Exhibit 10.5
ACKNOWLEDGMENT, WAIVER AND AMENDMENT
TO
FINANCING AGREEMENT
This ACKNOWLEDGMENT, WAIVER AND AMENDMENT ("Amendment") TO THE AMENDED
AND RESTATED REVOLVING CREDIT AGREEMENT is made as of February 14, 2002 by and
between Pemstar Inc., duly organized under the laws of the State of Minnesota
("Customer"), Turtle Mountain Corporation, duly organized under the laws of the
State of North Dakota ("Turtle Mountain") (Customer and Turtle Mountain,
collectively, the "Credit Parties", individually, a "Credit Party"), Pemstar
Pacific Consultants Inc., duly organized under the laws of the State of
California ("Pemstar Pacific Consultants") and IBM Credit Corporation, a
Delaware corporation ("IBM Credit").
RECITALS:
WHEREAS, the Credit Parties and IBM Credit have entered into that
certain Amended and Restated Revolving Credit Agreement dated as of June 29,
2001 (as amended, supplemented or otherwise modified from time to time, the
"Agreement");
WHEREAS, the Credit Parties and IBM Credit have agreed to make Pemstar
Pacific Consultants a Credit Party to the Agreement as more specifically set
forth below, upon and subject to the terms and conditions set forth herein;
WHEREAS, Credit Parties are in default of one or more of its financial
covenants contained in the Agreement (as more specifically explained in Section
2 hereof); and
WHEREAS, IBM Credit is willing to waive such defaults subject to the
terms and conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises set forth herein, and
for other good and valuable consideration, the value and sufficiency of which is
hereby acknowledged, the parties hereto agree that the Agreement is amended as
follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Agreement.
Section 2. Acknowledgment.
The Credit Parties acknowledge that the financial covenants set forth
in Attachment A to Agreement are applicable to the financial results of the
Credit Parties for the fiscal month ending November 30, 2001 and the fiscal
quarter ending December 31, 2001, and the Credit Parties were required to
maintain such financial covenants at all times. The Credit Parties further
acknowledge that their actual attainment was as follows:
Covenant Actual for the Covenant Actual for the
monthly period ending fiscal quarter ending
Covenant Covenant Requirement 11/30/2001 12/31/01
-------- -------------------- ---------- --------
(a) Net Profit after Tax to Equal to or Greater than
Revenue 0.75 percent quarterly
and Equal to or Greater
than 1.25% annually N/A (7.3%)
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(b) Total Liabilities to Greater than Zero and
Tangible Net Worth Equal to or Less than
2.50:1.0 1.08:1.0 1.06:1.0
(c) Current Assets to Greater than 1.50:1.0
Current Liabilities 2.59:1.0 2.48:1.0
(d) Fixed Charge Coverage Equal to or Greater than
Ratio 1.30:1.0 0.79:1.0 -1.23:1.0
(e) Maximum Capital Less than or equal to
Expenditures $32,000,000 for the
fiscal year ending March
2002 $32,511,680 $34,612,489
(g) Net Profit After Tax to Equal to or greater than
Revenue (U.S. Credit 0.1 percent
Parties operations only) N/A (11.0%)
Section 3. Waivers to Agreement. Subject to the terms and conditions set forth
herein, IBM Credit hereby waives the defaults of the Credit Parties with the
terms of the Agreement to the extent such defaults are set forth in Section 2
hereof.
Section 4. Amendment. The Agreement is hereby amended as follows:
A. Attachment A to the Agreement is hereby amended by deleting such
Attachment A in its entirety and substituting, in lieu thereof, the Attachment A
attached hereto. Such new Attachment A shall be effective as of the date
specified in the new Attachment A. The changes contained in the new Attachment A
include, without limitation, the following:
(a) Section I. (B) is deleted in its entirety and restated as follows:
(i) 95% of the amount of each Credit Party's Eligible Accounts from
International Business Machines Corp. ("IBM") or its domestic
subsidiaries as account debtor pursuant to agreements between such
Credit Party and IBM in form and substance satisfactory to IBM Credit
as of the date of determination as reflected in the Customer's most
recent Collateral Management Report;
(ii) 90% of the amount of each Credit Party's Eligible Accounts from
Honeywell Inc. ("Honeywell"), Minnesota Mining & Manufacturing Company
("3M") and Applied Materials, Inc. ("Applied Materials") as account
debtor, provided such account debtors remain investment grade, in IBM
Credit's sole discretion, and pursuant to agreements between such
Credit Party and such account debtor, in form and substance
satisfactory to IBM Credit as of the date of determination as reflected
in the Customer's most recent Collateral Management Report;
(iii) 85% of TMC, Inc.,(a North Dakota corporation) ("TMC") Eligible
Accounts, but in no event greater than the following amounts for the
following periods: (a) for the period from the effective date of
Attachment A until 30 days after the date hereof, the Borrowing Base
pursuant to this clause (iii) shall not exceed $8,000,000, (b) for the
period 31 days after the effective date of this Attachment A to 60 days
from the effective date of this Attachment A, the Borrowing Base
pursuant to this clause (iii) shall not exceed $6,000,000 (c) for the
period from 61 days after the effective date of this Attachment A to 90
days after the effective date of this Attachment A, the Borrowing Base
pursuant to this clause (iii) shall not exceed $4,000,000 and any time
thereafter
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$0 value shall be given to TMC Eligible Accounts. Without limiting the
foregoing, IBM Credit will discuss with the Credit Parties the
relationship between the Credit Parties and TMC and discuss possible
structures, terms and conditions (if any) under which IBM Credit would
consider including the TMC Accounts as Eligible Accounts. Nothing
herein shall be deemed a commitment to include the TMC Accounts without
the foregoing limitations;
(iv) 85% of the amount of each Credit Party's other Eligible Accounts,
other than Concentration Accounts, as of the date of determination as
reflected in the Customer's most recent Collateral Management Report
provided, however, IBM Credit has a first priority security interest in
such Eligible Account;
(v) a percentage, determined from time to time by IBM Credit in its
sole discretion, of the amount of Customer's Concentration Accounts for
a specific Concentration Account Debtor as of the date of determination
as reflected in the Customers most recent Collateral Management Report;
unless otherwise notified by IBM Credit, in writing, the percentage for
Concentration Accounts for a specific Concentration Account Debtor
shall be the same as the percentage set forth in paragraph (iii) of the
Borrowing Base;
(vi) 100% of the lower of (x) book value or (y) fair market value of
each Credit Party's Eligible Finished Goods Inventory destined for IBM;
(vii) 90% of the lower of (x) book value or (y) fair market value of
each Credit Party's Eligible Parts Inventory destined for IBM;
(viii) 80% of the lower of (x) book value or (y) fair market value of
each Credit Party's Eligible Inventory destined for Honeywell, 3M and
Applied Materials;
(ix) 54% of the lower of (x) book value or (y) fair market value of
each Credit Party's other Eligible Inventory provided, however, IBM
Credit has a first priority security interest in such Eligible
Inventory.
Eligible Finished Goods Inventory shall mean finished goods inventory
in salable condition, owned by a Credit Party free and clear of any
Liens (other than Liens pursuant to this Agreement), and designated and
identified as product to be sold to IBM as evidenced by (i)
non-cancellable purchase orders from IBM or (ii) a non-cancellable
written agreement that IBM will purchase such inventory, in each case,
in form and substance satisfactory to IBM Credit.
Eligible Parts Inventory shall mean parts inventory and floor stock raw
materials in good condition, owned by a Credit Party free and clear of
any Liens (other than Liens pursuant to this Agreement), and designated
and identified as parts to be used to manufacture product (the Eligible
Finished Goods Inventory) to be sold to IBM as evidenced by (i)
non-cancellable purchase orders from IBM to such Credit Party or (ii) a
non-cancellable written agreement that IBM will purchase such
inventory, in each case, in form and substance satisfactory to IBM
Credit.
Eligible Inventory shall mean raw materials, floor stock raw materials
and finished goods inventory owned by a Credit Party free and clear of
any Liens (other than Liens pursuant to this Agreement) designated and
identified by the Customer in its periodic collateral report or
borrowing request to IBM Credit as inventory applicable to product
sold, or to be manufactured and sold, by a Credit Party to an end user
pursuant to non-cancellable purchase orders or other written agreements
binding such end user to purchase such product, in each case, in form
and substance satisfactory to IBM Credit.
(b) Section I. (C) is deleted in its entirety and restated as follows:
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Collateral Insurance Amount: Eighty Million Dollars ($80,000,000.00).
(c) Section I. (G) is deleted in its entirety and restated as follows:
(i) Unused Line Fee: 0.375% per annum on the daily average unused
portion of the Credit Line for each day from the closing date of the
Agreement and shall be computed on the basis of a 360 day year and
payable monthly in arrears and upon the maturity or termination of the
Agreement.
(ii) Prepayment Fee: A prepayment premium, payable to IBM Credit in the
event that the Customer terminates the Credit Line prior to the third
year anniversary of the closing date, in an amount equal to the amount
of the Credit Line in effect as of the date of notice of termination or
date of default, multiplied by one half of one percent (0.50%).
(d) The definition of Investment is hereby deleted in its entirety and restated
as follows:
"Investment": with respect to any Person (the "Investor"), any
investment by the Investor in any other Person, whether by means of
share purchase, capital contribution, purchase or other acquisition of
a partnership or joint venture interest, loan, time deposit, demand
deposit or otherwise.
(e) The definition of Revolving B Credit Facility is deleted in its entirety.
(f) The definition of Unrestricted Domestic Subsidiary is hereby deleted in its
entirety and restated as follows:
"Unrestricted Domestic Subsidiary": means any direct or indirect
Subsidiary of a Credit Party which Subsidiary is located in the United
States of America and IBM Credit does not have both a pledge of 100% of
such Subsidiary's stock and a perfected first priority security
interest in such Subsidiary's assets.
(g) Section 2.1.(B) of the Agreement is hereby deleted in its entirety and
restated as follows:
"(B) The Credit Line is comprised of a Revolving A Credit Facility in
the amount specified in Attachment A."
(h) Section 4.1. of the Agreement is hereby deleted in its entirety and restated
as follows:
4.1. Grant. To secure the full and punctual payment and performance of the
Obligations (including obligations under any leases any Credit Party may enter
into, now or in the future, with IBM Credit) when due (whether at the stated
maturity, by acceleration or otherwise), each of the Credit Parties hereby,
jointly and severally, grants IBM Credit a security interest in all of its
right, title and interest in and to the following property, whether now owned or
hereafter acquired or existing and wherever located:
(A) all goods, inventory and equipment, and all parts thereof,
attachments, accessories and accessions thereto, products thereof and documents
therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to it, whether or not arising out of or
in connection with the sale or lease of goods or the rendering of services and
all books, invoices, documents and other records in any form evidencing or
relating to any of the foregoing;
(C) all General Intangibles;
(D) all Commercial Tort Claims;
(E) all Intellectual Property;
(F) all Investment Property;
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(G) all Supporting Obligations;
(H) all other obligations of any kind owing to it, whether or not
arising out of or in connection with the sale or lease of goods or the rendering
of services;
(I) all rights now or hereafter existing in and to all mortgages,
security agreements, leases or other contracts securing or otherwise relating to
any of the foregoing; and
(J) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
All of the above assets shall be collectively defined herein as the
"Collateral". Each Credit Party covenants and agrees with IBM Credit that: (a)
the security constituted to by this Agreement is in addition to any other
security from time to time held by IBM Credit and (b) the security hereby
created is a continuing security interest and will cover and secure the payment
of all Obligations both present and future to IBM Credit.
(i) Section 6.2. of the Agreement is hereby deleted in its entirety and restated
as follows:
"6.2. Rights in Collateral; Priority of Liens. Each Credit Party and each of its
Subsidiaries owns the property granted by it respectively as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by each
Credit Party and each of its Subsidiaries pursuant to this Agreement, the
Guaranties, if any, and the Other Documents in the Collateral constitute the
valid and enforceable first, prior and perfected Liens on the Collateral, except
to the extent any Liens that are prior to IBM Credit's Liens are (i) the subject
of an Intercreditor Agreement or (ii) Purchase Money Security Interests on
inventory and equipment except to the extent of any Purchase Money Security
Interest on inventory or equipment included in the Borrowing Base."
(j) Section 6.28 of the Agreement is hereby deleted in its entirety and restated
as follows:
"6.28. The proceeds of the Advances shall be used for general corporate purposes
of the Customer. Notwithstanding the foregoing, none of the proceeds of any of
the Advances shall be used for acquisition financing without the prior written
consent of IBM Credit."
(k) Section 7.16. of the Agreement is hereby deleted in its entirety and
restated as follows:
7.16. Additional Collateral. (A) With respect to any property acquired after the
Closing Date by any Credit Party or its domestic Subsidiary, such Credit Party
or its domestic Subsidiary shall promptly (i) execute and deliver to IBM Credit
such amendments such other documents as IBM Credit deems necessary or advisable
to grant to IBM Credit, a security interest in such property, (ii) in the case
of Investment Property, Deposit Accounts, and any other relevant Collateral,
take any actions requested by IBM Credit to enable IBM Credit to obtain control
(within the meaning of U.C.C.) with respect thereto, (iii) cause IBM Credit's
name to be noted as secured party on any certificate of title for a titled good
if such notation is deemed necessary or advisable by IBM Credit for the
attachment, perfection or priority of, or the ability of IBM Credit to enforce
or realize on, IBM Credit's security interest in such Collateral, (iv) comply
with any material Requirement of Law as to any Collateral if such compliance is
deemed necessary or advisable by IBM Credit for the attachment, perfection or
priority of, or the ability of IBM Credit to enforce, IBM Credit's security
interest in such Collateral, (v) obtain consents and approvals from any
Governmental Authority or other Person, including without limitation any consent
of licensor, lessor or other Person obligated on Collateral, (vi) execute and
deliver such documents, agreements, and
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instruments as may be required by IBM Credit to further evidence and perfect its
security interests in all Intellectual Property, (vii) obtain waivers from
mortgagees and landlords in form and substance satisfactory to IBM Credit, and
(viii) take all actions necessary or advisable to grant to IBM Credit a
perfected first priority security interest in such property, including the
filing of Uniform Commercial Code financing statements in such jurisdictions as
may be required by law or as may be requested by IBM Credit.
(B) If any Credit Party shall at any time hold or acquire a Commercial
Tort Claim, then Customer shall immediately notify IBM Credit in a writing
signed by such Credit Party of the details thereof and grant to IBM in such
writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
satisfactory to IBM Credit.
(C) Each Credit Party will permit IBM Credit, or its designee, to
inspect the Collateral at any reasonable time or times, wherever located.
(D) With respect to any new Domestic Subsidiary created or acquired
after the Closing Date by a Credit Party or its Domestic Subsidiary, such Credit
Party or such Domestic Subsidiary shall promptly (i) execute and deliver to IBM
Credit such amendments to this Agreement, and execute such other documents,
instruments and agreements, as IBM Credit deems necessary or advisable to grant
to IBM Credit a perfected first priority security interest in the capital stock
of such new Subsidiary that is owned by such Credit Party or its Domestic
Subsidiary, (ii) deliver to IBM Credit the certificates representing such
capital stock, together with undated stock powers, in blank, executed and
delivered by a duly authorized officer of such Credit Party or the relevant
Domestic Subsidiary, (iii) cause such new Domestic Subsidiary (A) to become a
party to this Agreement or such other agreements, documents or Instruments, as
IBM Credit deems necessary or advisable (B) to take such actions necessary or
advisable to grant to IBM Credit a perfected first priority lien in all of the
personal property of such new Domestic Subsidiary including the filing of
Uniform Commercial Code financing statements in such jurisdictions as may be
required or by law or as may be requested by IBM Credit and (iv) if requested by
IBM Credit, deliver to the IBM Credit legal opinions relating to the matters
described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the IBM Credit.
(E) Notwithstanding the foregoing, if a Credit Party or its Domestic
Subsidiary acquires a Domestic Subsidiary (and such acquisition is not financed
by IBM Credit) such Credit Party or such Subsidiary can request that IBM Credit
subordinate its lien in the assets of the new Subsidiary in favor of the lender
who financed the acquisition ("Other Lender") and IBM Credit shall not
unreasonably withhold its consent to such request provided that (i) the
Borrowing Base exceeds the Revolving A Credit Facility, (ii) no Default or Event
of Default shall have occurred and be continuing at the time of or after giving
effect to such acquisition and (iii) IBM Credit and the Other Lender shall have
entered into an intercreditor agreement in form and substance satisfactory to
IBM Credit.
(F) Notwithstanding anything herein to the contrary, no Credit Party
nor any Subsidiary of a Credit Party shall at any time (i) provide a guarantee
of any Indebtedness of any Unrestricted Domestic Subsidiary (if any) or Foreign
Subsidiary except that (x) the Customer may guarantee the obligations of Pemstar
de Mexico S.A. ("Pemstar Mexico") in connection with a credit facility to be
provided by a financial institution to Pemstar Mexico in an aggregate amount not
to exceed Ten Million Dollars ($10,000,000) and (y) the Customer may provide
guaranties to support Foreign Subsidiaries obligations under operating leases
provided that the obligations under all such guaranties do not exceed Sixteen
Million Dollars ($16,000,000) in the aggregate, (ii) be liable for any other
Indebtedness of any Unrestricted Domestic Subsidiary (if any) or Foreign
Subsidiary, or (iii) be liable for any other Indebtedness (other than
Indebtedness to U.S. Bank) which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default therein (or cause such
Indebtedness or the payment thereof to be accelerated, payable or subject to
repurchase prior to its final scheduled maturities) upon the occurrence of a
default with respect to any Indebtedness of an Unrestricted Domestic Subsidiary
(if any) or Foreign Subsidiary (iv) make loans, advances, payment of money or
goods to an Unrestricted Domestic Subsidiary (if any) or Foreign Subsidiary
except as otherwise provided in Section 8.15 hereof (v) make Restricted Payments
to an Unrestricted Domestic Subsidiary (if any) or Foreign Subsidiary or (vi)
make any Investment or equity
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contribution in an Unrestricted Domestic Subsidiary (if any) or Foreign
Subsidiary except that a Credit Party may make an equity contribution in (x) the
Unrestricted Foreign Subsidiaries and Pemstar Mexico provided that the aggregate
amount of all such Investments and equity contributions in all the Unrestricted
Foreign Subsidiaries and Pemstar Mexico do not exceed Twenty-five Million
Dollars ($25,000,000) in the aggregate and (y) Foreign Subsidiaries (other than
Unrestricted Foreign Subsidiaries) provided that the aggregate amount of all
equity investments made by the Credit Parties in any Foreign Subsidiary (other
than Unrestricted Foreign Subsidiaries) shall not exceed One Million Five
Hundred Thousand Dollars ($1,500,000) in the aggregate per such Foreign
Subsidiary. No Unrestricted Domestic Subsidiary (if any) or Foreign Subsidiary
may be merged into the Customer or any Credit Party or liquidate into or
transfer substantially all of its assets to the Customer or any other Subsidiary
(other than an Unrestricted Subsidiary). The Credit Parties acknowledge that
Unrestricted Domestic Subsidiaries are not permitted without the prior written
consent of IBM Credit.
(l) Section 8.4.(iv) of the Agreement is hereby deleted in its entirety and
restated as follows:
"(iv) guaranty to suppliers of the Credit Parties' subsidiaries'
obligations in the aggregate less than Two Million Dollars
($2,000,000)."
(m) Section 8.7. of the Agreement is hereby deleted in its entirety and restated
as follows:
"8.7. Investments. The Customer will not, directly or indirectly, make, maintain
or acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of
deposit) which are insured by the Federal Deposit Insurance Corporation("FDIC")
or a similar federal insurance program;
(B) direct obligations of the government of the United States of
America or any agency or instrumentality thereof or obligations guaranteed as to
principal and interest by the United States of America or any agency thereof;
(C) stock or obligations issued to Customer in settlement of claims
against others by reason of an event of bankruptcy or a composition or the
readjustment of debt or a reorganization of any debtor of Customer;
(D) commercial paper of any company organized under the laws of any
State of the United States or any bank organized or licensed to conduct a
banking business under the laws of the United States or any State thereof having
the short-term highest rating then given by ▇▇▇▇▇'▇ Investor's Services, Inc. or
Standard & Poor's Corporation; and
(E) such other Investments with the prior written consent of IBM
Credit.
(n) Section 8.15.(b) of the Agreement is hereby deleted in its entirety and
restated as follows:
"(b) Credit Parties may make loans and advances either individually or jointly
and otherwise make payment of money to Unrestricted Foreign Subsidiaries
provided that after giving effect to such loan or advance or payment of money,
the aggregate amount of all loans, advances and other payment of money made by
all of the Credit Parties to all Unrestricted Foreign Subsidiaries and Pemstar
Mexico does not exceed, in the aggregate, the following amounts for the period
specified:
(i) from the date hereof through and including March 31, 2002, the
aggregate amount of all loans, advances and other payment of money made by all
of the Credit Parties to all Unrestricted Foreign Subsidiaries and Pemstar
Mexico does not exceed $51,000,000;
(ii) from April 1, 2002 through and including December 31, 2002, the
aggregate amount of all loans, advances and other payment of money made by all
of the Credit Parties to all Unrestricted Foreign Subsidiaries and Pemstar
Mexico does not exceed $46,000,000; and
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(iii) January 1, 2003 and thereafter, the aggregate amount of all
loans, advances and other payment of money made by all of the Credit Parties to
all Unrestricted Foreign Subsidiaries and Pemstar Mexico does not exceed
$41,000,000.
(o) Section 8.15.(c) of the Agreement is hereby deleted in its entirety and
restated as follows:
"(c) Credit Parties may make loans and advances individually or jointly and
payment of money to Foreign Subsidiaries (other than Unrestricted Foreign
Subsidiaries) provided that after giving effect to such loan or advance or
payment of money, the aggregate amount of all loans, advances and other payment
of money made to all such Foreign Subsidiaries (excluding Unrestricted Foreign
Subsidiaries and Pemstar Mexico pursuant to clause (b) hereof shall not exceed
$0 in the aggregate."
(p) Section 8.19. of the Agreement is hereby deleted in its entirety and
restated as follows:
"8.19. New Foreign Subsidiaries. (i) No Credit Party shall permit any
of its Domestic Subsidiaries to establish or acquire any Foreign Subsidiary not
existing as of the date of this Agreement and listed on Schedule 6.20 and (ii)
Pemstar Luxembourg S.a.r.l shall not directly establish or acquire any Foreign
Subsidiary not existing as of the date of this Agreement and listed on Schedule
6.20 hereto. The Customer and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇.▇. ("▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇") may, with IBM Credit's prior written consent, create directly
owned Foreign Subsidiaries subject to the fulfillment of the conditions set
forth in this Section 8.19 to the satisfaction of IBM Credit in its sole
discretion. If the new Foreign Subsidiary is directly owned by the Customer, the
Customer shall (i) pledge two-thirds (less one share) of all of such Foreign
Subsidiary's stock to IBM Credit (ii) and shall cause the new Foreign
Subsidiary's to execute such documents, instruments and agreements as IBM Credit
deems necessary or advisable and grant IBM Credit a first perfected security
interest in the capital stock (or equivalent) of such new Foreign Subsidiary
(iii) deliver to IBM Credit the certificates representing the capital stock with
undated stock powers and (iv) deliver to IBM Credit opinions in form and
substance and from counsel satisfactory to IBM Credit. If the new Foreign
Subsidiary is wholly owned (directly) by Pemstar Netherlands, the Customer shall
deliver or cause to be delivered opinions in form and substance satisfactory to
IBM Credit."
(q) The following new Section 8.20 is added:
"8.20. Restriction on Domestic Subsidiaries. No Credit Party will, and will not
permit any of its Subsidiaries to establish, create or acquire any new Domestic
Subsidiary without the prior written consent of IBM Credit which will not be
unreasonably withheld provided that (i) no Default or Event of Default has
occurred and is continuing at the time or after giving effect to the
establishment, creation or acquisition of such new Subsidiary and (ii) the
Borrowing Base exceeds the Revolving A Credit Facility."
(r) Section 9.1. (E) of the Agreement is hereby deleted in its entirety and
replaced with the following new Section 9.1.(E):
"(E) Any Credit Party, any Subsidiary of any Credit Party, any Foreign
Subsidiary of any Credit Party (whether direct or indirect) or any Guarantor
shall generally not pay its debts as such debts become due, become or otherwise
declare itself insolvent, file a voluntary petition for bankruptcy protection,
have filed against it any involuntary bankruptcy petition, cease to do business
as a going concern, make any assignment for the benefit of creditors, or a
custodian, receiver, trustee, liquidator, administrator or person with similar
powers shall be appointed for any Credit Party, any Subsidiary of any Credit
Party, any Foreign Subsidiaries of any Credit Party (whether direct or indirect)
or any Guarantor or any of its respective properties or have any of its
respective properties seized or attached, or take any action to authorize, or
for the purpose of effectuating, the foregoing, provided, however, that any
Credit Party, any Subsidiary of any Credit Party, any Foreign Subsidiaries of
any Credit Party (whether direct or indirect) or any Guarantor shall have a
period of sixty (60) days within which to discharge any involuntary petition for
bankruptcy or similar proceeding;
(s) Section 9.1. (L) of the Agreement is hereby deleted in its entirety and
replaced with the following new Section 9.1.(L):
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"(L) The occurrence of any event or condition that permits the holder of any
material Indebtedness the Credit Parties or any Subsidiaries whether direct or
indirect (including their Foreign Subsidiaries) or any Guarantor arising in one
or more related or unrelated transactions to accelerate the maturity thereof or
the failure of a Credit Party or a Subsidiary of a Credit Party whether direct
or indirect (including their Foreign Subsidiaries) or any Guarantor whether
direct or indirect (including their foreign subsidiaries) to pay when due any
such indebtedness in an aggregate amount greater than $1,000,000.00;"
(t) Section 9.1.(S) of the Agreement is hereby deleted in its entirety and
replaced with the following new Section 9.1.(S):
"(S) Pemstar Netherlands shall cease to own directly (i) 100% of the voting
stock of Pemstar Ireland Ltd., Pemstar (Tianjin) Enterprise Ltd., or Pemstar BV
or (ii) 100% ownership interest in Pemstar Ireland, Ltd., Pemstar (Tianjin)
Enterprise Ltd., or Pemstar B.V. or (iii) 100% of the voting stock or 100% of
the ownership interest of any new Foreign Subsidiary created or acquired by it;
or (iv) 99% of the voting stock of Pemstar Brasil Ltda., Pemstar Thailand Ltd.
or Pemstar Mexico or (v) 99% of the ownership interest in Pemstar Brasil Ltda.,
Pemstar Thailand Ltd. or Pemstar Mexico; or"
(u) Schedule 6.20 is deleted in its entirety and replaced with Schedule 6.20
attached hereto.
(v) Schedule 6.27 is deleted in its entirety and replaced with Schedule 6.27
attached hereto.
Section 4. New Credit Party. Pemstar Pacific Consultants, by its signature below
becomes a Credit Party under the Agreement with the same force and effect as if
originally named therein as a Credit Party, and that Pemstar Pacific Consultants
hereby (a) agrees that all the terms and provisions of the Agreement are
applicable to it as a Credit Party thereunder, including but not limited to the
filing of UCC-1 financing statements at any location where Pemstar Pacific
Consultants does business and is organized, and (b) represents and warrants that
the representations and warranties made by it as a Credit Party thereunder are
true and correct on and as of the date hereof. In furtherance of the foregoing,
Pemstar Pacific Consultants, as security for the payment and performance in full
of the Obligations and pursuant to Section 4.1 of the Agreement, as amended
hereby, creates and grants to IBM Credit, its successors and assigns, a security
interest in the lien on all of Pemstar Pacific Consultant's right, title and
interest in and to the Collateral. If Pemstar Pacific Consultants obtains a loan
facility from another financial institution other than IBM Credit ("Pemstar
Pacific Lender"), Pemstar Pacific Consultants may request that IBM Credit
subordinate its lien in the personal property of Pemstar Pacific Consultants to
the lien of the Pemstar Pacific Lender in such property.
IBM Credit shall consent to the foregoing request provided that: (i) no Default
or Event of Default has occurred and is continuing or would result from such
request (ii) the Borrowing Base equals or exceeds the Revolving A Credit
Facility (iii) Pemstar Pacific Consultants shall have executed and delivered to
IBM Credit a Collateralized Guaranty in form and substance satisfactory to IBM
Credit and (iv) IBM Credit shall have a second priority lien in the personal
property of Pemstar Pacific Consultants and shall have entered into
intercreditor agreements with the Pemstar Pacific Lender and such other
creditors (if necessary) all in form and substance satisfactory to IBM Credit.
If pursuant to this section, IBM Credit shall cease to have a first priority
lien in the personal property of Pemstar Pacific Consultants, Pemstar Pacific
Consultants shall be deemed an Unrestricted Domestic Subsidiary.
Section 5. Conditions to Effectiveness of Waiver. The waiver set forth in
Section 3 hereof shall become effective upon the fulfillment of the following
conditions precedent to the satisfaction of IBM Credit in its sole discretion of
(i) this Amendment shall have been executed by each of the parties hereto,
including without limitation Pemstar Pacific Consultants, and IBM Credit shall
have received a fully executed copy of this Amendment by no later than February
14, 2002, (ii) IBM Credit shall have received the documentation as described in
Section 6 (a) and (b) below, in form and substance satisfactory to IBM Credit by
no later than February 14, 2002, (iii) IBM Credit shall have received evidence
satisfactory to it in its sole discretion that U.S. Bank shall have waived all
defaults under its financing facility with the Credit Parties by no later than
February 14, 2002 and (iv) IBM Credit shall have received a waiver fee, in
Page 9 of 11
immediately available funds, equal to Two Hundred Forty Thousand Dollars
($240,000.00) by no later than February 14, 2002. Such waiver fee payable to IBM
Credit hereunder shall be nonrefundable and shall be in addition to any other
fees IBM Credit may charge the Credit Parties.
Section 6. Additional Requirements. The Agreement is hereby amended by inserting
therein the following new section:
Additional Covenants.
(a) Turtle Mountain shall execute a lockbox agreement with a bank acceptable to
IBM Credit, in form and substance satisfactory to IBM Credit, and IBM Credit
shall have received such fully executed lockbox agreement by no later than
February 14, 2002. In addition, Turtle Mountain shall execute a Contingent
Blocked Account Amendment and cause a bank, satisfactory to IBM Credit, to
execute such Contingent Blocked Account Amendment, by no later than February 14,
2002.
(b) The Credit Parties shall execute the Amendments to all the Contingent
Blocked Account Amendments, (other than the Agreement with Citizens Bank) in
form and substance satisfactory to IBM Credit, on or prior to February 14, 2002.
(c) The Credit Parties shall execute the Amendment to the Contingent Blocked
Account Amendment with Citizens Bank, in form and substance satisfactory to IBM
Credit and cause Citizens Bank to execute such Contingent Blocked Account
Amendment in each case, on or prior to February 21, 2002.
(d) Pemstar Pacific Consultants shall (i) execute a lockbox agreement with a
bank acceptable to IBM Credit, in form and substance satisfactory to IBM Credit
within 30 days of IBM Credit's written request; (ii) within 30 days of IBM
Credit's written request, execute a Contingent Blocked Account Amendment and
cause a bank, satisfactory to IBM Credit, to execute such Contingent Blocked
Account Amendment; and (iii) cooperate with IBM Credit for the purpose of filing
UCC-1 financing statements at all Pemstar Pacific Consultants locations and
State of organization and any other place designated by IBM Credit and such
UCC-1 financing statements shall be filed no later than February 22, 2002 and
(iv) deliver secretary's certificates, incumbency certificates and resolutions
and organizational documents and opinion of counsel all in form and substance
satisfactory to IBM Credit by no later than February 22, 2002.
(e) IBM Credit shall be satisfied, by no later than March 31, 2002, that it has
a first priority lien in all of the personal property of Pemstar Pacific
Consultants.
(f) IBM Credit shall have (i) amended its UCC filings to cover all personal
property of the Credit Parties and (ii) U.S. Bank and IBM Credit shall have
entered into an Amended and Restated Intercreditor Agreement in form and
substance satisfactory to IBM Credit in its sole discretion. Each of the
foregoing actions must be achieved to IBM Credit's satisfaction on or prior to
March 31, 2002.
(g) IBM Credit shall have received by no later than April 15, 2002 opinions of
foreign counsel regarding certain pledge agreements and the patent security
agreement between Customer and IBM Credit and such opinions shall be in form and
substance satisfactory to IBM Credit in its sole discretion.
The failure by any of the Credit Parties to comply with any of the above
covenants or the failure of any of the above requirements to be satisfied
(within the above time frames) in IBM Credit's determination in its sole
discretion shall constitute a n immediate Event of Default under the Agreement.
Section 7. Rights and Remedies. Except to the extent specifically waived herein
IBM Credit reserves any and all rights and remedies that IBM Credit now has or
may have in the future with respect to each Credit Party, including any and all
rights or remedies which it may have in the future as a result of each Credit
Parties' failure to comply with its financial covenants or any other covenants
to IBM Credit. Except to the extent specifically waived herein neither this
Amendment, any of IBM Credit's actions or IBM Credit's failure to act shall be
deemed to be a waiver of any such rights or remedies. The Loan Parties
Page 10 of 11
and IBM Credit agree that failure to comply with the terms and provisions of
this Amendment or the Agreement constitute a new default under the Agreement.
Section 8. Governing Law. This Amendment shall be governed by and interpreted in
accordance with the laws which govern the Agreement.
Section 9. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
Section 10. Covenants. The parties have discussed the possibility of amending
certain financial covenants in light of the projections of the Credit Parties.
Nothing herein is a commitment to change the financial covenants.
Section 11. Representations. The Credit Parties and Pemstar Pacific Consultants
hereby represent that this Amendment is a legal, valid, binding obligation of
such parties and enforceable in accordance with its terms.
IN WITNESS WHEREOF, this Amendment has been executed by duly authorized
representatives of the undersigned as of the day and year first above written.
IBM Credit Corporation Pemstar, Inc.
By: /s/ ▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇ ▇▇▇▇▇▇▇
------------------------------ ------------------------------------
Print Name: ▇▇▇ ▇▇▇▇▇▇ Print Name: ▇▇ ▇▇▇▇▇▇▇
---------------------- ----------------------------
Title: Manager of Credit Title: CEO, Pemstar, Inc.
--------------------------- ---------------------------------
Date: 2/14/02 Date: Feb. 14, 2002
---------------------------- ----------------------------------
Turtle Mountain Corporation Pemstar Pacific Consultants, Inc.
By: /s/ ▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------ ------------------------------------
Print Name: ▇▇ ▇▇▇▇▇▇▇ Print Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------- ----------------------------
Title: Director Title: Director
--------------------------- ---------------------------------
Date: Feb. 14, 2002 Date: 2-14-02
---------------------------- ----------------------------------
Turtle Mountain Corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇
------------------------------
Print Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------
Title: Director
---------------------------
Date: Feb. 14/02
----------------------------
Page 11 of 11
ATTACHMENT A, ("ATTACHMENT A")
TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT ("AGREEMENT")
DATED JUNE 29, 2001
Customer Name: PEMSTAR INC., TURTLE MOUNTAIN CORPORATION, and PEMSTAR PACIFIC
Consultants, Inc. (together, the "Credit Parties")
Effective Date of this Attachment A: February 14, 2002
I. Fees, Rates and Repayment Terms:
(A) Credit Facility.
Revolving A: Eighty Million Dollar ($80,000,000) Revolving
Credit Facility
(B) Borrowing Base:
(i) 95% of the amount of each Credit Parts Eligible Accounts
from International Business Machines Corp. ("IBM") or its
domestic subsidiaries as account debtor pursuant to agreements
between such Credit Party and IBM inform and substance
satisfactory to IBM Credit as of the date of determination as
reflected in the Customer's most recent Collateral Management
Report;
(ii) 90% of the amount of each Credit Party's Eligible
Accounts from Honeywell Inc. ("Honeywell"), Minnesota Mining &
Manufacturing Company ("3M"), and Applied Materials, Inc.
("Applied Materials") as account debtor, provided such account
debtors remain investment grade, in IBM Credit's sole
discretion, and pursuant to agreements between such Credit
Party and such account debtor, in form and substance
satisfactory to IBM Credit as of the date of determination as
reflected in the Customer's most recent Collateral Management
Report;
(iii) 85% of TMC, Inc. (a North Dakota corporation) ("TMC")
Eligible Accounts, but in no event greater than the following
amounts for the following periods: (a) for the period from the
effective date of Attachment A until 30 days after the date
hereof, the Borrowing Base pursuant to this clause (iii) shall
not exceed $8,000,000, (b) for the period 31 days after the
effective date of this Attachment A to 60 days from the
effective date of this Attachment A, the Borrowing Base
pursuant to this clause (iii) shall not exceed $6,000,000 (c)
for the period from 61 days after the effective date of this
Attachment A to 90 days after the effective date of this
Attachment A, the Borrowing Base pursuant to this clause (iii)
shall not exceed $4,000,000 and any time thereafter $0 value
shall be given to TMC Eligible Accounts. Without limiting the
foregoing, IBM Credit will discuss with the Credit Parties the
relationship between the Credit Parties and TMC and discuss
possible structures, terms and conditions (if any) under which
IBM Credit would consider including the TMC Accounts as
Eligible Accounts. Nothing herein shall be deemed a commitment
to include the TMC Accounts without the foregoing limitations;
(iv) 85% of the amount of each Credit Party's other Eligible
Accounts, other than Concentration Accounts, as of the date of
determination as reflected in the Customer's most recent
Collateral Management Report provided, however, IBM Credit has
a first priority security interest in such Eligible Account
(v) a percentage, determined from time to time by IBM Credit
in its sole discretion, of the amount of Customer's
Concentration Accounts for a specific Concentration Account
Debtor as of the date of determination as reflected in the
Customer's most recent Collateral Management Report; unless
otherwise notified by IBM Credit, in writing, the percentage
for
Page 1 of 8
Concentration Accounts for a specific Concentration Account
Debtor shall be the same as the percentage set forth in
paragraph (iii) of the Borrowing Base;
(vi) 97% of the lower of (x) book value or (y) fair market
value of each Credit Party's Eligible Finished Goods Inventory
destined for IBM;
(vii) 83% of the lower of (x) book value or (y) fair market
value of each Credit Party's Eligible Parts Inventory destined
for IBM;
(viii) 73% of the lower of (x) book value or (y) fair market
value of each Credit Party's Eligible Inventory defined for
Honeywell, 3M, and Applied Materials;
(ix) 47% of the lower of (x) book value or (y) fair market
value of each Credit Party's other Eligible Inventory
provided, however, IBM Credit has a first priority security
interest in such Eligible Inventory.
Eligible Finished Goods Inventory shall mean finished goods
inventory in salable condition, owned by a Credit Party free
and clear of any Liens (other than Liens pursuant to this
Agreement), and designated and identified as product to be
sold to IBM as evidenced by (i) non-cancellable purchase
orders from IBM or (ii) a non-cancellable written agreement
that IBM will purchase such inventory, in each case, in form
and substance satisfactory to IBM Credit.
Eligible Parts Inventory shall mean parts inventory and floor
stock raw materials in good condition, owned by a Credit Party
free and clear of any Liens (other than Liens pursuant to this
Agreement), and designated and identified as parts to be used
to manufacture product (the Eligible Finished Goods Inventory)
to be sold to IBM as evidenced by (i) non-cancellable purchase
orders from IBM to such Credit Party or (ii) a non-cancellable
written agreement that IBM will purchase such inventory, in
each case, in form and substance satisfactory to IBM Credit.
Eligible Inventory shall mean raw materials, floor stock raw
materials and finished goods inventory owned by a Credit Party
free and clear of any Liens (other than Liens pursuant to this
Agreement) designated and identified by the Customer in its
periodic collateral, report or borrowing request to IBM Credit
as inventory applicable to product sold, or to be manufactured
and sold, by a Credit Party to an end user pursuant to
non-cancellable purchase orders or other written agreements
binding such end user to purchase such product, in each case,
in form and substance satisfactory to IBM Credit.
No value will be given to any Eligible Finished Goods,
Eligible Parts Inventory or Eligible Inventory to the extent
such Eligible Finished Goods, Eligible Parts Inventory or
Eligible Inventory are located at the Credit Parties' Tauton,
Massachusetts facility.
Notwithstanding the foregoing, assets of Pemstar Pacific
Consultants shall not be included for the purposes of
calculating the Borrowing Base. For purposes of calculating
the Borrowing Base, Pemstar Pacific Consultants shall not be
deemed a Credit Party.
(C) Collateral Insurance Amount: Eighty Million Dollars
($80,000,000).
(D) Applicable Margin:
The Applicable Margin for determining an A/R Advance shall be
based upon the previous fiscal quarter's Cash Flow Leverage
Ratio as of the relevant date of determination, as set forth
below.
Page 2 of 8
LIBOR Prime Rate
Cash Flow Leverage Ratio Margin Margin
------------------------ ------ ----------
Less than or equal to 1.5:1.0 1.75% 0.00%
Greater than 1.5:1.0 and less
than or equal to 2.5:1.0 2.25% 0.375%
Greater than 2.5:1.0 and less
than or equal to 3.5:1.0 2.75% 0.875%
Greater than 3.5:1.0 and less
than or equal to 4.50:1.0 3.00% 1.125%
Greater than 4.50:1.0 3.50% 1.625%
The date of determination shall be the first day of the
calendar month following the earlier of (i) receipt by IBM
Credit of the financial statements required by Section 7.1
showing a change in the Cash Flow Leverage Ratio, and (ii)
receipt and consent by IBM Credit of a notice from the
Customer requesting a change in the Applicable Margin based on
the Customer's Cash Flow Leverage Ratio. Each subsequent
change in the Applicable Margin shall be effective on the
first day of the calendar month following the earlier of (i)
receipt by IBM Credit of the financial statements required by
Section 7.1 showing a change in the Cash Flow Leverage Ratio
from the prior fiscal quarter, and (ii) receipt and consent by
IBM Credit of a notice requesting a change in the Applicable
Margin.
As of any date, the Cash Flow Leverage Ratio shall be the Cash
Flow Leverage Ratio as calculated in the quarterly financial
statements last received by IBM Credit pursuant to Section
7.1, provided that a change in the Applicable Margin shall not
be effective until the first day of the calendar month
following the receipt by IBM Credit of such financial
statements, and provided further that for any period during
which Customer fails to deliver the quarterly financial
statements as required under Section 7.1, the Cash Flow
Leverage Ratio shall be deemed to be greater than 4.50:1.0.
(E) Delinquency Fee Rate: Prime Rate plus 6.500%.
(F) Shortfall Transaction Fee: Shortfall Amount multiplied by
0.30%.
(G) Other Charges:
(i) Unused Line Fee: 0.375% per annum on the daily average
unused portion of the Credit Line for each day from the
closing date of the Agreement and shall be computed on the
basis of a 360 day year and payable monthly in arrears and
upon the maturity or termination of the Agreement.
(ii) Prepayment Fee: A prepayment premium, payable to IBM
Credit in the event that the Customer terminates the Credit
Line prior to the third year anniversary of the
closing date, in an amount equal to the amount of the Credit
Line in effect as of the date of notice of termination or date
of default, multiplied by one half of one percent (0.50%).
(iii) Waiver Fee: Two Hundred Forty Thousand Dollars
($240,000.00).
II. Bank Account
Credit Parties' Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name of Bank: U.S. Bank
Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Ms. ▇▇▇▇ Persons (▇▇▇) ▇▇▇-▇▇▇▇
Page 3 of 8
Lockbox Address: PEMSTAR INC
SDS-12-1905
▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account # 1-047-5581-5495
Lockbox # SDS-12-1905
Name of Bank: Citizens Bank of Massachusetts Inc.
Address: ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone:
Lockbox Address: PEMSTAR INC.
▇.▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account #: 1-047-5581-5495
Lockbox # SDS-12-1905
Name of Bank: U.S. Bank
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: Turtle Mountain Corporation
▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account #: N/A
Lockbox #
Name of Bank: U.S. Bank
Address: ▇▇▇ ▇▇▇ ▇▇▇. ▇.▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Ms. ▇▇▇▇ Persons (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: Pemstar Inc. (San ▇▇▇▇ location)
SDS81930
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Lockbox # SDS81930
III. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Attachment A. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
"Capital Expenditure" shall mean any amount debited to the fixed asset
account on the Customer's consolidated balance sheet in respect of: (a)
the acquisition (including, without limitation, acquisition by entry
into a capitalized lease), construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other
fixed assets or capitalized leaseholds; and (b) to the extent related
to and not included in (a) above, materials, contract labor and direct
labor (excluding expenditures charged to repairs or maintenance in
accordance with GAAP.
Page 4 of 8
"Consolidated Net Income" shall mean, for any period, the net income
(or loss), after taxes, of Customer on a consolidated basis for such
period determined in accordance with GAAP.
"Current" shall mean within the ongoing twelve month period.
"Current Assets" shall mean assets that are cash or expected to become
cash within the ongoing twelve months.
"Current Liabilities" shall mean payment obligations resulting from
past or current transactions that require settlement within the ongoing
twelve month period, as determined in accordance with GAAP.
"EBITDA" shall mean, for any period (determined on a consolidated basis
in accordance with GAAP), (a) the Consolidated Net Income of Customer
for such period, plus (b) each of the following to the extent reflected
as an expense in the determination of such Consolidated Net Income: (i)
the Customers provisions for taxes based on income for such period;
(ii) Interest Expense for such period; and (iii) depreciation and
amortization of tangible and intangible assets of Customer for such
period.
"Fixed Charges" shall mean, for any period, an amount equal to the sum,
without duplication, of the amounts for such as determined for the
Customer on a consolidated basis, of (i) scheduled repayments of
principal of all Indebtedness (as reduced by repayments thereon
previously made), (ii) Interest Expense, (iii) capital expenditures,
(iv) dividends, (v) leasehold improvement expenditures and (vi) all
provisions for U.S. and non U.S. Federal, state and local taxes.
"Fixed Charge Coverage Ratio" shall mean the ratio as of the last day
of any fiscal period of (i) EBITDA as of the last day of such fiscal
period to (ii) Fixed Charges.
"Interest Expense" shall mean, for any period, the aggregate
consolidated interest expense of Customer during such period in respect
of Indebtedness determined on a consolidated basis in accordance with
GAAP, including, without limitation, amortization of original issue
discount on any Indebtedness and of all fees payable in connection with
the incurrence of such Indebtedness (to the extent included in interest
expense), the interest portion of any deferred payment obligation and
the interest component of any capital lease obligations.
"Long Term" shall mean beyond the ongoing twelve month period.
"Long Term Assets" shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible
assets, investments, intangibles and other.
"Long Term Debt" shall mean payment obligations of indebtedness which
mature more than twelve months from the date of determination, or
mature within twelve months from such date but are renewable or
extendible at the option of the debtor to a date more than twelve
months from the date of determination.
"Net Profit after Tax" shall mean Revenue plus all other income, minus
all costs, including applicable taxes.
"Revenue" shall mean the monetary expression of the aggregate of
products or services transferred by an enterprise to its customers for
which said customers have paid or are obligated to pay, plus other
income as allowed.
"Subordinated Debt" shall mean Customer's indebtedness to third parties
as evidenced by an executed Notes Payable Subordination Agreement in
favor of IBM Credit.
"Tangible Net Worth" shall mean:
Page 5 of 8
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid
expenses, deferred charges, research and development
expenses, software development costs, leasehold
expenses, trademarks, trade names, copyrights,
patents, patent applications, privileges, franchises,
licenses and rights in any thereof, and other similar
intangibles (but not including contract rights) and
other current and non-current intangible assets as
identified in Customer's financial statements;
(b) all accounts receivable from employees, officers,
directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
"Total Assets" shall mean the total of Current Assets and Long Term
Assets.
"Total Liabilities" shall mean the Current Liabilities and Long Term
Debt less Subordinated Debt, resulting from past or current
transactions, that require settlement in the future.
"Total Net Worth" (the amount of owner's or stockholder's ownership in
an enterprise) is equal to Total Assets minus Total Liabilities.
"Working Capital" shall mean Current Assets minus Current Liabilities.
Customer will be required to maintain the following financial ratios,
percentages and amounts as of the last day of the fiscal period under review by
IBM Credit:
On a consolidated basis:
Covenant Covenant Requirement
-------- --------------------
(i) Net Profit after Tax to Revenue Equal to or Greater than 0.75 percent
quarterly and Equal to or Greater than
1.25% annually
(ii) Total Liabilities to Tangible Net Worth Greater than Zero and Equal to or Less than
2.50:1.0
(iii) Current Assets to Current Liabilities Greater than 1.50:1.0
(iv) Fixed Charge Coverage Ratio Equal to or Greater than 1.30:1.00
(v) Maximum Capital Expenditures Less than or equal to $32,000,000 for the
fiscal year ending March 2002
Less than or equal to $25,000,000 for the
fiscal year ending March 2003
Less than or equal to $25,000,000 for the
fiscal year ending March 2004
For U.S. Credit Parties operations only:
(i) Net Profit after Tax to Revenue Equal to or Greater than 0.1 percent
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the
Agreement:
Page 6 of 8
o Executed Contingent Blocked Account Amendment from Turtle
Mountain Corporation and Pemstar Pacific Consultants, Inc.;
o Executed amendments to contingent blocked account amendments
for Customer in Minneapolis, MN, Boston, Mass., and Los
Angeles, CA;
o A Certificate of Location of Collateral whereby the Credit
Parties certify where they presently keep or sell inventory,
equipment and other tangible Collateral; Subordination or
Intercreditor Agreements from all creditors having a lien
which is superior to IBM Credit in any assets that IBM Credit
relies on to satisfy the Obligations to IBM Credit with the
exception of a Subordination Agreement from the City of
Rochester, Minnesota;
o Listing of all creditors providing accounts receivable
financing to the Credit Parties;
o A Compliance Certificate as to Credit Parties's compliance
with the financial covenants set forth in Attachment A as of
the last fiscal month of Customer for which financial
statements have been published;
o Termination or release of Uniform Commercial Code filing by
another creditor as required by IBM Credit;
o Amended and restated Intercreditor Agreement among IBM Credit,
U.S. Bank individually and as Agent, in form and substance
satisfactory to IBM Credit.
V. Additional Conditions Subsequent:
o A favorable opinion of counsel of Customer, Pemstar Luxembourg
S.a.r.l, Pemstar Singapore Pte, Ltd, and Pemstar FSC, Inc.
Covering (i) the enforceability of the Pledge Agreement and
perfection of lien of the shares (and such other matters of as
IBM Credit may request) and (ii) the patent and security
agreement between IBM Credit and Pemstar Inc. in form and
substance satisfactory to IBM Credit and from counsel
satisfactory to IBM Credit in each case, in its sole
discretion.
o A favorable opinion of counsel of Pemstar Luxembourg S.a.r.l
and each of the other Foreign Subsidiaries of Pemstar Inc.
(whether direct or indirect). Such opinion shall include,
without limitation, an opinion that a pledge of one share less
than two-thirds of the voting stock of Pemstar Luxembourg
S.a.r.l would give IBM Credit control over each of the Foreign
Subsidiaries of the Customer (whether direct or indirect
subsidiaries) and in the case of an Event of Default, IBM
Credit would have the ability to replace the Board of
Directors of each of Pemstar Luxembourg S.a.r.l, Pemstar
Singapore Pte, Ltd, and each of the other Foreign Subsidiaries
of Pemstar Inc. (whether direct or indirect). Such opinions
shall be in form and substance satisfactory to IBM Credit and
from counsel, satisfactory to IBM Credit in each case, in its
sole discretion.
o A favorable opinion of counsel of Pemstar Luxembourg S.a.r.l,
Pemstar Singapore Pte, Ltd and each of the other Foreign
Subsidiaries of Pemstar Inc. (whether direct or indirect) that
(i) IBM Credit, upon an Event of Default would have the
ability to cause each of the Foreign Subsidiaries to declare
and pay dividends to its parent in an amount designated by IBM
Credit or make payments to Pemstar Luxembourg S.a.r.l, on
account of loans or other affiliate transactions, (ii) IBM
Credit would have the ability to sell or dissolve each of the
Foreign Subsidiaries and cause the proceeds from such sale or
dissolution to be distributed to Pemstar Luxembourg S.a.r.l or
IBM Credit, and (iii) there are no restrictions under law or
pursuant to any document that would restrict IBM Credit, upon
an Event of Default, from either (a) foreclosing on the stock
of Pemstar Luxembourg S.a.r.l and selling such Subsidiary and
causing the proceeds from such sale to be distributed to the
Customer or IBM Credit, or (b) causing Pemstar Luxembourg
S.a.r.l to declare and pay dividends to Pemstar, Inc. in such
amounts as designated by IBM Credit, and (iv) such other
matters as IBM Credit may request.
o Executed Subordination Agreement from the City of Dunseith,
North Dakota.
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[Intentionally Left Blank]
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