In re

UNITED STATES BANKRUPTCY COURT

DISTRICT OF DELAWARE
Chapter 11
ELECTROGLAS, INC., et al.,
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Case No. 09-__ (___)
(Joint administration pending)
Debtors.
AFFIDAVIT OF THOMAS BRUNTON IN SUPPORT OF
CHAPTER 11 PETITIONS AND FIRST-DAY MOTIONS
STATE OF CALIFORNIA )
)
COUNTY OF SANTA CLARA )
Thomas Brunton, being duly sworn, deposes and says
1. I am the Chief Financial Officer of Electroglas, Inc., a Delaware
corporation ("Electroglas"). Electroglas and its direct subsidiary Electroglas International, Inc.,
also a Delaware corporation ("Electroglas International"), are the debtors and debtors in
possession in the above captioned chapter 11 bankruptcy cases (collectively, the "Debtors").
2. I submit this affidavit on behalf of the Debtors in support of their:
(a) voluntary petitions for reliefunder chapter 11, title 11, United States Code (as amended, the
"Bankruptcy Code""); and (b) various "first day" motions and applications (collectively, the
"First Day Motions") filed contemporaneously herewith. I am also submitting this affidavit to
assist the Bankruptcy Court and other interested parties in understanding the facts and
circumstances that compelled the filing ofthe chapter 11 cases. All capitalized terms used but
not otherwise defined in this affidavit shall have the meanings ascribed to them in the relevant
First Day Motion.
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The Debtors are Electroglas, Inc. and Electroglas International, Inc.
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3. I have been employed as Chief Financial Officer of Electroglas since
2000. In this capacity, I am familiar with the Debtors' day to day operations, business, financial
affairs and books and records, and I am authorized to submit this affidavit on the Debtors'
behalf. Except as otherwise indicated, all of the facts set forth in this affidavit are based upon
my personal knowledge, my review of the Debtors' relevant books and records, information
provided to me by the Debtors' management, or my opinion based upon my understanding and
familiarity with the Debtors' business operations. References to the Bankruptcy Code and all
related legal matters, including information relative to the chapter 11 bankruptcy process, are
based upon my understanding of those matters in reliance upon explanations provided to me by
counsel. If called upon to testify, I would testify competently to the facts set forth in this
affidavit.
4. After briefly acknowledging the bankruptcy filing, Part I of this affidavit
describes the Debtors' corporate structure and global presence, business operations, capital
structure, and the circumstances surrounding the commencement of these chapter II cases.
Part II sets forth the relevant facts in support of each First Day Motion.
The Chapter 11 Filing
PART I
BACKGROUND
5. On July 9, 2009 (the "Petition Date"), the Debtors filed their respective
voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Debtors continue to
operate their businesses and manage their properties as debtors in possession pursuant to sections
1107(a) and 1108 ofthe Bankruptcy Code.
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Corporate Structure and Global Presence
6. Electroglas was incorporated in 1993 and is currently a public company.
Until March 2009, the common stock ofElectroglas traded on the NASDAQ stock exchange.
The Company is now dually quoted on the OTCBB and the Pink Sheets.
7. The Debtors are headquartered in San Jose, California and operate
globally. Electroglas conducts all U.S. operations.
8. Electroglas International is a wholly owned subsidiary of Electroglas, and
conducts, through registered branches, non-U.S. operations in Taiwan and France. Electroglas
also has wholly-owned sales and service subsidiaries in Germany, Singapore and Shanghai
organized under the local laws of the relevant non-U.S. jurisdictions. Due to the severe
economic crisis and liquidity crunch (as explained in more detail below), the Debtors are in the
process of shutting down all of these non-U.S. operations, closing the offices, and terminating
the employees?
Overview of Business Operations
9. The Debtors primarily operate two business lines: the Wafer Prober
Business and the MCAT Business (both defined and explained below). The Debtors supply
semiconductor manufacturing test equipment and software to the global semiconductor industry,
and have been in the semiconductor equipment business for more than 40 years. (Even though
Electroglas was only incorporated sixteen years ago in 1993, it operated as a division of General
Signal Corporation since the 1960s, which spun off into Electroglas in 1993.)
See Exhibit A to this affidavit for a detailed report that describes the ongoing shut down of non-U.S.
operations per jurisdiction, which report is incorporated into and made a part of this affidavit.
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10. The Debtors' installed customer base is one of the largest in the industry,
as the Debtors have sold to date more than 16,500 units of one of their core products: the "wafer
prober" and its related operating system (the "Wafer Prober Business").
11. The Debtors' other major source of revenue comes from their business of
designing, manufacturing, selling and supporting motion control systems for advanced
technologies (the "'MCAT Business"). The Debtors' customers for the MCAT Business sell
products into semiconductor and non-semiconductor industries.
A. Wafer Prober Business
12. The best way to describe a wafer prober and its related software is in the
context of the semiconductor microchip manufacturing process, which can be divided into three
broad stages: front-end wafer processing, wafer level testing using what is known as a "test
cell" (the "Test Cell"), and chip final packaging.
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The stage that is relevant for the Wafer Prober
Business is the wafer level testing stage. The wafer prober is a positioning tool used in the wafer
level testing process and is one of three components that comprise the Test Cell. The other two
components of the Test Cell are the probe card and the tester. The testing of each chip on the
wafer is necessary to insure that each chip is functioning properly. During wafer level testing a
report is generated that identifies the functioning and non-functioning microchips.
13. Addressing the wafer manufacturing process as a whole in more detail, the
first stage, front-end processing is the natural starting point. During this process, the silicon
wafer is modified by the creation of transistors, conductive layers, and conductive pads to create
external electrical connections, and other functional components required by the microchip's
design. Wafers vary in size but are generally 4, 6, 8, or 12 inches in diameter. It is common for
The diagram attached to this affidavit as Exhibit B is a graphic that identifies the components of the wafer
probers and demonstrates how the wafer probers work.
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more than 1,000 copies of the microchip to be produced using a single wafer. The microchips are
arranged in a grid on the wafer with each microchip occupying its own square on the grid.
During the second stage, wafer level testing, each copy of the microchip must be powered up and
exercised in order to sort it into the proper performance bin. This wafer testing process uses the
Test Cell, which, a previously discussed, has three components: a wafer prober, a probe card,
and a tester. The probe card is a device that physically touches the conductive pads of the
microchip in order to electrically connect the tester directly to the microchip. The probe card is
rigidly mounted and acts as a mechanical interface between the tester and the wafer prober. The
tester is the device that controls all of the electrical testing including the application of power to
the microchip and the grading of the microchip's performance. The wafer prober is the device
that very accurately moves the wafer in space relative to the probe card. In addition, the wafer
prober controls the environment that is experienced by the wafer including its temperature,
vibrations, and the force applied to the wafer by the probe card. Microchip manufacturers test
the microchips in wafer level form so that they can identify and discard any malfunctioning
microchips rather than proceeding with the packaging process. Testing the microchips after the
packaging process would be inefficient as packaging is costly and it does not make sound
financial sense to devote packaging resources to a non-functional microchip.
14. During the wafer level test process each microchip on the wafer is brought
into contact with the probe card. Due to the very small sizes of both the probe tips on the probe
card and the conductive pads on the wafer, the wafer prober uses sophisticated machine vision
technology to sequentially position each device on the wafer directly under the probe card. After
every microchip on the wafer has been tested, a report is generated that details the outcome of
each test for every microchip. Because the microchip manufacturers process many thousands of
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microchips each day, efficient storage and presentation of the test results is required to maintain
efficient flow of materials through the microchip manufacturing facility. The Debtors provide a
database software package that helps the microchip manufacturer analyze the wafer test results.
This software (TFMS, or test floor management software) is web based and provides a
framework for centralized process control by pulling together critical data from different
databases, file types, and equipment, and integrates the data into a single application for effective
management and decision making.
15. During the final portion of the microchip manufacturing process,
packaging, the wafer is cut into individual microchips, the microchips are sorted according to
their test results, and structures are added to each microchip to facilitate its connection with the
macro world. After packaging, the devices are boxed for shipping and delivery.
B. MCAT Business
16. The Debtors' primary MCAT Business product line consists ofturn-key
motion systems that provide much better positional accuracy than most standard motion systems.
("Motion systems" are systems that use robot-like instruments to manufacture, assemble or test
products.) By utilizing the motion control for advanced technology platform ("MCAT Tools"),
the Debtors' customers are able to build novel equipment with smaller engineering teams while
also avoiding the cost and time associated with designing a high accuracy motion system. The
Debtors' MCAT customers create tools for end-users in markets such as precision printing, wafer
dicing (separation of the wafers into individual microchips), and cellular phone camera lens
manufacturing. The exact performance of these tools and the number ofMCAT systems
required depends on the industry ofthe end-user. MCAT Tools are generally designed with the
flexibility to adapt to most processes and integrate with most equipment and systems. This
ensures that the MCAT systems can be sold into a broad range of end-user applications.
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17. In addition to selling turn-key MCAT tools, the Debtors also utilize the
MCAT as a basis for building custom machinery directly for end-users ("MCAT Direct"). The
exact nature ofthese MCAT Direct systems is confidential between the end-user and the
Debtors. Currently the Debtors are engaged in one MCAT Direct project.
Capital Structure
18. Electroglas is capitalized in two ways: with equity and with secured debt,
both of which are discussed in more detail immediately below.
A. Equity
19. The stock in Electroglas consists of 26.7 million shares of common stock
(together with 4.7 million unexercised employee common stock options and 162,000 shares of
unreleased restricted stock). The majority ofthe Debtors' common stock is held by four
investors: Sidus Investment Management LLC (as of April2, 2009,2,779,140 shares), State of
Wisconsin Investment Board (as of April28, 2009, 2,588,290 shares), and Peninsula Capital
Management L.P. (as of May 14, 2009, 2,100,000), collectively referred as the "Investors."
There are no preferred shares outstanding, although the Board of Directors has the authority to
provide for the issuance of 1,000,000 shares of preferred stock. As of the Petition Date, no
dividends had been declared or paid by the Debtors in 2009, or ever.
B. Secured Debt
20. The Debtors have two forms of secured debt: (a) a revolving line of credit
with Comerica Bank (the "Senior Loan Agreement"); and (b) 6.25% fixed-rate, subordinated,
convertible secured notes due 2027 in the principal face amount of $25.7 5 million, payable semi-
annually in June and December (the "Notes"). The holders of the Notes are (collectively, the
"Noteholders"): QVT Fund ($8.5M), Peninsula Technology Fund ($6.0M), Linden Capital
($5.0M), Radcliffe SPC, Ltd. ($2.0M) and UBS O'Connor LLC ($4.25M). Comerica, the
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Trustee, the Collateral Agent, Electroglas and Electroglas International are all parties to the
Intercreditor and Subordination Agreement, dated as of March 26, 2007 (as amended, modified
or supplemented and in effect from time to time, the "Intercreditor Agreement"), which, among
other things, sets forth the relative priority of the security interests of the Prepetition Lien
Holders.
21. The Senior Loan Agreement. On July 16, 2004, Electroglas entered into
the Senior Loan Agreement with Comerica Bank ("Comerica"). Thereafter, Electroglas
International guaranteed Electroglas's obligations under the Senior Loan Agreement and
executed a Third Party Security Agreement, dated March 26, 2007 in favor of Comerica. Under
the Senior Loan Agreement, Comerica provided Electroglas with a revolving credit line of
$7,500,000, including a letter of credit sublimit of $3,500,000. The obligations owed under the
Senior Loan Agreement to Comerica are secured by a first priority lien on substantially all of the
Debtors' assets.
22. As ofthe Petition Date, the Debtors have $401,000 in outstanding letters
of credit issued pursuant to the Senior Loan Agreement (the "Senior Loan Obligations").
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The
Debtors are required to maintain compensation balances in a deposit account with Comerica to
cover these outstanding amounts. As of the Petition Date, the Debtors maintained a deposit
account with Comerica in the amount of approximately $625,000.
23. The Senior Loan Agreement with Comerica has been amended ten (10)
times, most recently in March 2009, pursuant to which the Debtors and Comerica agreed that the
Debtors could no longer request any further advances under the revolving line of credit, any new
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There are two outstanding letters of credit issued under the Senior Loan Agreement. The first letter of
credit is in the amount of$344,000 as security for the Debtors' obligations in connection with its real property
lease located at 5729 Fontanoso Way, San Jose, California 95138 and the other Jetter of credit is in the amount of
$57,000 in favor ofPG&E Utility Company.
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letters of credit, or any new corporate credit cards from Comerica Bank. As previously stated,
the Debtors have $401,000 outstanding on their previously issued letters of credit and until
recently, the Debtors had a credit card issued by Comerica Bank with a limit of $25,000. Before
the Petition Date, the Debtors canceled the credit card, but are nevertheless required to maintain
compensation balances with the bank of approximately $426,000 to cover the outstanding
amounts for both the letters of credit and the credit card until Comerica Bank confirms that it has
processed and received payment for all of the credit card charges. Pursuant to the negotiated
terms of use for cash collateral and DIP financing (as described in more detail later in this
affidavit), which the Debtors are requesting the Bankruptcy Court to approve by separate motion
filed contemporaneously with this affidavit, the Debtors have agreed to exclude $451,000 from
the use of cash collateral so that Comerica Bank remains fully secured, subject to downward
adjustment as and to the extent the $25,000 compensating balance for the credit card is no longer
required. The additional $25,000 is set aside to cover Comerica Bank's reasonable costs and
expenses as provided under the Senior Loan Agreement.
24. The Notes. In March 2007, Electroglas completed a $25.75 million
private placement of 6.25% Convertible Senior Subordinated Secured Notes due 2027 under the
indenture dated March 26,2007, Bank ofNew York Mellon Trust Co., NA ("BNYMTC") as
indenture trustee, evidencing the Notes (the "Indenture"), which were guaranteed by Electroglas
International and collateralized by a second priority lien on substantially all of the Debtors'
assets. In connection with the issuance of the Notes, the Debtors entered into a Security
Agreement dated March 26, 2007 (the "Security Agreement"), pursuant to which BNYMTC
serves as collateral agent for the benefit of the Noteholders. Under the Security Agreement, the
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Debtors granted BNYMTC a second priority lien on substantially all of their assets, for the
benefit of BNYMTC as both collateral agent and trustee, and for the benefit of the Noteholders.
25. Before taking into account claims for make whole or other prepayment
premiums or other fees and expenses under the Indenture, Electroglas is truly and justly indebted
and obligated to the Trustee, without defense, counterclaim, avoidance, disallowance,
subordination or offset of any kind in the aggregate amount of approximately $25.7 5 million in
outstanding principal ofNotes, plus any accrued and unpaid interest. In addition, as ofthe
Petition Date, Electroglas is liable to the Trustee for fees and expenses incurred in connection
therewith as provided in the Indenture (collectively, the "Note Obligations," and together with
the Senior Loan Obligations, the "Prepetition Obligations").
Circumstances Leading to the Commencement of the Chapter 11 Cases
26. During the year ended December 31, 2000, the Debtors employed over
650 full time employees worldwide and had annual revenues of over $225 million. In addition to
the Wafer Prober Business at that time, the Debtors also owned and operated a separate software
subsidiary and had other operations.
27. In the years that immediately followed, however, the semiconductor
industry as a whole experienced a meltdown. This caused severe financial stress throughout the
industry, and the companies best equipped to survive the meltdown were those with cutting edge
product lines and growing customer bases. The Debtors were not among those companies.
28. Instead, the Debtors relied heavily on their legacy customers and products
and as a result, were at a significant competitive disadvantage during and after the meltdown.
The precipitous downturn in the semiconductor markets coupled with the competitive
disadvantage of the Debtors' products caused the Debtors' customer base to shrink or level off,
and revenue to decline exceptionally. For instance, for the year ended December 31,2001, the
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Debtors' annual revenue dropped to just under $85 million, over a 60% drop from the year
before.
29. That was only the beginning of the Debtors' financial decline. Except for
a small spike in 2004, the Debtors revenue continued to drop or remain stagnant through 2009;
for the majority of the years after 2001 to the present, annual revenues were well below $50
million, less than 25% of what they were in 2000.
30. But the Debtors did not remain idle during this crisis. Over the years, they
trimmed costs and disposed of their divisions and other operations that deviated from the core
prober businesses. For instance, the Debtors disposed of their software division and their
inspection business. The Debtors also modified their manufacturing strategy by moving their
facilities from the U.S. to Singapore and then later, outsourcing their manufacturing to a third
party altogether. The Debtors also shut down multiple offices worldwide, including offices in
Tokyo, Texas, Massachusetts and Arizona.
31. These cost cutting measures reduced the workforce over the years by
about 85%, to approximately 50 full time and contract employees as of the Petition Date; they
also helped the Debtors' bottom line to some degree. However, under the circumstances, they
were not enough. One year ago, the Debtors' quarterly revenue was $11 million. At the end of
2008, that number dropped by more than 80% to approximately $2 million per quarter- over a
95% drop from quarterly revenue in 2000. This severe decline between 2008 and 2009 was due
to the worldwide freeze in the credit and equity markets and the deep down cycle in the
semiconductor equipment markets.
32. As a result and as the Debtors saw their cash continuing to deplete and
revenues decline, on January 29, 2009, the Debtors engaged Needham & Company ("Needham")
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to act as their exclusive investment bankers. Needham's primary role was to help the Debtors
restructure, whether through an asset sale or otherwise. As of April13, 2009, Needham
contacted fifty six (56) potential strategic or financial buyers. In connection with its marketing
efforts, Needham distributed materials about the Debtors and their operations to forty seven ( 47)
interested parties. Twelve (12) of them expressed further interest and entered into non-disclosure
agreements with the Debtors so that they could perform additional due diligence. During that
process, Needham and the Debtors' management presented their cash projections to those twelve
(12) parties, but were unable to proceed with a transaction because the Debtors were not
expected to achieve cash flow positive operations until the second calendar quarter of 2010.
33. While the Debtors were working with Needham to find a potential buyer
or restructuring partner, they missed their sales goals and as a result, found themselves in yet
further financial decline. A number of factors contributed to this, including the continued impact
of the credit crisis on the financial services market and the relentless down cycle in the
semiconductor equipment markets generally. The Debtors were accustomed to ordinary
downturns in revenue because the semiconductor market is cyclical and accordingly, accounted
for a reasonable downturn cycle in setting their sales goals. This time around, however, the
down cycle was worse than anticipated. It was unexpected and financially catastrophic for the
Debtors, and it became more apparent afterward that they were going to run out of cash in the
near term and they had to walk a thin line between remaining an attractive platform for potential
buyers (which is expensive), and shutting their doors completely.
34. In late April 2009, Needham generated several bids for all or substantially
all of the Debtors' assets, but because of the current macro market conditions, including the
severe liquidity and credit crisis, as well as the micro market conditions affecting the
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semiconductor business generally, Needham could not find a cash buyer that was willing to pay a
high enough sales price to satisfy the Debtors' outstanding obligations to the Noteholders.
35. Throughout the marketing process, the Debtors used a significant amount
of available cash so that they could maintain their employees and operations at a level to best
remain attractive to potential strategic and financial partners. During that time, they exhausted
all reasonable alternatives and accordingly, decided to enter "survival mode" by terminating all
remaining non-essential employees and conserving cash by all commercially reasonable means.
The Debtors and the Noteholders then collectively agreed that it would be in the best interests of
the Debtors, as well as the creditors and stakeholders of the Debtors, to commence these chapter
11 cases. The Debtors may have to further reduce their workforce depending on the direction of
their chapter 11 cases.
36. In terms of cash flow, the Debtors expect to run out of available funds in a
few days or weeks. Because of this, so that they could have enough cash to fund the Sale
process and related costs in these chapter 11 cases (and other fees, costs and expenses), the
Debtors filed a motion requesting authority from the Bankruptcy Court: (a) to enter into a debtor
in possession credit agreement (the "DIP Credit Agreement"); and (b) to use cash collateral. The
facts supporting that motion are discussed in greater detail later in this affidavit.
The Filing of the Chapter 11 Cases and the Debtors' Bankruptcy Goals
37. Prepetition, the Debtors did not have enough cash to continue operating
their businesses in the ordinary course, and were unable to obtain additional financing outside
bankruptcy from any third party, including its current Investors.
38. The Debtors believe that the consummation of a Sale on terms favorable to
the Debtors, their creditors and other stakeholders will be the best opportunity possible for
maximizing value under the circumstances.
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PART II
FIRST DAY MOTIONS
Motion for Joint Administration
39. Pursuant to Debtors' Motion for Joint Administration of these chapter 11
cases, the Debtors seek entry of an order directing the joint administration of their chapter 11
cases and the consolidation thereof for procedural purposes only. Joint administration ofthese
chapter 11 cases (a) is warranted because the Debtors' financial affairs and business operations
are closely related, (b) will ease the administrative burden on the Bankruptcy Court and the
parties, and (c) protects creditors of different estates against potential conflicts of interest.
40. The Debtors anticipate that numerous notices, applications, motions, other
pleadings, hearings, and orders in these cases will affect all of the Debtors. The failure to
administer these cases jointly would result in numerous duplicative pleadings filed and served
upon separate service lists.
41. Such duplication of substantially identical documents would be extremely
wasteful and would unnecessarily overburden the Clerk of the Bankruptcy Court (the "Clerk").
42. Joint administration will permit the Clerk to use a single general docket
for the Debtors' cases and to combine notices to creditors and other parties in interest in the
Debtors' respective estates. Joint administration will also protect parties in interest by ensuring
that such parties in interest in each of the Debtors' respective chapter 11 cases will be apprised of
the various matters before the Bankruptcy Court in all of these cases. The rights of the
respective creditors of each of the Debtors will not be adversely affected by joint administration
inasmuch as the relief sought is purely procedural and is in no way intended to affect substantive
rights.
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43. Each creditor and party in interest will maintain whatever rights it has
against the particular estate in which it allegedly has a claim or right. Indeed, the rights of all
creditors will be enhanced by the reduction in costs resulting from joint administration. The
Bankruptcy Court will also be relieved of the burden of entering duplicative orders and keeping
duplicative files. Supervision of the administrative aspects of these chapter 11 cases by the
Office ofthe United States Trustee will also be simplified.
Application of the Debtors for an Order Authorizing the Debtors to Employ Omni
Management Group, LLC as Claims, Balloting, Noticing and Administrative Agent Nunc
Pro Tunc to the Petition Date
44. By the Application of the Debtors for an Order Authorizing the Debtors to
Employ Omni Management Group, LLC ("Omni") as Claims, Balloting, Noticing and
Administrative Agent Nunc Pro Tunc to the Petition Date (the "Claims Agent Motion"), the
Debtors seek approval of the Debtors' employment ofOmni as noticing, claims and balloting
agent in these cases and, as applicable, for the Clerk of the United States Bankruptcy Court for
the District of Delaware (the "Clerk"). The Debtors believe that such appointment is in the best
interests of their estates and creditors. Ornni will, inter alia, (i) serve as the Bankruptcy Court's
notice agent to mail certain notices to the estates' creditors and parties-in-interest, (ii) provide
computerized claims, claims objections and balloting database services, and (iii) provide
expertise, consultation and assistance with claim and ballot processing and with other
administrative information related to the Debtors' bankruptcy cases.
45. The Debtors estimate there will be over 3,000 entities that will need to
receive notice of different events in these proceedings, including creditors, employees and other
parties-in-interest. The size of the Debtors' estimated notice body makes it impractical for the
Clerk to send notices and to maintain a claims register and to tabulate ballots.
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46. After considering its reputation and pricing, the Debtors concluded that
Omni is the best and most cost-effective choice for claims and noticing agent in these cases. The
Debtors believe that the compensation arrangement is at a level that is reasonable and
appropriate for services of this nature, and will free the estate from the expense of paying the
Debtors' counsel to undertake such tasks. The Debtors need to employ a claims agent with
proven competence and cost-effectiveness and believes that Omni so qualifies. In light of
Omni's experience and the efficient and cost-effective methods that it has developed, the
Debtors' estates and creditors will clearly benefit from the appointment of Omni as the claims
and noticing agent in these chapter 11 cases.
Motion of the Debtors for an Order (i) Authorizing Prepetition Wage, Salary and Benefit
Payments; (ii) Authorizing Employee Benefit Programs; and (iii) Directing all Banks to
Honor Related Prepetition Checks
4 7. Pursuant to the Motion of the Debtors for an Order (i) Authorizing
Prepetition Wage, Salary and Benefit Payments; (ii) Authorizing Employee Benefit Programs;
and (iii) Directing all Banks to Honor Related Prepetition Checks (the "Wages and Benefits
Motion"), the Debtors seek to minimize the personal hardship to their employees (the
"Employees") as a result of the filing of these chapter 11 cases and to minimize the disruption to
the Debtors' business, for the benefit of the Debtors' creditors and their estates, by requesting the
authority, but not direction, (a) to pay and honor, inter alia, certain prepetition claims for, among
other items, wages and salaries (the "Wages"), employee benefits and other compensation or
reimbursements (the "Benefits"), and to pay all costs incident to the foregoing, and (b) to
continue to pay and honor such Wages and Benefits as they become due postpetition in the
ordinary course of the Debtors' business.
48. The Debtors have been paying and honoring the Wages and Benefits in the
ordinary course of business up to the Petition Date. The Debtors represent that they have (or
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expect to have) sufficient postpetition funding to pay promptly all Wages and Benefits, to the
extent described herein, on an ongoing basis and in the ordinary course of business. The Debtors
further represent that the prepetition Wages they seek to pay would be priority claims. If the
payment of the Wages and Benefits is interrupted, the disruption would directly and likely
irreparably harm the Employees and the Debtors' efforts in these chapter 11 cases.
A. Wages, Salaries, and Commissions
49. As of the Petition Date, the Debtors employ approximately 46 Employees
and 4 independent contractors. The average gross weekly payroll for the Debtors' Employees is
approximately $85,000 in the aggregate and for the independent contractors is approximately
$5,500 in the aggregate. The Debtors expect that they will reduce the number of remaining
Employees as appropriate and that they will need to rely on the remaining Employees throughout
these bankruptcy cases.
50. Employees located in the U.S. are primarily paid every other week in
arrears, and the Employees located in France and Taiwan are primarily paid monthly in arrears.
51. By the Wages and Benefits Motion, the Debtors request authority to pay
the outstanding amounts owed to the Employees as of the Petition Date for accrued and unpaid
wages, salaries, and commissions and to continue paying wage, salary and commission
obligations arising post-petition in the ordinary course of the Debtors' business.
B. Employee Benefit Programs
52. In addition to the wages and other compensation discussed above, the
Employees also generally are entitled to receive other forms of compensation, including paid
time off (primarily vacation, sick, and personal days, "PTO"), expense reimbursement, medical
and dental insurance coverage, workers' compensation, life insurance and long-term disability,
participation in the employee stock purchase program, social security, and income taxes and
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other withholdings. Pursuant to the Wages and Benefits Motion, and as set forth in detail below,
Debtors seek authority to continue these employee benefit programs in the ordinary course of
their business.
53. Paid Time Off. Most Employees are eligible to accrue PTO upon
employment with the Debtors, primarily in the form of personal, sick, and vacation days.
Subject to further reductions in their workforce, the Debtors seek authority to honor, in the
ordinary course of their business operations, the liabilities to their Employees that arose under
their PTO policies or practices before the Petition Date. The Debtors anticipate that their
Employees will utilize any accrued PTO in the ordinary course without resulting in any material
cash flow requirements beyond the Debtors' normal payroll obligations.
54. Expense Reimbursement. Employees are entitled to reimbursement of
certain limited categories of expenses, including expenses for travel, lodging. ground
transportation, meals, supplies, occupational-related educational training, and other business
expenses (collectively, the "Reimbursable Expenses"), that are incurred in the ordinary course of
their employment. The Debtors believe that some Employees have not yet been reimbursed for
Reimbursable Expenses incurred before the Petition Date. The Employees generally submit
receipts for reimbursement, which then are processed through the normal expense report and
accounts payable process. It is difficult for the Debtors to estimate the amount of Reimbursable
Expenses outstanding as of the Petition Date because not all Employees have submitted expense
reports as of the Petition Date. It is critical that the Debtors be authorized to reimburse all such
expenses as and when reports are submitted. As such, pursuant to the Wages and Benefits
Motion, the Debtors seek authority to pay all prepetition Reimbursable Expenses in the ordinary
course ofbusiness.
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55. Medical and Dental Insurance. Employees working 30 or more hours per
week on a continual basis are eligible to participate in the Debtors' medical and dental insurance
programs. Medical and dental insurance benefits are a critical benefit to all participating
Employees and the Debtors request authority, in the Wages and Benefits Motion, to continue
with their prepetition health care coverage to the extent necessary and to pay any amounts that
could be considered to have arisen before the Petition Date. In addition, to the extent the
Debtors are compelled to find similar healthcare benefits for remaining, non-terminated
Employees, the Debtors seek the authority to do so in the ordinary course of business.
56. Flexible Spending Accounts. The Debtors offer their Employees access to
flexible spending accounts ("Flexible Spending Accounts") by which the Employees set aside
pre-tax dollars to pay for eligible medical and dependent care costs. An eligible Employee's
Flexible Spending Account deduction is taken out of his or her paycheck each pay period and put
in an account to be used for eligible expenses. Flexible Spending Accounts are fully paid by the
Employee, but the Debtors administer the deductions through the payroll. Accordingly, the
Debtors seek authority to continue maintaining this program in the ordinary course of business.
57. Aflac Insurance. The Debtors offer their Employees the opportunity to
purchase insurance from the American Family Life Assurance Company of Columbus ("Aflac").
In this program, the Employees set aside pre-tax dollars to pay for certain insurance benefits,
such as cash payments in the event of a specified occurrence. While Aflac insurance is fully paid
by the Employee, the Debtors administer the deductions through the payroll. Pursuant to the
Wages and Benefits Motion, the Debtors seek authority to continue maintaining this insurance
program in the ordinary course of business.
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58. Workers' Compensation. For the protection of the Employees, the
Debtors carry Workers' Compensation Insurance as required by applicable law. This insurance
covers any illness or injury sustained by an employee at work. The Debtors provide workers'
compensation benefits to all Employees, both foreign and domestic. The Debtors seek authority,
in the Wages and Benefits Motion, to continue paying or contesting in good faith, as appropriate
in the Debtors' business judgment, all amounts related to workers' compensation claims that
arose before the Petition Date, and without limitation, any payments to insurers required as a
result of such claims to the extent they become due in the ordinary course of the Debtors'
businesses.
59. Life Insurance and Long-Term Disability. The Debtors offer the
Employees (a) life insurance, which provides two times the Employee's annual salary;
(b) accidental death insurance, which provides an additional two times the Employee's annual
salary; (c) dismemberment insurance, which, depending on the severity, provides 50-100% ofthe
Employee's annual salary; and (d) long-term disability insurance, which provides Employees
with regular income to replace wages lost because of a lengthy disability due to accident or
illness. Pursuant to the Wages and Benefits Motion, the Debtors seek authority to maintain these
insurance programs and to continue to pay, in their sole discretion, any amounts owed under
these programs in the ordinary course of business, regardless of when the costs accrued.
60. Employee Stock Purchase Program. The Debtors maintain an employee
stock purchase program under Section 423 ofthe Internal Revenue Code of 1986, as amended
(the "Employee Stock Purchase Program"). In this program, Employees contribute funds
through payroll withholding to purchase stock of the Debtors (or an affiliate ofthe Debtors).
The terms of the Employee Stock Purchase Program allow the Program to be terminated as of
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each "purchase date" and allow Employees to withdraw their contributions at any time. The next
purchase date is August 1, 2009. Accordingly, the Debtors seek authority to return Employee
contributions to those Employees who elect to withdraw their contributions from the Employee
Stock Purchase Program, and to continue to maintain the Employee Stock Purchase Program
until August 1, 2009, at which time the Debtors may terminate the Employee Stock Purchase
Program.
61. Social Security, Income Taxes, and Other Withholding. As required by
law, the Debtors routinely withhold from Employee paychecks amounts that the Debtors are
required to transmit to third parties. Examples of such withholding include Social Security,
FICA, federal, state and local income taxes, garnishments, and health care payments. In
addition, the Debtors routinely withhold from Employee paychecks amounts for payments for
contributions to the Debtors' Employee Stock Purchase Program, Flexible Spending Accounts,
Aflac Insurance, Medical and Dental Insurance, and other Employee Benefit Programs. The
Debtors believe that these withheld funds, to the extent that they remain in the Debtors'
possession, constitute monies held in trust and therefore are not property of the Debtors'
bankruptcy estates. Thus, the Debtors believe that their practice of directing these funds to the
appropriate parties in the ordinary course of business is appropriate, and seek authority to
continue this practice.
62. Administration of Employee Benefit Plans and Related Trusts. The
Debtors utilize the services of third-party administrators for the administration and management
of some of their Employee Benefit Programs. These services ensure that the Debtors' benefit
plans and programs are operated in the most cost-efficient manner. Accordingly, the Wages and
Benefits Motion requests that Debtors be authorized to pay, in the ordinary course of business,
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#11219244 vl
prepetition amounts owing to third parties to provide maintenance and recordkeeping functions
relating to the various Employee Benefit Programs.
Motion of the Debtors for an Order Authorizing the Debtors to (i) continue all Insurance
Policies and Related Agreements and (ii) Honor Related Obligations
63. Pursuant to the Motion of the Debtors for an order Authorizing the
Debtors to (i) Continue All Insurance Policies and Related Agreements and (ii) Honor Related
Obligation (the "Insurance Motion"), the Debtors seek authority to maintain their insurance
coverage by continuing to meet obligations under their various Insurance Policies, including
obligations accruing pre-petition as well as post-petition (a list of the Insurance Policies is
attached to the Insurance Motion as Exhibit B). In the ordinary course of their business, Debtors
maintain Insurance Policies through several different carriers to provide coverage for property,
liability, marine cargo, workers compensation, directors' and officers' liability, crime and
fiduciary liability, employers' liability, automobile liability, electronic data processing, public
liability, dental and medical, life or accident and health. Pursuant to the Insurance Motion,
Debtors seek to maintain coverage under these various policies by continuing to meet their
obligations thereunder, including paying pre-petition and post-petition premiums, as well as
entering into new policies or bonds, and assuming existing policies or bonds, to the extent
Debtors determine such coverage continues to be necessary in Debtors' discretion and in the
ordinary course of their business.
Motion of the Debtors for an Order (I) Authorizing the Debtors to Pay Prepetition Sales
and Use Taxes and (II) Authorizing Banks and Financial Institutions to Honor and Process
Related Checks and Transfers
64. Pursuant to the Motion of Debtors for an Order (i) Authorizing the
Debtors to Pay Prepetition Sales and Use Taxes and (ii) Authorizing and Directing Banks and
Financial Institutions to Honor and Process Related Checks and Transfers (the "Taxes Motion"),
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the Debtors request authority to pay, in the Debtors' discretion, certain sales and use, business
and occupation, VAT and similar taxes to various taxing authorities in the U.S., France and
Taiwan, including taxes determined to be owed for periods prior to the Petition Date. The
Debtors estimate that, in the aggregate, taxes that will be owing for pre-petition accrual periods
will be no more than $30,000 (net of a $22,000 state tax refund).
65. In addition, to the extent any check issued or electronic transfer initiated
prior to the Petition Date to satisfy any pre-petition obligation on account of Taxes has not
cleared the Debtors' bank accounts as of the Petition Date, the Debtors request the Bankruptcy
Court to authorize the Debtors' banks, when requested by the Debtors in their sole discretion, to
receive, process, honor, and pay such checks or electronic transfers initiated prior to the Petition
Date, provided that there are sufficient funds available in the applicable accounts to make such
payments. The Debtors also seek authorization to issue replacement checks, or to provide for
other means of payment to the taxing authorities, to the extent necessary to pay such Taxes. (A
list of the applicable taxing authorities is attached to the Taxes Motion as Exhibit B.)
Motion of the Debtors for Interim and Final Orders: (i) Prohibiting Utilities from
Interrupting Service and (ii) Determining that the Debtors Provided Adequate Assurance
of Payment
66. The Debtors have filed a motion for entry of an order (a) prohibiting the
Utility Providers (defined below) from altering, refusing, or discontinuing service; (b) deeming
the Utility Providers adequately assured of future performance; and (c) establishing procedures
for determining additional adequate assurance of future payment (the "Utilities Motion"). In the
normal course of business, the Debtors have relationships with various utility companies and
other providers (each a "Utility Provider" and, collectively, the "Utility Providers"). The Utility
Providers include, without limitation, the entities set forth on the list attached to the Utilities
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Motion as Exhibit C. The Debtors estimate that the average monthly postpetition payments to
the Utility Providers will aggregate approximately $45,000.00.
67. Because uninterrupted Utility Services are critical to the Debtors' ongoing
operations, the Debtors, by the Utilities Motion and pursuant to sections 1 05(a) and 366 of the
Bankruptcy Code, seek the entry of an order: (a) prohibiting the Utility Providers from altering,
refusing or discontinuing services; (b) deeming Utility Providers adequately assured of future
performance; and (c) establishing procedures for determining adequate assurance of future
payment.
68. In order to provide adequate assurance of payment for future services to
the utility Providers, the Debtors propose to make a deposit (a "Utility Deposit") equal to 50% of
the Debtors' estimated cost of their monthly utility consumption to each Utility Provider that the
Debtors intend to continue to utilize during the course of these cases, other than to Pacific Gas
and Electric ("PG&E"), the Debtors' gas and electricity utility provider. The Debtors estimate
that the Utility Deposits, in the aggregate, will total approximately $13,000. The Debtors
propose to make Utility Deposits to each of the Utility Providers, other than to PG&E, within ten
( 1 0) days after the entry of an interim order granting this Motion, pending further order of the
Bankruptcy Court, for the purpose of providing each Utility Provider with adequate assurance of
payment of its postpetition date services to the Debtors.
69. With respect to PG&E, the Debtors' obligations for gas and electricity
utilities for its facilities in San Jose are supported by a $57,000 letter of credit issued by
Comerica Bank under the Senior Loan Agreement in favor PG&E. I understand that such letter
of credit will remain in place during the chapter 11 cases until a Sale is consummated.
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Consequently, it is unnecessary for the Debtors to make a Utility Deposit with PG&E, as the
letter of credit provides adequate assurance of payment for future services to PG&E.
70. In addition, the Debtors seek to establish reasonable procedures (the
"Procedures") by which a Utility Provider may request additional adequate assurance of future
payment in the event that such Utility Provider believes that its Utility Deposit, or as to PG&E,
its letter of credit, does not provide it with satisfactory adequate assurance. The proposed
Procedures are set forth in the Utilities Motion.
Motion of the Debtors for an order Authorizing (i) Continued Maintenance of Existing
Bank Accounts; (ii) Continued Use of Existing Cash Management System; (iii) Continued
Use of Existing Checks and Business Forms; and (iv) Waiver of Investment and Deposit
Requirements
71. Pursuant to the Debtors' Motion for an Order Authorizing (i) Continued
Maintenance of Existing Bank Accounts; (ii) Continued Use of Existing Cash Management
System; (iii) Continued Use of Existing Checks and Business Forms; and (iv) Waiver of
Investment and Deposit Requirements (the "Cash Management Motion"), the Debtors seek
authorization (1) to maintain the existing bank accounts and to pay any pre-petition routine
banking fees imposed by the financial institutions where the Debtors' bank accounts are
maintained, (2) to continue to use their existing check stock and business forms until they can
obtain a stamp with which to label the checks and business forms with the debtor in possession
label and the case number, (3) to continue to use the existing cash management system, and (4)
for a limited waiver of the deposit and investment guidelines imposed under section 345(b) of
the Bankruptcy Code.
72. The Debtors maintain a system of checking, money market, concentration
and disbursement accounts (the "Accounts") and have established local banking relationships in
each country where they conduct business.
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#I 1219244 vl
73. Electroglas maintains several money market accounts at Comerica Bank
and one at Provident Bank ("Provident"). Electroglas uses the Comerica Accounts as its primary
accounts (subject to any applicable restrictions) and uses the Provident Account in order to
obtain a better interest rate on funds in excess of its immediate liquidity requirements. Funds are
typically moved between the Provident Account and the Comerica Accounts as business needs
dictate.
74. The Debtors' cash management system has been designed to: (a) provide
an efficient method of collecting, transferring and disbursing funds; (b) establish procedures and
controls to account for funds in an accurate manner; and (c) enable the Debtors to meet their
financial obligations. The Debtors maintain up-to-date and accurate accounting records of daily
cash transactions, and the preservation of their cash management system will prevent undue
disruption to the Debtors' business operations, while protecting the Debtors' cash for the benefit
of the estates. All funds received or disbursed are properly reflected on the Debtors' books and
records.
75. The Debtors' cash activities are tracked and managed through the Debtors'
online banking systems. These systems enable real-time account inquiry and money transfer
activity. The Debtors' accounting department is primarily responsible for the Debtors' cash
account activity. The accounting department is also responsible for identifying the Debtors'
daily liquidity requirements and for projecting future liquidity requirements by utilizing cash
flow projection analysis to track the Debtors' immediate and projected cash position. This
analysis is used by the Debtors' executive management as a monitoring tool to track and account
for expense ("Outflow") and income ("Inflow") transactions. While the Debtors' cash
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management system is complex, it can generally be described by organizing the main cash flow
into the following categories.
A. Outflow Transactions
( 1) Wire Transfer: All outgoing wire transfers are generally
routed through the bank supporting the activities and must
be approved by an authorized signer.
(2) Checks: All checks are prepared by Debtors' accounting
staff using processes that ensure that appropriate controls
are used.
B. Inflow Transactions. Inflows or incoming wire transfers are
generally routed through Electroglas' Comerica Bank operations
account or Electroglas International's CIC Lyonnaise account.
The Accounting Group monitors the incoming wire amounts on a
daily basis and credits the appropriate account upon receipt.
76. In May 2009, the Debtors began the process of closing their non-U.S.
operations. Before the Petition Date, some cash flowed to the Debtors from their non-U.S.
operations (SL&, in respect of accounts receivable collected by the foreign offices and then
remitted to the Debtors), but the majority of the cash flow was in the other direction: cash
primarily flowed from the U.S. offices to the non-U.S. offices to fund the foreign operations.
77. However, as of the Petition Date, the Debtors stopped all transfers to their
non-U.S. operations to preserve their limited cash resources for the benefit of all creditors,
except to the limited extent necessary to provide for the shutdown of the foreign operations.
Currently, cash continues to flow from the non-U.S. offices to the U.S. offices as the foreign
offices collect accounts receivable; however, once those foreign offices close, the accounts
receivable will be sent directly to the Debtors to the extent that any accounts receivable are paid.
78. The Debtors may receive additional cash into the estates to the extent that
there are funds remaining in foreign accounts after the non-U.S. operations close and wind up.
However, where the closure of non-U.S. operations has left a deficit or a zero balance, the
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#11219244 vi
Debtors do not expect to fund those operations postpetition without advance approval from the
Bankruptcy Court.
79. The Debtors' Accounts are crucial elements of an established cash
management system that the Debtors must maintain to ensure the uninterrupted conduct of their
businesses. Thus, to ensure the Debtors' continued operations during the pendency of a sale or a
potential reorganization, it is in the best interest of the estates and the creditors that the Debtors
be allowed to continue to maintain their existing Accounts.
80. Accordingly, the Debtors request that their existing Accounts be deemed
debtor in possession accounts and that the maintenance and continued use of the Accounts, in the
same manner and with the same account numbers, styles, and document forms as those employed
during the prepetition period, be authorized, subject to a prohibition against honoring prepetition
payments without specific authorization from the Bankruptcy Court.
81. The cash management procedures employed by the Debtors constitute
customary and essential business practices. The cash management system provides significant
benefits to the Debtors, including the ability to: (a) control corporate funds centrally; (b) ensure
availability of funds when necessary; and (c) reduce administrative expenses by enabling the
movement of funds among relevant entities.
82. The smooth operation of the Debtors' businesses requires that the cash
management system continue during the pendency ofthese chapter 11 cases. Any new,
segmented cash management systems would be costly, would likely create unnecessary
administrative and other problems, and would be more disruptive than productive. That type of
disruption could adversely affect the Debtors' ability to operate. Therefore, maintenance of the
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existing cash management system is both essential and in the best interests of all creditors and
other parties in interest.
83. The Debtors' cash management system includes the necessary accounting
controls to enable the Debtors, and other interested parties in these cases, to trace funds through
the system and ensure that all transactions are adequately documented and readily ascertainable.
The Debtors will continue to maintain detailed records reflecting all transfers of funds.
84. The Debtors request that all banks at which their existing Accounts are
maintained be authorized and directed to continue to administer those Accounts in the same
manner as they were maintained prepetition, without interruption and in the usual and ordinary
course, and to pay any and all checks, drafts, wires and Automated Clearing House transfers
issued on those Accounts with respect to any claims arising on or after the Petition Date so long
as sufficient funds are in the Debtors' Accounts.
85. The Debtors request that: (a) the banks be authorized and directed to honor
all representations from the Debtors concerning which checks should be honored or dishonored;
and (b) any final payment made by a bank at which the Debtors' maintained an account before
the Petition Date (including any Automated Clearing House transfer the banks are or become
obligated to settle) against any of the Debtors' Accounts shall be deemed to be paid prepetition,
whether or not actually debited from the Debtors' Accounts prepetition.
86. The Debtors use a variety of checks and other pre-printed business forms
(collectively, the "Business Forms") in the ordinary course of their businesses. Because of the
nature and scope of the Debtors' business operations it is important that the Debtors be permitted
to continue to use their Business Forms without alteration or change. To avoid disruption of the
cash management system and unnecessary expense, the Debtors request that they be allowed to
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#11219244 vi
continue to use their Business Forms substantially in the forms existing immediately before the
Petition Date, without reference to their status as debtors in possession; provided, however, that
(a) once the Debtors' existing check stock has been used, any future checks ordered by the
Debtors will include the legend "Debtor in Possession" and (b) as soon as reasonably practicable,
the Debtors will cause the phrase "Debtor in Possession" to be included on their blank check
stock. In the absence of such relief, the estates will be required to bear a potentially significant
administrative burden and expense, which is unwarranted and likely will have little or no
attendant benefit to their estates or creditors under the facts of these cases.
87. Pursuant to the Cash Management Motion, the Debtors seek a limited
waiver of the requirements of section 345(b) of the Bankruptcy Code. Specifically, upon
information and belief, Comerica Bank has already agreed with the Office of the United States
Trustee to collateralize all debtor in possession accounts with government securities, but
Provident Bank has not entered into any similar agreement. Pursuant to the Cash Management
Motion, Debtors are seeking an interim 60 day limited waiver of the section 345 requirements as
it applies to the Accounts, to provide Debtors an opportunity to present a form of
collateralization agreement to Provident that is acceptable to the UST's Office. In addition,
Provident is a federally insured institution.
88. Requiring the Debtors to bond all of its Accounts would be prohibitively
expensive and, even if the Debtors had the necessary funds to pay for the bonds, would require
the use of a considerable amount of the Debtors' cash at a time when the Debtors need those
funds to maintain their operations. The Debtors will present a collateralization agreement to
Provident Bank which will constitute sufficient protection for the funds in those Accounts. As
such, pursuant to the Cash Management Motion, Debtors request that the Bankruptcy Court
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#11219244 vl
waive the requirements of section 345 for the Accounts on an interim basis pending final
approval by the Bankruptcy Court.
Motion of the Debtors for Interim and Final Orders Authorizing DIP Financing,
Authorizing the Use of Cash Collateral, Granting Adequate Protection and Scheduling
Interim and Final Hearings
89. The Debtors have an immediate need to access the DIP Loan and use
Collateral, including any cash collateral generated thereby (the "Cash Collateral"), other than the
excluded Cash Collateral, in order to permit, among other things, the orderly continuation of the
operation of their businesses and the completion ofthe Sale. The Debtors' use ofthe Collateral
in general and access to the Cash Collateral, other than the excluded Cash Collateral, specifically
is necessary in order to ensure that the Debtors have sufficient working capital and liquidity to
preserve and maintain the going concern value of the Debtors' estates, which, in tum, is integral
to maximizing recoveries for the Debtors' stakeholders.
90. To secure goods, pay employees and ultimately restore vendor confidence,
the Debtors must have immediate access to additional financing in the form of the DIP Credit
Facility. The Debtors believe that such financing will enable them to stabilize operations, retain
employees and begin restoring critical relationships, trade terms and ultimately cash receipts.
Moreover, access to such financing on an interim basis is necessary to avoid immediate and
irreparable harm to the Debtors pending the Final Hearing.
91. Over the past several years and most recently, over the past few months,
the Debtors have struggled in the face of decreasing liquidity, decreasing earnings and low
demand for their products and services. In response to these challenges, the Debtors began the
process of closing their non U.S. offices, laying off non-U.S. employees and reducing their U.S.
workforce.
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92. The Debtors could not obtain any unsecured financing, nor could the
Debtors and their advisors locate an entity willing to extend credit in exchange for a loan that
provided sufficient liquidity and was subordinated to the liens of the Prepetition Lien Holders.
Nor could the Debtors obtain an additional equity investment from any potential strategic
partner. In this light, before the Petition Date, the Debtors and their advisors approached
Comerica, the Noteholders and BNYMTC concerning debtor in possession financing and
consensual use of cash collateral in the event the Debtors commenced voluntary cases under
chapter 11 ofthe Bankruptcy Code, and reached agreement on the terms ofthe Interim Order.
As a result of those negotiations, Comerica, BNYMTC, Electroglas and Electroglas International
entered into the Consent and Release under Intercreditor Agreement, dated as of July 8, 2009
(attached to this affidavit as Exhibit C)
93. Faced with this situation, the Debtors decided to enter into the DIP Credit
Agreement, and conducted arm's-length and good-faith negotiations with the DIP Lenders. The
Debtors ultimately determined that the proposal for debtor in possession financing provided by
the DIP Lenders was the most favorable under the circumstances, and adequately addressed the
Debtors' reasonably foreseeable liquidity needs.
94. In making their decision to seek financing from the DIP Lenders, the
Debtors considered many factors. First, the DIP Lenders already held secured priority liens on
substantially all of the Debtors' assets, which liens the Debtors believed were valid. Second, the
preexisting knowledge of Peninsula Technology Fund LP and QVT Fund Ltd. (two of the four
DIP Lenders) of the Debtors' business and the Collateral provide significant benefits, including,
but not limited to, the speed with which the DIP Lenders are able to close. Third, in light of the
Debtors' inability to obtain alternative postpetition financing proposals from other lenders
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#11219244 vl
through credit allowable as an administrative expense under Bankruptcy Code section 503(b)(l),
unsecured credit allowable under Bankruptcy Code sections 364(a) and 364(b), or credit secured
by liens on the Debtors' assets junior to the liens of the Prepetition Lenders, as is contemplated
by Bankruptcy Code section 364(c)(3), the Debtors did not believe that any lender would have
been willing to loan new money to the Debtors other than on similar or less favorable terms to
those contained in the DIP Credit Agreement.
95. In the exercise oftheir sound business judgment, the Debtors believe that
the proposal for the DIP Credit Agreement provided by the DIP Lenders is the most favorable
under the circumstances and addressed the Debtors' working capital needs during the pendency
of these chapter 11 cases.
96. Entry into the DIP Credit Agreement will afford the Debtors valuable
additional time to pursue the sale process while maintaining the going concern value of the
Debtors' businesses. Thus, the Debtors determined that entry into the DIP Credit Agreement
was in the best interests of their estates, creditors and other parties in interest.
I declare under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct.
Dated: July 9, 2009
San Jose, California
#11219244 vl
Thomas Brunton
Chief Financial Officer
Electroglas, Inc.
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EXHIBIT A
Summary of Winding-Up of Non-U.S. Operations
Below is a summary of the Debtors' non-U.S. operations and considerations for each
country relative to closing the Debtors' non-U.S. offices and terminating non-U.S. employees.
For the avoidance of doubt, to the extent that the discussions below address local, non-U.S. law,
they are based in all respects on advice I received from counsel engaged by the Debtors or their
non-Debtor subsidiaries in the relevant foreign jurisdictions for winding up the corresponding
operations and offices.
France
The Debtors have a branch office in Grenoble, France. The French branch: (a) currently
has one (1) employee
5
; (b) is part ofElectroglas International (and not a separate legal entity); (c)
has a separate bank account; and (d) collects accounts receivable. The Debtors are currently
winding down their operations in France and expect to close the French office as soon as
possible. Even though Electroglas International is a Debtor in these chapter II cases, a chapter
15-like injunction is unavailable in France and the Debtors are required to shut down the French
office in accordance with French law.
As part of the wind down, French law requires the Debtors to pay severance to their
French employees; the timing and amount of severance is determined by statute, unless the
affected employee and the company otherwise agree.
If the Debtors do not wind down the French branch properly and in accordance with
French law, they may be exposed to significant legal and economic risks. For instance, the
French employees could take legal action in France to seize the French bank account and the
accounts receivable, assets that are otherwise property of the Electroglas International estate in
these chapter 11 cases.
For this reason, the Debtors are continuing to work with French counsel to follow the
steps necessary to properly terminate the French employees and close the French office in
accordance with French law. The company has held pre-redundancy meetings with all of the
employees located in the French office and has delivered appropriate termination notifications.
The Debtors may continue employing the three remaining employees as independent contractors
or as employees of Electroglas. The French office has sufficient assets to fund the payment of
the severance and other outstanding obligations of the French office. Once the Debtors wind
down the French operations, close the French office and lay off the remaining employee and pay
the severance for all terminated employees, they expect to liquidate the French bank account and
direct the French accounts receivable to the U.S., which may result in additional cash for the
estates.
Immediately before the Debtors made the decision to shut down their French operations, the French branch
had six ( 6) employees.
Taiwan
The Debtors have a Taiwanese branch office located in Zhubei City, Taiwan. The
Taiwanese branch is part ofElectroglas International and is not a separate legal entity under U.S.
law. The primary assets of the branch consist of a de minimis amount of cash and a statutory
pension reserve account with the Bank of Taiwan holding the equivalent of approximately
US$275,000. The primary liabilities of the branch are payroll and benefits obligations owing to
its remaining one employee,
6
anticipated severance costs for all terminated employees, and some
minor tax obligations. I have been advised by Taiwanese counsel that excess funds in the
pension reserve may be transferred to Electroglas International after employment obligations
have been satisfied and the Taiwanese operations have been terminated pursuant to Taiwanese
law, which I am informed will take place in approximately 12 months from now.
The Debtors are currently winding down their operations in Taiwan and expect to close
the Taiwanese office as soon as possible. A chapter 15-like injunction is unavailable in Taiwan
and the Debtors are required to shut down the Taiwanese office in accordance with Taiwanese
law. All of the employees have been given notice of termination, and notice of termination of
the branch's lease has been delivered to the landlord in accordance with early termination
provisions.
I have been advised by Taiwanese counsel that Electroglas International must wind up
its operations in accordance with Taiwanese law because Taiwanese law requires the office to be
treated as a separate Taiwanese legal entity rather than a branch of a U.S. company. Failure to
adhere to Taiwanese law could give rise to claims against Electroglas International by unpaid
Taiwanese creditors, and, moreover, could give rise to personal liability of the branch's legal
representative, including liability for criminal fraud. Thus, the Debtors intend to treat the
Taiwanese branch as though it were a separate legal entity, and to satisfy its obligations from its
existing assets (including, importantly, by satisfying its severance obligations from the Bank of
Taiwan pension reserve). To the extent that a shortfall in severance payments exists, the Debtors
have funded the Taiwanese branch to avoid liability under Taiwanese law. I am advised that
doing so will help the Debtors to avoid running afoul of Taiwanese law and will entitle
Electroglas International to draw on the pension reserve account after payment of the
employment obligations.
The Debtors are continuing to work with Taiwanese counsel in preparation for the
winding up of the Taiwanese operations. Taiwanese counsel has prepared board resolutions to
withdraw the registration of the branch and to appoint a liquidator, which, once hired, will
commence preparing an application for formal withdrawal of the branch's business registration
in Taiwan. Once approval of this withdrawal is granted, the liquidator will file applications with
the appropriate local government authorities, prepare certain public announcements, prepare
financial statements, and take related steps necessary to wind up the branch under Taiwanese
law. Once the Taiwanese operations are wound up, the office is closed, employees are laid off
and severance is paid, the Debtors expect that additional cash will be available for the estates,
chiefly from the excess proceeds from the pension reserve with the Bank of Taiwan.
Immediately before the Debtors made the decision to shut down their operations in Taiwan, the Taiwan
branch had four (4) employees.
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#11219244 vi
Singapore
The Debtors' Singapore operations are conducted by Electroglas Private Limited
(Singapore PTE Ltd.), a wholly owned subsidiary ofElectroglas, Inc. The Singapore entity's
primary assets consist of cash held in a Singapore bank account, and inventory. The entity's
primary liabilities are for accounts payable owing to trade creditors, office lease obligations,
accrued payroll and benefits obligations owing to employees,
7
anticipated severance costs in
connection with the expected employee layoffs, and business and income taxes owing to the
Singapore government.
The Debtors have been working with Singapore counsel to begin winding up the
Singapore operations, including by hiring an accounting firm located in Singapore to examine
the Singapore entity's books and records in preparation for its winding up. To attempt to reduce
their lease commitment obligations, the Debtors have engaged a real estate firm to re-lease their
office space on terms acceptable to the landlord. Singapore counsel will assist with formally
appointing the accounting firm to serve as a liquidator, which will proceed to liquidate assets and
make distributions to creditors in accordance with Singapore law, including by paying any
severance liabilities owing to employees.
Liabilities will be funded in part by cash held by the Singapore entity. The inventory
owned by the Singapore entity has been delivered to Electroglas, Inc. so that it can be sold on a
consignment basis pursuant to a letter agreement between the Singapore entity and Electroglas,
Inc., since Electroglas, Inc. has the greatest ability to either make use of the inventory or sell it to
third parties, and is better able to maximize the value of the assets rather than leaving sale efforts
to the Singapore entity. The proceeds of any such sales by Electroglas, Inc. will be delivered to
the Singapore entity to the extent of any cash shortfall in Singapore so that all obligations ofthe
Singapore entity eventually will be satisfied. Once the Singapore operations are wound down,
the employees are laid off and paid their severance, and the inventory is sold by Electroglas, Inc.,
the Debtors expect that excess proceeds from the sale of the inventory should be available as
additional cash for the estates.
Additionally, Electroglas International has a separate, inactive branch in Singapore that
has been dormant for approximately two years. This branch is part of Electroglas International
and is not a separate legal entity. The branch has no material assets or liabilities.
Germany
The Debtors' German operations are conducted by Electroglas GmbH, a wholly owned
subsidiary of Electroglas, Inc. The entity has no employees and no physical office. The primary
assets of the German entity consist of cash, employee advances, and a pension reserve. The
entity's primary liabilities consist of accounts payable, accrued employee payroll and benefit
7
Immediately before making the decision to wind down Electroglas Private Limited (Singapore PTE Ltd.),
there were eight (8) employees in Singapore.
-3-
#I 1219244 vi
obligations,
8
anticipated severance obligations in connection with the layoff of the German
employee, and pension obligations.
The records of the entity suggest that it does not have sufficient assets to satisfy its
liabilities due to a shortfall in pension and severance obligations and, accordingly, German
counsel has advised that the entity is obligated to be wound up under German law insolvency
proceedings. The German entity has been working with German counsel to prepare for
insolvency proceeding and has taken steps to commence this process, including by preparing a
bankruptcy petition and related schedules which will be filed shortly. Upon the completion of
the German insolvency proceedings, it is not anticipated that any excess cash will be available
for the estates.
Cayman Islands
The Debtors' Cayman entity, Electroglas Far East Holding Co., is a wholly owned
subsidiary ofElectroglas, Inc. The Cayman entity serves as a holding company for the Debtors'
China entity, Electroglas Trading (Shanghai) Co., Ltd. and otherwise has no operations, assets
or liabilities. I have been advised by Cayman counsel that it would be prudent to permit the
Cayman entity to remain in existence until the Chinese entity has been wound up. Until that
time, I am working with Cayman counsel to ensure that all processes are in place in order to
commence the liquidation if the Cayman entity at the appropriate time. Cayman counsel has
been retained and a retainer paid that is expected to fund all legal work necessary to wind up the
operations when and as needed.
The Debtors' Chinese operations are conducted by Electroglas Trading (Shanghai) Co.,
Ltd., a wholly owned subsidiary of the Cayman entity. The entity's only material asset is cash in
a bank account in China. The entity's liabilities consist of accrued payroll and benefit
obligations owing to employees,
9
anticipated severance obligations in connection with the layoff
of its employees, and business taxes owing to the Chinese government.
The Debtors intend to wind up the Chinese operations. Chinese legal counsel has been
engaged and a retainer paid that is expected to fund the legal processes necessary to wind up the
operations. The China entity has been working directly with counsel in China to address
employment issues and has begun to prepare resolutions for the retention of a liquidator and to
commence the liquidation process. In connection with the liquidation process, the liquidator will
provide for formal deregistration of the China entity, addressing tax issues, and terminating any
outstanding obligations of the company. Liabilities will be funded by cash held by the China
entity and any shortfall will be addressed in Chinese insolvency proceedings. Because certain
employees of the China entity have relationships with certain critical vendors, the Debtors have
not yet commenced the insolvency processes in China until questions relating to this relationship
Immediately before making the decision to wind down Electroglas GmbH, there were two (2) employees in
Germany.
9
Immediately before making the decision to wind down Electroglas Trading (Shanghai) Co., Ltd., there
were five (5) employees in China.
-4-
#11219244vl
have been addressed; the Debtors expect to commence the winding up process promptly once
this issue has been resolved.
Because the records of the Chinese entity suggest that there are insufficient assets to
satisfy the existing and anticipated liabilities of the entity, the Debtors do not anticipate that any
excess cash will be available for the Debtors upon completion of the insolvency proceedings.
Hong Kong
Electroglas International has an inactive branch in Hong Kong that has been dormant for
at least five years and has no material assets or liabilities. This branch is part of Electroglas
International and is not a separate legal entity.
-5-
#11219244 v1
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EXHIBITC
Consent Agreement
EXECUTION VERSION
CONSENT AND RELEASE UNDER INTERCREDITOR AGREEMENT, dated as of July 8,
2009 (this "Consent") among Comerica Bank (the "Bank"), The Bank of New York Trust Company,
N.A, as trustee under the Indenture referred to below and collateral agent under the Security
Agreement referred to below (in both such capacities, the "Trustee"), Electroglas, Inc., a Delaware
corporation ("Eiectroglas"), and Electroglas International, Inc., a Delaware corporation
("International").
The Bank, the Trustee, Electroglas and International are parties to the lntercreditor and
Subordination Agreement, dated as of March 26, 2007 (as heretofore amended and in effect from
time to time, the "lntercreditor Agreement"). Except as otherwise expressly defined in this Consent,
capitalized terms defined in the lntercreditor Agreement and used herein shall have their respective
defined meanings when used herein.
Pursuant to the Indenture, the Noteholders are holders of the 6.25% Convertible Senior
Subordinated Secured Notes due 2007.
Pursuant to the Senior Facility, the Bank made certain advances of money and other credits
available to Electroglas. On the date hereof, Letters of Credit (as defined in the Senior Facility) in an
aggregate stated amount of $401,000 (the "Outstanding Letters of Credit") and other Credit
Extensions (as defined in the Senior Facility) in an aggregate principal amount of $25,000 are
outstanding, and no further Credit Extensions are to be made available to Electroglas under the
Senior Facility. The Bank holds cash collateral in an aggregate amount of $625,763.60 as of June 8,
2009, as security for the payment when due of each drawing under each of the Outstanding Letters
of Credit and of each of the other outstanding Credit Extensions. All Cash Collateral referred to
below remains subject to the terms of the lntercreditor Agreement.
The Trustee and the Bank understand that on or about July 1, 2009, Electroglas and certain
of its subsidiaries (the "Debtors") intend to commence voluntary cases under Chapter 11 of the
United States Bankruptcy Code (the "Cases") in the District of Delaware (the "Court").
Under the Cases, the Debtors, as debtors-in-possession, will seek entry of a debtor-in-
possession facility and cash collateral order (the "DIP/Cash Collateral Order") permitting the Debtors
to use their cash (the "Cash Collateral"), other than $451,000 of Cash Collateral to be held by the
Bank (the "Excluded Cash Collateral"), and permitting the Bank to retain its first-priority Lien in the
Cash Collateral and the Excluded Cash Collateral and the Trustee to retain the second-priority Lien
in the Cash Collateral for the ratable benefit of the Noteholders. The DIP/Cash Collateral Order
contemplates, among other things, the granting of replacement liens in favor of the Bank and the
Trustee and Noteholders, which liens will have the same priority as the Bank's Lien under the Senior
Facility and the Agent's and Noteholders' Lien under the Security Agreement in the assets of the
Debtors (the "Replacement Liens").
In addition, in connection with the Cases, the Noteholders may wish to credit bid their claims
arising under the Indenture against Electroglas in exchange for all or substantially all of the assets of
the Debtors other than the Excluded Cash Collateral (the "Credit Bid"). The DIP/Cash Collateral
Order, the Credit Bid and the Replacement Liens and any steps or actions taken to consummate any
of the foregoing being collectively referred to herein as the "Transactions".
The Trustee, on behalf of the Noteholders, and the Bank wish to facilitate all of the
Transactions.
NYCUB01/NYCRB/153888.11
- 2 -
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereby agree, subject to the condition set forth in paragraph 16 below, as follows:
1. The Trustee acknowledges that the Bank's claims in respect of the outstanding Letters of
Credit and other Credit Extensions in the aggregate amount not exceeding $426,000, plus
reasonable fees and expenses incurred by the Bank under the terms of the Senior Facility
(the "Bank Fees and Expenses"), constitute First Priority Lien Obligations. The Trustee
further acknowledges that the Excluded Cash Collateral being held by the Bank constitutes
Senior Lender Collateral. Electroglas acknowledges that the Bank shall continue to hold the
Excluded Cash Collateral in relation to and as security for the Outstanding Letters of Credit
and other Credit Extensions. Moreover, Electroglas agrees, and the DIP/Cash Collateral
Order shall provide, that to the extent that the Excluded Cash Collateral is insufficient to
satisfy in full the Senior Loan obligations, then the Bank shall deliver written notice of the
same, which notice shall include the amount of the deficiency (the "Deficiency Amount"), the
calculation thereof and the Bank's wire instructions, to the Debtors and counsel to the DIP
Lenders and the Note Parties (each as defined in the DIP/Cash Collateral Order), at least two
(2) days prior to the Consummation Date (as defined in the DIP/Cash Collateral Order) and,
as a condition to the occurrence of the closing of the sale, (i) if the Noteholders are not the
successful purchasers of the Debtors' assets pursuant to the Credit Bid, the Debtors shall,
prior to the Consummation Date, wire the Deficiency Amount to the Bank in immediately
available US funds, or (ii) if the Noteholders are the successful purchaser of the Debtors'
assets pursuant to the Credit Bid, the purchaser shall wire the Deficiency Amount to the Bank
in immediately available US funds on the Consummation Date.
2. The Bank hereby (a) consents to each of the Transactions, and (b) waives and releases any
term, condition, covenant, undertaking or other provision of the lntercreditor Agreement that
otherwise might otherwise prevent or hinder the entry of the DIP/Cash Collateral Order or
consummation of any of the other Transactions.
3. Without limiting the generality of the foregoing, the Bank hereby agrees as follows:
(a) Neither the receipt by the Trustee or any Noteholder of any asset of the Debtors
pursuant to the Credit Bid nor the DIP/Cash Collateral Order nor any of the other
Transactions shall be deemed to be a breach of the Lien priorities or any other
provision of Section 2.1 of the lntercreditor Agreement.
(b) Neither the Credit Bid nor the DIP/Cash Collateral Order shall be deemed to
constitute a contest of any Lien as contemplated in Section 2.2 of the lntercreditor
Agreement.
(c) None of the Replacement Liens shall be deemed to constitute the incurrence of a new
Lien in violation of Section 2.3 of the lntercreditor Agreement.
(d) Neither the Credit Bid nor the DIP/Cash Collateral Order nor any of the other
Transactions shall be deemed to constitute a violation of any payment blockage
pursuant to Section 2.5 or 2.6 of the lntercreditor Agreement.
(e) None of the Transactions shall be deemed to be a commencement of proceedings for
collection, enforcement, execution, levy or foreclosure as contemplated in Sections
2.13 or 3.2 of the lntercreditor Agreement.
NYCLIB01/NYCRB/153888.11 Lovells
- 3 -
(f) As contemplated in Section 2. 16 of the lntercreditor Agreement, the Trustee and each
Noteholder shall be entitled to conclusively rely upon any order or decree of the Court
implementing any of the Transactions.
(g) Neither the Credit Bid nor any of the other Transactions shall be deemed to be the
exercise of any remedies in the Common Collateral in violation of Section 3.1 (a) of
the lntercreditor Agreement, nor the taking or receiving of any Common Collateral or
proceeds thereof in violation of Section 3.1 (b) of the lntercreditor Agreement. The
Bank hereby waives its exclusive right to enforce rights, exercise remedies and make
determinations as provided in said Section 3.1 (a) to the fullest extent necessary to
permit the consummation of each of the Transactions, and hereby agrees that the
Credit Bid and the other Transactions do not hinder the Bank's exercise of its rights
as contemplated in Section 3.1(c) of the lntercreditor Agreement or violate any other
provision of said Section 3.1 (c).
(h) The Bank hereby waives its right to interpose a defense or dilatory plea or otherwise
intervene in the Cases or in any other action to prevent or delay the consummation of
the Transactions, as contemplated in Section 3.3 of the lntercreditor Agreement.
(i) Neither the Trustee nor any Noteholder shall be prevented from providing any DIP
Financing (as defined in Section 6.1 of the lntercreditor Agreement), or from objecting
to a third party's provision of DIP Financing (as so defined).
U) The Bank agrees not to object to any of the Transactions as contemplated in Section
6.5 of the lntercreditor Agreement.
(k) The Bank hereby consents to the acquisition and exercise by the Trustee and each
Noteholder of any rights they may have under sections 363 and 364 of the
Bankruptcy Code, as contemplated in Section 6.10 of the lntercreditor Agreement,
and waives its rights thereunder to require the Trustee to exercise such rights in a
manner requested by the Bank.
(I) The Bank waives any right of subrogation that it may have or acquire by reason of the
Credit Bid or any of the other Transactions.
(m) In no event shall any Refinancing Senior Lender be entitled to any rights of the Bank,
as contemplated in Section 8.12 of the lntercreditor Agreement, in respect of the
assets subject to the Transactions.
4. The Bank represents and warrants that it is the sole holder of the First Priority Lien
Obligations.
5. As contemplated in Section 5.5(a) of the lntercreditor Agreement, the Bank shall continue to
be bailee for perfection of the Excluded Cash Collateral and hereby consents to the grant of
second priority replacement liens in favor of the Trustee on the Excluded Cash Collateral and
the other assets of the Debtors to be provided for in the DIP/Cash Collateral Order. Upon the
occurrence of the Discharge of First Priority Lien Obligations, the Bank shall deliver to the
Debtors any remaining portion of the Excluded Cash Collateral, as contemplated by the
interim DIP/Cash Collateral Order.
NYCLIB01/NYCRB/153888.11 Love lis
-4-
6. This Consent shall be effective notwithstanding any prov1s1on to the contrary of any
agreement or instrument existing on the date hereof relating to the First Priority Lien
Obligations or the Second Priority Lien Obligations.
7. Nothing in this Consent shall prohibit, delay, limit the amount of or otherwise restrict the
reimbursement by the Electroglas or International to the Bank, the Trustee or the Noteholders
of any fees, costs or expenses of their respective counsels in connection with the Cases, any
interim or final DIP/Cash Collateral Order or any of the Transactions.
8. The Bank may not assign, novate or otherwise transfer the First Priority Lien Obligations or
any portion thereof to any Person unless such Person agrees in writing for the benefit of the
Trustee and the Noteholders. to be bound by all of the terms and conditions of the
lntercreditor Agreement (including, without limitation, this Consent), and any purported
transfer without such prior written consent shall be void.
9. This Consent shall be interpreted, and the rights and liabilities of the parties bound hereby
determined, in accordance with the laws of the State of New York.
10. This Consent may be executed in one or more counterparts, each of which shall be an
original and all of which shall together constitute one and the same document.
11. By its signature, each Person executing this Consent on behalf of a party hereto represents
and warrants to the other parties hereto that it is duly authorized to execute this Consent.
12. This Consent and the rights and benefits hereof shall inure to the benefit of the parties hereto
and their permitted successors and assigns and, to the extent applicable, the Noteholders
and their respective permitted successors and assigns. No other Person, including the
Borrower and its Subsidiaries, shall have or be entitled to assert rights or benefits hereunder.
13. Subject to section 16, below, this Consent shall become effective when executed and
delivered by the parties hereto and shall terminate on the earliest to occur of (i) the closing
date of the Credit Bid; (ii) the failure to obtain a final DIP/Cash Collateral Order on or before
August 31, 2009; and (iii) November 15, 2009.
14. The provisions of Sections 8.18, 8.19 and 8.20 of the lntercreditor Agreement are deemed to
be restated herein in their entirety mutatis mutandis, as if each reference therein to "this
Agreement", "hereunder" and words of similar import were a reference to this Consent.
15. Except as expressly provided in this Consent, the lntercreditor Agreement shall remain
unmodified and in full force and effect, including, without limitation, Sections 2.4, 2.12, 3.1 (b)
and 6.9 thereof.
16. This Consent shall become effective when it has been signed by each of the parties provision
for whose signature is made below, and upon entry of an interim DIP/Cash Collateral Order in
form and substance reasonably satisfactory to the Bank. This Consent shall terminate if the
Bank in its own reasonable satisfaction should determine that any changes to the final
DIP/Cash Collateral Order from the interim DIP/Cash Collateral Order are materially adverse
to the Bank.
NYCLIB01/NYCRB/153888.11 Love lis
- 5-
IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the date first above
written.
Title: Senior Vice President
THE BANK OF NEW YORK TRUST COMPANY, N.A.,
as Trustee and as Collateral Agent
By __________________ _
Name:
Title:
ELECTROGLAS, INC., as Borrower
By __________________ _
Name:
Title:
ELECTROGLAS INTERNATIONAL, INC.
By __________________ _
Name:
Title:
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the date first above
written.
COMERICA BANK, as Bank
By __________________ __
Name:
Title:
THE BANK OF NEW YORK TRUST COMPANY, N.A.,
ollat al Agent
ELECTROGLAS, INC., as Borrower
By __________________ _
Name:
Title:
ELECTROGLAS INTERNATIONAL, INC.
By __________________ __
Name:
Title:
5-
IN WITNESS WHEREOF. the parties hereto have executed this Consent as of the date first above
written.
COMERICA BANK. as Bank
By __________________ __
Name:
Title:
THE BANK OF NEW YORK TRUST COMPANY, NA,
as Trustee and as Collateral Agent
By ________________ __
Name:
Title:
ELECTROGLAS. INC.,

By . . /.lf'1.A_...
Name: Thomas Bn.inton
Title: CFO
ELECTROGLAS TIONAL. INC.
___.., ' /
'1'
By 'J........,.
Name:
Title: CFO
NYCLIBOl/NYCRB/153888 11 Lovells