EXHIBIT 10.3
ACKNOWLEDGMENT, WAIVER AND AMENDMENT #6
TO
FINANCING AGREEMENT
This ACKNOWLEDGMENT, WAIVER AND AMENDMENT #6 ("Amendment") TO THE
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of June 28, 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") and Pemstar Pacific
Consultants Inc., duly organized under the laws of the State of California
("Pemstar Pacific Consultants") (Customer, Turtle Mountain and Pemstar Pacific
Consultants, collectively, the "Credit Parties", individually, a "Credit
Party"), 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 are in default (as more specifically
explained in Section 2 hereof);
WHEREAS, the Credit Parties are requesting that IBM Credit waive
certain defaults; 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 following defaults occurred:
Term Requirement Default
---- ----------- -------
(a) Unpaid Shortfall Amount As defined in Section Unpaid Shortfall of
2.5 of the Agreement $6,100,000 as of
June 12, 2002
(b) Monthly Financial Statements; as soon as available and in any Monthly Financial
event within twenty (20) days after Statements for April
the end of each fiscal month of 2002 were received late
Customer as required in Section
7.1 (C) of the Agreement
(c) Direct Lockbox Participation As required under Section 9.1 (U) Direct lockbox
of the Agreement participation totaled 52%
as of the June 14, 2002
on-site audit
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(d) Unsatisfactory Collateral audit as As required under Section 9.1 (D) of As evidenced by a
of June 14, 2002 the Agreement Collateral audit
performed by IBM Credit
of the Credit Parties as
of June 14, 2002
(e) Credit Parties not in good As required under Section 7.4 of the As evidenced by corporate
standing or qualified to do Agreement status checks performed
business by IBM Credit on the
Credit Parties as of
June 21, 2002
(f) Failure of Credit Parties to As required under Section 6. (a) of Not received by IBM
provide IBM Credit with an the Acknowledgment, Waiver #2 and Credit
executed lockbox agreement and Amendment to Financing Agreement
Contingent Blocked Account dated March 29, 2002 (as amended,
Amendment modified or supplemented)
Section 3. Waivers to Agreement. Subject to the terms and conditions set forth
herein including, without limitation, Section 5 hereof, 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 and for the periods indicated
above. The waiver shall not be effective until the conditions to effectiveness
set forth in Section 5 have been fulfilled to IBM Credit's satisfaction in its
sole discretion and shall not be deemed a waiver of compliance with these
Sections after the date hereof. The waiver set forth herein shall not apply to
any other or subsequent failures to comply with the Financing Agreement or this
Amendment.
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:
1. Section 1. (B) of Attachment A is amended in its entirety to read as
follows:
"(B) Borrowing Base:
(i) 90% 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;
Notwithstanding Section 3.1 (A) of the Agreement, for purposes of this Section
(i), Accounts from IBM that allow for payment to be made within 60 days shall be
included for purposes of calculating the Borrowing Base provided that such
Accounts from IBM are on standard terms and otherwise satisfy the criteria for
eligibility in IBM Credit's sole discretion.
(ii) 80% 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;
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Notwithstanding Section 3.1 (A) of the Agreement, for purposes of this Section
(ii), Accounts from Honeywell that allow for payment to be made within 45 days
shall be included for purposes of calculating the Borrowing Base provided that
such Accounts from Honeywell are on standard terms and otherwise satisfy the
criteria for eligibility in IBM Credit's sole discretion;
(iii) 80% 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;
(iv) 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 Concentration Accounts for a
specific Concentration Account Debtor shall be the same as the percentage set
forth in paragraph (ii) of the Borrowing Base;
The following subsections (v), (vi), (vii) and (viii) specify valuation rates
for Eligible Finished Goods Inventory, Eligible Parts Inventory and Eligible
Inventory (as such terms are defined below) for the following Credit Parties' at
the specified locations:
Pemstar Inc. = Rochester, MN
Pemstar Inc. = San Jose, CA
Pemstar Inc. = Taunton, MA
Turtle Mountain Corporation = Dunseith, ND
(v) Rochester, MN = 95%, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ = 0%, Dunseith,
ND = 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 less than 180 days
old;
(vi) Rochester, MN = 85%, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ = 0%,
Dunseith, ND = 83% of the lower of (x) book value or (y) fair market value of
each Credit Party's Eligible Parts Inventory destined for IBM less than 180 days
old;
(vii) Rochester, MN = 66%, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ = 0%,
Dunseith, ND = 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 less than 180 days old;
(viii) Rochester, MN (other than Eligible Finished Goods Inventory,
Eligible Parts Inventory and Eligible Inventory destined for Celestica) = 54%,
Rochester, MN (for Eligible Finished Goods Inventory, Eligible Parts Inventory
and Eligible Inventory destined for Celestica) = 49%, San Jose, CA = 46%,
Taunton, MA = 60%, Dunseith, ND = 49% of the lower of (x) book value or (y) fair
market value of each Credit Party's other Eligible Inventory aged less than 180
days old, 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 less than 180 days old, 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 less than 180 days old, 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
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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 less than 180 days old and 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.
Notwithstanding the foregoing, IBM Credit may consider Eligible Finished Goods
Inventory, Eligible Parts Inventory and/or Eligible Inventory in the Borrowing
Base greater than 180 days old provided that (i) a purchase order is in place
between the end-user and the Credit Party, in form and substance satisfactory to
IBM Credit or (ii) Credit Party provides evidence to IBM Credit, in form and
substance satisfactory to IBM Credit, that the end-user is paying all carrying
costs associated with such Eligible Finished Goods Inventory, Eligible Parts
Inventory and/or Eligible Inventory. Under no circumstances will Eligible
Inventory be considered in the Borrowing Base if older than 365 days.
IBM Credit will consider Eligible Finished Goods Inventory, Eligible Parts
Inventory and/or Eligible Inventory to be ineligible if the end-user customer
with respect to such Eligible Finished Goods Inventory, Eligible Parts Inventory
and/or Eligible Inventory becomes delinquent in its payments of accounts
receivable to the Credit Parties and such accounts receivable owing from such
account debtor are not eligible pursuant to the terms of Section 3.1 (C) of the
Agreement.
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."
2. Section I. (D) of Attachment A is amended in its entirety to read as follows:
"(D) Applicable Margin: Prime Rate Plus 3.50%."
3. Section III. Financial Covenants of Attachment A immediately after the
definitions is amended and restated as follows:
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
-------- --------------------
(a) Net Profit after Tax Equal to or Greater than (0.25) percent
to Revenue quarterly for the fiscal quarter ending
(Quarterly) September 30, 2002
Equal to or Greater than .75 percent
quarterly for the fiscal quarter ending
December 31, 2002
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Equal to or Greater than .25 percent
quarterly for the fiscal quarter ending
March 31, 2003
Equal to or grater than .75 percent
quarterly for the fiscal quarter ending
June 30, 2003 and at all times thereafter
(b) Net Profit After Tax Equal to or greater than (3.25) percent
to Revenue (on an annual quarterly for the fiscal quarter ending
basis) March 31, 2003 and 1.25 percent for all
fiscal year ends thereafter
(c) Total Liabilities to Greater than Zero and Equal to or Less
Tangible Net Worth than 1.6:1.0
(d) Current Assets to Greater than 2.0:1.0
Current Liabilities
(e) Fixed Charge Coverage Equal to or Greater than 1.00:1.0 for
Ratio each fiscal month beginning December 31,
2002, including the fiscal months ending
January 31, 2003 and February 28, 2003,
and 1.30:1.0 for each fiscal month
beginning March 31, 2003 and for all
fiscal months thereafter
(f) Maximum Capital Less than or equal to $18,000,000 for
Expenditures the fiscal year ending March 31, 2003
and all fiscal quarters thereafter
provided, however, no Credit Party may
make any Capital Expenditure in excess
of $1,000,000 without the prior written
consent of IBM Credit.
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(g) Net Profit After Equal to or greater than 1.5 percent for
Tax to Revenue the fiscal quarter ending December 31,
(U.S. Credit Parties 2002 and all fiscal quarters thereafter
operations only)
(h) EBITDA Equal to or Greater than ($19,000,000)
(U.S. Credit Parties for six months ending June 30, 2002 and
operations only) $5,500,000 for all fiscal quarters
thereafter
(i) EBITDA Equal to or Greater than ($23,000,000)
for six months ending June 30, 2002 and
$6,000,000 for all fiscal quarters
thereafter
3. Attachment C to the Agreement is hereby amended by deleting such Attachment C
in its entirety and substituting, in lieu thereof, the Attachment C attached
hereto. Such new Attachment C shall be effective as of the date specified in the
new Attachment A.
4. The following new definitions are added to the Agreement in their correct
alphabetical order:
""ENI": shall mean Efficient Networks, Inc."
""ENI Payment": shall mean the $10,400,000 aggregate payment made by ENI in
respect of inventory returned by the Customer."
""Maximum Permitted Shortfall Amount": (i) For the period from June 27, 2002
until July 2, 2002, at the time of determination any Shortfall Amount equal to
$6,100,000 and (ii) on and after July 2, 2002, the Maximum Permitted Shortfall
Amount shall be $0."
5. The definition of "Termination Date" in the Agreement is amended in its
entirety to read as follows:
""Termination Date": shall mean September 30, 2003 or such other date as IBM
Credit and Customer may agree from time to time in writing."
6. The following new Sections 9.1(Y) and (Z) are added as new Events of Default
under the Agreement:
"(Y) The Credit Parties failure to have a satisfactory collateral control audit
(in IBM Credit's determination);" and
"(Z) The failure of IBM Credit to receive directly from ENI the first
installment of the ENI Payment in an amount not less than $6,900,000 by July 2,
2002 in immediately available funds."
Section 5. Conditions to Effectiveness of Waiver . The waiver set forth in
Section 3 hereof shall become effective only upon the fulfillment of all of the
following conditions precedent, to the satisfaction of IBM Credit in its sole
discretion:
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(i) this Amendment shall have been executed by each of the parties hereto and
IBM Credit shall have received a fully executed copy of this Amendment by no
later than June 28, 2002;
(ii) IBM Credit shall have received evidence satisfactory to it in its sole
discretion that U.S. Bank shall have waived (in writing) all defaults under its
financing facility with the Credit Parties and amended its financial covenants
by no later than June 28 2002 and such waiver and amendment shall be in form and
substance satisfactory to IBM Credit;
(iii) the Special Accounts shall have been blocked in favor of IBM Credit;
(iv) the Credit Parties shall pay to IBM Credit a waiver fee, in immediately
available funds, equal to One Hundred Fifty Thousand Dollars ($150,000.00) on or
prior to June 28, 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;
(v) before and after giving effect to this Amendment, the representations and
warranties in Section 6 of the Agreement shall be true and correct as though
made on the date hereof. The execution by the Credit Parties of this Amendment
shall be deemed a representation that the Credit Parties have complied with the
foregoing condition; and
(vi) the Credit Parties acknowledging (as indicated by their signature hereby)
that the execution and delivery of this Amendment do not require the consent of
the holders of the Subordinated Debt (2002) under the terms of the Subordinated
Debt (2002) and that the execution and delivery of these documents will not
trigger an event of default, default or Triggering Event (as defined in the
Subordinated Convertible Notes) under the terms of the Subordinated Debt (2002)
and after giving effect to this Amendment, no Default and no Event of Default
shall have occurred and be continuing under the Agreement. The execution by the
Credit Parties shall be deemed a representation that the Credit Parties have
complied with the foregoing conditions.
Section 6. Additional Requirements. The Agreement is hereby amended by inserting
the following additional covenants:
Additional Covenants.
(a) On or before July 5, 2002 the Credit Parties shall distribute a plan to IBM
Credit, which shall set forth a plan for improving the direct lockbox
participation to at least 85% and such plan shall be in form and substance
satisfactory to IBM Credit in its sole discretion.
(b) On or before July 5, 2002 the Credit Parties shall distribute a plan to IBM
Credit which shall set forth a plan for ensuring (i) that the IBM Credit
Collateral (as defined in the Intercreditor Agreement dated June 29, 2001, with
U.S. Bank, as amended, modified and supplemented) does no go to any U.S. Bank
lockbox or special account and (ii) that the Collateral of IBM Credit is not
commingled with U.S. Bank's collateral and such plan shall be in form and
substance satisfactory to IBM Credit.
(c) On or prior to September 30, 2002 IBM Credit shall have received an
appraisal for the Inventory conducted by an appraiser satisfactory to IBM Credit
(at the expense of the Customer) and such appraisal shall be in form and
substance satisfactory to IBM Credit.
(d) Commencing for the weekly period ending June 28, 2002 and each weekly period
thereafter, the Credit Parties shall on each Tuesday deliver a Collateral
Management Report (in form and substance satisfactory to IBM Credit) for the
immediately preceding weekly period ending on Friday.
(e) The Credit Parties shall maintain a financing facility with U.S. Bank, or
such other bank or financial institution acceptable to IBM Credit, in an amount
of not less than $15,000,000.00.
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(f) The Credit Parties shall immediately pay any Shortfall Amount in excess of
the Maximum Permitted Shortfall Amount.
(g) Simultaneously with any request for an Advance, the Customer shall deliver
to IBM Credit a Collateral Management Report (and a sources and uses of funds
schedule) which shall be in form and substance satisfactory to IBM Credit in its
sole discretion.
(h) By no later than August 31, 2002 the Credit Parties shall maintain at all
times Direct Lockbox Participation equal to or greater than 85% in IBM Credit's
determination.
(i) By no later than June 28, 2002 the Credit parties shall maintain at all time
100% total lockbox participation in IBM Credit's determination.
(j) The Credit Parties shall deliver a monthly Collateral Management Report to
IBM Credit, in form and substance satisfactory to IBM Credit in its sole
discretion, within 10 Business Days after the close of each month.
(k) Turtle Mountain shall file its Annual Report for 2001 with the Secretary of
State of Minnesota and request for qualification to do business in Minnesota and
become in good standing in Minnesota by no later than July 15, 2002.
(l) The Credit Parties shall provide IBM Credit with an executed Lockbox
Agreement and Contingent Blocked Account Agreement from Customer's Chaska, MN
location, all in form and substance satisfactory to IBM Credit, on or prior to
July 2, 2002.
(m) The Credit Parties shall seek the prior written consent of IBM Credit for
any Capital Expenditure equal to or greater than One Million Dollars
($1,000,000).
(n) The Credit Parties will provide to IBM Credit, on or prior to July 15, 2002,
a copy of a non-binding preliminary term sheet from ▇▇▇▇▇▇ Brothers Inc., in
form and substance satisfactory to IBM Credit, that details the terms and
conditions of new unsecured subordinated debt or equity to be infused into
Customer in an amount not less than Five Million Dollars ($5,000,000);
(o) By no later than July 23, 2002, Customer will obtain and deliver to IBM
Credit the written consent and agreement of Bank of America, Leasing & Capital,
LLC ("B of A") pursuant to which B of A agrees to defer the payment obligations
due from Customer to B of A under that certain lease between B of A and Customer
dated August 12, 1999 ("B of A Lease") due Customer until Customer is in
financial covenant and collateral compliance with IBM Credit under the terms of
the Agreement, provided however this covenant shall not restrict Customer from
prepaying the obligations to B of A under the B of A Lease provided that no
Default or Event of Default exists at the time of such prepayment or would
result or occur from such prepayment.
(p) On or prior to July 31, 2002, the Credit Parties shall provide to IBM Credit
documentation (in form and substance satisfactory to IBM Credit in its sole
discretion) that assigns and grants IBM Credit a first priority perfected
security interest in all accounts receivable owed to Chiptronics Inc.
("Chiptronics AR") and the accounts in which such Chiptronics AR are deposited
in (such documentation shall include, without limitation, UCC-1 financing
statements). On or prior to July 31, 2002 Chiptronics Inc. shall instruct all
its account debtors to send their remittances directly to a lockbox. All
remittances in such lockbox shall be deposited in a special account of
Chiptronics Inc. that IBM Credit would have control over pursuant to a control
agreement in form and substance satisfactory to IBM Credit.
(q) The Credit Parties agree that the Credit Parties and IBM Credit will conduct
monthly financial and collateral reviews, beginning on July 25, 2002. At all
times thereafter, until further notice by IBM Credit,
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such monthly financial and collateral reviews will be conducted between the
Credit Parties and IBM Credit on or about the 25th day of each month.
(r) The Credit Parties agree that IBM Credit may conduct on-site monthly audits
of the Credit Parties's collateral beginning July 31, 2002 (in addition to any
full quarterly audits conducted by IBM Credit).
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 an 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 Credit Parties 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 11. Representations. The Credit Parties 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
------------------------------------- ----------------------------
Date: June 28, 2002 Date: June 28, 2002
-------------------------------------- -----------------------------
Turtle Mountain Corporation Pemstar Pacific Consultants, Inc.
By: /s/ ▇▇ ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇ By: /s/ ▇▇ ▇▇▇▇▇▇▇
---------------------------------------- -------------------------------
Print Name: ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ Print Name: ▇▇ ▇▇▇▇▇▇▇
-------------------------------- -----------------------
Title: CEO Secretary Title: CEO
------------------------------------- ----------------------------
Date: June 28, 2002 Date: June 28, 2002
-------------------------------------- -----------------------------
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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: June 28, 2002
I. Fees, Rates and Repayment Terms:
(A) Credit Facility:
Revolving A: Sixty-five Million Dollars ($65,000000) Revolving
Credit Facility
(B) Borrowing Base:
(i) 90% 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;
Notwithstanding Section 3.1 (A) of the Agreement, for purposes
of this Section (i), Accounts from IBM that allow for payment
to be made within 60 days shall be included for purposes of
calculating the Borrowing Base provided that such Accounts are
on standard terms and otherwise satisfy the criteria for
eligibility in IBM Credit's sole discretion.
(ii) 80% 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;
Notwithstanding Section 3.1 (A) of the Agreement, for purposes
of this Section (ii), Accounts from Honeywell that allow for
payment to be made within 45 days shall be included for
purposes of calculating the Borrowing Base provided that such
Accounts from Honeywell are on standard terms and otherwise
satisfy the criteria for eligibility in IBM Credit's sole
discretion.
(iii) 80% 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;
(iv) 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 Concentration Accounts for a specific Concentration
Account Debtor shall be the same as the percentage set forth
in paragraph (ii) of the Borrowing Base;
The following subsections (v), (vi), (vii) and (viii) specify
valuation rates for Eligible Finished Goods Inventory,
Eligible Parts Inventory and Eligible Inventory (as such terms
are defined below) for the following Credit Parties' at the
specified locations:
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Pemstar Inc. = Rochester, MN
Pemstar Inc. = San Jose, CA
Pemstar Inc. = Taunton, MA
Turtle Mountain Corporation = Dunseith, ND
(v) Rochester, MN = 95, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ = 0%,
Dunseith, ND = 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 less than 180 days old;
(vi) Rochester, MN = 85%, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ = 0%,
Dunseith, ND = 83% of the lower of (x) book value or (y) fair
market value of each Credit Party's Eligible Parts Inventory
destined for IBM less than 180 days old;
(vii) Rochester, MN = 66%, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ =
0%, Dunseith, ND = 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 less than
180 days old;
(viii) Rochester, MN (other than Eligible Finished Goods
Inventory, Eligible Parts Inventory and Eligible Inventory
destined for Celestica) = 54%, Rochester, MN (for Eligible
Finished Goods Inventory, Eligible Parts Inventory and
Eligible Inventory destined for Celestica) = 49%, San Jose, CA
= 46%, Taunton, MA = 60%, Dunseith, ND = 49% of the lower of
(x) book value or (y) fair market value of each Credit Party's
other Eligible Inventory less than 180 days old 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 less than 180 days old, 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 less than 180 days old,
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 less than 180 days old
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.
Notwithstanding the foregoing, IBM Credit may consider
Eligible Finished Goods Inventory, Eligible Parts Inventory
and/or Eligible Inventory in the Borrowing Base greater than
180 days old provided that (i) a purchase order is in place
between the end-user and the Credit Party_, in form and
substance satisfactory to IBM Credit or (ii) Credit Party
provides evidence to IBM Credit, in form and substance
satisfactory to IBM Credit, that the end-user is paying all
carrying costs associated with such Eligible Finished Goods,
Eligible Parts
Page 2 of 8
Inventory and/or Eligible Inventory. Under no circumstances
will Eligible Finished Goods, Eligible parts Inventory or
Eligible Inventory be considered in the Borrowing Base if
older than 365 days.
IBM Credit will consider Eligible Finished Goods Inventory,
Eligible Parts Inventory and/or Eligible Inventory to be
ineligible if the end-user customer with respect to such
Eligible Finished Goods Inventory, Eligible Parts Inventory
and/or Eligible Inventory becomes delinquent in its payments
of accounts receivable to the Credit Parties and such accounts
receivable owing from such account debtor are not eligible
pursuant to the terms of Section 3.1 (C) of the Agreement.
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: Seventy Million Dollars
($70,000,000).
(D) Applicable Margin: Prime Rate plus 3.50%.
(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 Termination 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 of one hundred and fifty thousand dollars
($150,000)
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 (▇▇▇) ▇▇▇-▇▇▇▇
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:
Page 3 of 8
Lockbox Address: PEMSTAR INC.
▇.▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account #: 110282378
Lockbox # 5788
Name of Bank: U.S. Bank
Address: US Bank Place
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: Turtle ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇-▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account #: 1047-5711-5977
Lockbox # SDS-12-2077
Name of Bank: U.S. Bank
Address: ▇▇▇ ▇▇▇ ▇▇▇. ▇.▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Ms. ▇▇▇▇ Persons (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: Pemstar Inc. (San ▇▇▇▇ location)
SDS51930
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Lockbox # SDS51930
Name of Bank: U.S. Bank
Address: US Bank Place
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Phone:
Lockbox Address: Pemstar Pacific Consultants Inc
▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account # 1-539-1000-7704
Lockbox # 51911
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 Customer's 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 unsecured indebtedness to
third parties as evidenced by an executed Notes Payable Subordination
Agreement in favor of IBM Credit including, without limitation, the
Subordinated Debt (2002).
Page 5 of 8
"Tangible Net Worth" shall mean:
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
-------- --------------------
(a) Net Profit after Tax Equal to or Greater than (.25)
to Revenue percent quarterly for the fiscal
(Quarterly) quarter ending September 30, 2002
Equal to or Greater than .75
percent quarterly for the fiscal
quarter ending December 31, 2002.
Equal to or Greater than .25 percent
quarterly for the fiscal quarter
ending March 31, 2003.
Equal to or Greater than .75 percent
quarterly for the fiscal
Page 6 of 8
quarter ending June 30, 2003 and all
fiscal quarters thereafter.
(b) Net Profit after Tax Equal to or Greater than (3.25)
to Revenue (Annual) percent for the fiscal year ending
March 31, 2003 and 1.25 percent for
all fiscal year ends thereafter
(c) Total Liabilities to Greater than Zero and
Tangible Net Worth Equal to or Less than 1.6:1.0
(d) Current Assets to Greater than 2.0:1.0
Current Liabilities
(e) Fixed Charge Coverage Equal to or Greater than 1.00:1.0
Ratio for each fiscal month beginning
December 31, 2002, including the
fiscal months ending January 31, 2003
and February 28, 2003, and 1.30:1.0
for each fiscal month beginning March
31, 2003 and for all fiscal months
thereafter
(f) Maximum Capital Less than or equal to $18,000,000
Expenditures for the fiscal year ending March 31,
2003 and all fiscal year ends
thereafter provided, however, no
Credit Party may make any Capital
Expenditure in excess of $1,000,000
without the prior written consent of
IBM Credit
(g) Net Profit After Equal to or greater than 1.5 percent
Tax to Revenue for the fiscal quarter ending
(U.S. Credit Parties December 31, 2002 and all fiscal
operations only) quarters thereafter
(h) EBITDA Equal to or Greater than
(U.S. Credit Parties ($19,000,000) for the six months
operations only)
Page 7 of 8
ending June 30, 2002 and $5,500,000
for all fiscal quarters thereafter
(i) EBITDA Equal to or Greater than
($23,000,000) for the six months
ending June 30, 2002 and $6,000,000
for all fiscal quarters thereafter
Page 8 of 8
ATTACHMENT C
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT ("AGREEMENT")
COMPLIANCE CERTIFICATE
TO: IBM CREDIT CORPORATION
______________________
______________________
The undersigned authorized officers of Pemstar Inc., Turtle Mountain
Corporation and Pemstar Pacific Consultants Inc. (the "Credit Parties"), hereby
certify on behalf of the Credit Parties, with respect to the Amended and
Restated Revolving Credit Agreement executed by and between the Credit Parties
and IBM Credit Corporation ("IBM Credit") on June 29, 2001, as amended from time
to time (the "Agreement"), that (A) each of the Credit Parties has been in
compliance for the period from ______________, 20__ to _________ ____, 20__ with
the financial covenants set forth in Attachment A to the Agreement, as
demonstrated below, and (B) no Default has occurred and is continuing as of the
date hereof, except, in either case, as set forth below. All capitalized terms
used herein and not otherwise defined shall have the meanings assigned to them
in the Agreement.
I. Financial Covenants:
On a consolidated basis:
Covenant Covenant Requirement
-------- --------------------
(a) Net Profit after Tax Equal to or Greater than (.25) percent
to Revenue quarterly for the fiscal quarter ending
(Quarterly) September 30, 2002
Equal to or Greater than .75 percent
quarterly for the fiscal quarter ending
December 31, 2002.
Equal to or Greater than .25 percent
quarterly for the fiscal quarter ending
March 31, 2003.
Equal to or Greater than .75 percent
quarterly for the fiscal quarter ending
June 30, 2003 and all fiscal quarters
thereafter.
(b) Net Profit after Tax Equal to or Greater than (3.25) percent
to Revenue (Annual) for the fiscal year ending March 31,
2003 and 1.25 percent for all fiscal
year ends thereafter
(c) Total Liabilities to Greater than Zero and
Tangible Net Worth Equal to or Less than 1.6:1.0
(d) Current Assets to Greater than 2.0:1.0
Current Liabilities
(e) Fixed Charge Coverage Equal to or Greater than 1.00:1.0
Ratio for each fiscal month beginning December
31, 2002, including the fiscal months
ending January 31, 2003 and February 28,
2003, and 1.30:1.0 for each fiscal month
beginning March 31, 2003 and for all
fiscal months thereafter
(f) Maximum Capital Less than or equal to $18,000,000
Expenditures for the fiscal year ending March 31, 2003
and all fiscal year ends thereafter
provided, however, no Credit Party may
make any Capital Expenditure inn excess
of $1,000,000 without the prior written
consent of IBM Credit.
(g) Net Profit After Equal to or greater
Tax to Revenue than 1.5 percent for the fiscal
(U.S. Credit Parties quarter ending December 31, 2002
Attachment C 1
operations only) and all fiscal quarters thereafter
(h) EBITDA Equal to or Greater than ($19,000,000)
(U.S. Credit Parties for the six months ending June 30, 2002
operations only) and $5,500,000 for all fiscal quarters
thereafter
(i) EBITDA Equal to or Greater than ($23,000,000)
for the six months ending June 30, 2002
and $6,000,000 for all fiscal quarters
thereafter
II. Calculation of Tangible Net Worth:
Total Assets MINUS Total Liabilities
LESS:
goodwill
organizational expenses
prepaid expenses
deferred charges, etc.
leasehold expenses
all other
callable/redeemable preferred stock
officer, employee, director, stockholder
and affiliate receivables
Total Tangible Net Worth
Attachment C 2
ATTACHMENT C
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (AGREEMENT")
(Continued)
III. Permitted Baskets:
In accordance with sections 7.16, 8.4, 8.5, 8.6 and 8.15 of the Agreement, the
following are Pemstar Inc.'s attainment of the affirmative and negative
covenants:
Agreement Reference Actual Aggregate Amount Permitted
------------------- ------ --------------------------
Guaranties to Pemstar Thailand in $2,500,000.00
connection with the Credit Facility
Section 7.16)
Guaranties to Foreign Subsidiaries
under operating leases
(Section 7.16) $14,000,000
Equity contributions in Unrestricted Investments and equity
Foreign Subsidiaries (other than Pemstar contributions do not exceed
Thailand) (Section 7.16) $22,000,000
Equity Contributions in Foreign
Subsidiaries (other than
Unrestricted Foreign Subsidiaries)
(Section 7.16) $1,500,000
Equity Contributions in Pemstar Thailand $3,600,000.00
Guaranties to suppliers of the Credit
Parties Subsidiaries (Section 8.4) Less than $1,000,000
Optional payments or prepayments,
redemption or repurchases of Indebtedness
(Section 8.5) $250,000
Loans, advances and payment of money to The aggregate amount of all loans
Unrestricted Foreign Subsidiaries and advances and other payment of
(Section 8.15) money by all the Credit Parties to
all Unrestricted Foreign
Subsidiaries:
From the date hereof through and
including March 31, 2002,
$51,000,000
From April 1, 2002 through and
including June 30, 2002
Attachment C 3
$39,000,000
From July 1, 2003 and thereafter
$32,000,000
Loans, advances and payment of
money to Foreign Subsidiaries
(excluding Unrestricted Foreign
Subsidiaries)
(Section 8.15) ($10,000,000)
(Negative Ten Million Dollars)
Capital Expenditures made by Less than or equal to $18,000,000
Credit Parties and Subsidiaries for the fiscal year ending March
(Section 8.6) 31, 2003 and all fiscal years
thereafter
Attached hereto are Financial Statements as of and for the end of the fiscal
_____________ ended on the applicable date, as required by Section 7.1 of the
Amended and Restated Revolving Credit Agreement.
Submitted by:
PEMSTAR INC.
By:
----------------------------------------
Print Name:
--------------------------------
Title:
-------------------------------------
TURTLE MOUNTAIN CORPORATION
By:
----------------------------------------
Print Name:
--------------------------------
Title:
-------------------------------------
PEMSTAR PACIFIC CONSULTANTS INC.
By:
----------------------------------------
Print Name:
--------------------------------
Title:
-------------------------------------
Attachment C 4
