assigns
any rights or remedies under or by reason of this Agreement.
14. Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to person or circumstances other than those as to which
it is held invalid or enforceable, shall not be affected thereby, and each term
and provision of this Agreement shall be valid and be enforced to the fullest
extent permitted by law.
15. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the matters herein contained and any
agreement hereafter made shall be ineffective to effect any change or
modification, in whole or in part, unless such agreement is in writing and
signed by the party against whom enforcement of this change or modification is
sought.
16. Governing Laws. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without reference to the laws
of any other state.
17. Termination of Prior Management Agreements. By execution below, each
of TC Management IV, L.L.C. and RCBA GP, L.L.C. agree that, upon the Effective
Date, their existing Management and Consulting Agreements with EFTC Corporation
("EFTC") and K*TEC Electronics Holding Corporation (K*TEC) shall be
automatically terminated, except for the obligations of EFTC and K*TEC to pay
all fees accrued but unpaid through such date, which obligations shall survive.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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If the foregoing is acceptable to you, please sign this letter in the
space provided below and return it to the undersigned.
Very truly yours,
XXXXXX-XXXX FUNDING III, L.L.C.
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------
TC MANAGEMENT IV, L.L.C.
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxxx
an Authorized Representative
RCBA GP, L.L.C.
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------
Xxxx X. Xxxxxx
Member
ACCEPTED AND AGREED TO:
SUNTRON CORPORATION
By: /s/ Xxxxx X. Xxxx
----------------------------------------
Name: Xxxxx X. Xxxx
Title: President and Chief Executive Officer
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