Exhibit 10.1
ACKNOWLEDGMENT, WAIVER AND AMENDMENT #7
TO
FINANCING AGREEMENT
This ACKNOWLEDGMENT, WAIVER AND AMENDMENT #7 ("Amendment") TO THE
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of August 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") 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 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) Failure of Customer to secure the As required under Section Prior written consent of IBM
prior written consent of IBM Credit 8.22. of the Agreement Credit neither sought nor
to amend, modify or supplement the received
Subordinated Debt Documents or any of by Customer
the terms and conditions of the
Subordinated Debt (2002)
(b) Failure of Credit Parties to provide As required under Section 6. Not received by IBM Credit.
IBM Credit with documentation (p) of the Acknowledgment,
assigning and granting a security Waiver #6 and Amendment to
interest in Chiptronics AR and the Financing Agreement dated
accounts in which such Chiptronics AR June 28, 2002~
are deposited on or prior to July 31,
2002
(c) Credit Parties failed to wire to the As required under Section 3. Received late on August 14,
IBM Credit Account the proceeds of (a) (v) of the Amendment No. 2002
the second tranche of debt under the 5 to Amended and Restated
Thai Loan Agreement in the amount of Revolving Credit dated June
approximately $2,400,000 not later 27, 2002
than July 15, 2002
(d) Pemstar not in good standing or As required under Section 7.4 As evidenced by corporate
qualified to do business in of the Agreement status checks performed by
Massachusetts IBM Credit on the Credit
Parties as of July 31, 2002.
In good standing as of August
14, 2002
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 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 I of Attachment A is amended in its entirety to read as
follows:
"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:
Pemstar Inc. = Rochester, MN
Pemstar Inc. = San Jose, CA
Pemstar Inc. = Taunton, MA
Turtle Mountain Corporation = Dunseith, ND
(v) Rochester, MN = 90, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ = 0%,
Dunseith, ND = 95% 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 = 80%, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ = 0%,
Dunseith, ND = 78% 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 = 61%, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ =
0%, Dunseith, ND = 75% 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) = 49%, Rochester, MN (for Eligible
Finished Goods Inventory, Eligible Parts Inventory and
Eligible Inventory destined for Celestica) = 44%, San Jose, CA
= 41%, Taunton, MA = 55%, Dunseith, ND = 44% 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-cancelable purchase orders from IBM or (ii) a
non-cancelable 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-cancelable purchase orders from IBM to
such Credit Party or (ii) a non-cancelable 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-cancelable 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 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.
In addition, to the extent IBM Credit does not have first
priority security interest in any Eligible Accounts, Eligible
Finished Goods Inventory, Eligible Parts Inventory and
Eligible Inventory such item will not be included for purposes
of calculating the Borrowing Base.
(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 Sixty Five Thousand Dollars ($65,000).
2. Section II of Attachment A is amended in its entirety to read as
follows:
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: EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact: ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
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: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Bank Contact: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: PEMSTAR INC.
▇.▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account #: 1102182378
Lockbox # 5788
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: Turtle ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇-▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account #: 1047-5711-5977
Lockbox # SDS-12-2077
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact: ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: Pemstar Inc. (San ▇▇▇▇ location)
SDS51930
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account: 1-047-5581-57950
▇▇▇▇▇▇▇ # ▇▇▇▇▇▇▇▇
Name of Bank U.S. Bank
Bank Address EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇. - ▇▇▇▇▇▇
▇▇▇-▇▇-▇▇▇▇
▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇-▇▇▇▇
Special Account 1-047-5714-2476
▇▇▇▇▇▇▇ # ▇▇▇-▇▇-▇▇▇▇
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: Pemstar Pacific Consultants Inc
▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account # 1-539-1000-7704
Lockbox # 51911"
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:
(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 August 15, 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 by no later than August 15, 2002 and
such waiver shall be in form and substance satisfactory to IBM Credit;
(iii) the Credit Parties shall pay to IBM Credit a waiver fee, in immediately
available funds, equal to sixty five thousand dollars ($65,000) on or prior to
August 15, 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; and
(iv) 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.
Section 6. Additional Requirements. The Agreement is hereby amended by inserting
the following additional covenants:
Additional Covenants.
(a) On or prior to August 16, 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 August 16, 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. 98.5% of the funds
received in such special account shall be transferred on a daily basis to an
account of Turtle Mountain that is blocked in favor of IBM Credit pursuant to
documentation satisfactory to IBM Credit.
(b) On or prior to September 2, 2002, the Credit Parties shall provide to IBM
Credit documentation satisfactory to IBM Credit pursuant to which the Customer
shall pledge the remaining shares of Pemstar Luxembourg S.a.r.l. not currently
pledged to IBM Credit with stock certificates and stock powers (or equivalents
thereof) and such other documents as required by IBM Credit and the documents
executed and delivered in connection therewith shall be in form and substance
satisfactory to IBM Credit in its sole discretion. After giving effect to such
documentation, IBM Credit shall have a perfected first lien in one less than
two-thirds of the voting stock of Pemstar Luxembourg S.a.r.l. All actions
necessary or desirable (and all approvals (if any) necessary) to give IBM Credit
a perfected first lien in such stock of Pemstar Luxembourg S.a.r.l shall have
been taken to the satisfaction of IBM Credit in its sole discretion (including
all filings and registrations) prior to September 2, 2002. On or prior to
September 2, 2002, IBM Credit shall have received a favorable opinion of counsel
for Pemstar Luxembourg S.a.r.l. in form and credit substance satisfactory to IBM
and from counsel satisfactory to IBM Credit.
(c) Notwithstanding Section 6 (e) of Amendment No. 6, the Customer shall
maintain financing facilities with U.S. Bank or such other bank or financial
institution acceptable to IBM Credit, in an aggregate amount not less than
Twenty Five Million Dollars ($25,000,000) ("U.S. Bank Facility") . IBM Credit
understands that approximately Six Million Dollars ($6,000,000) of the U.S. Bank
Facility will be subject to reduction caused by monthly lease payments on
account of operating leases with U.S. Bank.
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 10. 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. The Customer's financing facility with U.S. Bank
is currently Twenty Five Million Dollars ($25,000,000).
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/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ for By: /s/ ▇▇ ▇▇▇▇▇▇▇
-------------------------------- -------------------------------------
Print Name: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Print Name: ▇▇ ▇▇▇▇▇▇▇
----------------------- ----------------------------
Title: Mgr. Commercial Financing
Credit, NA Title: Chief Executive Officer
---------------------------- ---------------------------------
Date: 8-14-02 Date:
---------------------------- ---------------------------------
Turtle Mountain Corporation Pemstar Pacific Consultants, Inc.
By: /s/ ▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇ ▇▇▇▇▇▇▇
-------------------------------- -------------------------------------
Print Name: ▇▇ ▇▇▇▇▇▇▇ Print Name: ▇▇ ▇▇▇▇▇▇▇
----------------------- ----------------------------
Title: Director Title: Director
---------------------------- ---------------------------------
Date: Date:
---------------------------- ---------------------------------
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Print Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------
Title: President
----------------------------
Date:
----------------------------
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: August 14, 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:
Pemstar Inc. = Rochester, MN
Pemstar Inc. = San Jose, CA
Pemstar Inc. = Taunton, MA
Turtle Mountain Corporation = Dunseith, ND
(v) Rochester, MN = 90, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ = 0%,
Dunseith, ND = 95% 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 = 80%, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ = 0%,
Dunseith, ND = 78% 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 = 61%, ▇▇▇ ▇▇▇▇, ▇▇ ▇ ▇%, ▇▇▇▇▇▇▇, ▇▇ =
0%, Dunseith, ND = 75% 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) = 49%, Rochester, MN (for Eligible
Finished Goods Inventory, Eligible Parts Inventory and
Eligible Inventory destined for Celestica) = 44%, San Jose, CA
= 41%, Taunton, MA = 55%, Dunseith, ND = 44% 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-cancelable purchase orders from IBM or (ii) a
non-cancelable 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-cancelable purchase orders from IBM to
such Credit Party or (ii) a non-cancelable 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-cancelable 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
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.
In addition, to the extent IBM Credit does not have first
priority security interest in any Eligible Accounts, Eligible
Finished Goods Inventory, Eligible Parts Inventory and
Eligible Inventory such item will not be included for purposes
of calculating the Borrowing Base.
(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 Sixty Five Thousand Dollars ($65,000)
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: EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact: ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
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: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Bank Contact: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: PEMSTAR INC.
▇.▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account #: 1102182378
Lockbox # 5788
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: Turtle ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇-▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account #: 1047-5711-5977
Lockbox # SDS-12-2077
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact: ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox Address: Pemstar Inc. (San ▇▇▇▇ location)
SDS51930
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Special Account: 1-047-5581-57950
▇▇▇▇▇▇▇ # ▇▇▇▇▇▇▇▇
Name of Bank U.S. Bank
Bank Address EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
Lockbox ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇. - ▇▇▇▇▇▇
▇▇▇-▇▇-▇▇▇▇
▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇-▇▇▇▇
Special Account 1-047-5714-2476
▇▇▇▇▇▇▇ # ▇▇▇-▇▇-▇▇▇▇
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Bank Contact: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
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.
"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).
"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) percent quarterly for the
to Revenue (Quarterly) fiscal 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
quarter ending June 30, 2003 and all fiscal quarters thereafter.
(b) Net Profit after Tax Equal to or Greater than (3.25) percent for the fiscal
to Revenue (Annual) year ending 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 than 1.6:1.0
Tangible Net Worth
(d) Current Assets to Current Greater than 2.0:1.0
Liabilities
(e) Fixed Charge Coverage Ratio Equal to or Greater than 1.00:1.0 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 for the fiscal year ending
Expenditures 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 for the fiscal
Tax to Revenue quarter ending December 31, 2002 and all fiscal quarters thereafter
(U.S. Credit Parties
operations only)
(h) EBITDA Equal to or Greater than ($19,000,000) for the six months ending
(U.S. Credit Parties June 30, 2002 and $5,500,000 for all fiscal quarters thereafter.
operations only)
(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
