<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL MANUFACTURING SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3672 77-0393609
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2071 CONCOURSE DRIVE
SAN JOSE, CALIFORNIA 95131
(408) 953-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT G. BEHLMAN
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD OF DIRECTORS
INTERNATIONAL MANUFACTURING SERVICES, INC.
2071 CONCOURSE DRIVE
SAN JOSE, CALIFORNIA 95131
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
JEFFREY D. SAPER, ESQ. HORACE L. NASH, ESQ.
HERBERT P. FOCKLER, ESQ. RICHARD G. COSTELLO, ESQ.
ROBERT G. DAY, ESQ. SHELLI M. CHING, ESQ.
CAINE T. MOSS, ESQ. HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN,
WILSON SONSINI GOODRICH & ROSATI A PROFESSIONAL CORPORATION
PROFESSIONAL CORPORATION THREE EMBARCADERO CENTER
650 PAGE MILL ROAD SEVENTH FLOOR
PALO ALTO, CALIFORNIA 94304 SAN FRANCISCO, CA 94111
(650) 493-9300 (415) 434-1600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Class A Common Stock, $0.001 par value
per share............................. 5,750,000 $12.00 $69,000,000 $20,910
============================================================================================================
</TABLE>
(1) Includes 750,000 shares of Class A Common Stock which the Underwriters have
the option to purchase to cover over-allotments.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 28, 1997
5,000,000 SHARES
LOGO
CLASS A COMMON STOCK
------------------------
All of the 5,000,000 Shares of Class A Common Stock offered hereby are
being sold by International Manufacturing Services, Inc. (the "Company"). Prior
to this offering (the "Offering"), there has been no public market for the Class
A Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $10.00 and $12.00 per share. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price. The Company has applied to have its Class A Common Stock
approved for quotation on the Nasdaq National Market under the symbol "IMSX."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................. $ $ $
Total(3)................... $ $ $
============================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 750,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Class A Common Stock are offered by the several Underwriters
named herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the certificates representing such shares will be made against payment therefor
at the office of Montgomery Securities on or about , 1997.
------------------------
MONTGOMERY SECURITIES
ALEX. BROWN & SONS
INCORPORATED
UBS SECURITIES
, 1997
<PAGE> 3
[ARTWORK]
------------------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent accountants and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
------------------------
This Prospectus includes trademarks and trade names of the Company and
other entities.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CLASS A
COMMON STOCK, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including "Risk Factors," and
the Consolidated Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus. The discussion in this Prospectus contains forward-looking
statements. Future events anticipated in the forward-looking statements
contained in this Prospectus are uncertain. Actual events, and the Company's
actual results, may differ materially from those predicted, assumed or discussed
in such forward-looking statements. Factors that may cause or contribute to such
differences include those discussed in "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
as well as those discussed elsewhere in this Prospectus. The cautionary
statements made in this Prospectus should be read as being applicable to all
related forward-looking statements, wherever they appear in this Prospectus.
THE COMPANY
International Manufacturing Services, Inc. (together with its subsidiaries,
the "Company") provides a broad range of advanced, integrated electronics
manufacturing services ("EMS") to electronics original equipment manufacturers
("OEMs") primarily in the computer peripherals, data communications and
telecommunications markets. The Company's services include product design,
prototyping, printed circuit board ("PCB") assembly, final system assembly,
materials procurement, inventory management, testing, packaging, distribution
and depot repair. The Company combines its manufacturing experience and
operational infrastructure in Asia with its design, prototype and manufacturing
capabilities in the United States to provide cost-effective, flexible EMS
solutions to its customers. The Company maintains its materials procurement
operations in Hong Kong to be near low cost suppliers and conducts volume
manufacturing operations in Thailand and China to access low cost labor, reduce
overhead and take advantage of certain local tax benefits.
According to Technology Forecasters, the worldwide market for electronics
manufacturing services was $59 billion in 1996 and is expected to grow, at an
annual rate of approximately 25% through the year 2001, to $178 billion. As OEMs
have become aware of the long-term advantages of outsourcing, EMS providers have
expanded the range of services offered and have become increasingly integral to
OEMs' overall enterprise strategies. Today, OEMs rely upon EMS providers'
advanced manufacturing capabilities and related services to obtain a number of
benefits, including: lower product cost; shorter new product introduction
cycles; more rapid time to market and time to volume production; reduced working
capital and capital expenditures; and more flexible response to design changes
and fluctuations in the availability of materials. Outsourcing also allows OEMs
to focus resources on their core competencies, such as research and development
and sales and marketing.
A key component of the Company's strategy is to leverage its presence in
low cost regions of Asia and its expertise in materials procurement and
manufacturing to provide technologically advanced, flexible and cost-effective
EMS solutions to OEMs' increasingly complex needs. In addition, the Company
intends to diversify its revenue base by establishing strategic relationships
with major and emerging OEMs in rapidly growing industry sectors, such as data
communications and telecommunications, while expanding the range of
manufacturing services it provides to its existing customer base. Further, by
participating in the early stages of product design and leveraging its volume
materials procurement capabilities, the Company seeks to increase manufacturing
efficiency and accelerate its customers' time to market and time to volume
production.
The Company's electronics assembly and manufacturing services range from
PCB and backplane assembly to subsystem and complete product assembly. The
majority of these products include complex, high density surface-mount
assemblies. PCB assembly activity primarily consists of the placement and
attachment of electronic and mechanical components on printed circuit boards
using both surface-mount and pin-through-hole technologies. The Company has
recently added press-fit technology to its existing capabilities for the
manufacturing of backplane assemblies. The Company also performs final assembly
of customer products ("box-build") as well as a range of testing, logistics,
distribution and depot repair services. The Company's major customers include
Maxtor Corporation ("Maxtor"), Bay Networks, Inc., Asante Technologies, Inc.,
3
<PAGE> 5
Polaroid Corporation and Symbios Logic, Inc. The Company has also recently
initiated significant customer relationships with Advanced Fibre Communications
and Polycom, Inc.
The Company's Hong Kong operations, which commenced business in 1983, were
acquired in 1990 by Maxtor, a manufacturer of hard disk drives, along with other
manufacturing operations and assets. International Manufacturing Services, Inc.
was formed in November 1994 as a wholly-owned subsidiary of Maxtor. In June
1996, the Company was recapitalized as an independent company. In this regard,
the Company redeemed approximately 76.5% of Maxtor's share ownership with a
combination of $25.0 million cash, $20.0 million principal amount senior
subordinated notes (including $4.3 million rolled over from a previously
outstanding note payable) and a warrant for 300,000 shares of Class A Common
Stock. The Company raised the cash portion of the redemption price by issuing a
combination of common stock, preferred stock and $12.5 million principal amount
junior subordinated notes to a group of investors. These redemption and
financing transactions are collectively referred to in this prospectus as the
"Recapitalization." See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions" and "Description of
Capital Stock."
The Company's executive offices are located at 2071 Concourse Drive, San
Jose, CA 95131, and its telephone number is (408) 953-1000.
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered....................... 5,000,000 shares
Common Stock to be outstanding after the
Offering......................................... 18,327,500 shares(1)
Use of proceeds.................................... For repayment of related party
indebtedness and bank borrowings,
capital expenditures and general
corporate purposes, including working
capital
Proposed Nasdaq National Market Symbol............. IMSX
</TABLE>
- ---------------
(1) Based on 10,818,075 shares of Class A Common Stock and 2,509,425 shares of
Class B Common Stock as of July 31, 1997, assuming conversion of all
outstanding shares of preferred stock into Common Stock as a result of this
Offering. Excludes (i) 2,895,000 shares issuable upon exercise of
outstanding options as of July 31, 1997 granted under the Company's 1996
Stock Option Plan, (ii) 420,000 shares reserved for future issuance as of
July 31, 1997 under the Company's 1996 Stock Option Plan, (iii) 250,000
shares reserved for future issuance under the Company's 1997 Employee Stock
Purchase Plan and 1997 Non-U.S. Employee Stock Purchase Plan, (iv) 1,750,000
shares reserved for future issuance under the Company's 1997 Stock Plan (of
which options to purchase 967,500 shares are intended to be granted
contingent upon this Offering), and (v) 225,000 shares reserved for future
issuance under the Company's 1997 Director Option Plan (of which options to
purchase 70,000 shares will be automatically granted contingent upon this
Offering). See "Management -- Compensation Plans" and Note 14 of Notes to
Consolidated Financial Statements.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1) THREE MONTHS ENDED
--------------------------------------------------------- ---------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31, APRIL 30, JULY 31, JULY 31,
1993(2) 1994 1995 1996 1997(3) 1996(3) 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ -- $ 254 $ 3,089 $ 68,361 $ 80,546 $21,139 $34,500
Revenues from affiliates(4)......... 42,425 42,093 36,284 340,487 89,149 26,276 30,236
Total revenues.................... 42,425 42,347 39,373 408,848 169,695 47,415 64,736
Gross profit........................ 7,123 6,553 5,578 13,374 14,667 1,052 6,339
Income (loss) from operations....... 4,359 3,973 2,730 7,994 3,626 (3,652) 3,673
Net income (loss)................... 3,513 3,114 1,996 6,137 (599) (4,328) 2,081
Net income (loss) per share(5)...... $ (0.04) $ (0.27) $ 0.13
Shares used to compute net income
(loss) per share(5)............... 16,108 16,108 16,108
SUPPLEMENTAL DATA:
Supplemental net income (loss) per
share(6).......................... $ 0.06 $ (0.23) $ 0.14
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
------------------------
ACTUAL AS ADJUSTED(7)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 1,813 $ 24,463
Working capital................................................................ 5,827 35,977
Total assets................................................................... 70,809 93,459
Current-portion of long-term debt and bank borrowings.......................... 7,580 80
Long-term debt................................................................. 12,635 12,635
Long-term debt due Maxtor...................................................... 20,000 --
Total stockholders' equity (deficit)........................................... (8,536) 41,614
</TABLE>
- ---------------
(1) Prior to fiscal 1997, the Company's fiscal year ended on the Saturday
nearest to March 31. Commencing with fiscal 1997, the Company's fiscal year
ends on the Saturday nearest to April 30.
(2) The consolidated statement of operations data for the fiscal year ended
March 31, 1993 are derived from unaudited consolidated financial statements.
(3) In the three months ended July 31, 1996, a $2.0 million inventory charge was
taken for a customer's cancellation of orders. Portions of this reserve were
subsequently reversed in the three months ended January 31, 1997 and April
30, 1997, because the customer purchased some of the inventory in question.
In the three months ended July 31, 1996 and in fiscal 1997, the Company also
recorded a restructuring charge of $3.0 million associated with the
relocation of its Hong Kong manufacturing operations to China.
(4) Sales to Maxtor were made on a consignment basis for years prior to fiscal
1996, on a turnkey basis for fiscal 1996, and on a partial turnkey basis for
fiscal 1997 and the three months ended July 31, 1997.
(5) For an explanation of the determination of net income (loss) per share and
per share calculations, see Note 1 of Notes to Consolidated Financial
Statements.
(6) Represents earnings per share as if long-term debt due to Maxtor and bank
borrowings had been retired at the beginning of the period or the date of
issuance of the debt, if later, and assumes that an equivalent amount was
financed through the sale of equity securities at the assumed price of this
Offering (less underwriting discount and offering expenses).
(7) Adjusted to reflect the sale by the Company of 5,000,000 shares of Class A
Common Stock offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
As used in this Prospectus, the "Company" refers to International
Manufacturing Services, Inc. and its consolidated subsidiaries, unless context
otherwise indicates. Except as otherwise indicated, the information contained in
this Prospectus reflects a three-for-two stock split of the Common Stock and
Preferred Stock to be effected in September 1997 and assumes (i) the conversion
of all outstanding shares of the Company's Series A Preferred Stock and Series B
Preferred Stock (the "Preferred Stock") into 3,490,575 shares of Class A Common
Stock and 2,509,425 shares of Class B Common Stock, respectively, which will
occur upon the consummation of this Offering, (ii) the Company will file an
amended and restated certificate of incorporation concurrently with the closing
of this Offering to eliminate the Company's currently existing series of
Preferred Stock and authorize undesignated preferred stock, and (iii) no
exercise of the Underwriters' over-allotment option. "Common Stock" as used
herein refers collectively and without distinction to the Company's Class A
Common Stock and Class B Common Stock. See "Capitalization," "Description of
Capital Stock," "Underwriting" and Note 14 of Notes to Consolidated Financial
Statements.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Class A Common Stock offered hereby. The discussion in this Prospectus
contains forward-looking statements. Future events anticipated in the
forward-looking statements contained in this Prospectus are uncertain. Actual
events, and the Company's actual results, may differ materially from those
predicted, assumed or discussed in such forward-looking statements. Factors that
may cause or contribute to such differences include, but are not limited to,
those discussed below and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." The cautionary statements
made in this Prospectus should be read as being applicable to all related
forward-looking statements, wherever they appear in this Prospectus.
SHORT PERIOD OF INDEPENDENT OPERATIONS; NO ASSURANCE OF FUTURE PROFITABILITY
The Company's Hong Kong operations, which commenced business in 1983, were
acquired in 1990 by Maxtor, a manufacturer of hard disk drives, along with other
manufacturing operations and assets. International Manufacturing Services, Inc.
was formed in November 1994 as a wholly-owned subsidiary of Maxtor. In June
1996, the Company was recapitalized as an independent company. Through December
1996, the Company was dependent upon Maxtor for certain financial and
administrative services. The Company has limited experience operating as an
independent entity, and there can be no assurance that it will be able to
operate effectively as an independent company. The Company only began
implementing independent financial and consolidated reporting systems and
procedures in June 1996. The Company believes that continued enhancements in
financial, management and operational information systems will be needed to
manage any expansion of the Company's operations. The failure to implement such
enhancements could have a material adverse effect upon the Company's business,
financial condition and operating results. See "Certain Transactions."
The Company's limited history of operations as an independent entity make
reliable predictions of future operating results difficult. In particular, the
Company's performance to date should not be considered indicative of future
results. There can be no assurance that any of the Company's business strategies
will be successful or that the Company will be able to sustain growth or
profitability on an annual or quarterly basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
VARIABILITY OF OPERATING RESULTS
The primary factors affecting the Company's annual and quarterly operating
results are: timing of customer orders; price competition; volume of orders
received relative to the Company's capacity; announcements, introductions and
market acceptance of a customer's new products; evolution in the life cycles of
customer products; timing of expenditures in anticipation of future customer
orders; effectiveness in managing manufacturing processes; changes in cost and
availability of labor and components; fluctuations in material costs; the mix of
material costs relative to labor and manufacturing overhead costs; and the mix
of revenues generated on a consignment versus turnkey basis (consignment
manufacturing tends to result in higher gross margins but lower revenues, and
turnkey manufacturing tends to result in lower gross margins but higher
revenues). Other factors affecting operating results include the Company's level
of experience in manufacturing a particular product, the degree of automation
used in the assembly process, the efficiencies achieved by the Company in
managing inventories and fixed assets, and customer product delivery
requirements. An adverse change in any one of these factors or a combination
thereof could have a material adverse effect on the Company's future business,
financial condition or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company has no long-term volume purchase commitments from any customer
other than Maxtor. From time to time, the Company may procure materials without
a customer purchase commitment. The Company must continually make other
significant decisions based on estimates of future conditions, including the
level of business that it will accept, production schedules, personnel needs and
other resource requirements. A variety of conditions, however, both specific to
particular customers and generally affecting the
6
<PAGE> 8
market segments served by the Company, may cause customers to cancel, reduce or
delay orders. The level and timing of a customer's orders may vary due to a
number of factors including product design changes, the customer's attempts to
balance its inventory, changes in the customer's manufacturing strategy,
acquisitions of or consolidations among customers, and variations in demand for
the customer's products. Most of the Company's customers typically do not commit
to firm delivery dates more than one quarter in advance. The Company's inability
to forecast the level of customer orders with certainty makes it difficult to
schedule production and maximize utilization of manufacturing capacity. In the
past, anticipated orders from several of the Company's customers have failed to
materialize or have been deferred in certain cases. On other occasions,
customers have required rapid increases in production which have placed a
significant burden on the Company's resources. Such customer order fluctuations
and deferrals have had a material adverse effect on the Company's results of
operations in the past, and there can be no assurance that the Company will not
experience such effects in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Backlog."
The Company's business has experienced and is expected to continue to
experience significant seasonality due, among other things, to the slowdown
during the summer months which historically has occurred in the electronics
industry. Typically, the Company's revenues are lowest during the first half of
a fiscal year and highest during the second half of the fiscal year, which ends
in April. In addition, the market segments served by the Company are subject to
economic cycles and have in the past experienced, and are likely in the future
to experience, recessionary periods. A recessionary period affecting the
industry segments served by the Company could have a material adverse effect on
the Company's results of operations. The Company occasionally experiences
constraints in production capacity around national holidays in Thailand and
China. Results of operations in any period should not be considered indicative
of the results to be expected for any future period, and fluctuations in
operating results may also result in variations in the price of the Class A
Common Stock. In future periods, the Company's total revenues or results of
operations may be below the expectations of public market analysts and
investors; in such event, the price of the Class A Common Stock would likely be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
CUSTOMER CONCENTRATION; DEPENDENCE ON CERTAIN INDUSTRIES
For fiscal 1996 and fiscal 1997, and for the three months ended July 31,
1997, Maxtor accounted for approximately 83.1%, 48.6% and 44.1% of total
revenues, respectively, and Bay Networks, Inc. ("Bay Networks") accounted for
approximately 1.6%, 31.3% and 42.1% of the Company's total revenues,
respectively. For fiscal 1996, Diamond Multimedia Systems, Inc. ("Diamond
Multimedia") accounted for approximately 12.8% of total revenues. The Company
expects to continue to depend upon a relatively small number of customers for a
significant percentage of its total revenues. There can be no assurance that the
Company's principal customers will continue to purchase services from the
Company at current levels, or at all. In the past, certain of the Company's
customers have significantly reduced or delayed the volume of manufacturing
services ordered from the Company. There can be no assurance that present or
future customers will not terminate their manufacturing arrangements with the
Company or significantly change, reduce or delay the manufacturing services
ordered from the Company. Significant reductions in sales to any of the
Company's principal customers, or the loss of any one or more major customers,
would have a material adverse effect on the Company's results of operations. The
Company has no long-term volume purchase commitments from any customers other
than Maxtor. The timely replacement of canceled, delayed or reduced contracts
with new business cannot be assured. These risks are accentuated because a
majority of the Company's sales are to customers in the electronics industry,
which is subject to rapid technological change and product obsolescence.
Accordingly, the Company is dependent upon the continued growth, viability and
financial stability of its customers, which are in turn substantially dependent
on the growth of the computer peripherals, data communications and
telecommunication markets. Any factors adversely affecting the electronics
industry in general, or any of the Company's major customers in particular,
could have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Customers, Sales and Marketing."
7
<PAGE> 9
MAXTOR CORPORATION -- BUSINESS RISKS; AFFILIATION
Maxtor is a wholly-owned subsidiary of Hyundai Electronics America and
historically has been the Company's largest customer. Maxtor develops,
manufactures and markets hard disk drive storage products for personal computer
systems. Maxtor's business depends in large part upon its ability to continue to
develop and market new disk drive products successfully. Any adverse
developments affecting Maxtor could adversely affect its demand for the
Company's services. Maxtor has experienced losses in each of the past five
fiscal years. During the first half of fiscal 1997, orders from Maxtor were
reduced significantly below what the Company expected, and the Company's
operating results were adversely affected. The loss of Maxtor's sales volume or
a significant portion thereof would have a material adverse effect on the
Company's business, financial condition and results of operations.
Maxtor is contractually entitled to one representative on the Company's
Board of Directors. Although Maxtor and the Company have separate managements
and boards of directors, Maxtor is a major customer of the Company, a major
shareholder, and an executive officer of Maxtor is a member of the Company's
board of directors. This creates the risk that the Company may give preference
to Maxtor over other customers in the allocation of components in short supply
or production capacity or in the pricing of manufacturing services. Concern over
such risks could affect the willingness of customers and potential customers of
the Company to conduct business with the Company. In an attempt to reduce
potential pricing and other conflicts, in June 1996, the Company and Maxtor
executed a three-year manufacturing and services agreement, the terms of which
the Company believes are no less favorable to the Company and no more favorable
to Maxtor than arrangements that either company could negotiate with others in
an arm's-length transaction. In addition, Maxtor has a second source supplier of
services provided by the Company. Conflicts of interest could arise, however,
notwithstanding such agreement or upon its termination or renegotiation. See
"Certain Transactions."
LIMITED AVAILABILITY OF MATERIALS
A significant portion of the Company's total revenues is derived from
turnkey manufacturing, in which the Company performs both materials procurement
and assembly services and bears the risk of materials price increases. Almost
all products manufactured by the Company require one or more materials that are
ordered from single or sole sources. Some of these materials are allocated by
such single or sole sources in response to supply shortages. In some cases,
supply shortages may substantially curtail the Company's production of all
assemblies using that component. Further, at various times there have been
industry wide shortages of electronic components, particularly DRAMs, memory
modules, logic devices, microprocessors, specialized capacitors, crystals, ASICs
and other integrated circuits. Materials shortages could result in manufacturing
and shipping delays or price increases, which could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Selected Quarterly Operating Results" and
"Business -- International Manufacturing Capability."
COMPETITION
The electronics assembly and manufacturing industry is intensely
competitive and includes numerous local, national and international companies, a
number of which have achieved substantial market share. The Company believes
that the primary competitive factors in its targeted markets are cost,
manufacturing technology, product quality, responsiveness and flexibility, the
range of services provided and the location of facilities. To be competitive,
the Company must provide technologically advanced manufacturing services, high
product quality levels, flexible production schedules and reliable delivery of
finished products on a timely and price competitive basis. Failure to satisfy
any of the foregoing requirements could materially and adversely affect the
Company's competitive position. The Company competes against numerous domestic
and foreign manufacturers, including Flextronics International Ltd., Jabil
Circuits, Inc., SCI Systems, Inc. ("SCI"), Solectron Corporation, Sanmina
Corporation as well as certain large Asian entities. The Company also faces
indirect competition from the manufacturing operations of its current and
prospective customers, which continually evaluate the merits of manufacturing
products internally rather than using the services of EMS providers. Many of the
Company's competitors have more geographically diversified international
operations, as well as substantially greater manufacturing, financial, volume
procurement, research and development, and
8
<PAGE> 10
marketing resources than the Company. In recent years, the EMS industry has
attracted new entrants, including large OEMs with excess manufacturing capacity,
and many existing participants have substantially expanded their manufacturing
capacity by expanding their facilities and adding new facilities through both
internal expansion and acquisitions. In the event of a decrease in overall
demand for EMS services, this increased capacity could result in substantial
pricing pressures, which could have a material adverse effect on the Company's
business, financial condition or operating results. See
"Business -- Competition."
FUTURE CAPITAL NEEDS
The Company believes that, in order to achieve its long-term expansion
objectives and maintain and enhance its competitive position, it will need
significant financial resources over the next several years for capital
expenditures including investments in management information systems, working
capital and debt service. The Company has added significant manufacturing
capacity and increased capital expenditures over the past year. It has relocated
its Hong Kong manufacturing facilities to China, expanded its facilities in
Thailand, established a manufacturing facility in San Jose and, through the
acquisition of Pentagon Systems, Inc. ("Pentagon Systems"), established a design
and prototype production operation in San Jose. The Company also continues to
invest in manufacturing equipment and management information systems. The
Company anticipates that its capital expenditures will continue to increase as
the Company expands its facilities in Asia, invests in necessary equipment to
continue new product production, and continues to invest in new technologies and
equipment to increase the performance and the cost efficiency of its
manufacturing operations. The Company also intends to use a portion of the net
proceeds of this Offering to repay $20.0 million principal amount senior
subordinated notes due Maxtor (the "Maxtor Notes") and all of its outstanding
bank borrowings, which was $7.5 million at July 31, 1997. Upon completion of
this Offering and the application of the estimated net proceeds therefrom, as of
July 31, 1997, the Company would have had approximately $36.0 million in working
capital, including approximately $24.5 million in cash and cash equivalents.
After this Offering, the Company will still have outstanding approximately $12.5
million aggregate principal amount of junior subordinated notes. Accordingly,
upon completion of this Offering, the Company will continue to have limited cash
resources and significant future obligations and expects that it will require
additional capital to support future growth, if any. The precise amount and
timing of the Company's future funding needs cannot be determined at this time
and will depend upon a number of factors, including the demand for the Company's
services and the Company's management of its working capital. The Company may
not be able to obtain additional financing on acceptable terms or at all. If the
Company is unable to obtain sufficient capital, it could be required to curtail
its capital expenditures and facilities expansion, which could materially
adversely affect the Company's business, financial condition and results of
operations. Moreover, the Company's need to raise additional capital through the
issuance of equity securities may result in additional dilution to earnings per
share. See "Use of Proceeds," "Capitalization," "Dilution" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISKS OF INTERNATIONAL OPERATIONS
Substantially all of the Company's manufacturing operations are located in
Thailand and China. The distance between Asia and the United States creates
logistical barriers, and the Company's success depends in part on its ability to
convince OEMs in the United States that the advantages of the Company's
Asia-based manufacturing facilities outweigh the inconvenience and uncertainty
of overseas manufacturing.
The Company may be affected by economic and political conditions in each of
the countries in which it operates and certain other risks of doing business
abroad, including import duties, changes to import and export regulations
(including quotas), possible restrictions on the transfer of funds, employee
turnover, labor or civil unrest, long payment cycles, greater difficulty in
collecting accounts receivable, the burdens and cost of compliance with a
variety of foreign laws, and, in certain parts of the world, political
instability. For example, the Company could be adversely affected if the current
policies encouraging foreign investments or foreign trade by Thailand and China
were to be abandoned. In addition, the attractiveness of the Company's services
9
<PAGE> 11
to its United States customers is affected by United States trade policies, such
as "most favored nation" status and trade preferences, which are reviewed
periodically by the United States government. In the past, United States
government officials have discussed the possible refusal of the United States to
extend China's "most favored nation" status. Changes in policies by the United
States or foreign governments could result in, for example, increased duties,
higher taxation, currency conversion limitations, hostility toward United
States-owned operations, limitations on imports or exports, or the expropriation
of private enterprises, any of which could have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company's operations and assets are subject to significant political,
economic, legal and other uncertainties in China and Thailand. Under its current
leadership, the Chinese government has been pursuing economic reform policies,
including the encouragement of foreign trade and investment and greater economic
decentralization. No assurance can be given, however, that the Chinese
government will continue to pursue such policies, that such policies will be
successful if pursued, or that such policies will not be significantly altered
from time to time. Moreover, despite progress in developing its legal system,
China does not have a comprehensive and highly developed system of laws,
particularly with respect to foreign investment activities and foreign trade.
Enforcement of existing and future laws and contracts is uncertain, and
implementation and interpretation thereof may be inconsistent. As the Chinese
legal system develops, the promulgation of new laws, changes to existing laws
and the preemption of local regulations by national laws may adversely affect
foreign operations in China. While Thailand has a longer history of promoting
foreign investments than China, Thailand has recently experienced economic
turmoil and a significant devaluation of the Thai currency. There can be no
assurance that this period of economic turmoil will not result in the reversal
of current policies encouraging foreign investment and trade, restrictions on
the transfer of funds overseas, employee turnover, labor unrest or other
domestic Thai economic problems that could adversely affect the Company. To
date, economic problems in Thailand have not had an adverse impact on the
Company's business, financial condition or results of operations, but there can
be no assurance that there will not be such an impact in the future.
RISK OF INCREASED TAXES
The Company has structured its global operations to take advantage of the
generally lower statutory income tax rates in Asian countries and certain tax
holidays in China and Thailand that have been extended to encourage foreign
investment. As part of this structure, the Company renders certain technical and
administrative services on behalf of its Asia subsidiaries in the United States.
If tax rates were to rise, if the Company's tax holidays were not renewed or if
tax authorities were to challenge successfully the adequacy of the amounts paid
to the Company for these services or generally the manner in which profits are
recognized and allocated among the Company and its subsidiaries, the Company's
taxes would increase and its business, financial condition, results of
operations or cash flow could be materially adversely affected. The Company
believes that profits from its operations in Asia are not sufficiently connected
to the United States to give rise to United States taxation, but there can be no
assurance that United States tax authorities will not challenge the Company's
position or, if such challenge is made, that the Company would prevail in any
such dispute. In certain circumstances, United States tax law requires a United
States parent corporation to recognize as current income profits earned by its
foreign subsidiaries. The Company believes that, except for certain passive
income which is not expected to be material in amount, these laws should not be
applicable to the subsidiaries' activities and income, but there can be no
assurance that United States tax authorities will not challenge the Company's
position or, if such challenge is made, that the Company would prevail in any
such dispute. If the Company's profits from its Asia operations become subject
to United States income taxes, the Company's taxes could increase, and its
results of operations and cash flow could be materially adversely affected. The
expansion by the Company of its operations in the United States may also
increase its effective tax rate. The current maximum United States federal
income tax rate is 35.0%; the Company currently expects its effective income tax
rate for fiscal 1998 to be 14.0%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations Provision
for Income Taxes."
10
<PAGE> 12
CURRENCY FLUCTUATIONS
While the Company transacts business predominately in United States
dollars, and substantially all of its revenues are collected in United States
dollars, a portion of the Company's costs are denominated in other currencies,
such as the Thai baht, the Hong Kong dollar and the Chinese renminbi. As a
result, changes in the relation of these and other currencies to the United
States dollar will affect the Company's costs of goods sold and operating
expenses and could result in exchange losses. To date, the recent economic
problems in Thailand, including the devaluation of the Thai baht, have not had
an adverse impact on the Company's business, financial condition or results of
operations, but there can be no assurance that there will not be such an impact
in the future. The impact of future exchange rate fluctuations on the Company's
results of operations cannot be accurately predicted. From time to time the
Company has engaged in, and may continue to engage in, exchange rate hedging
activities. There can be no assurance that any hedging techniques implemented by
the Company will be successful.
MANAGEMENT OF GROWTH AND EXPANDED OPERATIONS
During fiscal 1997 and through the three months ended July 31, 1997, the
Company experienced a period of rapid expansion through both internal growth and
acquisition. Expansion has caused, and is expected to continue to cause, strain
on the Company's infrastructure, including its managerial, technical, financial
and other resources. To manage further growth, the Company must continue to
enhance financial and operational controls, develop additional executive
officers and hire qualified personnel. Continued growth will also require
increased investments to add manufacturing capacity and to enhance management
information systems. The Company may experience certain inefficiencies as it
integrates new operations and manages geographically dispersed operations. There
can be no assurance that the Company will be able to manage its expansion
effectively, and a failure to do so could have a material adverse effect on the
Company's business, financial condition or results of operations.
New operations, whether foreign or domestic, can require significant
start-up costs and capital expenditures. In the event that the Company continues
to expand its domestic or international operations, there can be no assurance
the Company will be successful in generating revenue to recover start-up and
operating costs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Strategy" and
" -- International Manufacturing Capability."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success depends to a large extent upon the efforts
and abilities of key managerial and technical employees. The Company's business
will also depend upon its ability to continue to attract and retain qualified
employees. Although the Company has been successful in retaining key managerial
and technical employees to date, the loss of services of certain key employees,
in particular any of its three executive officers, could have a material adverse
effect on the Company. See "Management."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's business strategy includes the expansion of its business and
manufacturing capabilities, including through acquisitions. The Company
occasionally reviews various acquisition prospects, including companies or
manufacturing process technologies complementary to the Company's business.
Acquisitions involve numerous risks, including: difficulties in the assimilation
of the operations, products, personnel and cultures of the acquired companies;
the ability to manage geographically remote units effectively; the diversion of
management attention from other day-to-day business concerns; difficulties
entering markets in which the Company has limited or no direct experience; and
the potential loss of key employees of the acquired companies. In addition,
acquisitions may result in dilutive issuances of equity securities; incurrence
of additional debt; reduction of existing cash balances; amortization expenses
related to goodwill and other intangible assets; and other charges to operations
that may have a material adverse effect on the Company's financial condition or
results of operations. Moreover, there can be no assurance that any equity or
debt financings proposed in connection with any acquisition would be available
to the Company on acceptable
11
<PAGE> 13
terms, or at all, if suitable strategic acquisition opportunities were to arise.
Although the Company expects to analyze any opportunity before committing its
resources, there can be no assurance that any acquisition that is completed will
result in long-term benefits to the Company or that it will be able to manage
the resulting business effectively.
TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT
The markets in which the Company's customers compete are characterized by
rapid technological change, evolving industry standards and frequent product
introductions and enhancements. The Company is continually evaluating the
advantages and feasibility of new manufacturing processes. The Company believes
that its future success will depend upon its ability to deliver manufacturing
services which meet changing customer needs and to successfully anticipate or
respond to technological changes in manufacturing processes on a cost-effective
and timely basis. There can be no assurance that the Company will be successful
in these efforts. See "Business -- Services."
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this Offering, the current directors and executive
officers of the Company and their respective affiliates will, in the aggregate,
beneficially own approximately 72.7% of the Company's outstanding shares of
Common Stock (including shares issuable pursuant to stock options which may be
exercised within 60 days of July 31, 1997). As a result, such persons, acting
together, would have the ability to approve or disapprove significant corporate
transactions. In addition, effective upon the closing of the Offering, the Board
of Directors will have the authority to issue up to 10,000,000 shares of
undesignated preferred stock, to determine the powers, preferences and rights
and the qualifications, limitations or restrictions granted to or imposed upon
any unissued series of undesignated preferred stock, and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the Company's stockholders. The preferred stock could
be issued with voting, liquidation, dividend and other rights superior to the
rights of the Common Stock. The concentration of ownership and the issuance of
preferred stock under certain circumstances could have the effect of delaying or
preventing a change in control of the Company. See "Principal Stockholders" and
"Description of Capital Stock."
ENVIRONMENTAL COMPLIANCE
The Company is subject to a variety of environmental regulations relating
to the use, storage, discharge and disposal of hazardous chemicals used during
its manufacturing process. Although the Company believes that it is currently in
compliance with all material environmental regulations, any failure by the
Company to comply with present and future regulations could subject it to future
liabilities or cause affected operations to be suspended. In addition, such
regulations could restrict the Company's ability to expand its facilities or
could require the Company to acquire costly equipment or to incur other
significant expenses to comply with environmental regulations.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company's certificate of incorporation and bylaws contain provisions
that may discourage or prevent certain types of transactions involving an actual
or potential change in control of the Company, including transactions in which
the stockholders might otherwise receive a premium for their shares over
then-current market prices, and may limit the ability of the stockholders to
approve transactions that they may deem to be in their best interest. In
addition, the Board of Directors has the authority to fix the rights and
preferences of up to 10,000,000 shares of undesignated preferred stock and to
issue such shares without action by the Company's stockholders, which may have
the effect of delaying or preventing a change in control of the Company. It is
possible that the provisions in the Company's certificate of incorporation and
bylaws, and the ability of the Board of Directors to issue the preferred stock,
may have the effect of delaying, deferring or preventing a change of control of
the Company, may discourage bids for the Class A Common Stock at a premium over
its market price, and may adversely affect the market price of the Class A
Common Stock and the voting and other rights of the holders of Class A Common
Stock.
12
<PAGE> 14
SHARES ELIGIBLE FOR FUTURE SALES; REGISTRATION RIGHTS
Sales of a substantial number of shares of Class A Common Stock in the
public market following this Offering could adversely affect the market price
for the Company's Class A Common Stock. The number of shares of Class A Common
Stock available for sale in the public market is limited by restrictions under
the Securities Act of 1933, as amended (the "Securities Act"), and lock-up
agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the
effective date of the Offering made hereby without the prior written consent of
Montgomery Securities, which may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. As a result of these restrictions, shares of Common Stock will be
eligible for future sale as follows: on the date of this Prospectus, no shares
other than the 5,000,000 shares offered hereby; 180 days after the effective
date of the Offering, an additional 14,256,851 shares (including 1,439,351
shares issuable upon exercise of outstanding options) will be eligible for sale.
In addition, the Company intends to file within 90 days after the effective date
of this Offering a registration statement on Form S-8, covering the shares of
Class A Common Stock subject to outstanding options or reserved for issuance
under the Company's stock and stock option plans. See
"Management -- Compensation Plans." Effective 180 days after the date of this
Offering, holders of approximately 13,327,500 shares of Class A Common Stock
will be entitled to certain registration rights with respect to such shares. If
such holders, by exercising their registration rights, cause a large number of
shares to be registered and sold in the public market, such sales could have a
material adverse effect on the market price for the Class A Common Stock. See
"Shares Eligible for Future Sale."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Class A
Common Stock, and there can be no assurance that an active public market for the
Class A Common Stock will develop or be sustained after the Offering. The
initial public offering price will be determined by negotiations between the
Company and the representatives of the underwriters in this Offering and may not
be indicative of future market prices. The market price of the Company's Class A
Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results and other factors, such as
announcements of new products by the Company or its competitors and changes in
financial estimates by securities analysts or other events or factors. Moreover,
the stock market and the market prices for many technology companies have in
recent years experienced significant price and volume fluctuations. These
fluctuations often have been unrelated to the operating performance of the
specific companies whose stocks are traded. Broad market fluctuations, as well
as economic conditions generally and in the EMS industry specifically, may
adversely affect the market price of the Class A Common Stock. There can be no
assurance that the market price of the Class A Common Stock will not decline
below the initial public offering price. See "Underwriting."
DILUTION
Investors participating in this Offering will incur immediate and
substantial dilution of book value. To the extent that outstanding options to
purchase Class A Common Stock are exercised, there will be further dilution. See
"Dilution" and "Underwriting."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of 5,000,000 shares of Class
A Common Stock being offered hereby are estimated to be approximately $50.2
million at an assumed initial public offering price of $11.00 per share
(approximately $57.8 million if the Underwriters' over-allotment option is
exercised in full). Approximately $20.0 million of the net proceeds will be used
to pay down indebtedness under the Maxtor Notes, which are payable in three
equal installments on June 10, 1999, June 10, 2000 and June 10, 2001 and
currently bear interest at a weighted average rate of approximately 9.7% per
annum. See "Certain Transactions." The Company also intends to repay all of its
outstanding bank borrowings, which it currently anticipates will be
approximately $19.0 million upon completion of this Offering. Such bank
borrowings bear interest at either the prime rate plus 1.5% or LIBOR plus 2.25%
and mature in June 2001. At July 31, 1997, the amount of such bank borrowings
outstanding was approximately $7.5 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company expects to use the remaining net proceeds from
this Offering for capital expenditures and general corporate purposes, including
working capital. A portion of the proceeds may also be used to acquire or invest
in complementary businesses or products, to obtain the right to use
complementary technologies or to expand operations into new geographic regions;
however, there are no negotiations or discussions with respect to any such
transactions at the present time. Pending use of the net proceeds for the above
purposes, the Company intends to invest such funds in short-term,
interest-bearing, investment-grade obligations.
DIVIDEND POLICY
For the foreseeable future, the Company expects to retain any earnings to
finance the expansion and development of its business. The payment of dividends
is within the discretion of the Company's Board of Directors and will depend on
the earnings, capital requirements and operating and financial condition of the
Company, among other factors. In addition, the Company's credit facility
restricts the Company's ability to declare dividends.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1997, (i) on an actual basis, (ii) pro forma to give effect to the
conversion of all outstanding shares of Preferred Stock into Common Stock as a
result of this Offering and amendment of the Company's certificate of
corporation, and (iii) as adjusted to reflect the sale of 5,000,000 shares of
Class A Common Stock offered hereby (at an assumed initial public offering price
of $11.00 per share and after deducting the estimated underwriting discounts and
offering expenses) and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JULY 31, 1997
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank borrowings........................................... $ 7,500 $ 7,500 $ --
Current portion of long-term debt......................... 80 80 80
Long-term debt, less current portion:
Long-term debt.......................................... $ 12,635 $ 12,635 $ 12,635
Long-term debt due Maxtor............................... 20,000 20,000 --
-------- -------- --------
Total long-term debt............................ 32,635 32,635 12,635
Total stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 8,509,425 shares
authorized actual; 10,000,000 authorized pro forma
and as adjusted; 6,000,000 issued and outstanding;
none issued and outstanding pro forma and as
adjusted............................................. 6 -- --
Common Stock, $0.001 par value; 25,500,000 shares
authorized actual; 100,000,000 authorized pro forma
and as adjusted; 7,327,500 issued and outstanding
actual; 13,327,500 issued and outstanding pro forma;
and 18,327,500 issued and outstanding as
adjusted(1).......................................... 7 13 18
Additional paid-in capital.............................. 12,793 12,793 62,938
Distributions in excess of net book value............... (20,608) (20,608) (20,608)
Accumulated deficit..................................... (734) (734) (734)
-------- -------- --------
Total stockholders' equity (deficit)................. (8,536) (8,536) 41,614
-------- -------- --------
Total capitalization............................ $ 24,099 $ 24,099 $ 54,249
======== ======== ========
</TABLE>
- ---------------
(1) Shares issued and outstanding as adjusted represents 15,818,075 shares of
Class A Common Stock and 2,509,425 shares of Class B Common Stock, and
excludes (i) 2,895,000 shares of Common Stock issuable upon exercise of
outstanding options granted under the Company's 1996 Stock Option Plan, (ii)
420,000 shares reserved for future issuance under the Company's 1996 Stock
Option Plan, (iii) 250,000 shares reserved for future issuance under the
Company's 1997 Employee Stock Purchase Plan and 1997 Non-U.S. Employee Stock
Purchase Plan, (iv) 1,750,000 shares reserved for future issuance under the
Company's 1997 Stock Plan (of which options to purchase 967,500 shares are
intended to be granted contingent upon this Offering) and (v) 225,000 shares
reserved for future issuance under the Company's 1997 Director Option Plan
(of which options to purchase 70,000 shares will be automatically granted
contingent upon this Offering). See "Management -- Compensation Plans" and
Note 14 of Notes to Consolidated Financial Statements.
15
<PAGE> 17
DILUTION
The net tangible book (deficit) value of the Company as of July 31, 1997,
after giving effect to the automatic conversion of the Preferred Stock upon the
closing of this Offering, was ($11,672,000), or ($0.88) per share of Common
Stock. Net tangible book value per share is determined by dividing the tangible
book value of the Company (total tangible assets less total liabilities) by the
number of outstanding shares of Common Stock at that date. After giving effect
to the sale by the Company of the 5,000,000 shares of Class A Common Stock
offered hereby (based upon an assumed initial public offering price of $11.00
per share and after deducting estimated underwriting discounts and estimated
offering expenses), the Company's net tangible book value at July 31, 1997 would
have been $38,478,000, or $2.10 per share. This represents an immediate increase
in net tangible book value to existing stockholders of $2.98 per share and an
immediate dilution to new public investors of $8.90 per share. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $11.00
Net tangible book value (deficit) per share as of July
31, 1997.............................................. ($0.88)
Increase in net tangible book value per share
attributable to new public investors.................. 2.98
======
Net tangible book value per share after Offering........... 2.10
------
Dilution per share to new public investors................. $ 8.90
======
</TABLE>
The following table summarizes, on a pro forma basis as of July 31, 1997,
the differences between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders and by the new public investors (based upon an assumed
initial public offering price of $11.00 per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 13,327,500 72.7% $13,400,000 19.6% $ 1.01
New public investors..... 5,000,000 27.3 55,000,000 80.4 $ 11.00
---------- ----- ----------- -----
Total.......... 18,327,500 100.0% $68,400,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing computations exclude (i) 2,895,000 shares of Common Stock at
a weighted average exercise price of $1.03 per share issuable upon exercise of
outstanding options granted under the Company's 1996 Stock Option Plan, (ii)
420,000 shares reserved for future issuance under the Company's 1996 Stock
Option Plan, (iii) 250,000 shares reserved for future issuance under the
Company's 1997 Employee Stock Purchase Plan and 1997 Non-U.S. Employee Stock
Purchase Plan, (iv) 1,750,000 shares reserved for future issuance under the
Company's 1997 Stock Option Plan (of which options to purchase 967,500 shares
are intended to be granted contingent upon this Offering), and (v) 225,000
shares reserved for future issuance under the Company's 1997 Director Option
Plan (of which options to purchase 70,000 shares will be automatically granted
contingent upon this Offering). See "Management -- Compensation Plans" and Note
14 of Notes to Consolidated Financial Statements.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
included elsewhere herein. The consolidated statement of operations data set
forth below with respect to the years ended March 31, 1995 and 1996 and April
30, 1997, and the consolidated balance sheet data at March 31, 1996 and April
30, 1997, are derived from, and are qualified by reference to, the audited
consolidated financial statements included elsewhere in this Prospectus. The
consolidated statement of operations data for the year ended March 31, 1994, and
the consolidated balance sheet data at March 31, 1995, are derived from, and are
qualified by reference to, the audited consolidated financial statements not
included herein. The consolidated statement of operations data for the year
ended March 31, 1993, and the consolidated balance sheet data at March 31, 1993
and 1994, are derived from, and are qualified by reference to, unaudited
consolidated financial statements not included herein. The selected consolidated
financial data for the three months ended July 31, 1996 and 1997, and as of July
31, 1997, are derived from, and are qualified by reference to, unaudited
consolidated financial statements included elsewhere herein. The unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, which the Company believes are necessary for a
fair presentation of such information for the periods presented. Operating
results for the three months ended July 31, 1997 are not necessarily indicative
of the results that may be expected for the year ending April 30, 1998 or any
other future period. The information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEARS ENDED(1) ENDED
--------------------------------------------------------- -------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31, APRIL 30, JULY 31, JULY 31,
1993(2) 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ -- $ 254 $ 3,089 $ 68,361 $ 80,546 $21,139 $34,500
Revenues from affiliates(3)..................... 42,425 42,093 36,284 340,487 89,149 26,276 30,236
------- ------- ------- -------- -------- ------- -------
Total revenues.......................... 42,425 42,347 39,373 408,848 169,695 47,415 64,736
Cost of revenues(4)............................. 35,302 35,794 33,795 395,474 155,028 46,363 58,397
------- ------- ------- -------- -------- ------- -------
Gross profit.................................... 7,123 6,553 5,578 13,374 14,667 1,052 6,339
Operating expenses:
Selling, general and administrative........... 2,764 2,580 2,848 5,380 8,041 1,704 2,845
Restructuring charge(5)....................... -- -- -- -- 3,000 3,000 (179)
------- ------- ------- -------- -------- ------- -------
Total operating expenses................ 2,764 2,580 2,848 5,380 11,041 4,704 2,666
Income (loss) from operations................... 4,359 3,973 2,730 7,994 3,626 (3,652) 3,673
Interest expense, net........................... 161 197 180 64 3,972 676 1,255
------- ------- ------- -------- -------- ------- -------
Income (loss) before income taxes............... 4,198 3,776 2,550 7,930 (346) (4,328) 2,418
Provision for income taxes...................... 685 662 554 1,793 253 -- 337
------- ------- ------- -------- -------- ------- -------
Net income (loss)............................... $ 3,513 $ 3,114 $ 1,996 $ 6,137 $ (599) $(4,328) $ 2,081
======= ======= ======= ======== ======== ======= =======
Net income (loss) per share..................... $ (0.04) $ (0.27) $ 0.13
======== ======= =======
Shares used to compute net income (loss) per
share(6)...................................... 16,108 16,108.. 16,108
SUPPLEMENTAL DATA:
Supplemental income (loss) per share(7)......... $ 0.06 $ (0.23) $ 0.14
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31, MARCH 31, APRIL 30, JULY 31,
1993(2) 1994(2) 1995 1996 1997 1997
--------- --------- --------- --------- --------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................. $ 6,316 $ 7,583 $ 7,834 $ 10,716 $ 3,980 $ 5,827
Total assets.................................... 24,316 21,764 24,943 83,687 60,471 70,809
Long-term debt, less current portion............ 2,889 1,845 708 -- 12,660 12,635
Long-term debt due Maxtor....................... 8,469 8,469 8,469 4,300 20,000 20,000
Total stockholders' equity (deficit)............ 7,352 6,666 8,662 17,666 (10,367) (8,536)
</TABLE>
- ---------------
(1) Prior to fiscal 1997, the Company's fiscal year ended on the Saturday
nearest to March 31. Commencing with fiscal 1997, the Company's fiscal year
ends on the Saturday nearest to April 30.
(2) The consolidated statement of operations data for the year ended March 31,
1993, and the consolidated balance sheet data at March 31, 1993 and 1994,
are derived from, and are qualified by reference to, unaudited consolidated
financial statements not included herein.
(3) Sales to Maxtor were made on a consignment basis for years prior to fiscal
1996, on a turnkey basis for fiscal 1996, and on a partial turnkey basis for
fiscal 1997 and the three months ended July 31, 1997.
(4) Cost of revenues for the three months ended July 31, 1996 included a $2.0
million inventory charge associated with a customer's cancellation of
orders. Portions of this reserve were subsequently reversed in the three
months ended January 31, 1997 and April 30, 1997, because the customer
purchased some of the inventory in question.
(5) In June 1996, the Company relocated its Hong Kong manufacturing operations
to China. The restructuring charge totaled $3.0 million and involved the
termination of approximately 900 employees for approximately $2.3 million
and excess facilities costs of approximately $700,000. As of July 31, 1997,
the Company had completed all of its restructuring actions.
(6) Net income per share data for prior fiscal years have not been presented as
such amounts are not deemed to be meaningful in view of the significant
change in capital structure of the Company in June 1996 as a result of the
Recapitalization. See Note 1 of Notes to Consolidated Financial Statements
for an explanation of the method used to determine the number of shares for
computing per share amounts.
(7) Represents earnings per share as if long-term debt due to Maxtor and bank
borrowings had been retired at the beginning of the period or the date of
issuance of the debt, if later, and assumes that an equivalent amount was
financed through the sale of equity securities at the assumed price of this
Offering (less underwriting discount and offering expenses).
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
International Manufacturing Services, Inc. provides product design,
prototyping, printed circuit board assembly, final system assembly, testing,
packaging, distribution and depot repair services to original equipment
manufacturers in the electronics industry. The Company's Hong Kong operations,
which commenced business in 1983, were acquired in 1990 by Maxtor, a
manufacturer of hard disk drives, along with other manufacturing operations and
assets. International Manufacturing Services, Inc. was formed in November 1994
as a wholly-owned subsidiary of Maxtor, and in June 1996 the Company was
recapitalized as an independent company.
On June 13, 1996, the Company redeemed approximately 76.5% of Maxtor's
share ownership with a combination of $25.0 million cash, $20.0 million
principal amount Maxtor Notes and a warrant for 300,000 shares of Class A Common
Stock, which warrant is not currently exercisable and terminates if the senior
subordinated notes are repaid prior to June 13, 1998. The Company raised the
cash portion of the redemption price by issuing to a group of investors a
combination of Common Stock, preferred stock and junior subordinated notes.
These redemption and financing transactions are collectively referred to in this
Prospectus as the "Recapitalization." For accounting purposes, the redemption of
Maxtor's share ownership was treated as a recapitalization and, accordingly, no
change in the accounting basis of the Company's assets was made. See "Certain
Transactions," "Description of Capital Stock" and Note 1 of Notes to
Consolidated Financial Statements.
Prior to fiscal 1996, substantially all the Company's revenues were derived
from sales to Maxtor. In connection with the Recapitalization, Maxtor agreed to
purchase from the Company certain quarterly minimum quantities of products
through June 1999, provided that the Company continues to be competitive on the
bases of price and quality. Over the last two fiscal years, the Company has
evolved from being a captive EMS provider to Maxtor to an independent EMS
provider serving 15 additional customers. These customers collectively
represented approximately 55.9% of total revenues for the three months ended
July 31, 1997. The Company typically enters into manufacturing contracts with
each of its customers, but has no long-term volume purchase commitments from any
customer other than Maxtor. The Company remains dependent upon a relatively
small number of customers for a significant percentage of its revenues. For
fiscal 1996 and 1997, and the three months ended July 31, 1997, Maxtor accounted
for approximately 83.1%, 48.6% and 44.1% of total revenues, respectively, and
Bay Networks accounted for approximately 1.6%, 31.3% and 42.1% of total
revenues, respectively. For fiscal 1996, Diamond Multimedia accounted for
approximately 12.8% of total revenues.
During fiscal 1997, the Company took significant steps to expand its
manufacturing operations and to broaden the range of the manufacturing services
it provides. As part of its strategy to locate operations in low cost regions,
the Company transferred its Hong Kong manufacturing operations to China while
retaining its component procurement and regional administrative functions in
Hong Kong. In connection with the relocation, the Company recorded a charge of
$3.0 million associated with employee severance and excess facilities costs. The
Company also expanded its manufacturing facilities in Thailand from 41,000
square feet to 93,000 square feet. In January 1997, the Company acquired the
assets of Pentagon Systems, a design and prototype production company, for $4.4
million cash, 450,000 shares of Class A Common Stock and assumed certain
liabilities. The Company recorded goodwill of $3.4 million in connection with
the acquisition, which is being amortized over seven years on a straight line
basis. In May 1997, the Company commenced manufacturing operations in San Jose,
California.
The Company has chosen to locate its manufacturing facilities in certain
countries in Asia to improve operational efficiencies and to take advantage of
generally lower income tax rates and the availability of tax incentives extended
to encourage foreign investment. The Company has operating subsidiaries located
in foreign countries, some of which enjoy multiple year tax holidays. As a
result, the Company estimates its effective tax rate for fiscal 1998 to be
approximately 14.0%.
18
<PAGE> 20
The Company's sales to Maxtor were made on a consignment basis during
fiscal 1995, on a turnkey basis during fiscal 1996, and on a partial turnkey
basis during fiscal 1997. The Company's sales to customers other than Maxtor are
generally performed on a turnkey basis. The extent to which revenues are
generated on a turnkey or consignment basis has a significant effect on the
level of the Company's total revenues and gross margin. For revenues generated
on a turnkey basis, the Company procures all materials used to manufacture the
customer's product, which results in higher revenue per unit. For revenues
generated on a consignment basis, the customer procures the materials and
provides them to the Company at no charge. As a result, revenues from turnkey
manufacturing tend to be higher and gross margins tend to be lower than revenues
and margins generated from consignment manufacturing. The Company's total
revenues and overall gross margin may fluctuate significantly from period to
period depending upon the mix of revenues generated by turnkey, consignment and
partial turnkey manufacturing.
The United States dollar is the functional currency of the Company's
foreign subsidiaries and substantially all of its revenues are collected in
United States dollars. Exchange gains and losses resulting from transactions
denominated in currencies other than the United States dollar are included in
results of operations for the year. To date, such amounts have not been
material, and the Company has not undertaken any material foreign currency
hedging activities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THREE MONTHS ENDED JULY 31, 1997
Total Revenues
The Company's total revenues increased 36.5% from $47.4 million in the
three months ended July 31, 1996 to $64.7 million in the three months ended July
31, 1997. Revenues from affiliates increased 15.1% from $26.3 million in the
three months ended July 31, 1996 to $30.2 million in the three months ended July
31, 1997. Revenues from other customers increased 63.2% from $21.1 million in
the three months ended July 31, 1996 to $34.5 million in the three months ended
July 31, 1997. The increase in total revenues was the result of increased demand
from Maxtor and Bay Networks, a higher percentage of total revenues derived from
turnkey operations and, to a lesser extent, sales to new accounts.
Gross Profit
Gross profit consists of total revenues less the costs of revenues, which
includes the cost of materials, the cost of labor and manufacturing overhead.
Gross profit increased from $1.1 million in the three months ended July 31, 1996
to $6.3 million in the three months ended July 31, 1997. Gross margin (gross
profit as a percentage of total revenues) increased from 2.2% to 9.8% for the
same periods. Gross profit and gross margin in the three months ended July 31,
1996 were adversely affected by a $2.0 million inventory charge associated with
a financially troubled customer's cancellation of orders. Increases in gross
profit and gross margin during the three months ended July 31, 1997 were
attributable to the higher utilization rate of the Company's manufacturing
facilities and labor savings resulting from the relocation of the Company's Hong
Kong manufacturing facility to China.
The Company's gross margin may fluctuate from period to period depending
upon the mix of turnkey versus consignment manufacturing, product mix,
production efficiencies, utilization of manufacturing capacity and pricing
within the electronics industry.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel
and related overhead costs for sales, marketing, finance, human resources,
information systems and general management. Selling, general and administrative
expenses increased 67.0% from $1.7 million in the three months ended July 31,
1996 to $2.8 million in the three months ended July 31, 1997. As a percentage of
total revenues, selling, general and administrative expenses increased from 3.6%
to 4.4% for the same periods. The increase in absolute dollars was the result of
increased personnel costs, marketing expenses to support new customer
development,
19
<PAGE> 21
increased administrative expenses associated with the new manufacturing facility
in China, expanded operations in Thailand and the inclusion of Pentagon Systems.
The Company anticipates that its selling, general and administrative expenses
will generally continue to increase in absolute dollars for the foreseeable
future.
Net Interest Expense
Net interest expense increased from approximately $676,000 in the three
months ended July 31, 1996 to approximately $1.3 million in the three months
ended July 31, 1997. The increase was primarily due to Recapitalization-related
interest expense for a full quarter in fiscal 1998 compared to a partial quarter
of such interest expense in the comparable prior period.
Provision for Income Taxes
For the three months ended July 31, 1996, the Company incurred losses and
did not provide for any income taxes. For the three months ended July 31, 1997,
the Company recorded a provision for income taxes of $337,000.
The Company conducts its operations through subsidiaries in China,
Thailand, Hong Kong, the Cayman Islands and the United States, each of which is
subject to the taxation rules of the country in which it operates. The Company
has structured its global operations to take advantage of the generally lower
statutory income tax rates in Asian countries and certain tax holidays in China
and Thailand that have been extended to encourage foreign investment. The
Company's Hong Kong subsidiary is subject to local income taxes at a statutory
rate of 16.5%. The Company's Thailand subsidiary enjoys a full tax holiday from
the current local statutory rate of 30.0% through the year 2003 and a tax rate
of one-half of the then current local statutory rate for the ensuing five
calendar years. The Company expects to be granted a full tax holiday from the
current local statutory rate of 30.0% for its China subsidiary's calendar 1997
and 1998 operations and a tax rate of one-half of the then current local
statutory rate for the ensuing three calendar years.
The Company's effective income tax rate is a function of the mix of income
in the various countries in which it operates and the applicable income tax
rates in such countries. The Company derives substantially all of its income
from its foreign operations for which it either enjoys certain tax holidays or
pays foreign income taxes at local statutory rates, which are significantly
lower than the United States statutory rate of 35.0%. The Company currently
expects its effective tax rate for fiscal 1998 to be 14.0%. The losses incurred
in any national jurisdiction are not deductible by entities in other
jurisdictions in the calculation of their respective local taxes. To date, the
Company's income taxes have consisted primarily of taxes paid by its Hong Kong
subsidiary. A change in the mix of income generated by the Company's domestic
and various foreign operations may cause the Company's tax rate to fluctuate.
If tax rates were to rise, if the Company's tax holidays were not renewed,
or if tax authorities were to challenge successfully the adequacy or the manner
in which profits are recognized and allocated among the Company and its domestic
and foreign subsidiaries, the Company's taxes could increase and its business,
financial condition, results of operations or cash flow could be materially
adversely affected. In certain circumstances, United States tax law requires a
United States parent corporation to recognize as current income profits earned
by its foreign subsidiaries. The Company believes that these laws should not be
applicable to its subsidiaries' activities and income. There can be no assurance
that United States tax authorities will not challenge the Company's position or,
if such challenge is made, that the Company would prevail in any such dispute.
If the Company's profits from operations in the United States increase or
profits from its Asia operations become subject to United States income taxes,
the Company's taxes could increase, and its results of operations and cash flow
could be materially adversely affected. Expansion of the Company's operations in
the United States may also increase its effective tax rate. The current maximum
United States federal income tax rate is 35.0%. The Company currently expects
its effective income tax rate for fiscal 1998 to be 14.0%. See "Risk
Factors -- Risk of Increased Taxes."
20
<PAGE> 22
FISCAL YEARS ENDED MARCH 31, 1995 AND 1996 AND APRIL 30, 1997
Total Revenues
The Company's total revenues increased from $39.4 million in fiscal 1995 to
$408.8 million in fiscal 1996 and then decreased to $169.7 million in fiscal
1997. Revenues from sales to affiliates increased from $36.3 million in fiscal
1995 to $340.5 million in fiscal 1996 and then decreased to $89.1 million in
fiscal 1997, as the terms on which the Company's services to Maxtor changed. In
fiscal 1995, when the Company was a captive supplier of Maxtor, sales to Maxtor
were made on a consignment basis and did not reflect any revenues associated
with the sourcing of materials. In fiscal 1996, revenues from affiliates
increased as a result of the transition of sales to Maxtor to a turnkey basis,
resulting in higher revenues per unit associated with procured materials. In
fiscal 1997, revenues from affiliates decreased as a result of the transition of
sales to Maxtor to a partial turnkey basis, as well as a decrease in order
volume from Maxtor unrelated to the transition to partial turnkey. Revenues from
sales to other customers increased from $3.1 million in fiscal 1995 to $68.4
million in fiscal 1996 and to $80.5 million in fiscal 1997. The Company's
revenues from sales to other customers, which are primarily performed on a
turnkey basis, increased significantly from fiscal 1995 through fiscal 1997
principally due to an increase in the number of new OEM customers and the
increase in orders from existing customers, offset in part by decreased revenues
in fiscal 1997 from a previously greater than 10% customer.
Gross Profit
Gross profit increased 139.8% from $5.6 million in fiscal 1995 to $13.4
million in fiscal 1996 and then increased 9.7% to $14.7 million in fiscal 1997.
Gross profit increased in fiscal 1996 primarily due to increased sales to new
customers and increases in the volume of shipments to Maxtor. During fiscal
1997, the relocation of the Company's Hong Kong manufacturing operations to
China reduced the Company's manufacturing costs, which had a positive effect on
gross profit. This effect, however, was partially offset by associated
reductions in selling prices, as the Company passed through cost savings to its
customers as well as the decline in unit volumes from Maxtor. Gross margin was
14.2%, 3.3% and 8.6%, respectively, for fiscal 1995, 1996 and 1997. The
fluctuations in gross margin resulted primarily from the changes in the
percentage of total revenues derived from turnkey operations and the relocation
from Hong Kong to China, as previously discussed.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 88.9% from $2.8
million in fiscal 1995 to $5.4 million in fiscal 1996 and then increased 49.5%
to $8.0 million in fiscal 1997. As a percentage of total revenues, selling,
general and administrative expenses were 7.2%, 1.3% and 4.7%, respectively, for
the same periods. The increase in absolute dollars from fiscal 1995 to fiscal
1996 was the result of the establishment of a sales and marketing organization
to support sales to new customers and increased expenditures associated with the
opening of the Company's new manufacturing facility in Thailand. The increase in
absolute dollars and as a percentage of total revenues from fiscal 1996 to
fiscal 1997 was the result of increased personnel costs, marketing expenses to
support new customer development, increased expenses to support the
establishment of the new manufacturing facility in China, and the inclusion of
Pentagon Systems' expenses commencing with its acquisition in January 1997.
During fiscal 1997, the Company recorded $163,000 of goodwill amortization
resulting from the Company's acquisition of Pentagon Systems in January 1997.
Restructuring Charge
During fiscal 1997, the Company recorded a charge of $3.0 million
associated with the relocation of its Hong Kong manufacturing operations to
China. As of July 31, 1997, the Company had completed all such restructuring
activities. See Note 5 of Notes to Consolidated Financial Statements.
Net Interest Expense
Net interest expense decreased from $180,000 in fiscal 1995 to $64,000 in
fiscal 1996, as a result of the partial repayment of a previously outstanding
term note, and increased to $4.0 million in fiscal 1997, due to the indebtedness
incurred in connection with the Recapitalization.
21
<PAGE> 23
Provision for Income Taxes
The Company's provision for income taxes for fiscal 1995, 1996 and 1997
consisted primarily of foreign income taxes related to its Hong Kong operations.
During these periods, the Company's United States operations generated losses,
for which the Company did not record any tax benefit. Historically, the
Company's effective tax rate has been lower than the United States federal
statutory rate of 35.0% due primarily to the fact that income generated by its
foreign operations has been subject to lower or no foreign income taxes. At
April 30, 1997, the Company had United States federal net operating loss
carryforwards of approximately $6.0 million, of which approximately $4.4 million
were subject to certain annual limitations on utilization. As of such date, the
Company had gross United States deferred tax assets of approximately $2.4
million. Based on factors which include the Company's history of losses
generated by its United States operations and lack of carryback capacity, the
Company believes that it is more likely than not that the Company will not be
able to realize its United States deferred tax assets. Accordingly, a full
valuation reserve for such assets has been recorded. See Note 11 of Notes to
Consolidated Financial Statements.
22
<PAGE> 24
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth selected unaudited statement of operations
data in dollar amounts and as a percentage of total revenues for each of the
five quarters in the period ended July 31, 1997. The unaudited data have been
prepared on the same basis as the audited consolidated financial statements
contained in this Prospectus and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
information for the periods presented. Such statement of operations data should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. The Company's results of
operations fluctuated and are likely to continue to fluctuate significantly from
quarter to quarter. Results of operations in any period should not be considered
indicative of the results to be expected in any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31,
1996 1996 1997 1997 1997
-------- ----------- ----------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 21,139 $16,851 $20,222 $ 22,334 $ 34,500
Revenues from affiliates...................... 26,276 20,709 18,806 23,358 30,236
------- ------- ------- ------- -------
Total revenues...................... 47,415 37,560 39,028 45,692 64,736
Cost of revenues.............................. 46,363 33,430 34,841 40,394 58,397
------- ------- ------- ------- -------
Gross profit.................................. 1,052 4,130 4,187 5,298 6,339
Operating expenses:
Selling, general and administrative......... 1,704 1,729 1,870 2,738 2,845
Restructuring charge........................ 3,000 -- -- -- (179)
------- ------- ------- ------- -------
Total operating expenses............ 4,704 1,729 1,870 2,738 2,666
Income (loss) from operations................. (3,652) 2,401 2,317 2,560 3,673
Interest expense, net......................... 676 1,063 915 1,318 1,255
------- ------- ------- ------- -------
Income (loss) before income taxes............. (4,328) 1,338 1,402 1,242 2,418
Provision for income taxes.................... -- -- -- 253 337
------- ------- ------- ------- -------
Net income (loss)............................. $ (4,328) $ 1,338 $ 1,402 $ 989 $ 2,081
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31,
1996 1996 1997 1997 1997
-------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues...................................... 44.6% 44.9% 51.8% 48.9% 53.3%
Revenues from affiliates...................... 55.4 55.1 48.2 51.1 46.7
----- ----- ----- ----- -----
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues.............................. 97.8 89.0 89.3 88.4 90.2
----- ----- ----- ----- -----
Gross margin.................................. 2.2 11.0 10.7 11.6 9.8
Operating expenses:
Selling, general and administrative......... 3.6 4.6 4.8 6.0 4.4
Restructuring charge........................ 6.3 0.0 0.0 0.0 (0.3)
----- ----- ----- ----- -----
Total operating expenses............ 9.9 4.6 4.8 6.0 4.1
Income (loss) from operations................. (7.7) 6.4 5.9 5.6 5.7
Interest expense, net......................... 1.4 2.8 2.3 2.9 1.9
----- ----- ----- ----- -----
Income (loss) before income taxes............. (9.1) 3.6 3.6 2.7 3.7
Provision for income taxes.................... 0.0 0.0 0.0 0.6 0.5
----- ----- ----- ----- -----
Net income (loss)............................. (9.1)% 3.6% 3.6% 2.1% 3.2%
===== ===== ===== ===== =====
</TABLE>
Total revenues during fiscal 1997 varied significantly from quarter to
quarter, generally reflecting changes in demand from existing customers and the
mix of revenues on a turnkey basis or a consignment basis. In particular, the
Company experienced a significant decline in demand from its three largest
customers in the three months ended October 31, 1996 and January 31, 1997 due to
reasons unrelated to the Company. In the three months ended April 30, 1997,
demand from existing customers increased and the Company also added
23
<PAGE> 25
new customers. In addition, in the three months ended April 30, 1997 and July
31, 1997, as the Company's revenues increased, so did the percentage of total
revenues derived on a turnkey basis.
Gross profit and gross margin in the three months ended July 31, 1996 were
adversely affected by a $2.0 million inventory charge associated with a
financially troubled customer's cancellation of orders. A portion of this
reserve was subsequently reversed in each of the three months ended January 31,
1997 and April 30, 1997, because the customer purchased some of the inventory in
question. Gross margin was favorably affected in the three months ended October
31, 1996, January 31, 1997 and April 30, 1997 by reduced manufacturing costs as
a result of the relocation of the Company's Hong Kong manufacturing operations
to China. The decline in gross margin in the three months ended July 31, 1997
reflects a higher proportion of revenues derived on a turnkey basis.
The primary factors affecting the Company's annual and quarterly operating
results are: timing of customer orders; price competition; volume of orders
received relative to the Company's capacity; announcements, introductions and
market acceptance of a customer's new products; evolution in the life cycles of
customer products; timing of expenditures in anticipation of future customer
orders; effectiveness in managing manufacturing processes; changes in cost and
availability of labor and components; fluctuations in material costs; the mix of
materials costs relative to labor and manufacturing overhead costs; and the mix
of revenues derived from manufacturing performed on a consignment versus turnkey
basis (consignment manufacturing tends to result in higher gross margins but
lower revenues, and turnkey manufacturing tends to result in lower gross margins
but higher revenues). Other factors affecting operating results include the
Company's level of experience in manufacturing a particular product, the degree
of automation used in the assembly process, the efficiencies achieved by the
Company in managing inventories and fixed assets, and customer product delivery
requirements. An adverse change in any one of these factors or a combination
thereof could have a material adverse effect on the Company's future business,
financial condition or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Prior to June 1996, the Company was a wholly-owned subsidiary of Maxtor and
funded its operations through cash provided by operations and intercompany
financing provided by Maxtor. Since the Recapitalization, the Company has funded
its working capital needs and capital expenditures through borrowings under its
credit facility and cash provided by operations. At July 31, 1997, the Company's
principal sources of liquidity consisted of cash provided by operations and
available borrowings under the Company's credit facilities.
Cash provided by operating activities for fiscal 1995, 1996 and 1997 and
the three months ended July 31, 1997 was $5.5 million, $7.7 million, $6.7
million and $3.2 million, respectively.
Cash used in investing activities in fiscal 1995 and 1996 totaled $4.1
million and $8.9 million, respectively, and related primarily to the purchase of
equipment and leasehold improvements associated with the establishment of the
Company's Thailand facility. In fiscal 1997, cash used in investing activities
totaled $12.1 million, primarily as a result of capital expenditures for
equipment and leasehold improvements associated with establishing the Company's
China operations, expanding its Thailand operations and initiating manufacturing
in its California facilities, as well as the Company's acquisition of Pentagon
Systems. In the three months ended July 31, 1997, cash used in investing
activities totaled $2.5 million for the purchase of property and equipment.
During fiscal 1997, the Company generated $7.2 million from financing
activities, including $12.1 million in net proceeds from sales of Common Stock
and Preferred Stock, $12.5 million from issuances of 12.0% junior subordinated
notes, and $9.0 million from borrowings under its line of credit. Approximately
$25.0 million of these amounts were used to redeem a portion of Maxtor's share
ownership in the Company in the Recapitalization. See "Certain Transactions."
In conjunction with the Recapitalization, the Company issued the Maxtor
Notes, which require early repayment upon the successful completion of an
initial public offering. The amount of repayment varies depending upon the net
proceeds to the Company from the public offering, with total repayment required
if the Company receives at least $45.0 million. Based upon an estimated initial
public offering price of $11.00
24
<PAGE> 26
per share, the Company anticipates that the Maxtor Notes will be repaid in their
entirety out of the net proceeds of this Offering. During the three months ended
July 31, 1997, the Company repaid $1.5 million of its bank line of credit.
The Company has a committed line of credit with Chase Manhattan Bank that,
subject to certain limitations, provides for up to $32.0 million of borrowing
capacity to fund working capital and capital expenditures. The line of credit
expires June 21, 2001, with availability of borrowings declining on a quarterly
basis beginning in July 1997. The availability of the line of credit will be
reduced by $10.0 million upon the completion of this Offering to a maximum
availability of $21.8 million. The Company intends to renegotiate its credit
agreement after the completion of this Offering. At July 31, 1997, borrowings
under the line of credit were $7.5 million, compared to $9.0 million at April
30, 1997. Additional borrowings of $24.3 million were available under the line
of credit at July 31, 1997. At July 31, 1997, the effective interest rate under
the line of credit was approximately 7.9%. In addition, the Company intends to
repay the outstanding borrowings under the line of credit with the proceeds of
this Offering. See "Use of Proceeds."
The Company's future liquidity and cash requirements will depend upon many
factors, including the level of its operations, the degree and pace of its
expansion or acquisition of facilities and adoption of new manufacturing
technology, and the mix of revenue from turnkey and consignment manufacturing.
The Company anticipates that its planned purchases of capital equipment for
fiscal 1998 will require aggregate expenditures of approximately $17.0 million,
of which approximately $2.5 million have been made as of July 31, 1997. The
Company believes that the proceeds of this Offering, funds available under its
line of credit and any cash generated from operations will be sufficient to
satisfy its currently anticipated working capital, capital expenditure and debt
service requirements for at least the next twelve months. Nonetheless, in the
event that the Company experiences significant continued growth, the Company may
need to finance such growth and any corresponding working capital needs with
additional public and private offerings of its debt or equity. There can be no
assurance as to the availability of such financing or, if available, the terms
thereof.
25
<PAGE> 27
BUSINESS
GENERAL
International Manufacturing Services, Inc. (the "Company") provides a broad
range of integrated, advanced manufacturing services to electronics original
equipment manufacturers in the computer peripherals, data communications,
telecommunications and other segments of the electronics industry. The Company
offers a full range of services, including product design, prototyping, printed
circuit board assembly, materials procurement, inventory management, final
system assembly, testing, packaging, distribution and depot repair. Major
customers include Maxtor, Bay Networks, Asante, Polaroid and Symbios Logic. In
addition, the Company has recently initiated significant customer relationships
with Advanced Fibre Communications and Polycom.
INDUSTRY BACKGROUND
Original equipment manufacturers in the electronics industry have become
increasingly reliant upon independent providers of electronics manufacturing
services to deliver an expanding range of manufacturing and related services.
OEMs, which historically utilized the services of EMS providers primarily to
obtain extra manufacturing capacity during periods of peak demand, have become
aware of the longer term advantages of outsourcing, and view EMS providers as
increasingly integral to their overall enterprise strategies. OEMs rely upon EMS
providers for a broad range of manufacturing related services, including:
product design; component selection and sourcing; procurement and inventory
control; design for manufacturability; PCB assembly; system level assembly; test
process design and implementation; packaging and shipment; distribution and
order fulfillment; and warranty and repair. According to Technology Forecasters
estimates, the worldwide market for electronics manufacturing services was $59
billion in 1996 and is expected to grow, at an annual rate of approximately 25%
through the year 2001, to $178 billion.
As OEMs seek to enhance their position in today's global marketplace, they
are increasingly turning to EMS providers to access advanced design expertise,
volume materials procurement and flexible, high volume manufacturing
capabilities. Access to such outsourcing capabilities provides OEMs with a range
of benefits, including: lower product cost; shorter new product introduction
cycles; more rapid time to market and time to volume production; reduced working
capital and capital expenditures; and flexibility to respond to frequent design
changes and fluctuations in the availability of materials. Outsourcing also
allows OEMs to focus resources on their core competencies, such as research and
development and sales and marketing.
The EMS industry is highly fragmented, with a relatively small number of
participants having revenues over $500 million. Certain EMS providers have
sought through acquisitions to broaden the range of manufacturing capabilities
they offer and to expand the scope of their manufacturing operations. In
addition, certain OEMs have sold or spun-off their captive manufacturing
operations. OEMs desire strategic relationships with EMS providers who deliver a
broad range of high quality services in a timely and cost-effective manner. EMS
providers can lower OEM direct manufacturing costs for both labor and materials,
as well as their indirect costs, such as time to market and volume production,
materials purchasing and handling, and flexibility to respond to market demands.
Certain EMS providers can also lower costs by locating their operations in
regions of the world, such as Asia, Latin America or Eastern Europe, that offer
lower labor and infrastructure costs, advantageous tax treatment, and proximity
to production facilities of manufacturers of electronic components and related
materials.
In view of the foregoing factors, the Company believes that in order to
succeed, an EMS provider must offer a broad range of high quality manufacturing
services, obtain significant economies of scale in component procurement, and
manage multiple international facilities providing advanced manufacturing
capabilities in lower cost countries.
26
<PAGE> 28
STRATEGY
The Company's objective is to strengthen its position as a leading provider
of advanced, cost-effective, integrated electronics manufacturing services to
OEMs in the electronics industry. To achieve this objective, the Company is
pursuing the following strategies:
Provide Advanced, Cost-Effective EMS Solutions. The Company strives to
provide cost-effective, technologically advanced manufacturing solutions to
OEMs' increasingly complex needs. By leveraging its historical expertise in the
procurement of materials for, and the manufacturing of, computer peripherals,
the Company is able to provide significant cost advantages to OEMs in a variety
of industry sectors. The Company has located its materials procurement,
technical support and regional administrative operations in Hong Kong, near low
cost suppliers of electronic and system level components, and maintains volume
manufacturing operations in Thailand and China to access low cost labor and
overhead and to take advantage of certain local tax benefits. Further, as part
of its strategy to provide advanced manufacturing services in low cost regions,
the Company has equipped each of its manufacturing facilities with advanced
manufacturing technologies and staffed each of its operations with highly
skilled engineers and other professionals.
Diversify Customer Base. The Company intends to diversify its revenue base
by adding new customers in rapidly growing industry sectors, while expanding the
range of manufacturing services that it provides to its existing customers. The
Company seeks strategic relationships with major and emerging OEMs in industry
sectors, such as data communications and telecommunications, that require the
custom design and flexible manufacturing capabilities that the Company offers.
Over the last two fiscal years, the Company has evolved from being a captive EMS
provider to Maxtor to an independent EMS provider serving 15 additional OEM
customers. These customers collectively represented approximately 55.9% of total
revenues for the three months ended July 31, 1997.
Provide a Broad Range of Manufacturing Services. The Company offers its
customers a comprehensive EMS solution, with services that include: initial
circuit board layout, product design and prototype production; materials
sourcing and management; assembly of complex printed circuit boards, including
backplanes, system level subassemblies and final products; system testing;
packaging, distribution and fulfillment; and post production warranty and
repair. In January 1997, the Company added advanced PCB design layout and
prototype production capabilities by acquiring Pentagon Systems, a design and
prototype production firm with over ten years experience serving Silicon Valley
companies.
Accelerate Customers' Time to Market and Time to Volume. The Company's
expertise in design, materials management and manufacturing reduces its
customers' time to market. The custom design center operates on a twenty-four
hour-a-day basis to provide shorter design cycles. The Company's access to its
customers' product information early in the design cycle and its volume
procurement relationships with component suppliers enables the Company to
establish the materials supply chain necessary to ensure volume availability of
components for rapid transitions to volume production. As a result of its prior
experience in manufacturing for the computer peripherals industry, the Company
has also developed organizational disciplines to respond to rapid changes in
volume production.
Leverage International Manufacturing Capabilities. The Company applies its
manufacturing experience, operational infrastructure in Asia, and design,
prototype and manufacturing capabilities in the United States to provide
cost-effective flexible EMS solutions to its customers. The Company's primary
volume manufacturing operations, based in Asia, offer advanced capabilities and
technologies which the Company believes have generally been available primarily
in higher cost world regions. The Company's operations are also structured to
integrate its international operations in order to provide its customers
flexible service from multiple facilities. For example, to reduce overall costs,
the Company may perform manufacturing services at one facility and complete
system level assembly at another. The Company intends to continue to broaden its
manufacturing and engineering expertise and capabilities by expanding its
current facilities, by developing a
manufacturing presence in other low cost geographic markets and by pursuing
strategic acquisitions.
27
<PAGE> 29
INTERNATIONAL MANUFACTURING CAPABILITY
The Company has manufacturing facilities located in Thailand, China and the
United States. During fiscal 1997, the Company transferred its Hong Kong
manufacturing operations to a new manufacturing facility in China with 12 SMT
lines and over 1,000 employees. The Company's Hong Kong operation now performs
materials procurement for the Company's manufacturing operations, certain
engineering and quality management functions as well as regional administrative
functions. In fiscal 1997, the Company also expanded its manufacturing
operations in Thailand by adding two SMT lines and approximately 52,000 square
feet of manufacturing capacity. The Company's manufacturing facilities in Asia
are registered to the quality requirements of the International Organization for
Standardization (ISO 9002), and its California manufacturing facility is in the
process of final certification. The Company believes that it has sufficient
space within and adjacent to its current China and Thailand facilities to
accommodate possible expansion needs in the foreseeable future.
In January 1997, the Company further broadened the range of its
manufacturing related services by acquiring the assets of Pentagon Systems, a
design and prototype production company in San Jose, California with two
prototype SMT lines. With its access to engineering resources in Karachi,
Pakistan, the Company now offers twenty-four hour-a-day design services.
Certain additional information as of July 31, 1997 about the Company's
global facilities, all of which are leased, is set forth below:
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
APPROXIMATE YEAR SMT NUMBER OF
LOCATION SQUARE FEET COMMENCED SERVICES LINES EMPLOYEES
- ----------------------------------------------------------------------------------------------------------
Changping, China 97,000 1996 Complex PCB assembly, systems level 12 1,036
assembly, backplane assembly
- ----------------------------------------------------------------------------------------------------------
Siracha, Thailand 93,000 1995 Complex PCB assembly, systems level 7 968
assembly
- ----------------------------------------------------------------------------------------------------------
Hong Kong 80,000 1983 Engineering services, quality management, -- 155
materials procurement management, regional
administration functions
- ----------------------------------------------------------------------------------------------------------
San Jose, California 20,000 1996 Full systems manufacturing, backplane 1 47
assembly, PCB assembly, program management
and corporate headquarters
- ----------------------------------------------------------------------------------------------------------
San Jose, California 14,000 1987* Design, prototype and pre-production 2 51
services
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* The Company acquired this facility as part of its acquisition of Pentagon
Systems in January 1997.
The Company's operations are structured to provide its customers with
competitive levels of service. The Company utilizes its electronic
communications and access to a global freight infrastructure to integrate its
marketing, design and prototype and manufacturing functions in the United States
with its high volume manufacturing operations in Asia. The Company's success in
developing new customers, depends in part on its ability to convince OEMs that
the advantages of the Company's principally Asia-based manufacturing operations
outweigh any perceived inconvenience or uncertainty of overseas manufacturing.
See "Risk Factors -- Risks of International Operations," and "-- Management of
Growth and Expanded Operations."
SERVICES
The Company offers a broad range of integrated advanced electronic
manufacturing services to OEMs in the computer peripherals, data communications
and telecommunications and other market segments.
Custom Design Services. The Company's custom design services include
initial PCB design, design for manufacturability and prototype production. The
objective of these services is to improve product manufacturability, decrease
time to market and reduce overall costs. The Company's design center located in
San Jose, California, together with its access to engineering resources in
Pakistan, offers twenty-four hour-a-day product design services. This center,
acquired by the Company in connection with the Pentagon Systems acquisition, has
over ten years of experience in assisting customers with initial circuit board
design and has expertise in
28
<PAGE> 30
radio frequency products, PCBs with higher layer counts, and complex PCB
assemblies where components require ball-grid array and/or fine pitch packaging.
Materials Management. From its Hong Kong-based logistics center, the
Company provides comprehensive materials management, including planning,
purchasing, scheduling and other activities associated with the manufacturing
process. The Company has extensive experience in materials management,
particularly with product lines characterized by rapid volume ramps, schedule
changes and short product life cycles. The Company generally orders components
after it has a firm purchase order or formal authorization from the customer and
uses real time inventory management tools and automated material tracking
systems to achieve inventory accuracy and efficiency. The Company's materials
management capabilities assist customers in reducing manufacturing costs and
total cycle time. The Company's primary materials procurement function is
located in Hong Kong near low cost suppliers of electronic components and
box-build materials.
Assembly and Manufacturing. The Company provides a broad range of
electronics assembly and manufacturing services, including PCB assembly and the
manufacture of both subsystems and complete products. The majority of such
products incorporate complex, high density surface-mount assemblies. The PCB
assembly activity primarily consists of the placement and attachment of
electronic and mechanical components on printed circuit boards using both
surface-mount and pin-through-hole technologies. The Company has recently added
press fit technology to its existing capabilities for the manufacturing of
backplane assemblies. The Company is continually evaluating the advantages and
feasibility of new manufacturing technologies and intends to continue to invest
in new technologies to maintain its reputation for advanced manufacturing
capabilities. The Company is also establishing a system of standardized
processes, equipment and quality procedures to provide maximum flexibility,
process consistency and interchangeability across multiple production lines and
facilities.
In addition, the Company performs box-build assembly of customer products.
Such services can include procurement and assembly of sheet metal, plastics,
cables, connectors, power supplies and other materials. Such completed products
are then packaged and shipped by the Company to the customer or, in certain
instances, directly to its distribution channel or end users. The Company's
development of this box-build capability is intended to take advantage of the
lower cost structures of its Asia-based operations and their proximity to
manufacturers of electronics and box-build components.
Testing Services. The Company provides a range of test capabilities,
including development and implementation of test software and test fixtures for
in-circuit testing, functional testing, system level testing, burn-in and
environmental stress testing. The breadth of these capabilities is designed to
ensure that the Company provides its customers with high quality products which
reduce the need for OEMs to perform separate or repeat testing.
Logistics Support and Distribution Services. The Company's logistics
services include disk duplication (floppy/CD ROM), documentation duplication
(manuals, warranty cards, etc.) and other customer packaging requirements.
Products may be distributed directly to the customer, the customer's
distribution center or directly to the end user. The Company also offers
just-in-time delivery programs allowing shipments of PCB assemblies or
subsystems to be coordinated with the customer's manufacturing process.
Depot Repair Services. The Company's depot repair capability enables its
customers to service products in different markets. These services include
warranty and post-warranty repairs and field return failures.
The markets for the products of the Company's customers are highly
competitive. The Company believes that its future success will depend upon its
ability to market manufacturing services which meet changing customer needs,
maintain technological leadership and successfully anticipate or respond to
technological changes in manufacturing processes on a cost-effective and timely
basis. There can be no assurance that the Company will be successful in
providing these services. See "Risk Factors."
CUSTOMERS, SALES AND MARKETING
The Company's customers consist of OEMs in the computer peripherals, data
communications and telecommunications and other sectors of the electronics
industry. Over the last two fiscal years, the Company
29
<PAGE> 31
has evolved from being a captive EMS provider to Maxtor to an independent EMS
provider serving 15 additional OEM customers. These customers collectively
represented approximately 55.9% of total revenues for the three months ended
July 31, 1997. For the fiscal years ended March 31, 1995 and 1996 and April 30,
1997, and for the three months ended July 31, 1997, Maxtor accounted for
approximately 92.0%, 83.1%, 48.6% and 44.1% of total revenues, respectively. For
fiscal 1996 and 1997, and for the three months ended July 31, 1997, Bay Networks
accounted for approximately 1.6%, 31.3% and 42.1% of the Company's total
revenues, respectively. For fiscal 1996, Diamond Multimedia accounted for
approximately 12.8% of total revenues.
The following table presents information about certain of the Company's key
customers with which the Company has conducted business since May 1, 1996.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
INDUSTRY SEGMENT CUSTOMER CUSTOMER END PRODUCT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer Peripherals and Diamond Multimedia Systems, Inc. Multimedia Graphics Cards
Components Maxtor Corporation Hard Disk Drives
Symbios Logic Inc. Scanner Controllers
- ----------------------------------------------------------------------------------------------------------
Data Communications Asante Technologies, Inc. Networking Devices
Bay Networks, Inc. Networking Devices
Farallon Communications, Inc. Networking Devices
- ----------------------------------------------------------------------------------------------------------
Telecommunications Advanced Fibre Communications, Inc. Telecommunications Switching
Equipment
Polycom, Inc. Telecommunications Conferencing
Equipment
- ----------------------------------------------------------------------------------------------------------
Industrial Polaroid Corporation Scanners
Semi Power Systems, Inc. Motor Control Electronics
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Company has also provided product design or prototyping services to a
number of customers, including National Semiconductor Corporation, S3
Incorporated, LSI Logic Corporation, Sony Corporation and 3Com Corporation.
The Company sells its services to OEMs in the electronics industry
worldwide through its sales and marketing staff and its senior executive
management. As of July 31, 1997, the Company employed 42 persons in its sales,
marketing and program management departments. Moreover, each member of the
Company's executive staff is assigned responsibility for specific high-level
relationships with both existing key customers and prospective accounts. In
addition, the Company's sales and marketing staff works closely with two
manufacturers' representatives in developing relationships with additional OEM
customers and providing sales force coverage to the eastern and southwestern
regions of the United States.
Significant reductions in sales to any of the Company's principal
customers, or the loss of any major customer, would have a material adverse
effect on the Company. There can be no assurance that Maxtor and Bay Networks
will continue to purchase services from the Company, at current levels, or at
all, or that the Company will be successful in its strategy to diversify its
customer base. These risks are accentuated because a majority of the Company's
sales are to customers in the electronics industry, which is subject to rapid
technological change and product obsolescence. The Company is, therefore,
dependent on the continued growth, viability and financial stability of its
customers, which are in turn substantially dependent on the growth of the
computer peripherals, data communications, telecommunications and other sectors
of the electronics industry. The factors affecting the electronics industry in
general, or any of the Company's major customers in particular, could have a
material adverse effect on the Company. See "Risk Factors -- Customer
Concentration; Dependence on Certain Industries."
BACKLOG
The Company's backlog was $50.5 million at March 30, 1996, $53.6 million at
April 30, 1997 and $88.5 million at July 31, 1997. Backlog consists of purchase
orders and firm forecasts with delivery dates scheduled within the next six
months. The Company believes that the EMS industry has been increasingly
characterized by shorter lead times for customer orders and the implementation
of just-in-time systems. For
30
<PAGE> 32
these reasons, and because of the timing of orders, delivery intervals, customer
and product mix and the possibility of customer changes in delivery schedules,
the Company's backlog as of any particular date may not be a meaningful
indicator of future financial results.
COMPETITION
The electronics assembly and manufacturing industry is intensely
competitive and consists of numerous local, national and international
companies, a number of which have achieved substantial market share. The Company
believes that the primary competitive factors in its targeted markets are cost,
manufacturing technology, product quality, responsiveness and flexibility, the
range of services provided and the location of facilities. To be competitive,
the Company must provide technologically advanced manufacturing services, high
product quality levels, flexible delivery schedules and reliable delivery of
finished products on a timely and price competitive basis. Failure to satisfy
any of the foregoing requirements could materially and adversely affect the
Company's competitive position. The Company competes against numerous domestic
and foreign manufacturers, including Flextronics International Ltd., Jabil
Circuits, Inc., Sanmina Corporation, SCI Systems, Inc., Solectron Corporation,
as well as certain large Asia-based companies. The Company also faces indirect
competition from the manufacturing operations of its current and prospective
customers, which continually evaluate the merits of manufacturing products
internally compared to the use EMS providers. Many of the Company's competitors
have more geographically diversified international operations, as well as
greater manufacturing, financial, volume procurement, research and development
and marketing resources than the Company. In recent years, the EMS industry has
attracted new entrants, including large OEMs with excess manufacturing capacity,
and many existing participants have substantially expanded their manufacturing
capacity by expanding their facilities and adding new facilities through both
internal expansion and acquisitions. In the event of a decrease in overall
demand for EMS services, this increased capacity could result in substantial
pricing pressures, which could have a material adverse effect on the Company's
business, financial condition or operating results.
EMPLOYEES
At July 31, 1997, the Company had 2,257 employees. None of the Company's
employees is represented by a labor union. The Company believes that its
employee relations are good.
Recruitment of personnel in the EMS industry is highly competitive. The
Company believes that its future success will depend, to a large extent, on its
ability to attract and retain key employees. Although to date the Company has
been successful in retaining key managerial employees the loss of services of
certain of these key employees, particularly members of executive management,
could have a material adverse effect on the Company.
31
<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The following table sets forth certain information regarding the executive
officers, directors and other key employees of the Company as of July 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Executive Officers and Directors
Robert G. Behlman.................. 53 President, Chief Executive Officer and
Chairman of the Board of Directors
Nathan Kawaye...................... 44 Senior Vice President and Chief Financial
Officer
Neo Kia Quek....................... 50 Senior Vice President, Manufacturing
Operations
William J. Almon(1)................ 64 Director
Dixon R. Doll...................... 54 Director
John A. Downer(2).................. 39 Director
Fredric W. Harman(1)............... 37 Director
Mark Rossi(1)...................... 41 Director
J. Larry Smart(2).................. 50 Director
Paul J. Tufano(2).................. 43 Director
Other Key Employees
Anthony Pham....................... 37 Vice President, Sales and Customer Support
Iris Grable........................ 48 Vice President, Marketing and Business
Development
Muder Kothari...................... 43 Vice President, and General Manager, United
States Operations
Gary M. Workman.................... 51 Senior Vice President, Business Development
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Robert G. Behlman has been President, Chief Executive Officer and Chairman
of the Board of Directors of the Company since its formation in November 1994.
From July 1994 to November 1994, Mr. Behlman served as a consultant to Maxtor, a
manufacturer of hard disk drives. From September 1992 until May 1994, Mr.
Behlman served as Vice President and Chief Operating Officer of Sanmina
Corporation, an integrated electronics manufacturer. From August 1988 until
September 1992, Mr. Behlman held senior management positions at SCI, a contract
manufacturer of electronic components, including Vice President of Business
Development (Western Region) from March 1991 to September 1992 and Vice
President and General Manager (San Jose, California plant) from August 1988 to
March 1991. Mr. Behlman received a B.S. in Industrial Engineering from
California Polytechnic University, Pomona.
Nathan Kawaye has served as Senior Vice President and Chief Financial
Officer of the Company since August 1996. From November 1991 to July 1996, Mr.
Kawaye held senior management positions at Maxtor, including Vice President and
Chief Financial Officer. From 1989 to 1991, Mr. Kawaye was Vice President,
Finance and Administration and Chief Financial Officer of Sigma Circuits, a
manufacturer of printed circuit boards. Mr. Kawaye held various financial
management positions including Vice President, Chief Financial Officer of Priam
Corporation, a disk drive manufacturer, from 1983 to 1989 and held financial
management positions at Intel Corporation from 1979 to 1983. Mr. Kawaye received
a B.S. in Biochemistry from the University of California at Berkeley and a
M.B.A. from the University of California at Los Angeles.
Neo Kia Quek has served as Senior Vice President, Manufacturing Operations
since the Company's inception in November 1994. From 1988 to November 1994, Mr.
Quek held various management positions at SCI including Plant Manager and Vice
President (Thailand). Previously, Mr. Quek was at Seagate Technology, Inc., a
disk drive manufacturer, heading its worldwide repair center in Singpore, and
held various
32
<PAGE> 34
management positions at General Electric Corporation (Singapore), including
Managing Director. Mr. Quek received degrees from the Singapore Technical
Teacher's College and the Singapore Institute of Management.
William J. Almon has been a director of the Company since June 1996. He has
served as Chairman of the Board of Directors and Chief Executive Officer of
StorMedia Incorporated ("StorMedia"), a supplier of thin film disks for hard
disk drives, since May 1994. Prior to joining StorMedia, Mr. Almon served as an
independent consultant from February 1993 to May 1994. From 1988 to February
1993, Mr. Almon was President and Chief Operating Officer of Conner Peripherals,
Inc., an independent disk drive manufacturer. Prior thereto, Mr. Almon served in
various management capacities, including Vice President, Low End Storage
Products, of IBM. Mr. Almon is also a director of Read-Rite Corporation, a
supplier of thin film magnetic heads for disk drives, and Sigma Designs, Inc., a
provider of multimedia imaging display systems. Mr. Almon received a B.S. in
Electrical Engineering from the United States Military Academy, West Point.
Dixon R. Doll has been a director of the Company since June 1996. He has
served as Managing General Partner of Doll Capital Management, a venture capital
investment firm, since June 1996. From September 1994 to June 1996, Mr. Doll was
an independent venture capitalist. From 1985 to September 1994, Mr. Doll served
as General Partner of Accel Partners, a venture capital investment firm. Mr.
Doll has held various senior management positions at DMW Group LLC and
predecessor entities, including Chairman of the Board of Directors and Chief
Executive Officer, from 1973 to the present. Mr. Doll is also a director of
Network Equipment Technologies, Inc., a manufacturer of multi-service
communications products, Racotek, Inc., a supplier of mobile data communication
software, and a number of private companies. Mr. Doll received a B.S. in
Electrical Engineering from Kansas State University and a M.S.E. and Ph.D. from
the University of Michigan.
John A. Downer has been a director of the Company since June 1996. Since
December 1996, Mr. Downer has served as Managing Director of Cornerstone Equity
Investors, L.L.C. ("Cornerstone"), a venture capital firm and successor to
Prudential Equity Investors, Inc. ("Prudential"). From 1989 to December 1996,
Mr. Downer was a partner of various venture capital funds managed by Prudential.
Mr. Downer is also a director of StorMedia. Mr. Downer received a B.A., M.B.A.
and J.D. from Harvard University.
Fredric W. Harman has been a director of the Company since June 1996. Mr.
Harman has served as General Partner of Oak Investment Partners, a venture
capital firm, since July 1994. From 1991 to July 1994, Mr. Harman was General
Partner of Morgan Stanley Venture Capital, Inc., a venture capital firm. Mr.
Harman is also a director of ILOG S.A., a provider of software components for
computer graphics and resource optimization, and SPSS Inc., a developer of
statistical software products. Mr. Harman received a B.S. and a M.S. in
Electrical Engineering from Stanford University and a M.B.A. from Harvard
University.
Mark Rossi has been a director of the Company since 1996. Mr. Rossi has
served as Senior Managing Director of Cornerstone since December 1996. From 1983
to 1996, Mr. Rossi was a partner of various venture capital funds managed by
Prudential. Mr. Rossi is also a director of StorMedia. Mr. Rossi holds a B.A.
from Saint Vincent College and a M.B.A. from Northwestern University.
J. Larry Smart has been a director of the Company since June 1996. He has
served as Chief Executive Officer and a director of Visioneer, Inc., a developer
and marketer of intelligent paper input systems and image management software,
since April 1997. From July 1995 to March 1997, Mr. Smart served as Chief
Executive Officer, President and Chairman of the Board of Directors of
Streamlogic Corporation (formerly Micropolis Corporation), a developer and
marketer of data management solutions. From April 1994 to March 1995, Mr. Smart
served as President and Chief Executive Officer of Maxtor, and from 1991 to
February 1994, he was Chief Executive Officer and a director of Southwall
Technologies, Inc., a manufacturer of commercial, thin-film materials. Mr. Smart
is also a director of Western Micro Technology, Inc., a computer systems
distributor. Mr. Smart received a B.S.I.M. from the Georgia Institute of
Technology and a M.B.A. from Southern Methodist University.
33
<PAGE> 35
Paul J. Tufano has been a director of the Company since October 1996. Since
August 1996, Mr. Tufano has served as Vice President, Finance and Chief
Financial Officer of Maxtor. From 1979 to July 1996, Mr. Tufano held various
management positions at IBM, including manager of worldwide logistics for IBM's
Storage Systems Division from October 1995 to July 1996. Mr. Tufano holds a B.S.
in Economics from St. John's University and a M.B.A. from Columbia University.
Anthony Pham has been Vice President, Sales and Customer Support since the
Company's formation in November 1994. From 1984 to November 1994, Mr. Pham
served in management positions, including International Business Development
Manager, at SCI. Mr. Pham received a B.S. in Computer Science from the
California Sate University at Hayward.
Iris Grable has been Vice President, Marketing and Business Development of
the Company since its formation in November 1994. From November 1993 to November
1994 she served as Asian Sales Manager at AVEX Electronics Corporation, an EMS
provider, and from May 1988 to November 1994, Ms. Grable served as Marketing
Manager at SCI. Prior thereto, Ms. Grable held management positions at
Micropolis Corporation and Pertec Peripheral Corporation, a computer peripherals
manufacturer. Ms. Grable received a B.S. in Business Management from Pepperdine
University.
Muder Kothari has served as the Company's Vice President and General
Manager, United States Operations since the Company acquired Pentagon Systems in
January 1997. Mr. Kothari founded Pentagon Systems, and from its inception in
December 1987 to December 1996 served as its President and Chief Executive
Officer. From 1982 to 1987, Mr. Kothari held management positions at
Ungermann-Bass, Inc., a network computer systems provider.
Gary M. Workman joined the Company as Senior Vice President, Business
Development in December 1996. From 1972 to November 1996, Mr. Workman held
various management positions at Anixter International, Inc., a distributor of
LAN and WAN solutions, including President of Anixter Asia/Pacific Division
(Singapore) from 1992 to November 1996. Mr. Workman received a B.S. in Business
and Marketing from Central Washington University.
BOARD OF DIRECTORS
The Company's Board of Directors has eight members, including seven
non-employee directors. Messrs. Behlman, Tufano, Downer and Rossi were elected
directors pursuant to a stockholders agreement; the provisions providing for
their appointments terminate upon effectiveness of this Offering, except as to
Mr. Tufano. Maxtor is contractually entitled to appoint one director to the
Company's Board of Directors until such time as the Maxtor Notes have been fully
repaid and Maxtor holds fewer than 1,492,500 shares of Class A Common Stock.
In July 1996, the Board of Directors formed a Compensation Committee and an
Audit Committee. Prior thereto, decisions regarding the compensation of
executive officers were made by the Board of Directors as a whole. The
Compensation Committee, which currently consists of Messrs. Rossi, Harman and
Almon, makes recommendations to the Board concerning the compensation for the
Company's officers and administers the Company's 1996 Stock Option Plan, 1997
Stock Plan, 1997 Director Option Plan and 1997 Employee Stock Purchase Plan and
1997 Non-U.S. Employee Stock Purchase Plan. The Audit Committee, which currently
consists of Messrs. Downer, Smart and Tufano, reviews the Company's financial
controls, evaluates the scope of the annual audit, reviews audit results,
consults with management and the Company's independent auditors prior to the
presentation of financial statements to stockholders, and, as appropriate,
initiates inquiries into aspects of the Company's internal accounting controls
and financial affairs.
DIRECTOR COMPENSATION
Directors receive no cash remuneration for serving on the Board of
Directors but are reimbursed for reasonable out-of-pocket expenses they incur in
attending board and committee meetings. Messrs. Almon, Doll and Smart each
received options to purchase 37,500 shares of Class A Common Stock upon their
initial elections, pursuant to the 1996 Stock Option Plan. Upon effectiveness of
this Offering, directors who are
34
<PAGE> 36
employees of the Company will be eligible to receive stock options pursuant to
the 1996 Stock Option Plan and 1997 Stock Plan; non-employee directors will
receive stock options pursuant to the automatic option grant provisions of the
1997 Director Option Plan and will be eligible to receive stock options pursuant
to the 1997 Stock Plan. Options to purchase 10,000 shares of Class A Common
Stock will be automatically granted to each of the Company's non-employee
directors contingent upon this Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Rossi, Harman and
Almon. No member of the Compensation Committee or executive officer of the
Company has a relationship that would constitute an interlocking relationship
with executive officers and directors of another entity.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's certificate of incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for any
liability arising with respect to (i) any breach of their duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, or (iii) any
transaction from which the director derived an improper personal benefit.
The Company's certificate of incorporation further provides that the
Company must indemnify its directors and executive officers and may indemnify
its other officers and employees and agents to the fullest extent permitted by
Delaware law. The Company believes that indemnification under its certificate of
incorporation covers negligence and gross negligence on the part of indemnified
parties. The Company's certificate of incorporation also permits the Company to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether Delaware law would permit indemnification.
The Company has entered into agreements to indemnify its directors and
officers, in addition to indemnification provided for in the Company's
certificate of incorporation. These agreements, among other things, require the
Company to indemnify such directors and officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
the Company, arising out of such person's services as a director or officer of
the Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company and to obtain
directors and officers liability insurance, if available, on reasonable terms.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification would
be required or permitted. The Company is not aware of any pending or threatened
litigation or proceeding that might result in a claim for such indemnification.
35
<PAGE> 37
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation paid by the Company during the fiscal year ended April 30, 1997 to
the Company's Chief Executive Officer and each of the Company's other executive
officers whose salary and bonus for such fiscal year exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS
- --------------------------------------------- -------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Robert G. Behlman............................ $217,598 $57,000 $ 206,045(2) 825,000
President, Chief Executive Officer and
Chairman of the Board of Directors
Nathan Kawaye(3)............................. 134,987 26,250 -- 225,000
Senior Vice President and Chief Financial
Officer
Neo Kia Quek................................. 220,578 95,811 -- 262,500
Senior Vice President, Manufacturing
Operations
</TABLE>
- ---------------
(1) Excludes perquisites and other personal benefits, which for each Named
Executive Officer did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for such officer.
(2) Consists of a release by the Company of Mr. Behlman's payment obligations
under a full recourse promissory note in connection with the purchase of
150,000 shares of the Company's Class A Common Stock and compensation in the
amount of Mr. Behlman's tax liability associated therewith. See "Certain
Transactions."
(3) Mr. Kawaye's employment with the Company commenced August 1, 1996.
Accordingly, salary and bonus amounts reflect service for only that portion
of the fiscal year in which Mr. Kawaye served as an employee of the Company.
STOCK OPTIONS
The following table sets forth, as to the Named Executive Officers,
information concerning stock options granted during the fiscal year ended April
30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
---------------------------------------------------- ASSUMED ANNUAL RATE OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(5)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
GRANTED(1) FISCAL YEAR(2) SHARE(3) DATE(4) 5% 10%
---------- -------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Behlman........... 825,000 30.0% $0.74 06/12/06 $382,621 $969,643
Nathan Kawaye............... 225,000 8.2 0.74 06/12/06 104,351 264,448
Neo Kia Quek................ 262,500 9.5 0.74 06/12/06 121,743 308,523
</TABLE>
- ---------------
(1) All options were granted on June 13, 1996 under the Company's 1996 Stock
Option Plan, were vested as to 25% of the shares at the date of grant, and
continue to vest at the rate of 1/16 of the remaining shares at the end of
each quarterly anniversary thereafter, subject to continued service as an
employee or consultant; provided that each quarterly vesting date shall be
accelerated by the equivalent of one year upon consummation of this
Offering. The term of each option is ten years.
(2) Based upon options to purchase an aggregate of 2,752,500 shares of Class A
Common Stock that were granted to employees, including the Named Executive
Officers, during the fiscal year ended April 30, 1997.
(3) The exercise price per share of each option was equal to the fair market
value of the underlying Class A Common Stock on the date of grant as
determined by the Board of Directors.
(4) Options may terminate before their expiration date if the optionee's status
as an employee or consultant is terminated or upon the death of the
optionee.
(5) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
are dependent on the future financial performance of the Company, overall
market conditions and the option holder's continued employment through the
vesting period.
36
<PAGE> 38
On September , 1997, the Compensation Committee of the Board of Directors
approved, contingent upon this Offering, the grant of options to purchase at the
public offering price shares and shares of Class A Common
Stock, to Messrs. Kawaye and Quek, respectively, under the 1997 Stock Plan.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option exercises and
unexercised options for the fiscal year ended April 30, 1997 with respect to
each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Behlman.............. -- -- 322,266 502,734 $ 402,872 $ 634,721
Nathan Kawaye.................. -- -- 87,892 137,108 $ 110,965 $ 173,106
Neo Kia Quek................... -- -- 102,539 159,961 $ 129,459 $ 201,957
</TABLE>
- ---------------
(1) Calculated by determining the difference between the fair market value of
the Common Stock as of the fiscal year ended April 30, 1997 ($2.00) and the
per share exercise price of the options.
COMPENSATION PLANS
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted in June
1996. The 1996 Plan provides for the grant to employees of the Company
(including officers and employee directors) of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for the grant of nonstatutory stock options to employees and
consultants of the Company. The 1996 Plan may be administered by the Board of
Directors or a committee of the Board of Directors (the "Administrator") in a
manner that complies with Rule 16b-3 of the Securities Exchange Act of 1934, as
amended. The Administrator has discretion, within the limits of the 1996 Plan,
to select the optionees, determine the number of shares to be subject to each
option and determine the exercise price of each option. The 1996 Plan authorizes
the issuance of up to 3,352,500 shares of Common Stock. As of July 31, 1997,
37,500 shares had been issued pursuant to the 1996 Plan, options to purchase
2,895,000 shares were outstanding, and 420,000 shares remained available for
future grants. The exercise price of incentive stock options granted under the
1996 Plan must be at least equal to the fair market value per share of the
Common Stock on the date of grant. The exercise price of nonstatutory stock
options granted under the 1996 Plan is determined by the Administrator. With
respect to any participant who owns stock possessing more than 10% of the voting
power of all classes of stock of the Company, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the maximum term of the option must not exceed five years.
The term of all other options granted under the 1996 Plan may not exceed ten
years.
In the event of a merger of the Company with or into another corporation,
or the sale of all or substantially of the assets of the Company, the 1996 Plan
requires that each outstanding option be assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of such
successor corporation. If the successor corporation refuses to assume or
substitute for the options, the optionee will have the right to exercise the
option as to all or a portion of the stock subject thereto, including shares
which would not otherwise be exercisable. Unless terminated sooner, the 1996
Plan will terminate ten years from its effective date. The Board has authority
to amend or terminate the 1996 Plan, provided no such action may impair the
rights of any optionholder without the written consent of such holder.
37
<PAGE> 39
1997 Stock Plan
The Company's 1997 Stock Plan (the "1997 Plan") was adopted in August 1997
and will become effective upon this Offering. The 1997 Plan provides for the
grant to employees of the Company (including officers and employee directors) of
incentive stock options, and for the grant of nonstatutory stock options and
stock purchase rights to employees, directors and consultants of the Company. As
with the 1996 Plan, the 1997 Plan is administered by the Board of Directors or a
committee of the Board of Directors, which selects the optionees, determines the
number of shares subject to each option or right and determines the exercise
price of each option or right. The 1997 Plan authorizes the issuance of up to
1,750,000 shares of Class A Common Stock. The exercise price of incentive stock
options granted under the 1997 Plan must be at least equal to the fair market
value of the Class A Common Stock on the date of grant. The exercise price of
nonstatutory stock options granted under the 1997 Plan is determined by the
Administrator. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of stock of the Company, the
exercise price of any incentive stock option granted must equal at least 110% of
the fair market value on the grant date, and the maximum term of an incentive
stock option must not exceed five years. The term of all other options granted
under the 1997 Plan may not exceed ten years. No person may receive an option
for more than 250,000 shares in any one fiscal year, except that an employee may
receive an option for up to 500,000 shares in the year such employee is hired by
the Company.
In the event of a merger of the Company with or into another corporation,
or the sale of all or substantially all of the assets of the Company, the 1997
Plan requires that each outstanding option or right be assumed or an equivalent
option or right substituted by the successor corporation or a parent or
subsidiary of such successor corporation. If the successor corporation refuses
to assume or substitute for the options, the optionee will have the right to
exercise the option or right as to all or a portion of the stock subject
thereto, including shares which would not otherwise be exercisable. Unless
terminated sooner, the 1997 Plan will terminate ten years from its effective
date. The Board has authority to amend or terminate the 1997 Plan, provided no
such action may impair the rights of the holder of any outstanding options or
rights without the written consent of such holder.
1997 Director Option Plan
The Company's 1997 Director Option Plan (the "Director Plan") was adopted
in August 1997 and will become effective upon the closing of this Offering. A
total of 225,000 shares of Common Stock has been reserved for issuance under the
Director Plan. The Director Plan provides for the grant of nonstatutory stock
options to nonemployee directors of the Company (the "Outside Directors"). The
grants are made pursuant to an automatic, nondiscretionary grant mechanism. The
Director Plan provides that each Outside Director is granted a nonstatutory
stock option to purchase 25,000 shares of Common Stock on the date upon which
such person first becomes an Outside Director (the "First Option"). Thereafter,
each Outside Director is automatically granted an option to purchase 10,000
shares of Common Stock on the date such Outside Director is reelected to the
Board of Directors by the Company's stockholders at the Company's annual meeting
of stockholders (a "Subsequent Option"), if, on such date, such Outside Director
has served on the Company's Board of Directors for at least six months. Outside
Directors on the effective date of the Company's this Offering will receive
nonstatutory stock option for 10,000 shares of Class A Common Stock (the "IPO
Option"). The Director Plan provides that the First Option, the IPO Option and
the Subsequent Option become exercisable as to 25% of the shares subject to the
option one year after the grant date and as to 1/48 of the shares subject to the
option for each month thereafter. The exercise price per share of all options
granted under the Director Plan is equal to the fair market value of a share of
the Company's Common Stock on the date of grant. Options granted to Outside
Directors under the Director Plan have a ten year term, but terminate earlier
upon termination of an Outside Director's status as a director. In the event of
the merger or sale of substantially all of the assets of the Company, all
outstanding options must be assumed or substituted by the successor corporation,
or if they are not assumed or substituted for, they become fully vested and
exercisable. If the options are assumed or substituted for, they also will
become fully exercisable if the director is terminated other than upon voluntary
termination. Until terminated earlier, the Director Plan has a term of ten
years.
38
<PAGE> 40
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in August 1997 and will become effective upon the closing of this
Offering. A total of 250,000 shares of Common Stock less any shares issued under
the 1997 Non-U.S. Employee Stock Purchase Plan has been reserved for issuance
under the Purchase Plan. The Purchase Plan, which is intended to qualify under
Section 423 of the Code, will have successive six month offering periods, with
the first offering period commencing on the date of the closing of this Offering
and ending on the last business day in the period ending May 31, 1998. Employees
are eligible to participate if they are regularly employed by the Company for at
least twenty hours per week and more than five months in any calendar year.
The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 15% of an employee's base
compensation, including commissions, but exclusive of bonuses and overtime, at a
price equal to 85% of the fair market value of the Common Stock at either the
beginning or the end of each six month offering period, whichever is lower. In
the event of a merger of the Company with or into another corporation, or the
sale of all or substantially all of the assets of the Company, the Purchase Plan
provides that a new exercise date will be set for each option under the plan,
which exercise date must occur before the date of the merger or asset sale.
Unless terminated sooner, the Purchase Plan will terminate ten years after its
effective date. The Board of Directors has authority to amend or terminate the
Purchase Plan, provided no such action may adversely affect the rights of any
participant.
1997 Non-U.S. Employee Stock Purchase Plan
The Company's 1997 Non-U.S. Employee Stock Purchase Plan (the "Non-U.S.
Purchase Plan") was adopted in August 1997 and will become effective upon the
closing of this Offering. A total of 250,000 shares of Class A Common Stock less
any shares issued under the Purchase Plan has been reserved for issuance under
the Non-U.S. Purchase Plan. The Non-U.S. Purchase Plan has the same terms as the
Purchase Plan except that the Non-U.S. Purchase Plan is not qualified under
Section 423 of the Code and the Board of Directors may vary the terms of the
Non-U.S. Purchase Plan to conform to applicable local law.
Management Incentive Plan
The Company has adopted a Management Incentive Plan designed to reward
management and key employees for achieving certain financial performance
objectives determined by the Board of Directors on an annual basis. Quarterly
payouts are set as a percentage of base compensation, subject to certain
holdbacks for officers of the Company.
39
<PAGE> 41
CERTAIN TRANSACTIONS
Prior to June 1996, the Company's business was operated through certain
wholly-owned subsidiaries of Maxtor Corporation. In June 1996, the Company
effected a series of related transactions, whereby these subsidiaries were
consolidated as subsidiaries of the Company, and the Company was recapitalized
as an independent entity. To effect such a consolidation, Maxtor first
contributed to the Company all outstanding stock of IMS International
Manufacturing Services Limited, an exempted company incorporated in the Cayman
Islands; IMS International Manufacturing Services (Thailand) Limited, a company
organized under the laws of Thailand; and IMS International Manufacturing
Services (Hong Kong) Limited, a company organized under the laws of Hong Kong.
The Company then raised $25.0 million through the issuance of (a) 3,390,000
shares of Common Stock at a per share purchase price of $0.74, (b) 6,000,000
shares of Preferred Stock at a per share purchase price of $1.67, which shares
are convertible into 6,000,000 shares of Common Stock and (c) subordinated
promissory notes in the aggregate principal amount of $12.5 million. These
securities were issued to a number of new investors, including Prudential
Private Equity Investors III, L.P., Oak Investment Partners VI, L.P. and Oak
Affiliates Fund L.P., Brinson Venture Capital Fund III, L.P. and Brinson Trust
Company, Doll Technology Investment Fund, and certain other investors, including
directors William J. Almon and J. Larry Smart. John A. Downer and Mark Rossi,
also directors of the Company, are a Managing Director and a Senior Managing
Director, respectively, of Cornerstone Equity Investors, L.L.C., which serves as
the investment advisor for Prudential Equity Investors, Inc., the general
partner of Prudential Private Equity Investors III, L.P. Fredric W. Harman,
another director of the Company, is a General Partner of Oak Investment
Partners, which manages Oak Investment Partners VI, L.P. and Oak Affiliates Fund
L.P. Dixon R. Doll, another director of the Company, is the Managing Director of
Doll Capital Management, which is the General Partner of Doll Technology
Investment Fund. The Company also obtained a revolving credit facility of $32.0
million.
The following table sets forth the aggregate number of shares of Common
Stock, Preferred Stock and Subordinated Notes received by each of the principal
parties in connection with the Recapitalization and the amount of consideration
contributed therefor.
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE PRINCIPAL
NUMBER OF PURCHASE NUMBER OF PURCHASE AMOUNT OF
SHARES OF PRICE FOR SHARES OF PRICE FOR SUBORDINATED TOTAL
COMMON COMMON PREFERRED PREFERRED NOTES PURCHASE
STOCK STOCK STOCK(1) STOCK PURCHASED PRICE
--------- ---------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Prudential Private Equity
Investors III, L.P.................... 1,637,370 $1,207,500 2,898,000 $4,830,000 $6,037,500 $12,075,000
Entities Associated with Oak Investment
Partners.............................. 1,356,000 1,000,000 2,400,000 4,000,000 5,000,000 10,000,000
Entities Associated with Brinson
Partners, Inc......................... 277,980 205,000 492,000 820,000 1,025,000 2,050,000
Doll Technology Investment Fund......... 71,400 25,000 60,000 100,000 125,000 250,000
William J. Almon........................ 33,900 25,000 60,000 100,000 125,000 250,000
J. Larry Smart.......................... 13,560 10,000 24,000 40,000 50,000 100,000
</TABLE>
- ---------------
(1) Of the Preferred Stock issued to Prudential Private Equity Investors III,
L.P., 388,575 shares were issued as Series A Preferred Stock, and 2,509,425
shares were issued as Series B Preferred Stock. The Preferred Stock issued
to all other persons was issued as Series A Preferred Stock.
In connection with the above transactions, the Company redeemed from
Maxtor, shares of Common Stock representing approximately 76.5% of the Company's
then outstanding capital stock in exchange for $25.0 million in cash, three
senior subordinated notes from the Company in the aggregate principal amount of
$20.0 million, and a warrant to purchase 300,000 shares of Common Stock at an
exercise price of $6.67 per share. For accounting purposes, the redemption of
Maxtor's share ownership was treated as a recapitalization and, accordingly, no
change in the accounting basis of the Company's assets was made. See Note 1 of
Notes to Consolidated Financial Statements.
In June 1996, Robert G. Behlman, the Company's President, Chief Executive
Officer and Chairman of the Board of Directors, purchased 75,000 shares of Class
A Common Stock for an aggregate purchase price of $55,310 paid in cash, and an
additional 150,000 shares of Class A Common Stock for an aggregate purchase
40
<PAGE> 42
price of approximately $110,619 paid by means of a full recourse promissory note
in favor of the Company. This note was forgiven on July 26, 1996 in recognition
of Mr. Behlman's contribution to the successful completion of the
Recapitalization and Mr. Behlman's tax liability associated therewith was paid
by the Company as compensation.
The following summarizes the number of shares of Class A Common Stock
purchased on June 13, 1996 by Named Executive Officers, and the number of shares
of Class A Common Stock subject to options granted to each officer and director:
Robert G. Behlman purchased 225,000 shares of Common Stock (as set forth above)
and was granted stock options to purchase 825,000 shares; Nathan Kawaye
purchased 75,000 shares of
Common Stock and was granted stock options to purchase 225,000 shares; Neo Kia
Quek purchased 75,000 shares of Common Stock and was granted stock options to
purchase 262,500 shares; William J. Almon was granted stock options to purchase
37,500 shares; Dixon R. Doll was granted options to purchase 37,500 shares of
Class A Common Stock (which options were subsequently exercised and the
resulting shares subjected to a similar vesting schedule with respect to a
repurchase right in favor of the Company); and J. Larry Smart was granted stock
options to purchase 37,500 shares. These options and restricted stock were
granted under the 1996 Stock Option Plan, were vested as to 25% of the shares at
the date of grant and continue to vest at the rate of 1/16 of the remaining
shares at the end of each quarterly anniversary thereafter, subject to continued
service to the Company, provided that each quarterly vesting date shall be
accelerated by the equivalent of one year upon consummation of this Offering.
In June 1996 in connection with the Recapitalization, the Company entered
into a Manufacturing Services Agreement (the "Manufacturing Agreement") with
Maxtor. Pursuant to the Manufacturing Agreement, the Company agreed for a three
year term to provide certain products and manufacturing services to Maxtor at
specified prices per unit. In addition, Maxtor has agreed, subject to certain
conditions, to place purchase orders for the Company's manufacture of such
products in accordance with certain minimum quarterly volume commitments. The
terms of the Manufacturing Agreement also allow Maxtor to consign to the
Company, from time to time and at its sole discretion, certain component parts,
equipment and other materials for the Company's use in assembling and testing
products it manufactures under the Manufacturing Agreement. Maxtor has agreed to
indemnify the Company, subject to certain limitations and conditions, for
any and all claims and expenses relating to (i) Maxtor's negligence or
intentional misconduct in its distribution, sale or use of any product
manufactured by the Company pursuant to the Manufacturing Agreement and (ii)
allegations of infringement or misappropriation of the intellectual property
rights of any third party arising out of the use of a Maxtor design.
Mr. Behlman is engaged as the Company's President and Chief Executive
Officer under an at-will employment agreement dated as of October 16, 1994.
41
<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of July 31, 1997 and as adjusted to
reflect the sale of Common Stock offered hereby for (i) each person who is known
by the Company to beneficially own more than 5% of the Common Stock, (ii) each
of the Company's directors, (iii) each of the Named Executive Officers and (iv)
all directors and executive officers as a group. Except as indicated in the
table above or the footnotes thereto and pursuant to applicable community
property laws, the stockholders named in the table have sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name, and the address of each such stockholder is c/o
International Manufacturing Services, Inc., 2071 Concourse Drive, San Jose,
California 95131.
<TABLE>
<CAPTION>
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
Prudential Private Equity Investors III, L.P.(2)........... 4,535,370 34.0% 24.7%
John A. Downer(3)
Mark Rossi(3)
717 Fifth Avenue, 11th Floor
New York, New York 10022
Entities associated with Oak Investment Partners VI,
L.P.(4).................................................. 3,756,000 28.2% 20.5%
Fredric W. Harman(3)(4)
525 University Avenue, Suite 1300
Palo Alto, California 94031
Maxtor Corporation......................................... 2,985,000 22.4% 16.3%
Paul Tufano(3)(5)
510 Cottonwood Drive
Milpitas, California 95035
Entities associated with Brinson Partners, Inc.(6)......... 769,980 5.8% 4.2%
209 LaSalle Street, Suite 114
Chicago, Illinois 60604
Robert G. Behlman(3)(7).................................... 740,625 5.4% 3.9%
N. K. Quek(8).............................................. 239,063 1.8% 1.3%
Nathan Kawaye(9)........................................... 215,625 1.6% 1.2%
Doll Technology Investment Fund(10)........................ 131,400 1.2% *
Dixon R. Doll(3)
William J. Almon(3)(11).................................... 117,338 * *
J. Larry Smart(3)(12)...................................... 60,998 * *
All executive officers and directors as a group (14
persons)(13)............................................. 14,050,773 97.1% 72.2%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options or warrants held by that person
that are currently exercisable or exercisable within 60 days of July 31,
1997 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person.
(2) Includes 2,509,425 shares of the Company's Class B Common Stock. Messrs.
Downer and Rossi, directors of the Company, are Managing Director and
Senior Managing Director, respectively, of Cornerstone Equity Investors,
L.L.C. ("Cornerstone"), which acts as the investment advisor to Private
Equity Investors III, L.P. ("PPEI") pursuant to an Investment Advisory
Agreement (the "Investment Advisory Agreement) dated as of July 19, 1996.
The Investment Advisory Agreement gives Cornerstone the authority to direct
the voting and disposition of the Common Stock owned by Prudential.
Prudential and The Prudential Insurance Company of America may restrict or
terminate such authority at any time. As a result of the authority granted
pursuant to the Investment Advisory Agreement, Cornerstone may be deemed to
be a beneficial owner of any shares of Common Stock held by PPEI. Each of
42
<PAGE> 44
Messrs. Downer and Rossi disclaims any beneficial ownership of the shares
held by PPEI, except to the extent of his proportionate partnership
interest therein.
(3) The named person is a director of the Company.
(4) Includes 3,670,364 shares held by Oak Investment Partners VI, L.P. and
85,637 shares held by Oak VI Affiliates Fund, L.P. Mr. Harman disclaims any
beneficial ownership of the shares held by Oak Investment Partners VI, L.P.
and Oak VI Affiliates Fund, L.P., except to the extent of his pecuniary
interests in the respective entities.
(5) Mr. Tufano disclaims any beneficial ownership of the shares held by Maxtor
Corporation, except to the extent of his pecuniary interest therein.
(6) Includes 662,015 shares held by Brinson Venture Capital Fund III, L.P. and
107,966 shares held by Brinson Trust Company, as Trustee of the Brinson MAP
Venture Capital Fund III.
(7) Includes 515,625 shares issuable pursuant to stock options which may be
exercised within 60 days.
(8) Includes 164,063 shares issuable pursuant to stock options which may be
exercised within 60 days.
(9) Includes 140,625 shares issuable pursuant to stock options which may be
exercised within 60 days.
(10) Includes (i) 93,900 shares held by Doll Technology Investment Fund and (ii)
37,500 shares held personally by Mr. Doll which are subject to a repurchase
right in favor of the Company upon cessation of Mr. Doll's service to the
Company. Mr. Doll is the Managing Member of Doll Technology Investment
Management LLC, the general partner of Doll Technology Investment Fund. Mr.
Doll disclaims any beneficial ownership of the shares held by Doll
Technology Investment Fund, except to the extent of his pecuniary interest
therein.
(11) Includes 23,438 shares issuable pursuant to stock options which may be
exercised within 60 days.
(12) Includes 23,438 shares issuable pursuant to stock options which may be
exercised within 60 days and includes 24,000 shares held by the J. Larry
Smart and Cheryl L. Smart Trust.
(13) Includes 1,136,922 shares issuable pursuant to stock options which may be
exercised within 60 days.
43
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company upon the closing of the sale of
the shares offered hereby will consist of 75,000,000 shares of Class A Common
Stock, $0.001 par value, 25,000,000 shares of Class B Common Stock, $0.001 par
value, and 10,000,000 shares of undesignated preferred stock, $0.001 par value.
Class A Common Stock
The holders of Class A Common Stock are entitled to receive such dividends
as may be declared by the Company's Board of Directors and paid out of funds
legally available therefor, subject to the simultaneous payment of dividends to
the holders of Class B Common Stock. See "Class B Common Stock" below. Holders
of shares of Class A Common Stock are entitled to one vote per share upon all
matters upon which stockholders have the right to vote. Cumulative voting of
shares is not permitted. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of Class A Common Stock
are entitled to receive and share ratably, along with the holders of Class B
Common Stock, in all assets remaining available for distribution to
stockholders, after payment of any preferential amounts to which the holders of
preferred stock may be entitled. The Class A Common Stock has no preemptive
rights and is not redeemable, assessable or entitled to the benefits of any
sinking fund. Shares of Class A Common Stock held by Prudential Private Equity
Investors III, L.P. ("PPEI"), Prudential Insurance Company of America or any of
its affiliates may be converted at the option of the holder thereof into an
equal number of fully paid and non-assessable shares of Class B Common Stock.
Shares of Class A Common Stock held by all other persons are not convertible.
All outstanding shares of Class A Common Stock are, and the Class A Common Stock
to be issued in this Offering will be, validly issued, fully paid and
nonassessable.
Class B Common Stock
The holders of Class B Common Stock are entitled to receive such dividends
as may be declared by the Company's Board of Directors and paid out of funds
legally available therefor. Such dividends shall be equal to dividends declared
on Class A Common Stock; provided, however, that in the event that the holders
of Class A Common Stock receive a dividend payable in shares of Class A Common
Stock, the holders of Class B Common Stock are entitled to receive a
proportionate number of shares of Class B Common Stock. In the event of the
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of Class B Common Stock are entitled to receive and share ratably,
along with the holders of Class A Common Stock, in all assets remaining
available for distribution to stockholders, after payment of any preferential
amounts to which the holders of preferred stock may be entitled. The Class B
Common Stock has no preemptive rights and is not redeemable or assessable, or
entitled to the benefits of any sinking fund. All outstanding shares of Class B
Common Stock are validly issued, fully paid and nonassessable.
Holders of Class B Common Stock have no rights to vote except upon the
occurrence of a Voting Event (as defined in the Company's certificate of
incorporation) and then vote as a single class with the Class A Common Stock, or
as expressly provided by law. Each share of Class B Common Stock shall have a
number of votes equal to the number of shares of Class A Common Stock into which
it is then convertible, which, as of the date of this Prospectus, was one for
one. The Voting Events include, without limitation, (i) an amendment to the
Company's certificate of incorporation, (ii) the liquidation, dissolution,
winding-up or bankruptcy of the Company or reclassification of its capital stock
and (iii) the consolidation, merger or other business combination of the Company
or its subsidiaries, requiring submission for approval to the stockholders of
the Company, or the sale of all or substantially all of its assets.
Holders of Class B Common Stock have the right to convert any such shares
to Class A Common Stock upon the occurrence of a Conversion Event (as defined in
the Company's certificate of incorporation), subject to certain restrictions.
Conversion Events with respect to shares of Class B Common Stock include,
without limitation, (i) sale of substantially all of the Company's assets or any
acquisition of the Company by means of a merger or stock acquisition, (ii) the
incurrence of two consecutive quarterly net losses from operations by
44
<PAGE> 46
the Company, (iii) the transfer of such shares of Class B Common Stock to an
unaffiliated party by the holder, (iv) the resignation or replacement during any
twelve-month period of more than 30% of the Company's directors, (v) receipt by
PPEI of notice of default or event of default by the Company or any of its
subsidiaries on any indebtedness for borrowed money as to which the Class B
stockholder is not a holder, (vi) the transfer of shares of Class B Common Stock
by PPEI or any of its affiliates to a party not affiliated with PPEI or any of
its affiliates and (vi) if, after giving effect to the conversion of such shares
of Class B Common Stock, PPEI and its affiliates would not collectively hold the
greater of (x) an amount equal to 4.9% of the aggregate amount of voting capital
stock of the Company then outstanding and (y) the lesser of (1) one share less
than the aggregate amount of voting capital stock of the Company held by a
single other stockholder not affiliated with PPEI or its affiliates and (2) an
amount equal to 19.9% of the aggregate amount of voting capital stock of the
Company then outstanding. PPEI is the only holder of Class B Common Stock as of
the date of this Prospectus, and intends to periodically convert shares of Class
B Common Stock into Class A Common Stock in order to maintain ownership of 19.9%
of the outstanding voting stock.
Preferred Stock
The Board of Directors of the Company is authorized, without further
stockholder action, to authorize and issue any of the 10,000,000 undesignated
shares of preferred stock in one or more series and to fix the voting rights,
liquidation preferences, dividend rights, repurchase rights, conversion rights,
preemption rights, redemption rights and terms, including sinking fund
provisions and certain other rights and preferences of such shares of the
preferred stock. The issuance of any class or series of preferred stock could
adversely affect the rights of the holders of Common Stock by restricting
dividends on, diluting the power of, impairing the liquidation rights of Common
Stock, or delaying, deferring or preventing a change in control of the Company.
The Company has no present plans to issue any preferred stock.
WARRANT
In connection with the Recapitalization, on June 13, 1996, the Company
issued to Maxtor a warrant to purchase 300,000 shares of Class A Common Stock at
an exercise price (the "Exercise Price"), subject to certain adjustments, of
$6.67 per share (the "Maxtor Warrant"). Maxtor may exercise the Maxtor Warrant
on or after June 13, 1998, by means of (i) a cash payment in an amount equal to
the Exercise Price or (ii) in the event the Common Stock is publicly traded, a
net issue exercise whereby Maxtor would receive shares equal to the value of the
Maxtor Warrant, as calculated pursuant to the terms set forth therein. The
Maxtor Warrant expires upon the earlier to occur of (x) June 12, 2006 and (y)
such time as the Maxtor Notes issued in connection with the Recapitalization
shall have been fully paid by the Company, if the final payment has been made
prior to June 13, 1998. Full payment of the Maxtor Notes is expected to occur
upon completion of this Offering.
REGISTRATION RIGHTS
Under the terms of the Stockholders Agreement dated as of June 13, 1996 and
Amendment No. 1 to Stockholders Agreement dated as of December 24, 1996, each
among the Company and certain holders of its securities (collectively, the
"Rights Agreements"), following the closing of this Offering, the holders of
13,327,500 shares of Common Stock (the "Registrable Securities") will be
entitled to certain rights with respect to the registration of such shares of
Common Stock under the Securities Act. Under the Rights Agreements, if the
Company proposes to register any of its Common Stock under the Securities Act,
certain holders of Registrable Securities are entitled to notice of such
registration and to include their Registrable Securities therein; provided,
among other conditions, that the underwriters have certain rights to limit the
number of shares included in any such registration. Beginning six months after
the closing of the Offering, (i) Maxtor and (ii) the holders of at least fifty
percent (50%) of the Registrable Securities (other than Maxtor), have the right
to require the Company, on not more than two and four occasions, respectively,
to file a registration statement under the Securities Act in order to register
all or any part of their Registrable Securities, subject to certain conditions
and limitations. The Company may, in certain circumstances, defer such
registrations and the underwriters have the right, subject to certain
limitations, to limit the number of
45
<PAGE> 47
shares included in such registrations. Further, the holders of Registrable
Securities may require the Company to register all or any portion of their
Registrable Securities on Form S-3, when such form becomes available to the
Company, subject to certain conditions and limitations.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Certificate of Incorporation and Bylaws
Certain provisions of the Company's certificate of incorporation and bylaws
are designed to enhance the likelihood of continuity and stability in the
Company's Board of Directors and in the policies formulated thereby.
Accordingly, such provisions may have the effect of preventing, discouraging or
delaying any potential acquisition proposals or changes in the control of the
Company and of preventing changes in the management of the Company.
Effect of Delaware Anti-Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Class A Common Stock is
The First National Bank of Boston.
LISTING
The Company has applied to list its Class A Common Stock on the Nasdaq
National Market under the trading symbol IMSX.
46
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 18,327,500 shares
of Common Stock outstanding. Of these shares, the 5,000,000 shares sold in this
Offering will be freely tradeable without restriction under the Securities Act,
unless purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act. Approximately 14,256,851 additional shares
(including 1,439,351 shares issuable upon exercise of outstanding options) will
be available for sale in the public market following the expiration of the
180-day lockup agreements with the Representatives of the Underwriters or the
Company, subject in some cases to compliance with the volume and other
limitations of Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE SHARES
OF THIS PROSPECTUS ELIGIBLE FOR SALE COMMENT
- ------------------------------ ------------------ -----------------------------------------------
<S> <C> <C>
Upon Effectiveness............ 5,000,000 Freely tradeable shares sold in Offering and
shares saleable under Rule 144 that are not
subject to 180 day lockup
180 days...................... 14,256,851 Lockup released; shares saleable under 144(k)
or 701
Thereafter.................... 510,000 Restricted securities held for one year or less
</TABLE>
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
Prospectus a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock (approximately 18,327,500 shares
immediately after this Offering) or (ii) the average weekly trading volume of
Class A Common Stock during the four calendar weeks preceding such sale, subject
to the filing of a Form 144 with respect to such sale. A person (or persons
whose shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale who has
beneficially owned his or her shares for at least two years is entitled to sell
such shares pursuant to Rule 144(k) without regard to the limitations described
above. Persons deemed to be affiliates must always sell pursuant to Rule 144,
even after the applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Class A Common
Stock of the Company, the personal circumstances of the sellers and other
factors. Prior to this Offering, there has been no public market for the Class A
Common Stock, and there can be no assurance that a significant public market for
the Class A Common Stock will develop or be sustained after this Offering. Any
future sale of substantial amounts of the Common Stock in the open market may
adversely affect the market price of the Class A Common Stock offered hereby.
The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders have agreed pursuant to the
Underwriting Agreement and other agreements that they will not sell any Common
Stock without the prior consent of Montgomery Securities for a period of 180
days from the date of this Prospectus (the "180-day Lockup Period"), except that
the Company may, without such consent, grant options and sell shares pursuant to
the 1996 Plan, the 1997 Plan, the Director Plan, the Purchase Plan and the
Non-U.S. Purchase Plan.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register certain shares of Common Stock subject to outstanding
options or reserved for issuance under the 1996 Plan, the 1997 Plan, the
Director Plan, the Purchase Plan and the Non-U.S. Purchase Plan within 90 days
after the date of this Prospectus, thus permitting the resale of such shares by
nonaffiliates in the public market without restriction under the Securities Act.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus. As of July 31, 1997, the holders of options exercisable into
approximately 1,439,351 shares of Class A Common Stock will be eligible to sell
their shares in reliance upon Rule 701 or pursuant to the Form S-8 upon the
expiration of the 180-day Lockup Period.
47
<PAGE> 49
In addition, after this Offering, the holders of 13,327,500 shares of
Common Stock will be entitled to certain rights with respect to registration of
such shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by affiliates
of the Company) immediately upon the effectiveness of such registration. See
"Description of Capital Stock -- Registration Rights."
48
<PAGE> 50
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
Montgomery Securities, Alex Brown & Sons Incorporated and UBS Securities LLC
(the "Representatives"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the Company
the number of shares of Class A Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain terms and conditions precedent and that the Underwriters are committed
to purchase all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
Montgomery Securities.............................................
Alex. Brown & Sons Incorporated...................................
UBS Securities LLC................................................
-------
Total................................................... 5,000,000
=======
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to initially offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share, and the Underwriters may
allow, and any such dealers may reallow, a concession of not more than
$ per share to certain other dealers. After the initial public
offering, the price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 750,000 additional shares of Class A Common Stock to
cover over-allotments, if any, at the same price per share as the initial
5,000,000 shares to be purchased by the Underwriters. To the extent the
Underwriters exercise this option, each of the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may exercise this option only to cover over-allotments made in
connection with the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments to the Underwriters may be
required to make in respect thereof.
Each director and officer of the Company and certain of other holders of
Common Stock prior to this Offering have agreed not to sell, offer to sell, or
otherwise dispose of any rights with respect to any shares of Common Stock, any
options or warrants to purchase Common Stock, or any securities convertible or
exchangeable for Common Stock, owned directly by such holders or with respect to
which they have power of disposition for a period of 180 days after the date of
this Prospectus without the prior written consent of Montgomery Securities. In
addition, the Company has agreed not to sell, offer to sell, contract to sell or
otherwise sell or dispose of any shares of Common Stock or any rights to acquire
Common Stock, other than pursuant to the 1996 Plan, the 1997 Plan, the Director
Plan, the Purchase Plan and the Non-U.S. Employee Purchase Plan, upon exercise
of outstanding options and warrants, for a period of 180 days after the date of
this Prospectus without the prior written consent of Montgomery Securities.
Montgomery Securities may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to these lock-up
agreements. See "Shares Eligible for Future Sale."
During and after the Offering, the Underwriters may purchase and sell Class
A Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to
49
<PAGE> 51
cover syndicate short positions created in connection with the Offering. The
Representatives also may impose penalty bids, whereby selling concessions
allowed to an Underwriter or a syndicate member in respect of the Common Stock
originally sold in the Offering by such Underwriter or syndicate member may be
reclaimed if such securities are repurchased by the Representatives in
stabilizing or short-covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of Class A Common Stock, which may
be higher than the price that might otherwise prevail in the open market. These
transactions may be effected on the Nasdaq National Market or otherwise and
these activities, if commenced, may be discontinued at any time.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Class A Common Stock to accounts over which they
exercise discretionary authority.
Montgomery Associates 1992, L.P. ("Montgomery Associates"), an affiliate of
Montgomery Securities, purchased 46,950 shares of Class A Common Stock and
received a $62,500 principal amount 12% junior subordinated note in connection
with the Recapitalization.
Prior to the Offering, there has been no public market for the Class A
Common Stock of the Company. Consequently, the initial public offering price has
been determined through negotiations among the Company and the Representatives.
Among the factors considered in such negotiations were the history of, and
prospects for, the Company and the industry in which it competes, an assessment
of the Company's management, the present state of the Company's development, the
prospects for future earnings of the Company, the prevailing market conditions
at the time of the Offering, market valuations of publicly traded companies that
the Company and the Representatives believe to be comparable to the Company, and
other factors deemed relevant. See "Risk Factors -- No Prior Trading Market for
Common Stock; Possible Volatility of Stock Price" and "-- Dilution."
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation ("WSG&R"), Palo Alto, California. Certain legal matters in
connection with this Offering will be passed upon for the Underwriters by
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, a Professional Corporation
("HRNCF&R"), San Francisco, California. Jeffrey D. Saper, a member of WSG&R, is
Secretary of the Company. Upon consummation of this Offering, Mr. Saper will
beneficially own 23,945 shares of Class A Common Stock and, $31,875 principal
amount 12% junior subordinated note, and certain members of WSG&R, and
investment partnerships of which such persons are partners, will beneficially
own 23,006 shares of Class A Common Stock and $30,625 principal amount 12%
junior subordinated notes. Also upon consummation of this Offering, Daniel J.
Winnike, a member of HRNCF&R, will beneficially own 9,390 shares of Class A
Common Stock and a $12,500 principal amount 12% junior subordinated note.
EXPERTS
The consolidated financial statements of the Company as of April 30, 1997
and for the year then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting. The
consolidated financial statements of the Company as of March 31, 1996 and for
the two years in the period then ended, included in this Prospectus, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report, given upon the authority of such firm as experts in accounting and
auditing.
50
<PAGE> 52
CHANGE OF ACCOUNTANTS
In March 1996, Price Waterhouse LLP was engaged as the Company's
independent accountants effective fiscal 1997. Ernst & Young LLP as independent
auditors of Maxtor performed the role of the Company's independent auditors
through fiscal 1996. Prior to March 1996, the Company had not consulted with
Price Waterhouse LLP on items which included the Company's accounting principles
or the form of audit report to be issued on the Company's financial statements.
The reports of Ernst & Young LLP on the financial statements of the
registrant for the two years ended March 31, 1996 and March 31, 1995 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits by Ernst & Young LLP of the two most recent
fiscal years of the registrant ended March 31, 1996 and March 31, 1995, there
were no disagreements between the registrant and Ernst & Young LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which, if not resolved to the satisfaction of
Ernst & Young LLP, would have caused them to make reference to the matter in
their report. Ernst & Young LLP has not been associated with any financial
statements of the registrant subsequent to March 31, 1996.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement, of
which this Prospectus constitutes a part, under the Securities Act with respect
to the shares of Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits thereto for further information with
respect to the Company and the Common Stock offered hereby. Statements contained
herein concerning the provisions of any documents are not necessarily complete,
and in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement, including exhibits filed
therewith, may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission. Information concerning the Company is also
available for inspection at the offices of the Nasdaq National Market, Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006.
51
<PAGE> 53
INTERNATIONAL MANUFACTURING SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Report of Independent Auditors........................................................ F-3
Consolidated Balance Sheets........................................................... F-4
Consolidated Statements of Operations................................................. F-5
Consolidated Statements of Stockholders' Equity (Deficit)............................. F-6
Consolidated Statements of Cash Flows................................................. F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
International Manufacturing Services, Inc.
The stock split described in Note 14 to the Consolidated Financial
Statements has not been consummated at August 27, 1997; when it has been
consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of cash flows and of
stockholders' equity (deficit) present fairly, in all material respects,
the financial position of International Manufacturing Services, Inc. and
its subsidiaries at April 30, 1997, and the results of their operations and
their cash flows for the year then ended and for the one month period ended
April 30, 1996 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements
in accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above."
PRICE WATERHOUSE LLP
San Jose, California
July 3, 1997
F-2
<PAGE> 55
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheet of International
Manufacturing Services, Inc. as of March 31, 1996 (formerly the combined balance
sheet of Maxtor (Hong Kong) Limited, International Manufacturing Services
(Delaware), Inc., International Manufacturing Services (Cayman Islands),
Limited, and International Manufacturing Services (Thailand) each of which was a
wholly owned subsidiary of Maxtor Corporation), and the related consolidated
statements of income, stockholders' equity (deficit), and cash flows for each of
the two fiscal years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
International Manufacturing Services, Inc. at March 31, 1996, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
San Jose, California
April 25, 1996, except for Note 14
as to which the date is August , 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion of
the reverse stock split described in Note 14 to the Consolidated Financial
Statements.
/s/ ERNST & YOUNG LLP
San Jose, California
August 27, 1997
F-3
<PAGE> 56
INTERNATIONAL MANUFACTURING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AND SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
(DEFICIT)
JULY 31,
MARCH 31, APRIL 30, JULY 31, 1997
1996 1997 1997 NOTE 1
--------- --------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 938 $ 2,828 $ 1,813
Accounts receivable, less allowance for doubtful
accounts of $235, $210 and $276 (unaudited)... 12,892 10,976 10,237
Accounts receivable from Maxtor and affiliates... 11,915 5,344 6,461
Inventories...................................... 45,009 20,242 32,091
Other current assets............................. 1,383 2,612 1,779
------- -------- --------
Total current assets..................... 72,137 42,002 52,381
Property and equipment, net........................ 10,822 13,936 14,767
Other assets....................................... 728 4,533 3,661
------- -------- --------
$83,687 $ 60,471 $ 70,809
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $47,351 $ 22,570 $ 30,938
Accounts payable to Maxtor....................... 8,536 358 84
Accrued liabilities.............................. 3,681 5,484 7,081
Income taxes payable............................. 1,145 531 871
Bank borrowings.................................. -- 9,000 7,500
Current portion of long-term debt................ 708 79 80
------- -------- --------
Total current liabilities................ 61,421 38,022 46,554
Long-term debt..................................... -- 12,660 12,635
Long-term debt due to Maxtor....................... 4,300 20,000 20,000
Deferred tax liabilities........................... 300 156 156
Commitments (Notes 6 and 7)
Stockholder's equity (deficit):
Preferred stock $0.001 par value; 8,509,425
shares authorized actual; 10,000,000 shares
authorized pro forma (unaudited), 6,000,000
shares issued and outstanding actual; none
issued and outstanding pro forma
(unaudited)................................... -- 6 6 $ --
Common Stock $0.001 par value; 25,500,000 shares
authorized actual (15,000,000 as of March 31,
1996);
100,000,000 shares authorized pro forma
(unaudited);
15,000,000 and 7,327,500 shares issued and
outstanding actual, 7,327,500 shares issued
and
outstanding (unaudited); and 13,327,500 shares
issued
and outstanding pro forma (unaudited)......... 15 7 7 13
Additional paid-in capital....................... 4,506 12,793 12,793 12,793
Distributions in excess of net book value (Note
1)............................................ -- (20,608) (20,608) (20,608)
Retained earnings (accumulated deficit).......... 13,145 (2,565) (734) (734)
------- -------- -------- --------
Total stockholders' equity (deficit)..... 17,666 (10,367) (8,536) $ (8,536)
========
------- -------- --------
$83,687 $ 60,471 $ 70,809
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 57
INTERNATIONAL MANUFACTURING SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
--------------------------------- -------------------
MARCH 31, MARCH 31, APRIL 30, JULY 31, JULY 31,
1995 1996 1997 1996 1997
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $ 3,089 $ 68,361 $ 80,546 $ 21,139 $ 34,500
Revenues from affiliates....................... 36,284 340,487 89,149 26,276 30,236
------- -------- -------- ------- -------
Total revenues....................... 39,373 408,848 169,695 47,415 64,736
Cost of revenues............................... 33,795 395,474 155,028 46,363 58,397
------- -------- -------- ------- -------
Gross profit................................... 5,578 13,374 14,667 1,052 6,339
------- -------- -------- ------- -------
Selling, general and administrative............ 2,848 5,380 8,041 1,704 2,845
Restructuring charge........................... -- -- 3,000 3,000 (179)
------- -------- -------- ------- -------
Total operating expenses............. 2,848 5,380 11,041 4,704 2,666
Income (loss) from operations.................. 2,730 7,994 3,626 (3,652) 3,673
Interest expense............................... 180 64 4,048 676 1,277
Interest income................................ -- -- (76) -- (22)
------- -------- -------- ------- -------
Income (loss) before income taxes.............. 2,550 7,930 (346) (4,328) 2,418
Provision for income taxes..................... 554 1,793 253 -- 337
------- -------- -------- ------- -------
Net income (loss).............................. $ 1,996 $ 6,137 (599) (4,328) 2,081
======= ========
Dividends on convertible preferred stock....... 883 133 250
-------- ------- -------
Net income (loss) available for common
stockholders................................. $ (1,482) $ (4,461) $ 1,831
======== ======= =======
Net income (loss) per share.................... $ (0.04) $ (0.27) $ 0.13
======== ======= =======
Shares used to compute net income (loss) per
share........................................ 16,108 16,108 16,108
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 58
INTERNATIONAL MANUFACTURING SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE DISTRIBUTIONS RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL IN EXCESS EARNINGS
------------------ -------------------- PAID-IN OF NET BOOK (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL VALUE DEFICIT) TOTAL
--------- ------ ----------- ------ ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994...... -- $ -- 15,000,000 $ 15 $ 1,639 $ -- $ 5,012 $ 6,666
Net income..................... -- -- -- -- -- -- 1,996 1,996
--------- --- ----------- ---- ------ -------- -------- --------
Balance at March 31, 1995...... -- -- 15,000,000 15 1,639 -- 7,008 8,662
Capital contribution........... -- -- -- -- 2,867 -- -- 2,867
Net income..................... -- -- -- -- -- -- 6,137 6,137
--------- --- ----------- ---- ------ -------- -------- --------
Balance at March 31, 1996...... -- -- 15,000,000 15 4,506 -- 13,145 17,666
Net income for the month of
April 1996 to reflect the
change in the Company's
fiscal year end (Note 3)..... -- -- -- -- -- -- 1,343 1,343
Recapitalization and redemption
of Maxtor stock.............. -- -- (12,015,000) (12) (4,507) (20,608) (15,571) (40,698)
Issuance of common stock, net
of issuance costs............ -- -- 3,855,000 4 2,531 -- -- 2,535
Issuance of convertible
preferred stock, net of
issuance costs............... 6,000,000 6 -- -- 9,530 -- -- 9,536
Issuance of common stock on
Pentagon Acquisition......... -- -- 450,000 -- 705 -- -- 705
Issuance of common stock upon
exercise of options.......... -- -- 37,500 -- 28 -- -- 28
Net loss....................... -- -- -- -- -- -- (599) (599)
Dividends on convertible
preferred stock.............. -- -- -- -- -- -- (883) (883)
--------- --- ----------- ---- ------ -------- -------- --------
Balance at April 30, 1997...... 6,000,000 6 7,327,500 7 12,793 (20,608) (2,565) (10,367)
Net income (unaudited)......... -- -- -- -- -- -- 2,081 2,081
Dividends on convertible
preferred stock
(unaudited).................. -- -- -- -- -- -- (250) (250)
--------- --- ----------- ---- ------ -------- -------- --------
Balance at July 31, 1997
(unaudited).................. 6,000,000 $ 6 7,327,500 $ 7 $ 12,793 $ (20,608) $ (734) $ (8,536)
========= === =========== ==== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 59
INTERNATIONAL MANUFACTURING SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
--------------------------------- ---------------------
MARCH 31, MARCH 31, APRIL 30, JULY 31, JULY 31,
1995 1996 1997 1996 1997
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss)............................................. $ 1,996 $ 6,137 $ (599) $ (4,328) $ 2,081
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................... 4,751 6,145 6,347 1,694 1,983
Deferred income taxes....................................... (66) 300 (144) -- --
(Gain) loss on disposal of property and equipment........... (20) 12 -- -- --
Changes in assets and liabilities:
Accounts receivable....................................... (210) (12,682) 5,440 7,153 739
Accounts receivable from Maxtor and affiliates............ (60) (4,676) 4,124 1,812 (1,117)
Inventories............................................... (1,432) (43,577) 3,154 1,957 (11,849)
Other current assets...................................... (1,520) 985 (955) (351) 833
Other assets.............................................. (207) 321 (703) (1,347) 546
Accounts payable.......................................... 2,652 44,358 (5,561) (9,833) 8,368
Accounts payable to Maxtor................................ -- 8,536 (4,565) (4,818) (274)
Accrued liabilities....................................... 599 1,029 805 2,809 1,511
Income taxes payable...................................... (957) 822 (600) (60) 340
------- -------- ------- ------- --------
Net cash provided by (used in) operating activities.... 5,526 7,710 6,743 (5,312) 3,161
------- -------- ------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment, net....................... (4,919) (8,980) (8,372) (356) (2,488)
Proceeds from disposal of property and equipment.............. 818 45 -- -- --
Acquisition of Pentagon Systems, net of cash acquired of
$700........................................................ -- -- (3,716) -- --
------- -------- ------- ------- --------
Net cash used in investivities......................... (4,101) (8,935) (12,088) (356) (2,488)
------- -------- ------- ------- --------
Cash flows from financing activities:
Borrowings (repayments) under line of credit.................. -- -- 9,000 8,000 (1,500)
Proceeds from issuance of notes............................... -- -- 12,500 12,500 --
Proceeds from issuance of convertible preferred stock......... -- -- 9,536 9,536 --
Recapitalization and distributions to Maxtor.................. -- -- (24,998) (24,998) --
Principal payments on debt and capital lease obligations...... (1,045) (1,136) (606) (502) (24)
Payment of dividends.......................................... -- -- (797) -- (164)
Capital contribution.......................................... -- 2,867 -- -- --
Proceeds from issuance of common stock........................ -- -- 2,563 2,535 --
------- -------- ------- ------- --------
Net cash provided by (used in) financing activities.... (1,045) 1,731 7,198 7,071 (1,688)
------- -------- ------- ------- --------
Net change in cash and cash equivalents......................... 380 506 1,853 1,403 (1,015)
Cash and cash equivalents at beginning.......................... 52 432 975 975 2,828
------- -------- ------- ------- --------
Cash and cash equivalents at end of per......................... $ 432 $ 938 $ 2,828 $ 2,378 $ 1,813
======= ======== ======= ======= ========
Supplemental disclosures:
Cash paid for:
Interest.................................................... $ 180 $ 100 $ 2,867 $ 179 $ 922
Income taxes................................................ 1,511 672 832 -- --
Noncash investing and financing activities:
Items settled through accounts receivable from affiliates
Fixed assets transferred from affiliates.................... $ 965 $ (912) -- -- --
Settlement of long-term debt to Maxtor...................... -- 4,169 -- -- --
Issuance of note payable to Maxtor in connection with the
recapitalization............................................ -- -- (15,700) (15,700) --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 60
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
International Manufacturing Services, Inc. ("IMS" or the "Company")
provides original equipment manufacturers (OEMs) with design, prototype,
pre-production services, printed circuit board assembly, product sub-assembly
and final assembly. Customers also take advantage of a full range of test
services, including in-circuit, functional and environmental stress testing at
the Company's manufacturing sites in Hong Kong, China and Thailand. The
Company's services are sold in transactions denominated in U.S. dollars on a
worldwide basis to OEMs.
FISCAL YEAR
Prior to fiscal 1997, the Company's fiscal year ended on the Saturday
nearest to March 31. Commencing with fiscal 1997 the Company's fiscal year ends
on the Saturday nearest to April 30. The Company reports quarterly results on
thirteen-week quarterly periods, each ending on the Saturday nearest to
month-end. For purposes of presentation, the Company has indicated its fiscal
year as ending on March 31 or April 30, as the case may be and its interim
quarterly periods as ending on the respective calendar month-ends. Results of
operations for the month of April 1996 were credited directly to retained
earnings (see Note 3).
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. Intercompany transactions and balances are
eliminated in consolidation.
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles. This
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could vary
from those estimates.
RECAPITALIZATION
Until June 13, 1996, the Company was a wholly-owned subsidiary of Maxtor
Corporation (Maxtor). Maxtor acquired the Company's operations as a result of
acquisition of certain assets in 1990. Maxtor conducted the Company's business
under distinct wholly-owned subsidiaries incorporated in Delaware, Cayman,
Thailand and Hong Kong, all of which were consolidated pursuant to a legal
reorganization in June 1996. Subsequent to the legal reorganization, Maxtor
diluted its ownership of IMS to 23.5% through a series of recapitalization and
redemption agreements. Under these agreements IMS raised cash of $25.0 million
($24.0 million, net of issuance costs) by issuing a combination of common stock,
convertible preferred stock and junior subordinated notes to a group of
investors.
IMS redeemed approximately 76.5% of Maxtor's outstanding shares for $25.0
million in cash and issuance of senior subordinated notes payable of $20.0
million (including $4.3 million rolled over from a previously outstanding note
payable to Maxtor) and warrants to purchase an additional 300,000 shares of
common stock (see Notes 6 and 9). Additionally, Maxtor agreed to purchase from
IMS certain minimum quantities of products for a period of three years.
The redemption of Maxtor's ownership interest has been accounted for as a
recapitalization, and accordingly, no change in the accounting basis of the
Company's net assets has been made in the accompanying financial statements. The
amount of cash paid and note payable issued to Maxtor exceeded the Company's net
assets on the date of the transaction and has been recorded in the equity
section as distributions in excess of net book value. As of May 31, 1996 (the
month end immediately prior to the
F-8
<PAGE> 61
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recapitalization), the Company had approximately $54 million in assets
(unaudited) and approximately $34 million in liabilities (unaudited).
Had the above noted debt and preferred stock financing and recapitalization
transactions taken place at the beginning of fiscal 1997, the Company's pro
forma loss, pro forma loss allocable to common stockholders and pro forma loss
per share would have been $969,000, $1,977,000 and $0.06, respectively
(unaudited).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, which are purchased
with a maturity of three months or less, to be cash equivalents. At March 31,
1996 and April 30, 1997, all of the Company's investments were classified as
cash equivalents on the balance sheet. At March 31, 1996 and April 30, 1997, the
fair value of the Company's investments approximated cost.
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" and,
classifies investment securities as either held-to-maturity or
available-for-sale. At March 31, 1996 and April 30, 1997, the Company did not
hold any investment securities.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined under the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight line method over the estimated
useful lives of the assets, which are generally three to five years. Assets held
under capital leases are amortized using the straight line method over the term
of the lease or their estimated useful lives, whichever is shorter.
GOODWILL
Goodwill, arising from the Pentagon Systems acquisition (see Note 4), has
been included in other assets and is being amortized over its estimated useful
life of seven years.
LONG-TERM ASSETS
The Company periodically reviews the recoverability of long-term assets
including goodwill, whenever events or changes in circumstances indicate that
the carrying amount of an asset might not be recoverable.
REVENUE RECOGNITION
Revenue is recognized upon product shipment. A provision for the estimated
cost to repair or replace products under warranty is recorded at the time of
sale based on historical experience.
Revenue and related costs can vary significantly based on whether projects
are contracted on a turnkey basis where the Company purchases all materials to
manufacture the goods, or contracted on a consignment basis, where materials are
provided by the customer. Accordingly, the accompanying statements of operations
reflect no materials cost for consignment sale revenues. During fiscal 1997,
sales to Maxtor were contracted for on a partial consignment basis and sales to
other customers were contracted for on a turnkey basis. However, during fiscal
1996, substantially all projects were contracted for on a turnkey basis, and in
fiscal 1995, sales to Maxtor were generally contracted for on a consignment
basis.
F-9
<PAGE> 62
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the functional currency of the Company's foreign
subsidiaries. Exchange gains and losses resulting from transactions denominated
in currencies other than the U.S. dollar are included in the results of
operations for the year. To date such gains and losses have not been material.
The Company has not undertaken any material foreign currency hedging activities.
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach
and recognizes deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements. No provision for U.S. deferred income taxes is made for the
undistributed earnings of the Company's foreign subsidiaries to the extent such
earnings are deemed to be indefinitely reinvested in such operations.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. The Company's policy is
to grant options with an exercise price equal to the fair market value of the
underlying common stock as determined by the Board of Directors on the grant
date. The Company provides additional pro forma disclosures as required under
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation" (see Note 9).
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares consist of convertible preferred stock (using the "if
converted" method) and stock options (using the "treasury stock" method). Common
equivalent shares are excluded from the computation if their effect is
antidilutive, except that, pursuant to a Securities and Exchange Commission
Staff Accounting Bulletin, convertible preferred stock and warrants (using the
"if converted" method) and common equivalent shares (using the "treasury stock"
method and the assumed initial public offering price) issued in conjunction with
and subsequent to the recapitalization of the Company have been included in the
computation as if they were outstanding for all periods for which net income
(loss) per share data has been presented.
Net income per share data for fiscal 1995 and 1996 have not been presented
as such amounts are not deemed to be meaningful in view of the significant
change in capital structure of the Company in June 1996 as a result of the
recapitalization.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
accounts receivable. The Company's investment policies limit the amount of
credit exposure to any one financial institution and restrict placement of these
investments to financial institutions evaluated as highly credit-worthy. The
Company's products are sold worldwide to OEMs with an emphasis on the United
States market. The Company performs ongoing credit evaluations of its customers'
financial condition and at times requires collateral for its receivables. The
Company maintains reserves for potential credit losses. As of March 31, 1996,
two customers accounted for approximately 46% and 37% of the accounts receivable
balance. As of April 30, 1997, three customers accounted for approximately 34%,
32% and 11% of the accounts receivable balance.
F-10
<PAGE> 63
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This statement
is effective for the Company's fiscal period ending January 31, 1998. The
Statement adjusts the calculation of earnings per share under generally accepted
accounting principles. Under the new standard, primary earnings per share is
replaced by basic earnings per share and fully diluted earnings per share is
replaced by diluted earnings per share. If the Company had adopted this
Statement for the year ended April 30, 1997 and for the three month period ended
July 31, 1997, the Company's pro forma earnings (loss) per share would have been
as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JULY 31,
APRIL 30, ----------------
1997 1996 1997
---------- ------ -----
(UNAUDITED)
<S> <C> <C> <C>
Basic income (loss) per share................... $(0.04) $(0.32) $0.16
Diluted income (loss) per share................. (0.04) (0.27) 0.13
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (FAS
130) and No. 131 "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131). The Company does not believe that FAS 130 and 131 will
have any material impact on its financial statement reporting requirements.
PRO FORMA STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
If the Offering is consummated, all shares of convertible preferred stock
outstanding at the closing date will automatically convert into an aggregate of
6,000,000 shares of Common Stock. The pro forma effect of such conversion has
been reflected in the accompanying unaudited pro forma balance sheet as of July
31, 1997.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet as of July 31, 1997, the
consolidated statements of operations and of cash flows for the three months
ended July 31, 1996 and 1997 and the consolidated statement of stockholders'
equity (deficit) for the three months ended July 31, 1997 are unaudited. In the
opinion of management, these statements have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting of only
normal recurring adjustments, necessary for the fair presentation of the results
for the interim periods. The data disclosed in the consolidated financial
statements as of such dates and for such periods are unaudited.
F-11
<PAGE> 64
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
MARCH 31, APRIL 30, JULY 31,
1996 1997 1997
--------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Inventories:
Raw materials............................. $ 35,351 $ 17,675 $ 26,755
Work-in-process........................... 8,087 2,359 4,419
Finished Goods............................ 1,571 208 917
-------- -------- --------
Total inventories............... $ 45,009 $ 20,242 $ 32,091
======== ======== ========
Property and equipment:
Machinery and equipment................... $ 30,229 $ 37,228 $ 37,868
Furniture and fixtures.................... 1,883 2,018 2,890
Leasehold improvements.................... 2,576 4,027 4,037
-------- -------- --------
34,688 43,273 44,795
Less accumulated depreciation and
amortization............................ (23,866) (29,337) (30,028)
-------- -------- --------
Total property and equipment.... $ 10,822 $ 13,936 $ 14,767
======== ======== ========
Accrued liabilities:
Accrued employee compensation............. $ 2,246 $ 1,197 $ 1,781
Other accrued liabilities................. 1,435 4,287 5,300
-------- -------- --------
$ 3,681 $ 5,484 $ 7,081
======== ======== ========
</TABLE>
Machinery and equipment at April 30, 1997 and July 31, 1997 (unaudited)
include approximately $321,000 of assets under leases that have been
capitalized. Accumulated depreciation for such equipment at April 30, 1997 and
July 31, 1997 approximated $84,000 and $111,000 (unaudited), respectively.
NOTE 3. CHANGE IN FISCAL YEAR
During fiscal 1997, the Company changed its financial reporting year end
from the Saturday closest to March 31, to the Saturday closest to April 30. As a
result of this change, the Company had a one month transition period during
which it had revenues and net income of $23,541,000 and $1,343,000,
respectively.
NOTE 4. PENTAGON SYSTEMS ACQUISITION
In January 1997, the Company acquired the assets of Pentagon Systems
(Pentagon) for $4.4 million in cash, issuance of 450,000 shares of Class A
Common Stock and the assumption of certain liabilities. Pentagon provides
computer design related engineering services and assembly of computer components
to original equipment manufacturers from facilities located in San Jose.
The acquisition was accounted for as a purchase, and accordingly,
Pentagon's net assets and results of operations have been included in the
Consolidated Financial Statements from the acquisition date. The excess of the
purchase price over the fair value of the net assets acquired aggregated $3.4
million and has been included in other assets as goodwill. Goodwill amortization
totaled $163,000 at April 30, 1997.
F-12
<PAGE> 65
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents unaudited pro forma results of operations as
if the acquisition had occurred as of the beginning of the respective periods
after giving effect to the amortization of goodwill. The unaudited pro forma
information is provided for comparative purposes only and does not purport to be
indicative of the results which actually would have been obtained if the
acquisition had been effected for the periods indicated, or the results which
may be obtained in the future (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------
MARCH 31, APRIL 30,
1996 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Total revenues......................................... $ 412,978 $ 174,064
Net income (loss)...................................... 6,040 (266)
Net income (loss) per share............................ -- (0.02)
</TABLE>
NOTE 5. RESTRUCTURING CHARGE
In June 1996, the Company implemented a restructuring plan to significantly
reduce its manufacturing operations in Hong Kong. The costs of restructuring
actions totaled $3 million and involved the termination of approximately 900
employees with an associated cost of approximately $2.3 million and excess
facilities costs of approximately $700,000. As of July 31, 1997 the Company had
substantially completed all of its restructuring actions.
NOTE 6. DEBT AND BANKING ARRANGEMENTS
<TABLE>
<CAPTION>
MARCH 31, APRIL 30,
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Senior subordinated notes due through 2002.............. $ -- $ 20,000
12% junior subordinated notes due through 2005.......... -- 12,500
Noninterest bearing notes due to Maxtor................. 4,300 --
8.4% term note.......................................... 708 --
Bank borrowings......................................... -- 9,000
Capital lease obligations............................... -- 239
------ -------
5,008 41,739
Current portion of capital lease obligations and bank
borrowings............................................ (708) (9,079)
------ -------
Long-term debt and capital lease obligations............ $ 4,300 $ 32,660
====== =======
</TABLE>
At the time of recapitalization of the Company in June 1996, the
outstanding interest free note due to Maxtor was consolidated into the senior
subordinated notes due 2002 (see Note 1). The notes had a fixed interest rate of
7% for the first twelve months. Effective June 1997, the interest rate changed
to a six-month Eurodollar rate (including the applicable bank spread) plus one
and a half percent (approximately 9.7% as of July 31, 1997).
The senior subordinated notes are repayable upon the closing of an
underwritten public offering. The amount of repayment varies depending upon the
net proceeds to the Company with total repayment required if the Company
receives at least $45.0 million from the Offering. The senior and junior
subordinated notes are repayable in full in the event of a sale or transfer of
all or substantially all of the assets of the Company on a consolidated basis or
a merger to which the Company is a party, unless to do so would violate the
terms of the bank credit facility.
At April 30, 1997, management believes the fair values of the Company's
debt approximated book values based on prevailing interest rates.
F-13
<PAGE> 66
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At April 30, 1997, future minimum principal payments on long term debt and
capitalized lease obligations were as follows (in thousands):
<TABLE>
<S> <C>
FISCAL YEAR ENDING APRIL 30,
1998..................................................... $ 79
1999..................................................... 82
2000..................................................... 6,744
2001..................................................... 6,667
2002..................................................... 6,667
Thereafter............................................... 12,500
-------
$32,739
=======
</TABLE>
In June 1996, the Company entered into a five year loan and security
agreement (the "Loan Agreement") with a U.S. bank which provides for borrowings
of up to $32.0 million. The Loan Agreement expires June 21, 2001, with
availability of borrowings declining on a quarterly basis beginning in July
1997. The availability of borrowings under the Loan Agreement will be reduced by
$10.0 million upon the completion of the Offering. Borrowings under the Loan
Agreement bear interest at either the prime rate plus 1.5% or LIBOR plus 2.25%
and are secured by all of the Company's assets. The effective interest rate for
borrowings under the line of credit was approximately 7.9% as of April 30, 1997.
At April 30, 1997, borrowings under the Loan Agreement totaled $9.0 million. The
Loan Agreement and senior subordinated notes require that the Company maintain
certain financial ratios and covenants. The Company was in compliance with such
covenants as of April 30, 1997.
NOTE 7. LEASE COMMITMENTS
The Company leases certain property, facilities and equipment under
noncancelable capital and operating leases. Future minimum lease payments under
these leases as of April 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
FISCAL YEAR ENDING APRIL 30,
1998............................................ $ 105 $ 2,420
1999............................................ 92 1,760
2000............................................ 66 956
2001............................................ -- 889
2002............................................ -- 639
Thereafter...................................... -- 7,336
---- ------
Total minimum lease payments.................... 263 $14,000
======
Less amount representing interest............... 24
----
$ 239
====
</TABLE>
Rent expense for operating leases was $2,580,000, $2,732,000 and $3,158,000
during the years ended March 31, 1995 and March 31, 1996 and April 30, 1997,
respectively.
NOTE 8. CONVERTIBLE PREFERRED STOCK
The certificate of incorporation of the Company, as amended, authorizes
8,509,425 shares of convertible preferred stock of which 6,000,000 shares have
been designated as Series A and 2,509,425 shares as Series B. Pursuant to the
recapitalization of the Company (see Note 1), IMS issued 3,490,575 shares of its
Series A
F-14
<PAGE> 67
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and 2,509,425 shares of B convertible preferred stock (Series A and Series B
shares) at a purchase price of $1.67 per share.
The Series A and Series B shares have certain rights with respect to
voting, dividends, liquidation and conversion, as follows:
Voting
Series A and Series B shares have voting rights equal to the shares of
common stock into which they may be converted. Holders of Series A convertible
preferred stock are entitled to vote on all matters. However, holders of Series
B convertible preferred stock are entitled to vote only on certain matters
relating to the Company's capitalization, borrowings, liquidation sale, mergers
or acquisitions.
Dividends
Holders of Series A and Series B shares are entitled to receive a
cumulative dividend at the rate of 10% of the original issue price, per annum,
to be paid when and as declared by the Company's Board of Directors, prior to
and in preference to any declaration or payment of any dividend on the Company's
common stock.
Liquidation
In the event of liquidation and to the extent assets are available, the
holders of Series A and Series B shares are entitled to receive, prior and in
preference to any distribution to the holders of common stock, an amount equal
to the original issue price of such shares plus all accumulated but unpaid
dividends.
Conversion
Each Series A and Series B share is convertible into one share of Class A
and Class B common stock, respectively, subject to adjustments in the case of
certain dilutive events. Each Series A and Series B share will automatically
convert into one share of Class A and Class B common stock, respectively, in the
event of either (i) the affirmative vote of a majority of the holders of Series
A and Series B shares outstanding at the time of such vote; or (ii) the closing
of an underwritten public offering in which the aggregate offering price is not
less than $30,000,000 and the per share price is not less than $5.00 per share.
NOTE 9. COMMON STOCK
At April 30, 1997, the Company's Board of Directors had designated
18,000,000 shares of common stock as Class A voting common stock and 7,500,000
shares as Class B nonvoting common stock. To date, the Company has not issued
any shares of Class B nonvoting common stock.
In conjunction with the recapitalization, the Company issued to Maxtor
warrants to purchase 300,000 shares of its Class A common stock at approximately
$6.67 per share. The warrants have a term of ten years but are exercisable only
in the event the Company fails to repay the senior subordinated debt due to
Maxtor by June 13, 1998.
At April 30, 1997, the Company had reserved 6,000,000 shares of common
stock for issuance upon conversion of the Series A and Series B convertible
preferred stock.
F-15
<PAGE> 68
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. EMPLOYEE BENEFIT PLANS
1994 Stock Option Plan
The Company's Cayman subsidiary had a 1994 Stock Option Plan which provided
for grant of options and stock purchase rights to employees and directors or
consultants, advisors or other independent contractors. The Plan was approved by
the Company's stockholders in March 1995. Approximately two million options were
granted under this plan, and none were exercised. Following the recapitalization
of the Company (see Note 1), the 1994 Stock Option Plan was terminated and all
outstanding options were canceled.
1996 Stock Option Plan
Pursuant to the terms of the Company's 1996 Stock Option Plan (the "Option
Plan"), options to purchase 3,352,500 shares of common stock may be granted to
employees, directors and consultants with an exercise price of not less than the
fair value at the date of grant. The plan provides that the options shall be
exercisable over a period not to exceed ten years. Options generally vest in
annual increments of 25% per year. However, options to purchase 2,136,000 shares
granted in June and July 1996 provided for 25% immediate vesting upon grant.
The following table summarizes the Company's stock option activity for the
Option Plan described above and weighted average exercise price within each
transaction type.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARE EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at beginning of year......... -- $ --
Options granted.................................. 2,901,750 $ 0.95
Options exercised................................ (37,500) $ 0.73
Options returned to plan......................... (36,750) $ 1.09
---------
Options outstanding at April 30, 1997............ 2,827,500 $ 0.95
Options granted (unaudited)...................... 75,000 $ 4.00
Options returned to plan (unaudited)............. (7,500) $ 2.00
---------
Options outstanding at July 31, 1997
(unaudited).................................... 2,895,000 $ 1.03
=========
</TABLE>
At April 30, 1997 and July 31, 1997, the Company had 487,500 and 420,000
(unaudited) shares available under the Option Plan for future grants,
respectively. With respect to certain options granted at the end of fiscal 1997
and during the three months ended July 31, 1997, the Company is recognizing a
compensation charge of approximately $189,000 over the four year vesting periods
of such options.
Significant option groups outstanding at April 30, 1997 and related
weighted average exercise price and remaining life were as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------- ----------------- REMAINING
EXERCISE PRICE RANGE SHARES PRICE SHARES PRICE LIFE (YEARS)
--------------------------- --------- ----- ------- ----- ------------
<S> <C> <C> <C> <C> <C>
0.73 - $1.33............... 2,349,000 0.81 849,620 0.75 9.17
1.57 - $2.00............... 478,500 1.65 23,438 1.57 9.74
</TABLE>
All options were granted with exercises prices equal to the estimated fair
market value of the Company's common stock at the date of grant. The weighted
average estimated minimum value, as defined by SFAS 123, for options granted
during 1997 was $0.26 per option. Vesting of options to purchase approximately
530,000 shares of common stock will accelerate upon the successful completion of
an initial public offering prior to June 13, 1998.
F-16
<PAGE> 69
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following weighted average assumptions are included in the estimated
minimum value calculations for the Company's stock option awards:
<TABLE>
<S> <C>
Expected life (years)............................... 4 years
Risk free interest rate............................. 6.42%
Dividend yield...................................... 0%
</TABLE>
PRO FORMA NET LOSS AND NET LOSS PER SHARE
Had the Company recorded compensation costs based on the estimated grant
date fair value, as defined by SFAS 123, for awards granted under its stock
option plan, the Company's net loss and net loss per share would have increased
to the following pro forma amounts shown for the year ended April 30, 1997 (in
thousands, except per share data):
<TABLE>
<S> <C>
Pro forma net loss.................................. $ (785)
Pro forma net loss per share........................ $(0.05)
</TABLE>
401(K) PLAN
Effective January 1, 1997, the Company adopted the 401(k) Plan (the "401(k)
Plan") for its U.S. employees that qualifies as a deferred salary arrangement
under Section 401 of the Internal Revenue Code. Under the 401(k) Plan,
participating employees may defer a portion of their pretax earnings not to
exceed 15% of their total compensation. The Company, at its discretion, may make
contributions for the benefit of eligible employees. The Company's contributions
to the 401(k) plan for fiscal 1997 were not material.
NOTE 11. INCOME TAXES
The income (loss) before income taxes included $2,895,000, $9,432,000 and
$5,710,000 of income relating to the non U.S. operations of the Company for
fiscal 1995, 1996 and 1997, respectively.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 30,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Foreign.................................... $ 620 $ 1,493 $ 397
Deferred:
Foreign.................................... (66) 300 (144)
---- ------ -----
Total.............................. $ 554 $ 1,793 $ 253
==== ====== =====
</TABLE>
A reconciliation of the tax provision to the amounts computed using the
statutory U.S. federal income tax rate of 35% is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 30,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Tax (benefit) at U.S. federal statutory
rate....................................... $ 893 $ 2,776 $ (121)
Tax savings from foreign operations.......... (480) (1,483) (1,746)
Nondeductible interest, goodwill and other... 41 -- 320
Valuation allowance.......................... 100 500 1,800
----- ------- -------
Total.............................. $ 554 $ 1,793 $ 253
===== ======= =======
</TABLE>
F-17
<PAGE> 70
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and (liabilities) are as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31, APRIL 30,
1996 1997
--------- ---------
<S> <C> <C>
Net operating loss carryforwards........................ $ 600 $ 2,400
Depreciation............................................ (300) (156)
----- -------
300 2,244
Valuation reserve....................................... (600) (2,400)
----- -------
$(300) $ (156)
===== =======
</TABLE>
The Company enjoys a tax holiday in Thailand which expires in the year
2003. The net impact of the tax holiday was an increase in net income of
$750,000 in fiscal 1996 and to decrease net loss by $1,800,000 ($0.11 per share)
in fiscal 1997.
At April 30, 1997, the Company has approximately $6,000,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset
future U.S. taxable income; such carryforwards expire at various dates beginning
in the year 2010. Under the U.S. tax laws, the amount of and benefits from net
operating losses that can be carried forward may be impaired or limited in
certain circumstances. Events which may cause limitations in the amount of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of 50% over a three year period.
At April 30, 1997, approximately $4,400,000 of the Company's net operating
losses were subject to annual limitations.
Based on factors which include a history of losses generated by the U.S.
operations and the lack of carryback capacity, the weight of available evidence
indicates that it is more likely than not that the Company will not be able to
realize its U.S. deferred tax assets and thus a full valuation reserve has been
recorded. The Company has generated approximately $7,500,000 of earnings from
foreign operations for which no U.S. tax has been provided. These earnings are
considered to be permanently reinvested outside of the United States.
The Company's effective tax rate for the three months ended July 31, 1997
was approximately 14% and has been based primarily on the Company's estimation
of the expected geographical mix of its fiscal 1998 income (unaudited).
NOTE 12. TRANSACTIONS WITH AFFILIATES
Revenues from affiliates includes sales to Maxtor and other entities
related to Maxtor through Maxtor's parent company, Hyundai Electronics America.
During fiscal 1996 and 1997, Maxtor provided certain corporate
administrative and accounting services to the Company for which the Company was
charged $37,000 and $49,000, respectively.
NOTE 13. SIGNIFICANT CUSTOMERS AND FOREIGN OPERATIONS
The Company provides its customers with printed circuit board assembly,
product sub-assembly and final assembly on both a turnkey and consignment basis.
The Company markets and sells its products through a direct sales force to OEM's
worldwide, with an emphasis on the U.S. market. The Company operates in a single
industry segment.
F-18
<PAGE> 71
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the percentage of net sales to significant
customers:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
MARCH 31, MARCH 31, APRIL 30,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Maxtor................................... 92% 83% 49%
Diamond Multimedia....................... -- 13% --
Bay Networks............................. -- 2% 31%
</TABLE>
No other customer accounted for 10% or more of the Company's total revenues
during fiscal 1995, 1996 and 1997.
The Company's operations by geographical region were as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 30,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Sales to unaffiliated customers
United States.......................... $ -- $ -- $ 1,931
Asia................................... 3,089 68,361 78,615
------- -------- --------
3,089 68,361 80,546
Sales to affiliated customers
Asia................................... 36,284 340,487 89,149
------- -------- --------
Total revenues.................... $39,373 $ 408,848 $ 169,695
======= ======== ========
Income (loss) from operations:
United States............................. $ (345) $ (1,402) $ (3,332)
Asia...................................... 3,075 9,396 6,958
------- -------- --------
Total operating income............ $ 2,730 $ 7,994 $ 3,626
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, APRIL 30,
1996 1997
--------- ---------
<S> <C> <C>
Identifiable assets at year end:
United States......................................... $ 66 $ 6,753
Far East.............................................. 83,621 53,718
------- -------
Total identifiable assets..................... $83,687 $ 60,471
======= =======
</TABLE>
Revenues are designated as to the country which records the sale. Asia is
comprised of the Company's subsidiaries in Hong Kong, Thailand (commenced
operations at the end of fiscal 1995) and China (commenced operations in fiscal
1997).
14. SUBSEQUENT EVENTS
On August 26, 1997 the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and Exchange
Commission covering the proposed sale of shares of its common stock to the
public and approved, subject to shareholders' approval, a three for two stock
split of each of the Company's existing issued and unissued shares of each class
of the capital of the Company (including all outstanding preferred shares). In
addition, the Board of Directors adopted the 1997 Stock Plan with 1,750,000
shares authorized for future option grants; adopted the 1997 Director Option
Plan with 225,000 shares authorized for future option grants; and adopted the
1997 Employee Stock Purchase Plan and 1997 Non-U.S. Employee Stock Purchase Plan
with an aggregate of 250,000 shares reserved for future issuance.
F-19
<PAGE> 72
INTERNATIONAL MANUFACTURING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
All these plans become effective upon the closing of the initial public
offering. All share and per share amounts in the accompanying consolidated
financial statements have been adjusted for all periods presented to reflect the
stock split.
The Board of Directors also approved that effective upon the closing of the
initial public offering, the Company will be authorized to issue 100 million
shares of common stock and 10 million shares of undesignated preferred stock.
F-20
<PAGE> 73
APPENDIX - DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
On the left side of the page, in the middle, is a picture of the
Company's executive offices in San Jose, California, and immediately beneath
this picture is text which reads "IMS San Jose." On the right side of the page,
at the top, is a picture of the Company's manufacturing facility in China, and
immediately beneath this picture is text which reads "IMS China." Below this
text is a picture of the Company's manufacturing facility in Thailand, and
immediately beneath this picture is text which reads "IMS Thailand." Below this
text is a picture of the Company's design and prototype production center in San
Jose, California, and immediately beneath this picture is text which reads "IMS
Design Center." Below this text is a picture of the Company's materials
procurement facility in Hong Kong, and immediately beneath this picture is text
which reads "IMS Hong Kong."
At the bottom right side of the page is an IMS logo, immediately
beneath which is text that reads "International Manufacturing Services, Inc."
A globe appears behind the foregoing pictures, text and logo, and a
blue sky with clouds provides background for the inside front cover page.
INSIDE BACK COVER
On the left side of the page, at the top, is an IMS logo, immediately
beneath which is text that reads "International Manufacturing Services, Inc."
Below this logo, in descending order on the left side of the page are the words
"Design," "Prototypes," "Manufacturing," "Testing" and "Logistics," each
appearing in boldface type.
At the upper right hand corner of the page are two pictures of persons
performing certain quality control and process verification functions in
connection with the Company's manufacturing services. Below these pictures, in
the middle right side of the page, is a picture of a printed circuit board
assembly. Underneath this graphic is a picture of a person performing product
testing. And below this picture, at the lower right corner of the page, is a
picture of persons performing an engineering review of certain design
documentation.
A blue sky with clouds provides background for the back cover page.
<PAGE> 74
======================================================
No dealer, sales representative, or any other person has been authorized to
give any information or to make any representations in connection with this
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securities
other than the shares of Class A Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company or that information
contained herein is correct as of any time subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
Management............................ 32
Certain Transactions.................. 40
Principal Stockholders................ 42
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 47
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 50
Change of Accountants................. 51
Additional Information................ 51
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
Until , 1997 (25 days after the date
of this Prospectus), all dealers effecting transactions in the Class A Common
Stock, whether or not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
======================================================
======================================================
5,000,000 SHARES
LOGO
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
MONTGOMERY SECURITIES
ALEX. BROWN & SONS
INCORPORATED
UBS SECURITIES
, 1997
======================================================
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Registration Fee................................................. $ 20,910
NASD Fee......................................................... 7,400
Nasdaq National Market Listing Fee............................... *
Printing and Engraving........................................... *
Legal Fees and Expenses.......................................... *
Accounting Fees and Expenses..................................... *
Transfer Agent Fees.............................................. *
Miscellaneous.................................................... *
----------
Total.................................................. $1,000,000
=========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care to the Company or its stockholders. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the certificate of incorporation of the Registrant provides, inter alia, that
each person who is made a party or is threatened to be made a party to or
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director or officer of the Company or, while a
director or officer of the Company, is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Company to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an
indemnitee's heirs, executors and administrators; provided, however, that,
except with respect to the proceedings brought by an indemnitee to enforce
rights to indemnification (subject to certain restrictions and as more fully
described in the Registrant's certificate of incorporation), the Company shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in the Registrant's certificate of incorporation
includes the right to be paid by the Company the expenses incurred in connection
with any such proceeding in advance of its final disposition; provided, however,
that, if and to the extent that the Delaware General Corporation Law requires,
such an advancement of expenses incurred by an indemnitee in his or her capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service with respect to an employee benefit plan, shall be made only
upon delivery to the Company of an undertaking by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final
II-1
<PAGE> 76
judicial decision from which there is no further right to appeal that such
indemnitee is not entitled to be indemnified for such expenses under the
Company's certificate of incorporation or otherwise.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the bylaws, as well as certain additional procedural
protections. The indemnity agreements provide that directors and executive
officers will be indemnified to the fullest possible extent not prohibited by
law against all expenses (including attorney's fees) and settlement amounts paid
or incurred by them in any action or proceeding, including any derivative action
by or in the right of the Registrant, on account of their services as directors
or executive officers of the Registrant or as directors or officers of any other
company or enterprise when they are serving in such capacities at the request of
the Registrant. Pursuant to the indemnity agreements, the Company will not be
obligated to indemnify or advance expenses to an indemnified party with respect
to proceedings or claims initiated by the indemnified party and not by way of
defense, except with respect to proceedings specifically authorized by the Board
of Directors or brought to enforce a right to indemnification under such
indemnity agreement, the Company's certificate of incorporation, bylaws or any
statute or law, or as otherwise required under Section 145 of the Delaware
General Corporation Law. Also under the indemnity agreements, the Company is not
obligated to indemnify the indemnified party for (i) any expenses incurred by
the indemnified party with respect to any proceeding instituted by the
indemnified party to enforce or interpret the agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
indemnified party in such proceeding was not made in good faith or was
frivolous, (ii) acts, omissions or transactions on the part of the indemnified
party from which such party may not be relieved of liability under applicable
law or (iii) expenses and the payment of profits arising from the purchase and
sale by the indemnified party of securities in violation of Section 16(b) of the
Exchange Act, or any similar or successor statute.
The indemnification provisions in the certificate of incorporation and the
indemnification agreements entered into between the Registrant and its directors
and executive officers, may be sufficiently broad to permit indemnification of
the Registrant's officers and directors for liabilities arising under the 1933
Act.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------------------------------------------------------------------- ------
<S> <C>
Form of Underwriting Agreement...................................... 1.1
Amended and Restated Certificate of Incorporation, as amended....... 3.1
Form of Indemnification Agreement entered into by the Registrant
with each of its directors and executive officers................. 10.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 31, 1994, the Registrant has sold and issued the following
securities (as adjusted to reflect the Company's 3-for-2 split of the Common
Stock effected in September 1997 and the one-for-one conversion of the Preferred
Stock effected in connection with this Offering):
1. In June 1996 and pursuant to the Recapitalization, the Registrant
sold an aggregate of 3,390,000 shares of Class A Common Stock to the
following investors at an aggregate purchase price of $2,499,999.58:
1,637,370 shares to Prudential Private Equity Investors III, L.P.;
1,325,999 shares to Oak Investment Partners VI, L.P.; 30,917 shares to Oak
VI Affiliates Fund, L.P.; 239,003 shares to Brinson Venture Capital Fund
III, L.P.; 38,978 shares to Brinson Trust Company, as Trustee of the
Brinson MAP Venture Capital Fund III; 16,950 shares to Montgomery
Associates, 1992 L.P.; 33,900 shares to William J. Almon; 33,900 shares to
Doll Technology Investment Fund; 13,560 shares to the J. Larry Smart and
Cheryl L. Smart Trust dated 3/29/95; 3,390 shares to Daniel J. Winnike;
8,475 shares to WS Investment Company 96A; 7,797 shares to Jeffrey D.
Saper; and 678 shares to Herbert P. Fockler.
II-2
<PAGE> 77
2. In June 1996 and pursuant to the Recapitalization, the Registrant
sold an aggregate of 315,000 shares of Class A Common Stock to the
following officers and directors at an aggregate purchase price of
$232,300: 75,000 shares to Robert G. Behlman; 75,000 shares to Nathan
Kawaye; 75,000 shares to Neo Kia Quek; 60,000 shares to Anthony Pham;
15,000 shares to Iris Grable; and 15,000 shares to Julie Mahowald.
3. In June 1996, the Registrant sold 150,000 shares of Class A Common
Stock to Robert G. Behlman at a purchase price of $110,619.45.
4. In June 1996 and pursuant to the Recapitalization, the Registrant
sold an aggregate of 3,490,575 shares of Series A Preferred Stock to the
following investors at an aggregate purchase price of $5,817,625: 68,988
shares to Brinson Trust Company, as Trustee of the Brinson MAP Venture
Capital Fund III; 30,000 shares to Montgomery Associates, 1992 L.P.; 60,000
shares to William J. Almon; 60,000 shares to Doll Technology Investment
Fund; 24,000 shares to J. Larry Smart and Cheryl L. Smart Trust dated
3/29/95; 6,000 shares to Daniel J. Winnike; 15,000 shares to WS Investment
Company 96A; 13,800 shares to Jeffrey D. Saper; 1,200 shares to Herbert P.
Fockler; 423,012 shares to Brinson Venture Capital Fund III, L.P.; 54,720
shares to Oak VI Affiliates Fund, L.P.; 2,345,280 shares to Oak Investment
Partners VI, L.P.; and 388,575 shares to Prudential Private Equity
Investors III, L.P.
5. In June 1996, the Registrant sold 2,509,425 shares of Series B
Preferred Stock to Prudential Private Equity Investors III, L.P. at an
aggregate purchase price of $4,182,375.
6. In January 1997, the Registrant sold 450,000 shares of Class A
Common Stock to Pentagon Systems, Inc. at an aggregate purchase price of
$705,000.
The issuances described in items 2 and 3 were deemed exempt from
registration under the 1933 Act in reliance upon Rule 701 promulgated under the
1933 Act. The issuance of the securities described in items 1, 4, 5 and 6 were
deemed to be exempt from registration under the 1933 Act in reliance on Section
4(2) of such Act as transactions by an issuer not involving any public offering.
In addition, the recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ----------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Recapitalization Agreement dated as of May 16, 1996 by and among the
Registrant, Maxtor and the Investors named therein.
2.2 Redemption Agreement dated as of May 16, 1996 by and between the Registrant
and Maxtor.
3.1+ Amended and Restated Certificate of Incorporation of the Registrant, as
amended
3.2+ Form of Amended and Restated Certificate of Incorporation of the Registrant
3.3 Amended and Restated Bylaws of the Registrant.
3.4 Amendment to Amended and Restated Bylaws.
4.1 Form of Registrant's Common Stock Certificate.
4.2 Warrant dated June 13, 1996 issued to Maxtor to purchase 300,000 shares of
Common Stock.
5.1+ Opinion of Wilson Sonsini Goodrich & Rosati, P.C. regarding legality of the
securities being issued.
10.1 Form of Indemnification Agreement entered into by and between the Registrant
and each of its directors and management.
10.2 1996 Stock Option Plan and related agreements.
10.3 1997 Stock Plan and related agreements.
</TABLE>
II-3
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ----------------------------------------------------------------------------
<S> <C>
10.4 1997 Employee Stock Purchase Plan and related agreements.
10.5 1997 Non-U.S. Employee Stock Purchase Plan and related agreements.
10.6 Summary of Management Incentive Plan.
10.7 1997 Director Option Plan and related agreements.
10.8 Form of Common Stock Purchase Agreement dated June 1996 by and between the
Registrant and management.
10.9 Stockholders Agreement dated June 16, 1996 by and among the Registrant, the
Investor Stockholders and the Management Stockholders named therein.
10.10 Amendment No. 1 to Stockholders Agreement dated December 24, 1996 by and
among the Registrant and the Stockholders named therein.
10.11 Senior Subordinated Promissory Note dated June 10, 1996 issued by the
Registrant for the benefit of Maxtor.
10.12 Senior Subordinated Promissory Note dated June 10, 1996 issued by Maxtor
(Hong Kong) Limited for the benefit of Maxtor.
10.13 Senior Subordinated Promissory Note dated June 10, 1996 issued by IMS
International Manufacturing Services (Thailand) Limited for the benefit of
Maxtor.
10.14* Manufacturing Services Agreement dated as of June 13, 1996 by and between
the Registrant and Maxtor.
10.15 Manufacturing and Purchase Agreement dated as of January 1, 1996 and between
the Registrant and Bay Networks Centillion Business Unit.
10.16 Lease Agreement dated March 8, 1995 by and between The Industrial Estate
Authority of Thailand Ltd. and IMS International Manufacturing Services
(Thailand) Ltd.
10.17 Lease Agreement dated November 1, 1996 by and between The Industrial Estate
Authority of Thailand Ltd. and IMS International Manufacturing Services
(Thailand) Ltd.
10.18+ Lease Agreement dated April 11, 1996 by and between Dongguan Municipal
Changping Town Maiyuan Administrative District and Dongguan IMS Electronics
Ltd.
10.19 Lease Agreement dated July 9, 1996 by and between Barinet Company Limited
and IMS International Manufacturing Services (Hong Kong) Limited.
10.20 Employment Agreement dated October 14, 1994 by and between the Registrant
and Robert G. Behlman.
10.21 Credit Agreement dated as of June 13, 1996 by and among the Registrant, the
Lenders referred to therein and Chemical Bank, as amended.
11.1 Statement of computation of earnings per share.
16.1 Letter from Ernst & Young LLP dated August 27, 1997, Concurring With
Statements Made Regarding Change in Certifying Accountant.
21.1 Subsidiaries of the Registrant.
23.1+ Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP Independent Accountants.
23.3 Consent of Ernst & Young LLP Independent Auditors.
24.1 Power of Attorney (See page II-6).
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Confidential Treatment Requested.
+ To be filed by amendment.
II-4
<PAGE> 79
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts and Reserves.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each Purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Jose, State of California, on this 28th day of August 1997.
INTERNATIONAL MANUFACTURING
SERVICES, INC.
By: /s/ ROBERT G. BEHLMAN
------------------------------------
Robert G. Behlman,
Chairman of the Board of Directors,
President, and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Robert G. Behlman and
Nathan Kawaye, and each of them acting individually, as his true and lawful
attorney-in-fact and agent, each with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done or by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------- ----------------
<C> <S> <C>
/s/ ROBERT G. BEHLMAN Chairman of the Board of August 28, 1997
- ------------------------------------------ Directors, President and Chief
Robert G. Behlman Executive Officer (Principal
Executive Officer)
/s/ NATHAN KAWAYE Vice President and Chief August 28, 1997
- ------------------------------------------ Financial Officer (Principal
Nathan Kawaye Financial and Accounting Officer)
/s/ WILLIAM J. ALMON Director August 28, 1997
- ------------------------------------------
William J. Almon
/s/ DIXON R. DOLL Director August 28, 1997
- ------------------------------------------
Dixon R. Doll
/s/ JOHN A. DOWNER Director August 28, 1997
- ------------------------------------------
John A. Downer
/s/ FREDRIC W. HARMAN Director August 28, 1997
- ------------------------------------------
Frderic W. Harman
/s/ MARK ROSSI Director August 28, 1997
- ------------------------------------------
Mark Rossi
/s/ J. LARRY SMART Director August 28, 1997
- ------------------------------------------
J. Larry Smart
/s/ PAUL J. TUFANO Director August 28, 1997
- ------------------------------------------
Paul J. Tufano
</TABLE>
II-6
<PAGE> 81
SCHEDULE II
INTERNATIONAL MANUFACTURING SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended March 31,1995
Allowance for doubtful accounts..................... $ -- $ -- $ -- $ --
==== ==== ===== ====
Year Ended March 31, 1996
Allowance for doubtful accounts..................... $ $266 $ (31) $ 235
==== ==== ===== ====
Year Ended April 30, 1997
Allowance for doubtful accounts..................... $235 $ 46 $ (71) $ 210
==== ==== ===== ====
</TABLE>
S-1
<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT EXHIBIT DESCRIPTION NUMBERED PAGE
- ------- ---------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 Form of Underwriting Agreement........................................
2.1 Recapitalization Agreement dated as of May 16, 1996 by and among the
Registrant, the International IMS entities defined therein, Maxtor
Corporation ("Maxtor") and the Investors named therein................
2.2 Redemption Agreement dated as of May 16, 1996 by and between the
Registrant and Maxtor.................................................
3.1+ Amended and Restated Certificate of Incorporation of the Registrant,
as amended............................................................
3.2+ Form of Amended and Restated Certificate of Incorporation of the
Registrant............................................................
3.3 Amended and Restated Bylaws of the Registrant.
3.4 Amendment to Amended and Restated Bylaws.
4.1 Form of Registrant's Common Stock Certificate.........................
4.2 Warrant dated June 13, 1996 issued to Maxtor to purchase 300,000
shares of Common Stock................................................
5.1+ Opinion of Wilson Sonsini Goodrich & Rosati, P.C. regarding legality
of the securities being issued........................................
10.1 Form of Indemnification Agreement entered into by and between the
Registrant and each of its directors and executive management.........
10.2 1996 Stock Option Plan and related agreements.........................
10.3 1997 Stock Plan and related agreements................................
10.4 1997 Employee Stock Purchase Plan and related agreements..............
10.5 1997 Non-U.S. Employee Stock Purchase Plan and related agreements.....
10.6 Summary of Management Incentive Plan..................................
10.7 1997 Director Option Plan and related agreements......................
10.8 Form of Common Stock Purchase Agreement dated June 1996 by and between
the Registrant and certain executive officers.........................
10.9 Stockholders Agreement dated June 13, 1996 by and among the
Registrant, the Investor Stockholders and the Management Stockholders
named therein.........................................................
10.10 Amendment No. 1 to Stockholders Agreement dated December 24, 1996 by
and among the Registrant and the Stockholders named therein...........
10.11 Senior Subordinated Promissory Note dated June 10, 1996 issued by the
Registrant for the benefit of Maxtor..................................
10.12 Senior Subordinated Promissory Note dated June 10, 1996 issued by
Maxtor (Hong Kong) Limited for the benefit of Maxtor..................
10.13 Senior Subordinated Promissory Note dated June 10, 1996 issued by IMS
International Manufacturing Services (Thailand) Limited for the
benefit of Maxtor.....................................................
10.14* Manufacturing Services Agreement dated as of June 13, 1996 by and
between the Registrant and Maxtor.....................................
10.15 Manufacturing and Purchase Agreement dated as of January 1, 1996 by
and between the Registrant and Bay Networks Centillion Business
Unit..................................................................
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT EXHIBIT DESCRIPTION NUMBERED PAGE
- ------- ---------------------------------------------------------------------- -------------
<C> <S> <C>
10.16 Lease Agreement dated March 8, 1995 by and between The Industrial
Estate Authority of Thailand and IMS International Manufacturing
Services (Thailand) Ltd...............................................
10.17 Lease Agreement dated November 1, 1996 by and between The Industrial
Estate Authority of Thailand and IMS International Manufacturing
Services (Thailand) Ltd...............................................
10.18+ Lease Agreement dated April 11, 1996 by and between Dongguan Municipal
Changping Town Maiyuan Administrative District and Dongguan IMS
Electronics Ltd.
10.19 Lease Agreement dated July 9, 1996 by and between Barinet Company
Limited and IMS International Manufacturing Services (Hong Kong)
Limited...............................................................
10.20 Employment Agreement dated October 14, 1994 by and between the
Registrant and Robert G. Behlman......................................
10.21 Credit Agreement dated as of June 13, 1996 by and among the
Registrant, the IMS Entities defined therein, the Lenders referred to
therein and Chemical Bank, as amended.................................
11.1 Statement of computation of earnings per share........................
16.1 Letter from Ernst & Young LLP dated August 27, 1997 Concurring With
Statements Made Regarding Change in Certifying Accountant.............
21.1 Subsidiaries of the Registrant........................................
23.1+ Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
5.1)..................................................................
23.2 Consent of Price Waterhouse LLP Independent Accountants...............
23.3 Consent of Ernst & Young LLP Independent Auditors.....................
24.1 Power of Attorney (See page II-6).....................................
27.1 Financial Data Schedule...............................................
</TABLE>
- ---------------
* Confidential Treatment Requested.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
5,000,000 Shares
INTERNATIONAL MANUFACTURING SERVICES, INC.
Common Stock
Underwriting Agreement
dated September ___, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES........................................... 2
Effectiveness of the Registration Statement; No Stop Order..................... 2
Compliance with Registration Requirements...................................... 2
Quantities Furnished to Underwriters........................................... 3
Distribution of the Offering Materials......................................... 4
The Underwriting Agreement..................................................... 4
Authorization of the Common Shares............................................. 4
No Applicable Registration or Other Similar Rights............................. 4
No Material Adverse Change..................................................... 4
Independent Accountants........................................................ 5
Preparation of the Financial Statements........................................ 5
Incorporation and Good Standing of the Company and its
Subsidiaries............................................................. 5
Capitalization and Other Capital Stock Matters................................. 6
Stock Exchange Listing......................................................... 6
Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required..................................... 7
No Material Actions or Proceedings............................................. 7
Intellectual Property Rights................................................... 8
All Necessary Permits, etc..................................................... 8
Title to Properties............................................................ 8
Tax Law Compliance............................................................. 9
Company Not an "Investment Company."........................................... 9
Insurance...................................................................... 9
No Price Stabilization or Manipulation......................................... 9
Related Party Transactions..................................................... 10
No Unlawful Contributions or Other Payments.................................... 10
Company's Accounting System.................................................... 10
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON
SHARES......................................................................... 10
The Firm Common Shares......................................................... 10
The First Closing Date......................................................... 11
The Optional Common Shares; The Second Closing Date............................ 11
Public Offering of the Common Shares........................................... 12
Payment for the Common Shares.................................................. 12
Delivery of the Common Shares.................................................. 12
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3. ADDITIONAL COVENANTS..................................................... 13
Representatives' Review of Proposed Amendments and
Supplements.............................................................. 13
Securities Act Compliance...................................................... 13
Amendments and Supplements to the Prospectus and Other
Securities Act Matters................................................... 14
Copies of any Amendments and Supplements to the Prospectus..................... 14
Blue Sky Compliance............................................................ 14
Use of Proceeds................................................................ 15
Transfer Agent................................................................. 15
Earnings Statement............................................................. 15
Periodic Reporting Obligations................................................. 15
Company Agreement Not To Offer or Sell Additional Securities................... 15
SECTION 4. PAYMENT OF EXPENSES...................................................... 16
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE
UNDERWRITERS................................................................... 16
Effectiveness of Registration Statement........................................ 17
Accountants' Comfort Letter.................................................... 17
Compliance with Registration Requirements; No Stop Order; No
Objection from NASD...................................................... 17
No Material Adverse Change..................................................... 18
Opinion of Counsel for the Company............................................. 18
Opinion of Counsel for the Underwriters........................................ 18
Officers' Certificate.......................................................... 18
Bring-down Comfort Letter...................................................... 18
Lock-Up Agreement from Stockholders of the Company............................. 19
Additional Documents........................................................... 19
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.................................. 19
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.......................................... 20
SECTION 8. INDEMNIFICATION.......................................................... 20
Indemnification of the Underwriters............................................ 20
Indemnification of the Company, Its Directors and Officers..................... 21
Notifications and Other Indemnification Procedures............................. 22
Settlements.................................................................... 23
SECTION 9. CONTRIBUTION............................................................. 24
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL
UNDERWRITERS............................................................. 25
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
SECTION 11. TERMINATION OF THIS AGREEMENT........................................... 26
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY................................................................ 27
SECTION 13. NOTICES................................................................. 27
SECTION 14. SUCCESSORS.............................................................. 28
SECTION 15. PARTIAL UNENFORCEABILITY................................................ 28
SECTION 16. GOVERNING LAW PROVISIONS................................................ 29
SECTION 17. GENERAL PROVISIONS...................................................... 29
</TABLE>
-iii-
<PAGE> 5
UNDERWRITING AGREEMENT
September ___, 1997
MONTGOMERY SECURITIES
ALEX. BROWN & SONS INCORPORATED
UBS SECURITIES LLC
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
Introductory. International Manufacturing Services, Inc., a Delaware
corporation (the "Company), proposes to issue and sell to the several
underwriters named in Schedule A hereto (the "Underwriters") an aggregate of
5,000,000 shares (the "Firm Common Shares") of its Common Stock, par value
$0.001 per share (the "Common Stock"). In addition, the Company has granted to
the Underwriters an option to purchase up to an additional 750,000 shares (the
"Optional Common Shares") of Common Stock, as provided in Section 2 hereof. The
Firm Common Shares and, if and to the extent such option is exercised, the
Optional Common Shares are herein collectively called the "Common Shares."
Montgomery Securities, Alex. Brown & Sons Incorporated and UBS Securities LLC
have agreed to act as representatives of the several Underwriters (in such
capacity, the "Representatives") in connection with the offering and sale of the
Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which registration statement contains a form of prospectus to be
used in connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of such effectiveness
pursuant to Rule 430A or Rule 434 under the Securities Act, is herein called the
"Registration Statement." Any registration statement filed by the Company
pursuant to Rule 462(b) under the Securities Act is herein called the "Rule
462(b) Registration Statement," and from and after the date and time of such
filing of a Rule 462(b) Registration Statement the term "Registration Statement"
shall include
<PAGE> 6
the Rule 462(b) Registration Statement. Such prospectus, in the form first used
by the Underwriters to confirm sales of the Common Shares, is herein called the
"Prospectus;" provided, however, if the Company, with the consent of Montgomery
Securities, has elected to rely upon Rule 434 under the Securities Act, the term
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated [___], 1997 (such preliminary prospectus herein
called the "Rule 434 preliminary prospectus") together with the applicable term
sheet (the "Term Sheet") prepared and filed by the Company with the Commission
under Rules 434 and 424(b) under the Securities Act and provided, further, that
all references in this Agreement to the date of the Prospectus shall mean the
date of such applicable Term Sheet. All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus and the Term Sheet, or any amendments or supplements
to any of the foregoing, shall be deemed to include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Representatives have advised the Company that the Underwriters
propose to make a public offering of their respective portions of the Common
Shares as soon as the Representatives deem advisable after this Agreement has
been executed and delivered.
The Company hereby confirms its agreement with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to, and covenants with, each
Underwriter as follows:
(a) Effectiveness of the Registration Statement; No Stop Order. The
Registration Statement has been declared effective by the Commission under
the Securities Act. The Company has complied, to the Commission's
satisfaction, with all requests of the Commission for providing additional
or supplemental information. No stop order suspending the effectiveness of
either of the Registration Statement or the Rule 462(b) Registration
Statement, if any, is in effect and no proceedings for such purpose have
been instituted or are pending or, to the best knowledge of the Company,
are contemplated or threatened by the Commission.
(b) Compliance with Registration Requirements. Each preliminary
prospectus and Prospectus filed as part of the Registration Statement, as
part of any amendment thereto or pursuant to Rule 424 under the Securities
Act, complied when so filed in all material respects with the Securities
Act
-2-
<PAGE> 7
and, if so filed by electronic transmission pursuant to EDGAR (except as
may be permitted by Regulation S-T under the Securities Act), was
identical to the copy thereof delivered to the Underwriters for use in
connection with the offer and sales of the Common Shares. At the
respective times that the Registration Statement, the Rule 462(b)
Registration Statement, if any, and any post-effective amendments thereto
became effective, and at all times subsequent thereto up to and including
each Closing Date referred to below, the Registration Statement, such Rule
462(b) Registration Statement and each such post-effective amendment
thereto complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all times
subsequent thereto up to and including each Closing Date referred to
below, did not and will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If the Company has elected to rely upon Rule
434 under the Securities Act, and has obtained Montgomery Securities'
consent thereto, the Company confirms that the Rule 434 preliminary
prospectus is not materially different from the Company's prospectus
contained in the Registration Statement at the time it was declared
effective, and the Company agrees that it shall comply with the
requirements of Rule 434. Notwithstanding the foregoing, the
representations and warranties set forth in the second and third sentences
of this Section 1(b) do not apply to statements in or omissions from the
Registration Statement, the Rule 462(b) Registration Statement, if any,
and any post-effective amendments thereto, or the Prospectus, or any
amendments or supplements thereto, made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company in
writing by the Representatives expressly for use therein. There are no
contracts or other documents required to be described in the Prospectus or
to be filed as exhibits to the Registration Statement under the Securities
Act which have not been described or filed as required.
(c) Quantities Furnished to Underwriters. The Company has delivered
to the Representatives three complete manually signed copies of the
Registration Statement and of each consent and certificate of experts
filed as a part thereof, and such quantities of conformed copies of the
Registration Statement (without exhibits) and preliminary prospectuses and
the Prospectus, as amended or supplemented, as the Representatives have
reasonably requested for each of the Underwriters.
-3-
<PAGE> 8
(d) Distribution of the Offering Materials. The Company has not
distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection
with the offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus, the Registration Statement and the other
offering materials permitted under the Securities Act.
(e) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable
law and except as the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting the rights and remedies of creditors or by general equitable
principles.
(f) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued, fully paid and
non-assessable.
(g) No Applicable Registration or Other Similar Rights. Except as
disclosed in the Prospectus under the caption "Shares Eligible for Future
Sale," there are no persons with registration or other similar rights to
have any equity or debt securities registered for sale under the
Registration Statement or included in the offering contemplated by this
Agreement, except for such rights as have been duly waived.
(h) No Material Adverse Change. Except as otherwise may be stated in
the Prospectus, subsequent to the respective dates as of which information
is given in the Prospectus: (i) with respect to the Company and its
subsidiaries, considered as one entity, there has been no material adverse
change, or any development that would reasonably be expected to result in
a material adverse change, in the condition, financial or otherwise, or in
the earnings, business or operations, whether or not arising from
transactions in the ordinary course of business (any such change referred
to herein as a "Material Adverse Change"); (ii) the Company and its
subsidiaries, considered as one entity, have not incurred any material
liability or obligation, direct or contingent, not in the ordinary course
of business nor entered into any material transaction not in the ordinary
course of business; and (iii) except for dividends paid pursuant to the
terms of the Company's outstanding Preferred Stock, there has been no
dividend or distribution of
-4-
<PAGE> 9
any kind declared, paid or made by the Company or, except for dividends
paid to the Company or other subsidiaries, any of its subsidiaries on any
class of capital stock or repurchase or redemption by the Company or any
of its subsidiaries of any class of capital stock.
(i) Independent Accountants. Price Waterhouse LLP and Ernst & Young
LLP, who have expressed their respective opinions with respect to the
financial statements (which term as used in this Agreement includes the
related notes thereto) and supporting schedules filed with the Commission
as a part of the Registration Statement and included in the Prospectus and
in the Registration Statement, are independent public accountants as
required by the Securities Act.
(j) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus and in the Registration Statement
present fairly the consolidated financial position of the Company and its
subsidiaries as of and at the dates indicated and the results of their
operations and changes in financial position for the periods specified.
The supporting schedules included in the Registration Statement present
fairly the information required to be stated therein. Such financial
statements and supporting schedules have been prepared in conformity with
generally accepted accounting principles in the United States applied on a
consistent basis throughout the periods involved, except as may be stated
in the related notes thereto. No other financial statements or supporting
schedules are required to be included in the Registration Statement. The
financial data set forth in the Prospectus under the captions "Prospectus
Summary-Summary Consolidated Financial Information," "Selected
Consolidated Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the
audited financial statements contained in the Registration Statement.
(k) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company, IMS Industries Inc., a Delaware
corporation, INS Holdro, Inc., a Delaware corporation, IMS International
Manufacturing Services (Hong Kong) Limited, a [Hong Kong/China]
corporation, IMS International Manufacturing Services, Limited, a Cayman
Islands corporation, IMS International Manufacturing Services (Thailand)
Limited, a Thailand corporation, and Dongguan IMS Electronics Ltd., a
China corporation, and each other subsidiary of the Company, if any, which
is a "significant subsidiary" as defined in Rule 405 under the Securities
Act (each, a "Subsidiary" and, collectively, the "Subsidiaries"), has been
duly incorporated and is validly existing as a corporation in good
standing, where applicable, under the laws of the jurisdiction of its
organization and has the
-5-
<PAGE> 10
requisite power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and, in the case of
the Company, to enter into and perform its obligations under this
Agreement. Each of the Company and each Subsidiary is duly qualified as a
foreign corporation to transact business and is in good standing in the
State of California and each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except for such jurisdictions
(other than the State of California with respect to the Company) where the
failure to so qualify or to be in good standing would not, individually or
in the aggregate, result in a Material Adverse Change. All of the issued
and outstanding capital stock of each Subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim, except as
disclosed in the Prospectus. The subsidiaries listed in Exhibit 21 to the
Registration Statement are the only subsidiaries, direct or indirect, of
the Company.
(l) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the
Prospectus). The Common Stock (including the Common Shares) conforms in
all material respects to the description thereof contained in the
Prospectus. All of the shares of Common Stock have been duly authorized
and validly issued, are fully paid and non-assessable and have been issued
in compliance with the federal and state securities laws. None of the
shares of Common Stock were issued in violation of or subject to any
preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants or rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable
for, any capital stock of the Company or any of its subsidiaries other
than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted and exercised thereunder, set
forth in the Prospectus accurately presents the information required to be
shown with respect to such plans, arrangements, options and rights in all
material respects.
(m) Stock Exchange Listing. The Common Shares have been approved for
listing on the Nasdaq National Market, subject to official notice of
issuance.
-6-
<PAGE> 11
(n) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") in the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, mortgage, loan or credit
agreement, note, contract, franchise, lease or other instrument to which
the Company or any of its subsidiaries is a party or by which it or any of
them may be bound (including, without limitation, the Credit Facility, the
Maxtor Notes and the Junior Subordinated Notes (each such term as defined
in the Prospectus)), or to which any of the property or assets of the
Company or any of its subsidiaries is subject (each, an "Existing
Instrument"), except for such Defaults as would not, individually or in
the aggregate, result in a Material Adverse Change. The Company's
execution, delivery and performance of this Agreement and consummation of
the transactions contemplated hereby and by the Prospectus (i) have been
duly authorized by all necessary corporate action and will not result in
any violation of the provisions of the charter or by-laws of the Company
or any subsidiary, (ii) will not conflict with or constitute a breach of,
or Default or a Debt Repayment Triggering Event (as defined below) under,
or result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, any Existing Instrument, except for such conflicts, breaches,
Defaults, liens, charges or encumbrances as would not, individually or in
the aggregate, result in a Material Adverse Change, and (iii) will not
result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company or any
subsidiary. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus, except such as have been obtained by the Company
and are in full force and effect under the Securities Act, applicable
state securities or blue sky laws and the NASD. As used herein, a "Debt
Repayment Triggering Event" means any event or condition which gives, or
with the giving of notice or lapse of time would give, the holder of any
note, debenture or other evidence of indebtedness (or any person acting on
such holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or any
of its subsidiaries.
(o) No Material Actions or Proceedings. [Except as disclosed in the
Prospectus,] there are no legal or governmental actions, suits or
proceedings pending or, to the Company's knowledge, threatened, (i)
against or affecting the Company or any of its subsidiaries, (ii) which
has as the subject thereof
-7-
<PAGE> 12
any officer or director of, or property owned or leased by, the Company or
any of its subsidiaries or (iii) relating to environmental or
discrimination matters, where (A) there is a reasonable possibility that
such action, suit or proceeding might be determined adversely to the
Company or such subsidiary and (B) any such action, suit or proceeding,
individually or in the aggregate with any other actions, suits or
proceedings, if so determined adversely, would reasonably be expected to
result in a Material Adverse Change, or materially and adversely affect
the consummation of the transactions contemplated by this Agreement. All
pending governmental or legal actions, suits or proceedings to which the
Company or any of its subsidiaries is a party or of which any of their
respective property or assets is the subject which are not described in
the Prospectus, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material. No material
labor dispute with the employees of the Company or any of its subsidiaries
exists or, to the Company's knowledge, is threatened or imminent.
(p) Intellectual Property Rights. The Company and its subsidiaries
own or possess sufficient trademarks, trade names, patent rights, mask
works, copyrights, licenses and approvals (collectively, the "Intellectual
Property Rights") reasonably necessary to conduct their businesses as now
conducted; and the expiration of any of such Intellectual Property Rights
would not result in a Material Adverse Change. Neither the Company nor any
of its subsidiaries has received any notice of infringement or conflict
with asserted rights with respect to trademark, trade name, patent, mask
work, copyright, license, trade secret or other similar rights of others,
which infringement or conflict has not been resolved, and which, if the
subject of an unfavorable decision, would reasonably be expected to result
in a Material Adverse Change.
(q) All Necessary Permits, etc. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits
issued by the appropriate state, federal or foreign regulatory agencies or
bodies necessary to conduct their respective businesses, and neither the
Company nor any subsidiary has received any notice of proceedings relating
to the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would result in
a Material Adverse Change with respect thereto.
(r) Title to Properties. The Company and each of its subsidiaries
has good and marketable title to all the properties and assets reflected
as owned in the financial statements referred to in Section 1(j) above (or
elsewhere in the Prospectus), in each case free and clear of any security
interests,
-8-
<PAGE> 13
mortgages, liens, encumbrances, equities, claims and other defects, except
such as do not materially and adversely affect the value of such property
and do not materially interfere with the use made or proposed to be made
of such property by the Company or such subsidiary. The real property,
improvements, equipment and personal property held under lease by the
Company or any subsidiary are held under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not materially
interfere with the use made or proposed to be made of such real property,
improvements, equipment or personal property by the Company or such
subsidiary.
(s) Tax Law Compliance. The Company and its subsidiaries have filed
all necessary federal, state and foreign income and franchise tax returns
and have paid all taxes required to be paid by any of them and, if due and
payable, any related or similar assessment, fine or penalty levied against
any of them. The Company has made adequate charges, accruals and reserves
in the applicable financial statements referred to in Section 1(j) above
in respect of all federal, state and foreign income and franchise taxes
for all periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined.
(t) Company Not an "Investment Company." The Company has been
advised of rules and requirements under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Company is not an
"investment company" or an entity "controlled" by an "investment company"
within the meaning of the Investment Company Act and intends to conduct
its business in a manner so that it will not become subject to the
Investment Company Act.
(u) Insurance. Each of the Company and its subsidiaries are insured
by recognized financially sound and reputable institutions with policies
in such amounts and with such deductibles and covering such risks
generally deemed adequate and customary for their businesses including,
but not limited to, policies covering real and personal property owned or
leased by the Company and its subsidiaries against theft damage,
destruction and acts of vandalism. The Company has no reason to believe
that it or any subsidiary will not be able (i) to renew its existing
insurance coverage as and when such policies expire or (ii) to obtain
comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that
would not result in a Material Adverse Change.
(v) No Price Stabilization or Manipulation. The Company has not
taken and will not take, directly or indirectly, any action designed to or
that
-9-
<PAGE> 14
might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(w) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or any subsidiary or
any other person required to be described in the Prospectus, other than
those that have been disclosed therein.
(x) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the Company's knowledge, any employee
or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(y) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Any certificate signed by any officer of the Company and delivered to the
Representatives or to counsel for the Underwriters pursuant hereto shall be
deemed to be a representation and warranty by the Company to each Underwriter as
to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES.
The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A hereto. The purchase price per Firm Common Share to be paid by the
several Underwriters to the Company shall be $[___] per share.
-10-
<PAGE> 15
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters against payment therefor by wire
transfer of immediately available funds to the order of the Company shall be
made at the offices of Montgomery Securities, 600 Montgomery Street, San
Francisco, California (or such other place as may be agreed to by the Company
and the Representatives) at [___] a.m., San Francisco time on [___], 1997, or
such other time and date not later than 10:30 a.m., San Francisco time on [___],
1997 [10 business days later] as the Representatives shall designate by notice
to the Company (the time and date of such closing are herein called the "First
Closing Date"). The Company hereby acknowledges that circumstances under which
the Representatives may provide such notice to postpone the First Closing Date
as originally scheduled include, but are in no way limited to, any determination
by the Company or the Representatives to recirculate to the public copies of an
amended or supplemented Prospectus or a delay as contemplated by the provisions
of Section 10 hereof.
The Optional Common Shares; The Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 750,000 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is herein called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A hereto opposite the
-11-
<PAGE> 16
name of such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its lapse by giving
written notice of such cancellation to the Company.
Public Offering of the Common Shares. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Common Shares as
soon after this Agreement has been executed and the Registration Statement has
been declared effective and the Representatives, in their sole judgment, have
determined is advisable and practicable. The Representatives hereby further
advise the Company that (i) the Underwriters will offer the Common Shares for
sale to the public initially at a price of $[___] per share and to certain
dealers selected by the Representatives at a price that represents a concession
of not more than $[___] per share from such initial public offering price and
(ii) any Underwriter may allow, and such dealers may reallow, a concession of
not more than $[___] per share to any other Underwriter or to certain other
dealers.
Payment for the Common Shares. Payment for the Common Shares shall be made
at the First Closing Date (and, if applicable, at the Second Closing Date) by
wire transfer of immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for their
own accounts and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
Montgomery Securities, individually and not as a Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Delivery of the Common Shares. The Company shall deliver, or cause to be
delivered, to the Representatives for the accounts of the several Underwriters
certificates for the Firm Common Shares at the First Closing Date, against
payment by wire transfer of immediately available funds therefor. The Company
shall also deliver, or cause to be delivered, to the Representatives for the
accounts of the several Underwriters, certificates for the Optional Common
Shares the Underwriters have agreed to purchase at the First Closing Date or the
Second Closing Date, as the case may be, against payment by wire transfer of
immediately available funds therefor. The certificates for the Common Shares
shall be in definitive form and registered in such names and denominations as
the Representatives shall have requested at least two full business days prior
to the
-12-
<PAGE> 17
First Closing Date (or the Second Closing Date, as the case may be) and shall be
made available for inspection on the business day preceding the First Closing
Date (or the Second Closing Date, as the case may be) at a location in New York
City as the Representatives may designate. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
SECTION 3. ADDITIONAL COVENANTS.
The Company further covenants and agrees with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and Supplements.
The Company agrees that, during such period beginning on the date hereof
and ending on the later of the First Closing Date or such date as in the
opinion of counsel for the Underwriters the Prospectus is required by law
to be delivered in connection with sales by an Underwriter or dealer (the
"Prospectus Delivery Period"), prior to amending or supplementing the
Registration Statement (including any registration statement filed under
Rule 462(b) under the Securities Act) or the Prospectus, the Company shall
furnish to the Representatives for review a copy of each such proposed
amendment or supplement, and the Company further agrees not to file any
such proposed amendment or supplement to which the Representatives
reasonably object.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing
of any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or
the Prospectus, or of any proceedings to remove or suspend from listing or
quotation the Common Stock from any securities exchange upon which it is
listed for trading or quotation, or of the threatening or initiation of
any proceedings for any of such purposes. If the Commission shall enter
any such stop order at any time, the Company will use its best efforts to
obtain the lifting of such order at the earliest possible moment.
Additionally, the Company agrees that it shall comply with the provisions
of Rules 424(b), 430A and 434, as applicable, under the Securities Act and
will use its
-13-
<PAGE> 18
reasonable efforts to confirm that any filings made by the Company under
such Rule 424(b) were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is necessary
to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if in the opinion of the
Representatives or counsel for the Underwriters it is otherwise necessary
to amend or supplement the Prospectus to comply with law, the Company
agrees to promptly prepare (subject to Section 3(A)(a) hereof), file with
the Commission and furnish, at its own expense, to the Underwriters and to
dealers and such other persons (whose names and addresses will be
furnished to the Company by the Representatives) to whom Common Shares
might have been sold, amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
supplements and amendments thereto as the Representatives may reasonably
request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register
the Common Shares for sale under (or obtain exemptions from the
application of) the Blue Sky or state securities laws of those
jurisdictions designated by the Representatives, shall comply with such
laws and shall continue such qualifications, registrations and exemptions
in effect so long as reasonably required for the distribution of the
Common Shares. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service
of process in any such jurisdiction where it is not presently qualified or
where it would be subject to taxation as a foreign corporation. The
Company will advise the Representatives promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to
obtain the withdrawal thereof.
-14-
<PAGE> 19
(f) Use of Proceeds. The Company shall apply the net proceeds of the
sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as reasonably practicable, the
Company will make generally available to its security holders and to the
Representatives an earnings statement (which need not be audited) covering
the twelve-month period ending October 31, 1998 that satisfies the
provisions of Section 11(a) of the Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and
the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the
Commission all reports on Form SR as may be required under Rule 463 under
the Securities Act.
(j) Company Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Prospectus, the
Company agrees that it will not, without the prior written consent of
Montgomery Securities (which consent may be withheld at the sole
discretion of Montgomery Securities), on behalf of the several
Underwriters, directly or indirectly, sell, offer or contract to sell,
grant any option for the sale of, or otherwise dispose of or transfer, or
announce the offering of, or file any registration statement under the
Securities Act in respect of, any shares of Common Stock or any debt or
equity securities convertible into or exchangeable or exercisable for
Common Stock (other than as contemplated by this Agreement with respect to
the Common Shares), provided, however, that the Company may issue shares
of its Common Stock or options to purchase its Common Stock, or Common
Stock upon exercise of options, pursuant to any stock option, stock bonus
or other stock plan or arrangement described in the Prospectus, or, with
respect to up to 1,000,000 shares of Common Stock, in connection with any
acquisition transaction, but only if the holders of such shares, options,
or shares issued upon exercise of such options, agree in writing not to
sell, offer, dispose of or otherwise transfer any such shares or options
during such 180 day period without the prior written consent of Montgomery
Securities (which consent may be withheld at the sole discretion of
Montgomery Securities).
-15-
<PAGE> 20
The Representatives, on behalf of the several Underwriters, may, in their sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES.
The Company agrees to pay whether or not the transactions contemplated
hereunder are consummated, all costs, fees and expenses incurred in connection
with the performance of its obligations hereunder and in connection with the
transactions contemplated hereby, including without limitation, (i) all expenses
incident to the issuance and delivery of the Common Shares (including all
printing and engraving costs), (ii) all fees and expenses of the registrar and
transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public accountants and other advisors, (v) all costs and expenses
incurred in connection with the preparation, printing, filing, shipping and
distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), each preliminary
prospectus and the Prospectus, and all amendments and supplements thereto, and
this Agreement, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the Blue Sky laws, and, if
requested by the Representatives, preparing and printing a "Blue Sky Survey" or
memorandum, and any supplements thereto, and advising the Underwriters of such
qualifications, registrations and exemptions, (vii) the filing fees incident to
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with listing the Common Stock on the Nasdaq National Market, and (ix)
all other fees, costs and expenses referred to in Item 14 of Part II of the
Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to the matters set forth under subparagraph (vi) above).
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay for the
Common Shares as provided herein on the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and the First Closing Date and,
with respect to the Optional Common Shares, as of the Second Closing Date, to
-16-
<PAGE> 21
the timely performance by the Company of its covenants and other obligations
hereunder, and to each of the following additional conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, shall have
become effective no later than the date hereof.
(b) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Price Waterhouse LLP, independent
public accountants for the Company, a letter dated the date hereof, in
form and substance satisfactory to the Representatives and Price
Waterhouse LLP, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the audited and unaudited financial statements and certain
financial information contained in the Registration Statement and the
Prospectus (and the Representatives shall have received an additional
[___] conformed copies of such accountants' letter for each of the several
Underwriters).
(c) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under
the Securities Act) in the manner and within the time period
required by Rule 424(b) under the Securities Act; or the Company
shall have filed a post-effective amendment to the Registration
Statement containing the information required by such Rule 430A, and
such post-effective amendment shall have become effective; or, if
the Company elected to rely upon Rule 434 under the Securities Act
and obtained the Representatives' consent thereto, the Company shall
have filed a Term Sheet with the Commission in the manner and time
period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or
any post-effective amendment to the Registration Statement, shall be
in effect, and no proceedings for such purpose shall have been
instituted or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
-17-
<PAGE> 22
(d) No Material Adverse Change. For the period from and after
effectiveness of this Agreement and prior to the First Closing Date and,
with respect to the Optional Common Shares, the Second Closing Date there
shall not have occurred any Material Adverse Change.
(e) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date, the Representatives shall have received
the opinion of Wilson, Sonsini, Goodrich & Rosati, counsel for the
Company, dated as of such Closing Date, in form and substance satisfactory
to counsel for the Underwriters, with respect to the matters set forth in
Exhibit A hereto (and the Representatives shall have received an
additional [____] conformed copies of such counsel's legal opinion for
each of the several Underwriters).
(f) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date, the Representatives shall have
received the opinion of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A
Professional Corporation, counsel for the Underwriters, dated as of such
Closing Date, with respect to the matters set forth in paragraphs[(i),
(vi) through (xiv), inclusive] and the next-to-last paragraph of Exhibit A
hereto (and the Representatives shall have received an additional [___]
conformed copies of such counsel's legal opinion for each of the several
Underwriters).
(g) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date, the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to the
effect set forth in subsections (c)(ii) and (d) of this Section 5, and
further to the effect that:
(i) the representations and warranties of the Company set
forth in Section I of this Agreement are true and correct with the
same force and effect as though expressly made at and as of such
Closing Date; and
(ii) the Company has complied with all the agreements
hereunder and satisfied all the conditions hereunder on its part to
be performed or satisfied at or prior to such Closing Date.
(h) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date, the Representatives shall have received from
Price Waterhouse, LLP, independent public accountants for the Company, a
letter dated such date, in form and substance satisfactory to the
-18-
<PAGE> 23
Representatives and Price Waterhouse LLP, to the effect that they reaffirm
the statements made in the letter furnished by them pursuant to subsection
(b) of this Section 5, except that the specified date referred to therein
for the carrying out of procedures shall be no more than three business
days prior to the First Closing Date or Second Closing Date, as the case
may be (and the Representative shall have received an additional [___]
conformed copies of such accountants' letter for each of the several
Underwriters).
(i) Lock-Up Agreement from Stockholders of the Company. On the date
hereof, the Company shall have furnished to the Representatives an
agreement substantially in the form of Exhibit C hereto from [all
stockholders of the Company], and such agreement shall be in full force
and effect on each of the First Closing Date and the Second Closing Date.
(j) Additional Documents. On or before each of the First Closing
Date and the Second Closing Date, as the case may be, the Representatives
and counsel for the Underwriters shall have received such information,
documents and opinions as they may reasonably require for the purposes of
enabling them to pass upon the issuance and sale of the Common Shares as
contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the
conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by the Representatives pursuant to any of Section 5, Section 7 or
Section 11, or if for any reason the sale to the Underwriters of the Common
Shares at the First Closing is not consummated because of any refusal, inability
or failure on the part of the Company to perform any agreement herein or to
comply with any provision hereof, the Company agrees to reimburse the
Representatives and the other Underwriters (or such Underwriters as have
terminated this Agreement with respect to themselves), severally, upon demand
for all out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
-19-
<PAGE> 24
and the sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges relating to the offering contemplated by the Prospectus.
Any such termination shall be without liability of any party to any other party
except that the provisions of this Section 6, Section 4, Section 8 and Section 9
shall at all times be effective and shall survive such termination.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
The parties hereto agree that this Agreement shall not become effective
until the later of (i) the execution of this Agreement by the parties hereto and
(ii) notification by the Commission to the Company and the Representatives of
the effectiveness of the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any party
by notice to each of the other parties hereto, and any such termination shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company, or (c) of any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Securities Act and the
Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of the Company), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
the omission or alleged omission therefrom of a
-20-
<PAGE> 25
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
(iii) in whole or in part upon any failure of the Company to perform its
obligations hereunder or under law, and to reimburse each Underwriter and
each such controlling person for any and all expenses (including the fees
and disbursements of counsel chosen by Montgomery Securities) as such
expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising
or paying any such loss, claim, damage, liability, expense or action;
provided, however, that the foregoing indemnity agreement shall not apply
to any loss, claim, damage, liability or expense to the extent, but only
to the extent, arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company
by the Representatives expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); and provided, further, that with respect to any
preliminary prospectus, the foregoing indemnity agreement shall not inure
to the benefit of any Underwriter from whom the person asserting any loss,
claim, damage, liability or expense purchased Common Shares, or person
controlling such Underwriter, if a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Common Shares
to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage,
liability or expense. The indemnity agreement set forth in this Section
8(a) shall be in addition to any liabilities that the Company may
otherwise have.
(b) Indemnification of the Company, Its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act,
against any loss, claim, damage, liability or expense, as incurred, to
which the Company, or any such director, officer or controlling person may
become subject under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of such Underwriter), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged
untrue statement of a material fact contained in the Registration
Statement, any preliminary
-21-
<PAGE> 26
prospectus or the Prospectus (or any amendment or supplement thereto), or
arises out of or is based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in the Registration Statement,
any preliminary prospectus, the Prospectus (or any amendment or supplement
thereto), in reliance upon and in conformity with written information
furnished to the Company by the Representatives expressly for use therein;
and to reimburse the Company, or any such director, officer or controlling
person for any legal and other expense reasonably incurred by the Company,
or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. The Company hereby
acknowledges that the only information that the Underwriters have
furnished to the Company expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) are the statements set forth (A) as the last paragraph
on the inside front cover page of the Prospectus concerning stabilization
by the Underwriters and (B) in the table in the first paragraph and as the
second paragraph under the caption "Underwriting" in the Prospectus; and
the Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than under the indemnity agreement contained
in this Section 8 or to the extent it is not prejudiced as a proximate
result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that a conflict may
-22-
<PAGE> 27
arise between the positions of the indemnifying party and the indemnified
party in conducting the defense of any such action or that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties.
Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so to assume the defense of
such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with
the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more
than one separate counsel (together with local counsel), approved by the
indemnifying party (Montgomery Securities in the case of Section 8(b) and
Section 9), representing the indemnified parties who are parties to such
action) or (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in
each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall
not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel as contemplated by Section 8(c) hereof, the
indemnifying party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such settlement
is entered into more than 30 days after receipt by such indemnifying party
of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to
the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment in, any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party,
-23-
<PAGE> 28
unless such settlement or compromise, or consent to the entry of judgment
included an unconditional release of such indemnified party from all
liability on claims that are the subject action, suit or matter of such
proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 hereto is for any reason
held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand, and the Underwriters, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company, on the one hand,
and the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact or any
such inaccurate or the alleged inaccurate representation and/or warranty relates
to information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in subparagraph (c) of Section 8 herein,
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. The provisions
set forth in
-24-
<PAGE> 29
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 9 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A hereto. For purposes of this Section 9, each officer and employee of
an Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement and each person, if any,
who controls the Company within the meaning of the Securities Act and the
Exchange Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.
If, on the First Closing Date or the Second Closing Date, as the case may
be, any one or more of the several Underwriters shall fail or refuse to purchase
Common Shares that it or they have agreed to purchase hereunder on such date,
and the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the
-25-
<PAGE> 30
other Underwriters shall be obligated, severally, in the proportions that the
number of Firm Common Shares set forth opposite their respective names on
Schedule A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representatives with the consent of the
non-defaulting Underwriters, to purchase the Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case may
be, any Underwriter or Underwriters shall fail or refuse to purchase Common
Shares and the aggregate number of Common Shares with respect to which such
default occurs exceeds 10% of the aggregate number of Common Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Common Shares are not made within 48 hours
after such default this Agreement shall terminate without liability of any party
to any other party except that the provisions of Section 4, Section 6, Section 8
and Section 9 shall at all times be effective and shall survive such
termination. In any such case either the Representatives or the Company shall
have the right to postpone the First Closing Date or the Second Closing Date, as
the case may be, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT.
For the period from and after the effectiveness of this Agreement and
prior to the First Closing Date, this Agreement shall be subject to termination
by the Representatives by notice given to the Company if at any time during such
period (i) trading or quotation in any of the Company's securities shall have
been suspended or limited by the Commission or by the Nasdaq National Market, or
trading in securities generally on either of the Nasdaq National Market or the
New York Stock Exchange shall have been suspended or limited, or minimum or
maximum prices shall have been generally established on any of such markets or
exchanges by the Commission or the NASD; (ii) a general banking moratorium shall
have been declared by any of federal, New York, Delaware or California
authorities; (iii) there shall have occurred any outbreak or escalation of
national or international hostilities or any crisis or calamity, or any
substantial change in the United States or international financial markets, or
any substantial change or development involving a prospective substantial change
in United States or
-26-
<PAGE> 31
international political, financial or economic conditions, as in the judgment of
the Representatives, is material and adverse and makes it impracticable to
market the Common Shares in the manner and on the terms described in the
Prospectus or to enforce contracts for the sale of securities; (iv) there shall
have occurred any Material Adverse Change; or (v) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured. Any termination pursuant to this Section 11 shall be without
liability on the part of (a) the Company to any Underwriter, except that the
Company shall be obligated to reimburse the expenses of the Representatives and
the Underwriters to the extent provided in Sections 4 and 6 hereof, (b) of any
Underwriter to the Company or (c) of any party hereto to any other party except
that the provisions of Section 8 and Section 9 shall at all times be effective
and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers and of the several Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES.
All communications hereunder shall be in writing and shall be mailed,
delivered or telecopied and confirmed to the parties hereto as follows:
If to the Representative:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5512
Attention: David A. DeRuff
-27-
<PAGE> 32
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If sent to the Company:
International Manufacturing Services, Inc.
2071 Concourse Drive
San Jose, CA 95131
Facsimile: (408) 922-2727
Attention: Nathan Kawaye
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS.
This Agreement will inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriters pursuant to Section 10
hereof, and to the benefit of the officers and directors and controlling persons
referred to in Section 8 and Section 9, and in each case their respective
successors, personal representatives and assigns, and no other person will have
any right or obligation hereunder. No such assignment shall relieve any party of
its obligations hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY.
The invalidity or unenforceability of any Section, paragraph or provision
of this Agreement shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof. If any Section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
-28-
<PAGE> 33
SECTION 16. GOVERNING LAW PROVISIONS.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York applicable to agreements made and to be
performed in such State.
SECTION 17. GENERAL PROVISIONS.
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in two or more counterparts, each one of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement may not be amended or
modified unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party for
whom the condition is meant to benefit. The Table of Contents and the section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement. Unless otherwise
specified, times of day shall mean New York City time.
Each of the parties hereto hereby acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and are fully informed regarding said provisions. Each of the parties
hereto hereby further acknowledges that the provisions of Sections 8 and 9
hereto fairly allocate the risks in light of the ability of the parties to
investigate the Company, its affairs and its business in order to assure that
adequate disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
-29-
<PAGE> 34
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
INTERNATIONAL MANUFACTURING
SERVICES, INC.
By:
--------------------------------------
Robert G. Behlman
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
ALEX. BROWN & SONS INCORPORATED
UBS SECURITIES LLC
Acting as Representatives of the several Underwriters named in the attached
Schedule A.
By MONTGOMERY SECURITIES
By:
----------------------------------
-30-
<PAGE> 35
SCHEDULE A
<TABLE>
<CAPTION>
Underwriters Number of Number of
Firm Common Optional Common
Shares Shares
to be Purchased to be Purchased
<S> <C> <C>
Montgomery Securities...................... [___] [___]
Alex. Brown & Sons Incorporated............ [___] [___]
UBS Securities LLC......................... [___] [___]
[___] ..................................... [___] [___]
[___] ..................................... [___] [___]
</TABLE>
<PAGE> 36
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to Section
5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of California and in each
other jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except for such
jurisdictions (other than the State of California) where the failure to so
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Change.
(iv) Each of IMS Industries Inc. and IMS Holdco, Inc. (each, a "U.S.
Subsidiary") has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, and
has corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus.
(v) All of the issued and outstanding capital stock of each U.S.
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance or,
to the best knowledge of such counsel, any pending or threatened claim.
(vi) The authorized capital stock of the Company (including the
Common Stock) conforms as to legal matters to the description thereof set forth
in the Prospectus. All of the shares of Common Stock have been duly authorized
and validly issued, are fully paid and non-assessable and, to such counsel's
knowledge, were not issued in violation of or subject to any preemptive rights
or other rights to subscribe for or purchase any securities under the General
Corporation Law of the State of Delaware or the Company's certificate of
incorporation. The form of certificate used to evidence the Common Stock, as
included in Exhibit 4.2 to the Registration Statement, is in due and proper form
A-1
<PAGE> 37
and complies with all applicable requirements of the charter and by-laws of the
Company and the General Corporation Law of the State of Delaware.
(vii) No stockholder of the Company or any other person has any
preemptive right of first refusal or other similar right to subscribe for or
purchase securities of the Company (i) arising by operation of the certificate
of incorporation or by-laws of the Company or the General Corporation Law of the
State of Delaware or (ii) to the knowledge of such counsel, arising from any
Existing Instrument filed as an Exhibit to the Registration Statement or
otherwise known to such counsel.
(viii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant to
the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and non-assessable.
(x) Based solely upon the oral advice of the staff of the
Securities and Exchange Commission, each of the Registration Statement and the
Rule 462(b) Registration Statement, if any, has been declared effective by the
Commission under the Securities Act and no stop order suspending the
effectiveness of either of the Registration Statement or the Rule 462(b)
Registration Statement, if any, has been issued under the Securities Act and no
proceedings for such purpose have been instituted or are pending or are
contemplated or threatened by the Commission. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period required
by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus and each amendment or supplement to the
Registration Statement and the Prospectus, as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included therein or in exhibits to or excluded from the Registration Statement,
as to which no opinion need be rendered) complied as to form in all material
respects with the applicable requirements of the Securities Act.
A-2
<PAGE> 38
(xii) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xiii) The statements (i) in the Prospectus under the captions "Risk
Factors-Shares Eligible for Future Sale; Registration Rights,"
"Management-Compensation Plans," "Description of Capital Stock" and "Shares
Eligible for Future Sale" and (ii) in Item 14 of the Registration Statement
insofar as such statements constitute matters of law, summaries of legal
matters, the Company's charter or by-law provisions, documents or legal
proceedings, has been reviewed by such counsel and accurately summarize, in all
material respects, the matters referred to therein.
(xiv) To the knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or overtly threatened which
are required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed as exhibits thereto; and the descriptions thereof
and references thereto are accurate in all material respects.
(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of the
Underwriting Agreement and consummation of the transactions contemplated thereby
and by the Prospectus, except such as have been obtained by the Company and are
in full force and effect under the Securities Act, applicable state securities
or blue sky laws and the NASD.
(xvii) The execution, delivery and performance of the Underwriting
Agreement by the Company (other than performance by the Company of its
obligations under the indemnification section of the Underwriting Agreement, as
to which no opinion need be rendered) (i) have been duly authorized by all
necessary corporate action on the part of the Company, (ii) will not result in
any violation of the provisions of the charter or by-laws of the Company or any
U.S. Subsidiary, (iii) will not constitute a breach of, or Default or a Debt
Repayment Triggering Event under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, any material Existing Instrument filed as an
Exhibit to the Registration Statement or otherwise known to such counsel; and
(iv) to the knowledge of such counsel, will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the
A-3
<PAGE> 39
Company or any subsidiary, which could reasonably be expected to result in a
Material Adverse Change.
(xviii) The Company is not an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act.
(xix) Except as disclosed in the Prospectus under the caption
"Shares Eligible for Future Sale," to the knowledge of such counsel, there are
no persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement, except for such rights
as have been duly waived.
(xx) To the knowledge of such counsel, neither the Company nor any
U.S. Subsidiary is in violation of its certificate of incorporation or by-laws
except in each such case for such violations as would not, individually or in
the aggregate, result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company and with
representatives of the Underwriters at which the contents of the Registration
Statement and the Prospectus, and any supplements or amendments thereto, and
related matters were discussed and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus (other than as specified above), and any supplements or amendments
thereto, on the basis of the foregoing, nothing has come to their attention
which would lead them to believe that either the Registration Statement or any
amendments thereto, at the time the Registration Statement or such amendments
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its date or at
the First Closing Date or the Second Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no belief as to the financial statements or
schedules or other financial or statistical data included in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of
A-4
<PAGE> 40
California or the federal law of the United States, to the extent they deem
proper and specified in such opinion, upon the opinion (which shall be dated the
First Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Representatives) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters, and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
A-5
<PAGE> 41
EXHIBIT C
_________, 1997
MONTGOMERY SECURITIES
ALEX. BROWN & SONS INCORPORATED
UBS SECURITIES
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Re: Agreement Not to Sell Stock
Ladies and Gentlemen:
This letter is being delivered in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement") among International
Manufacturing Services, Inc., a Delaware corporation (the "Company"), and
Montgomery Securities, Alex. Brown & Sons Incorporated and UBS Securities, as
the Representatives (the "Representatives") of the several underwriters named or
to be named in Schedule A thereto (the "Underwriters"), relating to an
underwritten public offering of shares (the "Common Shares") of Class A common
stock, par value $0.001 per share (the "Common Stock"), of the Company.
In order to induce the Representatives and the Underwriters to enter
into the Underwriting Agreement, and in recognition of the benefits of the
contemplated Common Stock offering to the Company, the undersigned hereby
represents and warrants to, and covenants and agrees with, each Underwriter and
the Company, and shall be deemed to represent and warrant to each Underwriter on
the date on which the Underwriting Agreement is executed and on each date on
which any Common Shares are sold under the Underwriting Agreement, as follows:
(a) The undersigned will not, for a period of 180 days following the
date of the prospectus first used to confirm sales of the Common Shares, (i)
directly or indirectly, sell, offer or contract to sell, grant any option for
the sale of, or otherwise dispose of or transfer, or announce any offering of,
any shares of Common Stock or any debt or equity securities convertible into or
exchangeable or exercisable for Common Stock, whether owned on the date of
C-1
<PAGE> 42
this letter or hereafter acquired, or (ii) cause to be filed any registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to any of the foregoing, other than (w) as a sale pursuant to the
Underwriting Agreement, (x) as a bona fide gift or gifts, provided the donee or
donees thereof agree in writing to be bound by the terms of this letter, (y) as
a distribution to limited partners or shareholders of the undersigned, provided
that the distributees thereof agree in writing to be bound by the terms of this
letter, or (z) with the prior written consent of Montgomery Securities; and
(b) The undersigned waives any and all registration rights with
respect to registration under the Securities Act of the Common Stock held by the
undersigned, including any and all rights to receive notice with respect to the
offering referred to above, as, and only as, such registration rights apply to
the offering of the Common Shares referred to above.
If for any reason the Underwriting Agreement shall not have been
entered into by December 15, 1997, the agreement set forth above shall be
terminated, and shall be of no further force and effect.
Yours very truly,
[Stockholder]
By
--------------------------------------
Authorized Signatory
C-2
<PAGE> 1
EXHIBIT 2.1
INTERNATIONAL MANUFACTURING SERVICES, INC.
RECAPITALIZATION AGREEMENT
This RECAPITALIZATION AGREEMENT is made as of May 16, 1996, by and among
INTERNATIONAL MANUFACTURING SERVICES, INC., a Delaware corporation
(individually, "IMS Delaware" and together with the International IMS Entities
(as hereinafter defined), the "Company"), MAXTOR CORPORATION ("Maxtor") and each
of the investors listed on Exhibit A hereto (each an "Investor", and
collectively, the "Investors").
R E C I T A L S :
A. IMS Delaware has been a wholly-owned subsidiary of Maxtor since 1994.
The Company, Maxtor, Prudential Private Equity Investors III, L.P.
("Prudential"), and Oak Investment Partners VI, L.P. and Oak VI Affiliates Fund,
L.P. (collectively, "Oak") intend to enter into a series of related transactions
pursuant to which (i) IMS Delaware will acquire, either directly or indirectly,
all outstanding stock of three related subsidiaries of Maxtor, IMS International
Manufacturing Services Limited, an exempted company incorporated in the Cayman
Islands ("IMS Cayman"), IMS International Manufacturing Services (Thailand)
Limited, a company organized under the laws of Thailand ("IMS Thailand"), and
Maxtor (Hong Kong) Limited, a company organized under the laws of Hong Kong (IMS
Hong Kong") (collectively, the "International IMS Entities"); (ii) IMS Delaware
will repurchase a portion of its outstanding securities held by Maxtor in
exchange for cash, a promissory note and a warrant to purchase Class A Common
Stock of the Company; (iii) the Investors will invest portions of approximately
$25,000,000 in debt and equity securities of the Company; (iv) IMS Delaware will
obtain a revolving credit facility of approximately $32,000,000 (the "Senior
Debt"); (v) IMS Delaware will grant to members of its management options to
purchase Common Stock of IMS Delaware; and (vi) the certain members of
management of IMS Delaware (each a "Manager", and collectively, the "Managers")
will purchase shares of Class A Common Stock of the Company pursuant to separate
stock purchase agreements.
B. A Redemption Agreement between IMS Delaware and Maxtor of even date
herewith (the "Redemption Agreement") provides for the repurchase by the Company
from Maxtor of shares of the Company's outstanding Common Stock. Capitalized
terms not otherwise defined herein shall have the meanings ascribed to them in
the Redemption Agreement.
C. This Agreement provides for the purchase by the Investors of an
aggregate of 2,260,000 shares of the IMS Delaware's Class A Common Stock, par
value $0.001 per share, and no shares of IMS Delaware's Class B Common Stock,
par value $0.001 per share (the Class A Common Stock and Class B Common Stock of
IMS Delaware hereinafter referred to collectively as the "Common Stock"),
2,327,050 shares of IMS Delaware's 10% Series A Convertible Preferred Stock, par
value $0.001 per share, and 1,672,950 shares of IMS Delaware's 10% Series B
Convertible Preferred Stock, par value $0.001 per share (the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock
hereinafter referred to collectively as the "Preferred Stock"), and $12,500,000
principal amount of 12% junior subordinated promissory notes (the "Subordinated
Notes").
<PAGE> 2
Prudential and Oak shall have the right to reallocate their respective
obligations to purchase shares of the Common Stock, the Preferred Stock and the
Subordinated Notes to additional investors prior to the Closing, provided that
each such additional investor shall execute a counterpart signature page hereto.
Each such additional investor shall be deemed an "Investor" as used herein and
Exhibit A shall be amended accordingly to reflect each such reallocation.
A G R E E M E N T
In consideration of the foregoing, and the representations, warranties,
covenants and conditions set forth below, the parties hereto, intending to be
legally bound, hereby agree as follows:
SECTION 1
PURCHASE, SALE AND TERMS OF STOCK AND NOTES
1.1 The Stock. IMS Delaware has authorized the issuance, sale and delivery
of 2,260,000 shares of its Common Stock and 4,000,000 shares of its Preferred
Stock (collectively, the "Stock") to the Investors at a price of $1.1061945 per
share of Common Stock and $2.50 per share of Preferred Stock, such purchase
price to be paid by each of the Investors by cashier's check or by wire transfer
of immediately available funds in the respective amounts set forth in Exhibit A
hereto. Immediately prior to the Closing (as defined in Section 1.4 hereof), IMS
Delaware shall file a Restated Certificate of Incorporation with the Secretary
of State of the State of Delaware in substantially the form attached hereto as
Exhibit B.
1.2 The Notes. IMS Delaware has authorized the issuance, sale and delivery
of its Subordinated Notes in the aggregate principal amount of $12,500,000, to
be dated the date of issuance, and to bear interest at the rate of twelve
percent (12%) per annum. The Subordinated Notes shall be prepayable at any time
at the election of IMS Delaware, and shall in any event be subject to repayment
of principal on the anniversary of their date of issuance occurring in 2004. The
Subordinated Notes shall have substantially the terms described in the term
sheet attached as Exhibit C hereto.
1.3 The Securities. The Subordinated Notes and the Stock are sometimes
referred to herein collectively as the "Securities."
1.4 The Closing of the Purchase and Sale of Stock and Notes. The sale and
purchase of the Stock and Subordinated Notes shall take place at a closing (the
"Closing") to be held at Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California at 10:00 a.m., Pacific Time, on May 31, 1996, or such
other place or time as IMS Delaware, Maxtor and the Investors may fix (the date
on which the Closing occurs being referred to herein as the "Closing Date"). At
the Closing, against payment to IMS Delaware by cashier's check or by wire
transfer of immediately available funds, IMS Delaware will deliver certificates
for the Stock and the Subordinated Notes in the principal amounts sold, all in
the
-2-
<PAGE> 3
amounts set forth opposite the Investors' respective names in Exhibit A hereto.
At the Closing, the parties will also enter into a Stockholders Agreement in
substantially the form of Exhibit D hereto.
1.5 Legends. In addition to any other legends required by the Stockholders
Agreement or otherwise, the certificates representing all Securities shall be
conspicuously endorsed as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION UNDER THE ACT COVERING THE TRANSFER OR AN OPINION
OF COUNSEL, SATISFACTORY TO THE ISSUER, THAT REGISTRATION UNDER THE ACT IS
NOT REQUIRED.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF IMS DELAWARE
IMS Delaware represents and warrants to each Investor that, as of the date
of this Agreement and as of the Closing Date:
2.1 Corporate Status. IMS Delaware is duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each of the
International IMS Entities is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation. The
Company has made available to the Investors true and complete copies of the
Certificate of Incorporation (or like charter document) and Bylaws (or like
charter document) of IMS Delaware and each of the International IMS Entities,
and all amendments thereto, if any. Such documents, in such form, are in effect
as of the date hereof and will be in effect as of the Closing Date, other than
the Certificate of Incorporation and Bylaws of IMS Delaware, which will be
amended and restated pursuant to Section 5.23 hereof.
2.2 Corporate Authorization. IMS Delaware has taken all corporate action
required to authorize the execution and delivery of this Agreement, the
Stockholders Agreement and the documents and instruments to be executed by the
Company in connection herewith and the issuance of the Securities to the
Investors. This Agreement has been duly executed and delivered and, when
executed, the Stockholder's Agreement and each such other document or instrument
will be duly executed by IMS Delaware, and this Agreement and each such other
document or instrument represent legal, valid and binding obligations of IMS
Delaware, enforceable against it in accordance with their respective terms.
2.3 Securities. The Stock, when issued and upon payment of the purchase
price therefor, will be duly authorized, validly issued, fully paid and
non-assessable. Upon the Closing, IMS Delaware will have outstanding 4,460,000
shares of Common Stock and 4,000,000 shares of Preferred Stock. In addition, IMS
Delaware will have reserved up to 2,235,000 shares of Common Stock for issuance
on
-3-
<PAGE> 4
exercise of the options to acquire Common Stock described in Section 2.4 below,
and up to 200,000 shares of Common Stock for issuance upon exercise of the
Maxtor Warrant. Except as set forth above, there are no outstanding options,
warrants or other rights to purchase any of the IMS Delaware's authorized and
unissued capital stock. Except as set forth in the Stockholders Agreement, the
issuance by IMS Delaware of its securities will not be subject to any preemptive
rights or rights of first refusal, and IMS Delaware is not under any contractual
obligation to register under the Securities Act of 1933, as amended (the
"Securities Act"), any of its securities.
2.4 Option Plans. As of the Closing Date, IMS Delaware will have adopted a
1996 Stock Option Plan (the "Stock Plan") in the form of Exhibit E hereto and
authorized the grant of options to members of management of IMS Delaware and its
subsidiaries, effective as of the Closing, to purchase up to 1,540,000 shares of
Common Stock at an exercise price of $1.1061945 per share. Each stock option
Agreement shall be in the form of one of the forms attached to the Stock Plan.
The allocation of stock options among the members of management and the
applicable form of stock option Agreement shall be as set forth in a schedule
agreed upon by the parties. The Company will have reserved as of the Closing
Date a total of 2,235,000 shares of Common Stock for issuance upon exercise of
options to be granted pursuant to the Stock Plan.
2.5 Authority Regarding and Binding Nature of Transactional Agreements.
Each of IMS Delaware, the Holding Companies and the International IMS Entities
has the absolute and unrestricted right, power and authority to enter into and
to perform its obligations under each of the Transactional Agreements to which
it is or may become a party. The execution, delivery and performance by each of
IMS Delaware, the Holding Companies and the International IMS Entities of the
Transactional Agreements to which it is or may become a party have been, or
prior to the Closing will be, duly authorized by all necessary action on the
part of IMS Delaware, the Holding Companies or any of the International IMS
Entities, as the case may be, and their respective stockholders and boards of
directors. The Redemption Agreement constitutes the legal, valid and binding
obligation of IMS Delaware, enforceable against it in accordance with its terms.
Upon the execution and delivery of each of the other Transactional Agreements at
the Closing, each of such other Transactional Agreements to which IMS Delaware
or any of the International IMS Entities is a party will constitute the legal,
valid and binding obligation of IMS Delaware and the International IMS Entities,
as the case may be, and will be enforceable against them in accordance with its
terms.
2.6 Redemption Agreement Representations and Warranties. Each of the
representations and warranties contained in Sections 2.1 and 3 of the Redemption
Agreement as they pertain to the Company are true and correct as though made in
this Agreement.
-4-
<PAGE> 5
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor severally, and not jointly, represents and warrants that:
3.1 Authorization. Such Investor has full legal capacity, power and
authority to execute and deliver this Agreement, the Stockholders' Agreement and
the other documents and instruments to be executed by it pursuant hereto and to
perform its obligations hereunder and thereunder. This Agreement, the
Stockholders' Agreement and each such other document or instrument have been
duly executed and delivered by such Investor and are the legal, valid and
binding obligations of such Investor enforceable against it in accordance with
their respective terms.
3.2 Restricted Securities. Such Investor has been advised that the
Securities have not been registered under the Securities Act or any state
securities laws and, therefore, cannot be resold unless they are registered
under the Securities Act and applicable state securities laws or unless an
exemption from such registration requirements is available. Such Investor is
aware that IMS Delaware is under no obligation to effect any such registration
with respect to the Securities (except solely to the extent provided in the
Stockholders' Agreement attached hereto as Exhibit D) or to file for or comply
with any exemption from registration. Such Investor is purchasing the Securities
to be acquired by such Investor hereunder for its own account for investment and
not with a view to, or for resale in connection with, the distribution thereof.
Such Investor has such knowledge and experience in financial and business
matters that such Investor is capable of evaluating the merits and risks of such
investment, is able to incur a complete loss of such investment and is able to
bear the economic risk of such investment for an indefinite period of time. Such
Investor is an accredited investor as that term is defined in Regulation D under
the Securities Act.
3.3 Access to Information. Such Investor acknowledges that IMS Delaware
has given such Investor access to the corporate records and accounts of the
Company, has made its officers and representatives available for interview by
such Investor, and has furnished such Investor with all documents and other
information required for such Investor to make an informed decision with respect
to the purchase of the Securities. Without limiting the generality of the
foregoing, such Investor acknowledges that IMS Delaware has furnished such
Investor with copies of the Redemption Agreement and the other documents
contemplated by the Redemption Agreement.
3.4 Control of Securities. As a result of and immediately following the
Closing (all terms enclosed in quotation marks in this Section 3.4 having the
meanings set forth in the regulations set forth at 16 CFR Part 800 (the
"Regulations"), promulgated by the Federal Trade Commission under Section 7A of
the Clayton Act, 15 U.S.C. 18A, as added by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act")):
(a) Each Investor is an "acquiring person."
-5-
<PAGE> 6
(b) Each Investor is an "entity" not "controlled" by any other
"entity" and is therefore an "ultimate parent entity."
(c) Each Investor will not "hold" an aggregate total amount of the
"voting securities" and "assets" of the "acquired person" in excess of $15
million.
(d) Each Investor will not "hold" "assets" of the "acquired person"
valued at more than $15 million.
(e) Each Investor will not "hold" "voting securities" conferring
"control" of the "acquired person" or any "issuer" controlled by the "acquired
person."
(f) No Investor is a party to or aware of any agreement, other than
the Stockholders Agreement, with regard to the voting of the securities of the
"acquired person."
(g) No Investor is a party to or aware of any transaction or other
device entered into or employed for the purpose of avoiding the obligation to
comply with the requirements of the HSR Act.
SECTION 4
COVENANTS
4.1 Access And Investigation. Maxtor and the Company shall ensure that, at
all times prior to the Closing:
(a) Each Investor and its Representatives and the Representatives of
the Lender providing the Senior Debt are given free and complete access to the
Company's Representatives, facilities, personnel and assets and to all existing
books, records, financial statements, Tax Returns, work papers and other
documents and information relating to the Company and the Business;
(b) Each Investor and its Representatives is provided such copies of
existing books, records, Tax Returns, work papers and other documents and
information relating to the Company and its business as such Investor may
request in good faith; and
(c) The Company and its Representatives compile and provide each
Investor and its Representatives with such additional financial, operating and
other data and information relating to the Company and its business as such
Investor may request in good faith.
4.2 Operation of Business. Maxtor and the Company shall ensure that, prior
to the Closing, without the written consent of a majority in interest of the
Investors:
(a) Maxtor does not directly or indirectly sell or otherwise
transfer, and does not agree, commit or offer (in writing or otherwise) to sell
or otherwise transfer, any capital stock in IMS
-6-
<PAGE> 7
Delaware, the Holding Companies or any of the International Entities or any
interest in or right relating to any such capital stock, except for the actions
described on Part 3.3 of the Disclosure Schedule of the Redemption Agreement as
the Reorganization Actions;
(b) Maxtor does not permit, and does not agree, commit or offer (in
writing or otherwise) to permit, any capital stock of IMS Delaware, the Holding
Companies or any of the International Entities to become subject, directly or
indirectly, to any Encumbrance;
(c) The Company conducts its operations exclusively in the Ordinary
Course of Business and in the same manner as such operations have been conducted
prior to the date of this Agreement, except for the investment of capital
equipment described in Section 4.10;
(d) The Company (i) uses reasonable commercial efforts to preserve
intact its current business organization, (ii) keeps available the services of
its current officers and employees, (iii) uses its reasonable commercial efforts
to maintain its relations and good will with all suppliers, customers,
landlords, creditors, licensors, licensees, employees, independent contractors
and other Persons having business relationships with the Company, and (iv)
promptly repairs, restores or replaces any material assets that are destroyed or
damaged;
(e) The Company keeps in full force all of its insurance policies;
(f) The Investors are notified immediately of any proposal, offer or
invitation to negotiate from any Person relating to any Acquisition Transaction;
(g) Except for the actions described on Part 3.3 of the Disclosure
Schedule to the Redemption Agreement as Reorganization Actions, the Company does
not (i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock or other securities, or
(ii) repurchase, redeem or otherwise reacquire any shares of capital stock or
other securities;
(h) The Company does not sell or otherwise issue any shares of
capital stock or any other securities;
(i) The Company does not effect or become a party to any Acquisition
Transaction;
(j) Except for the actions described on Part 3.3 of the Disclosure
Schedule to the Redemption Agreement as Reorganization Actions, the Company does
not form any subsidiary or acquire any equity interest or other interest in any
other Entity, other than the acquisition either directly or indirectly of all
outstanding stock of the International IMS Entities;
(k) The Company does not enter into or permit any of its assets to
become bound by any Contract, except in the Ordinary Course of Business;
-7-
<PAGE> 8
(l) Except for the Stock Plan, the Company does not establish or
adopt any Employee Benefit Plan, or, except in the Ordinary Course of Business,
pay any bonus or make any profit-sharing or similar payment to, or, except in
the Ordinary Course of Business, increase the amount of the wages, salary,
commissions, fees, fringe benefits or other compensation or remuneration payable
to, any of its directors, officers, employees or independent contractors;
(m) The Company does not change any of its methods of accounting or
accounting practices in any respect except as required by a concurrent change in
GAAP;
(n) The Company does not commence or settle any Proceeding, except
with respect to such matters as would not have a material impact on the business
of the Company;
(o) The Company does not enter into any transaction or take any
other action of the type referred to in Section 3.5 of the Redemption Agreement;
(p) The Company does not enter into any transaction or take any
other action outside the Ordinary Course of Business;
(q) The Company does not enter into any transaction or take any
other action that might cause or constitute a Breach of any representation or
warranty made by Maxtor or the Company in this Agreement or in the Closing
Certificate;
(r) The Company does not enter into or amend any existing
transaction with any Related Person (including Maxtor), except to the extent
specifically contemplated by the Transactional Documents or the actions
described on Part 3.3 of the Disclosure Schedule to the Redemption Agreement as
the Reorganization Actions; and
(s) The Company does not agree, commit or offer (in writing or
otherwise) to take any of the actions described in clauses "(i)" through "(r)"
of this Section 4.2.
4.3 Filings And Consents. Each of IMS Delaware, Maxtor and the Investors
shall take all appropriate actions to make or obtain any filing, notice or
Consent that it is required to make or obtain in connection with the
Transactions contemplated herein, and shall cooperate with the other parties by
providing any documents or assistance they may reasonably require to make or
obtain any filing, notice or Consent required in connection with the
Transactions contemplated hereunder. In particular, IMS Delaware shall take all
reasonable steps to obtain from the California Department of Corporations a
Permit for Qualification pursuant to Section 25113 of the California Corporate
Securities Law to issue the Subordinated Notes.
4.4 Notification; Updates To Disclosure Schedule.
(a) Prior to the Closing, IMS Delaware and Maxtor shall promptly
notify each Investor in writing of:
-8-
<PAGE> 9
(i) The discovery by Maxtor or IMS Delaware of any event,
condition, fact or circumstance that occurred or existed on or prior to
the date of this Agreement and that caused or constitutes a Breach of any
representation or warranty made by IMS Delaware in this Agreement or made
by Maxtor in the Redemption Agreement;
(ii) Any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a Breach of any representation or warranty made by IMS Delaware
in this Agreement or made by Maxtor in the Redemption Agreement if (A)
such representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement;
(iii) Any Breach of any covenant or obligation of Maxtor or IMS
Delaware; and
(iv) Any event, condition, fact or circumstance that may make the
timely satisfaction of any of the conditions set forth in Sections 5 or 6
of this Agreement or Sections 7 or 8 of the Redemption Agreement
impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to this Section 4.4 requires any change in the
Disclosure Schedule to the Redemption Agreement, or if any such event,
condition, fact or circumstance would require such a change assuming the
Disclosure Schedule were dated as of the date of the occurrence, existence or
discovery of such event, condition, fact or circumstance, then Maxtor and IMS
Delaware shall promptly deliver to the Investors an update to the Disclosure
Schedule specifying such change; provided, however, that any update to the
Disclosure Schedule so delivered to the Investors shall not be deemed to amend
the representations and warranties of Maxtor or the Company unless the Investors
accept in writing any such updates. The Investors may terminate this Agreement
without liability if they determine in good faith that any such update to the
Disclosure Schedule involves a change in the Company's circumstances or its
rights or other information that materially adversely affects their investment
decision.
4.5 No Negotiation. Until the earlier of the Closing or the termination or
expiration of this Agreement, neither Maxtor nor IMS Delaware will (nor will
Maxtor or the Company permit any of their respective Representatives to)
directly or indirectly, take any of the following actions with any party other
than the Investors and their designees:
(a) Solicit, conduct discussions with or engage in negotiations with
any Person, relating to the possible acquisition of IMS Delaware or any
International IMS Entity (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) (an "Alternative Acquisition") or any material
portion of its or their capital stock or assets (an "Equity Transaction");
-9-
<PAGE> 10
(b) Provide information with respect to the business of IMS Delaware
or any International IMS Entity to any Person, other than the Investors or their
designees, relating to any Alternative Acquisition or Equity Transaction;
(c) Enter into an Agreement with any Person, other than the
Investors, providing for any Alternative Acquisition or Equity Transaction; and
(d) Make or authorize any statement, recommendation or solicitation
in support of any Alternative Acquisition or Equity Transaction by any Person,
other than by the Investors.
If Maxtor or IMS Delaware (or any of their respective officers, directors,
agents, representative or affiliates) receives on or after the date hereof any
bona fide offer or proposal relating to any of the above, Maxtor shall
immediately notify the Investors thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be.
4.6 Confidentiality. Prior to the Closing, none of IMS Delaware, Maxtor,
any Investor, or any of their Representatives shall issue or disseminate any
press release or other publicity or otherwise make any disclosure of any nature
(including to any supplier, customer, landlord, creditor or employee of the
Company) regarding any of the Transactions, except to the extent required to
obtain Consents necessary to consummate the Transactions, to the extent
necessary to obtain the Senior Debt or to the extent that such party is required
by law to make any such disclosure. If any party is required by law to make any
such disclosure, it shall distribute copies to all other parties prior to actual
public release. For a period of thirty (30) days following the Closing, any
party that proposes to issue or disseminate any press release or other publicity
regarding any of the Transactions shall distribute copies to all other parties
prior to actual public release, and shall reasonably consider requested changes
thereto that another party may make.
4.7 Reasonable Commercial Efforts. Prior to the Closing, IMS Delaware,
Maxtor and the Investors shall use reasonable commercial efforts to cause the
conditions set forth in Sections 5 and 6 of this Agreement and Sections 7 and 8
of the Redemption Agreement to be satisfied on a timely basis. As the sole
stockholder of IMS Delaware, Maxtor shall use its best efforts to cause IMS
Delaware to perform its obligations under this Agreement.
4.8 Redemption Agreement. Maxtor and IMS Delaware shall not terminate the
Redemption Agreement unless this Agreement is first terminated pursuant to
Section 7.5 hereof. Maxtor and IMS Delaware covenant to the Investors to perform
their respective obligations under the Redemption Agreement and not to amend,
waive any provision of or terminate the Redemption Agreement without the written
consent of a majority in interest of the Investors.
4.9 Audited March 30 Financial Statements.
(a) As soon as practicable after March 30, 1996, but in any event
prior to the Closing Date, Maxtor shall cause IMS Delaware to prepare and
deliver to the Investors audited consolidated
-10-
<PAGE> 11
balance sheets of IMS Delaware and the International IMS Entities (and/or any
predecessors, if appropriate) as of March 30, 1996 (the "Combined Balance
Sheet") and 1995 and related statements of operations and cash flows for the
three fiscal year periods ended March 30, 1996 (collectively, the "Audited
Financial Statements"). The Combined Balance Sheet shall contain only those
assets and those liabilities in nature and amount appropriate for the normal
operation of the Business in the ordinary course. The Audited Financial
Statements (i) shall be prepared in accordance with GAAP consistent with the
prior audited financial statements included in the Financial Statements, (ii)
shall satisfy the U.S. Securities and Exchange Commission's requirements under
Regulation S-X, and (iii) shall not differ materially from the Unaudited
Financial Statements. In the event that the Audited Financial Statements do not
comply with the requirements of the foregoing sentence, the Investors shall be
entitled to terminate this Agreement.
(b) Notwithstanding the foregoing, if the Closing shall not have
occurred prior to June 29, 1996, then Maxtor shall cause IMS Delaware to
deliver, in addition to the Audited Financial Statements referred to in Section
4.9(a), an unaudited consolidated balance sheet of IMS Delaware, the Holding
Companies and the International IMS Entities (and/or any predecessors, if
appropriate) as of June 29, 1996, and related statements of operations and cash
flows for the three month period then ended. In such event, such June 29, 1996
financial statements shall (i) be prepared in accordance with GAAP applied on a
consistent basis with the Audited Financial Statements, (ii) present fairly the
financial position of the Company as of the date thereof and the results of
operations and cash flows of the Company for the period covered thereby, (iii)
be correct and complete in all material respects, and (iv) be consistent with
the books and records of the Company.
4.10 Reimbursement of Maxtor Advances. Prior to the Closing Date, Maxtor
shall provide to the Company and the Investors a schedule of expenditures made
by the Company out of intercompany advances from Maxtor or by Maxtor on behalf
of the Company subsequent to January 1, 1996, to enable the Company to continue
to operate and to expand the Business. Such schedule shall be satisfactory in
form and substance to the Company and the Investors. Maxtor warrants that all
such expenditures were incurred for the foregoing purpose and in arm's-length
transactions of a commercially reasonable nature. At the Closing, the Company
agrees to reimburse Maxtor for such intercompany advances or expenditures in an
aggregate amount not to exceed $1,000,000. Additionally, at the Closing, Maxtor
agrees to waive and deem as canceled any such intercompany advances or
expenditures that exceed $1,000,000; provided, however, that in the event that
the Closing is delayed beyond June 30, 1996, and the $1,000,000 limitation will
impair the start-up of the Company's facility in the People's Republic of China,
Maxtor, the Investors and the Company shall negotiate in good faith as to any
excess amount appropriate for reimbursement.
4.11 Environmental Condition. Prior to the Closing, the Company and the
Investors shall have obtained, investigated and approved in their discretion
such reports and information concerning (i) the Hazardous Materials Activities
of the Company, (ii) the Hazardous Materials disposal practices of Company,
(iii) the presence or absence of Contamination on any present or past Company
facility, and (iv) the Applicable Environmental Health and Safety Requirements
and the contracts applicable to the Company, its facilities and its Hazardous
Materials Activities (collectively, the "Environmental Matters") as they deem
reasonably necessary. Prior to Closing, the Company and the Investors and their
-11-
<PAGE> 12
consultants and other representatives (i) shall have the right to enter upon any
Company facility to conduct such inspections and tests and taking such soil and
groundwater samples as it shall deem necessary, and (ii) shall have access to
all records in the possession or under the control of the Company or Maxtor
relating to the Environmental Matters. If such investigation discloses any
Matter which violates a representation set forth in the Redemption Agreement or
which, in the discretion of the Investors could aversely affect the Company or
its operations, then the Investors shall so notify Maxtor. Thereafter, Maxtor
and the Investors shall negotiate in good faith to resolve the matter to the
satisfaction of both parties. If no resolution of the matter acceptable to the
Investors is achieved on or before the earlier of the Closing or August 15,
1996, then the Investors will have the right to terminate this Agreement and the
transactions contemplated hereby.
4.12 Restricted Actions. So long as (a) at least (1) 25% of (i) the
Preferred Stock and (ii) shares of Class A Common Stock or Class B Common Stock
issued or issuable upon conversion of Preferred Stock, (iii) shares of Class A
Common Stock issued or issuable upon conversion of shares of Class B Common
Stock and (iv) shares of Class B Common Stock issued or issuable upon conversion
of share of Class A Common Stock (collectively, the "Conversion Stock") or (2)
25% of the principal amount of the Subordinated Notes remain outstanding and (b)
the Investors collectively own at least such percentage of such shares or notes,
without the prior written consent of the holders of (A) two-thirds of the then
outstanding Preferred Stock and Conversion Stock, taken together and (B) if any
Subordinated Notes shall be outstanding, the holders of not less than 66-2/3% in
principal amount of the Subordinated Notes then outstanding, the Company shall
not:
(a) take any action that would constitute a Voting Event (as defined
in the Certificate of Incorporation), regardless of whether such Voting Event
would otherwise be subject to a vote of the shareholders of the Company;
(b) repurchase or redeem (or make any funds available for the
purchase or redemption of) any shares of capital stock, or options, warrants or
other rights to acquire shares of capital stock, of the Company, other than
pursuant to (i) Article Fourth, subdivision I of the Certificate of
Incorporation, (ii) the terms of any employment agreement, stock option plan,
restricted stock purchase plan or agreement or similar arrangement between the
Company and any employee approved by a majority of the board of directors of the
Company or (iii) the Redemption Agreement;
(c) incur or permit to exist obligations for borrowed money of the
Company, in the aggregate, in excess of $50,000,000 (other than the Maxtor Notes
and Subordinated Notes);
(d) engage in any transaction with any Affiliate other than (i) a
normal employment relationship, (ii) granting (and allowing the exercise of
and/or (subject to Section 4.12(b)) repurchase of shares issuable upon exercise
of) employee stock options pursuant to the Stock Plan relating to up to
2,235,000 shares of Common Stock, (iii) as specifically contemplated herein and
in the Redemption Agreement, the Transactional Agreements, the Manufacturing
Services Agreement or the Transition Services Agreement or (iv) on terms and
conditions which are no less favorable to the Company as would result from an
arm's length transaction;
-12-
<PAGE> 13
(e) become subject to any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's right to comply with the
terms of this Agreement, the Redemption Agreement, any of the Transactional
Agreements, the Certificate of Incorporation or its Bylaws;
(f) enter into any merger, combination, consolidation,
reorganization, recapitalization, liquidation or other similar transaction of
the Company or any agreement with respect to any of the foregoing, other than a
transaction for the purpose of changing the Company's domicile;
(g) sell, lease, convey or otherwise dispose of, in a single
transaction, all or substantially all of the Company's assets, as measured by
book value;
(h) amend the Certificate of Incorporation or Bylaws, or alter the
rights, preferences and privileges of the Subordinated Notes or the Preferred
Stock;
(i) issue any additional shares of capital stock or other equity
securities, or any warrants, options or other rights to purchase equity
securities at a price per share equal to or less than the price of the Preferred
Stock (except pursuant to the Stock Plan and upon conversion of any Preferred
Stock or Common Stock);
(j) acquire any other business for consideration in excess of
$1,000,000;
(k) enter into any business other than the Business.
4.13 Required Actions. So long as (i) at least (1) 25% of the Preferred
Stock and Conversion Stock or (2) 25% of the principal amount of the
Subordinated Notes remain outstanding and (ii) the Investors collectively own at
least such percentage of such shares or notes, the Company shall:
(a) maintain, preserve and renew its corporate existence and all
material licenses, authorizations and permits necessary to the conduct of its
business;
(b) maintain and keep its properties in good repair, working order
and condition, and make all necessary or desirable repairs, renewals and
replacements, so that its business may be properly and advantageously conducted
at all times;
(c) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before penalties
accrue thereon) and all claims for labor, materials or supplies which if unpaid
would by law become a lien upon any of its property, unless and to the extent
that the same are being contested in good faith and by appropriate proceedings
and adequate reserves (as determined in accordance with GAAP consistently
applied) have been established on its books with respect thereto;
-13-
<PAGE> 14
(d) comply with all other material obligations which it incurs
pursuant to any contract or agreement (including the Subordinated Notes),
whether oral or written, express or implied, as such obligations become due,
unless and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance with
GAAP consistently applied) have been established on its books with respect
thereto;
(e) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which could have a Material Adverse
Effect;
(f) maintain with good and responsible insurance companies adequate
insurance covering risks of such types and in such amounts as are customary for
Comparable Entities; and
(g) maintain proper books of record and account which fairly present
its financial condition and results of operations and make provisions on its
financial statements for all such proper reserves as in each case are required
in accordance with GAAP consistently applied.
SECTION 5
CONDITIONS TO CLOSING OF INVESTORS
Each Investor's obligations to purchase the Securities at the Closing are
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by IMS Delaware and the other Investors in Sections 2 and 3
hereof, as the case may be, shall be true and correct in all material respects
as of the Closing Date with the same force and effect as if made on such date.
5.2 Covenants. All covenants, agreements and conditions contained in this
Agreement and the Redemption Agreement to be performed by IMS Delaware and the
Investors on or prior to the Closing Date shall have been performed or complied
with.
5.3 Compliance Certificate. IMS Delaware shall have delivered to the
Investors a certificate of IMS Delaware executed by the President of IMS
Delaware dated as of the Closing Date, certifying as to the fulfillment of the
conditions specified in Sections 5.1 and 5.2 of this Agreement.
5.4 Secretary's Certificate. IMS Delaware shall have delivered to the
Investors a certificate executed by the Secretary of IMS Delaware dated as of
the Closing Date, certifying as to the following matters: (i) resolutions
adopted by the transactions contemplated by this Agreement; (ii) Certificate of
Incorporation (or like charter document) of IMS Delaware and each of the
International IMS Entities, (iii) Bylaws (or like charter document) of IMS
Delaware and each of the International IMS Entities; (iv) incumbency of officers
of IMS Delaware and each of the International IMS Entities, and (v) such other
matters as the Investors may reasonably request.
-14-
<PAGE> 15
5.5 Good Standing Certificates. IMS Delaware shall have delivered to the
Investors certificates dated as of a recent date issued by the Secretary of
State of the State of Delaware and each of the jurisdictions in which the
International IMS Entities are organized to the effect that IMS Delaware or such
International IMS Entity, as the case may be, is legally existing and in good
standing (to the extent such concepts have legal meaning in such jurisdictions).
5.6 Stockholders Agreement. The Stockholders Agreement shall have been
executed and delivered by IMS Delaware, Maxtor and the Investors and shall be in
full force and effect as of the Closing.
5.7 HEA Side Letter. The Company and the Investors shall have received a
letter from Hyundai Electronics America ("HEA") in substantially the draft form
previously supplied to the Investors, indicating that HEA has not elected and
will not elect push-down accounting treatment with respect to the acquisition of
Maxtor by HEA.
5.8 Senior Debt. IMS Delaware shall have established credit facilities (or
at the Closing shall have established) for $32,000,000 of Senior Debt on terms
and conditions satisfactory to a majority in interest of the Investors.
5.9 Redemption Agreement. IMS Delaware and Maxtor shall have entered into
the Redemption Agreement, and all of the conditions to the Company's and
Maxtor's obligations (other than the closing of the transactions hereunder)
shall have been satisfied or waived by such party; provided, however, that the
Company shall not waive any such condition or obligation without the prior
written consent of the Investors.
5.10 HSR Act. If a filing shall be required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), the waiting period
thereunder shall have been terminated or expired.
5.11 Permit to Issue Subordinated Notes. IMS Delaware shall have obtained
from the California Department of Corporations a Permit for Qualification
pursuant to Section 25113 of the California Corporate Securities Law to issue
the Subordinated Notes.
5.12 Blue Sky. IMS Delaware shall have obtained all necessary Blue Sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Common Stock, Preferred
Stock and Subordinated Notes pursuant to this Agreement or the Common Stock
issuable upon conversion of the Preferred Stock.
5.13 Governmental Authorizations, etc. All material governmental
authorizations, consents, approvals, exemptions or other actions required to
issue or purchase the Securities pursuant to this Agreement, and for the conduct
of the Business following the Closing, shall have been obtained and shall be in
full force and effect unless the failure to obtain such authorizations,
consents, approvals, exemptions or other actions would not have a Material
Adverse Effect.
-15-
<PAGE> 16
5.14 Audited Financial Statements. The Investors shall have received the
Audited Financial Statements, which shall be in form and substance satisfactory
to the Investors.
5.15 No Material Adverse Change. There shall have been no Material Adverse
Change since the date of the Unaudited Balance Sheet and, if the Closing has not
occurred prior to June 29, 1996, the results set forth in the financial
statements as of and for the period ended June 29, 1996, delivered pursuant to
Section 5.4(b) of the Redemption Agreement shall not differ materially from the
results for such period set forth in the financial projections provided to the
Investors on or prior to the date hereof and attached as Schedule 7.4 to the
Redemption Agreement.
5.16 No Illegality. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Transactions shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Transactions, which makes
the consummation of the Transactions illegal.
5.17 Opinion of Company Counsel. Wilson Sonsini Goodrich & Rosati, P.C.,
counsel to IMS Delaware, shall have delivered an opinion addressed to the
Investors, dated the Closing Date, substantially in the form attached hereto as
Exhibit F.
5.18 Opinions Delivered Pursuant to Redemption Agreement. The opinions
referred to in Section 7.5 of the Redemption Agreement shall have been delivered
to the Company and the opinions of foreign counsel referred to in the Redemption
Agreement shall also be addressed to the Investors.
5.19 Board of Directors. The directors of the Company at the Closing shall
be John A. Downer and Mark Rossi, as representatives of Prudential, Fredric W.
Harman and one director to be designated by Oak prior to the Closing, as
representatives of Oak, Patrick Verderico, as the representative of Maxtor,
Robert G. Behlman, William Almon and one director to be designated by IMS
Delaware prior to the Closing.
5.20 Other Agreements. Maxtor and IMS Delaware shall have entered into the
Manufacturing Services Agreement and the Transition Services Agreement, and each
such agreement shall be in full force and effect as of the Closing Date.
5.21 Accounting Treatment. IMS Delaware shall have received advice from
the U.S. Securities and Exchange Commission that the transactions contemplated
by the Transactional Agreements will be accounted for as a recapitalization for
accounting purposes.
5.22 Termination of Existing Options, Warrants and Other Rights. Any
Option, warrant or other right to purchase capital stock of IMS Delaware or any
of the International IMS Entities pursuant to any IMS Plan or otherwise shall
have been canceled, redeemed or otherwise terminated on or prior to the Closing
Date.
-16-
<PAGE> 17
5.23 Restated Certificate of Incorporation. The Certificate of
Incorporation of IMS Delaware shall have been amended and restated as set forth
in Exhibit B on or prior to the Closing Date and, as so amended, shall be in
full force and effect.
5.24 Restated Bylaws. The Bylaws of IMS Delaware shall have been amended
and restated as set forth in Exhibit G on or prior to the Closing Date, and, as
so amended, shall be in full force and effect.
5.25 Transition to Consignment Relationship with Maxtor. The conversion of
the commercial relationship between the Company and Maxtor from a turnkey basis
to a consignment basis shall have been accomplished to the satisfaction of the
Investors.
5.26 Environmental Matters. Maxtor and the Investors shall have resolved
all Environmental Matters as contemplated pursuant to Section 4.11 of this
Agreement.
5.27 Compensation of Employees. Prior to the Closing, Maxtor shall have
paid to all employees, officers and directors of the Company, pursuant to the
IMS Delaware Management Incentive Plan, all bonuses as agreed to between C.S.
Park and Robert G. Behlman.
5.28 Indemnification Agreements. Prior to the Closing, Maxtor and each of
the officers and directors of IMS Delaware, each of the Holding Companies and
each of the International IMS Entities shall have entered into indemnification
agreements as contemplated by Section 5.7 of the Redemption Agreement and in
form and substance satisfactory to the Investors.
5.29 Reorganization Complete; Officers' Certificate. The Reorganization
Actions set forth in Part 3.3 of the Disclosure Schedule to the Redemption
Agreement shall have occurred, and Maxtor shall have delivered to the Investors
a certificate executed by Glenn Stevens and Nathan Kawaye, dated as of the
Closing Date, certifying that each of such Reorganization Actions has been
accomplished.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
IMS Delaware's obligations to sell and issue the Securities at the Closing
are subject to the fulfillment on or prior to the Closing Date of the following
conditions:
6.1 Representations. The representations made by the Investors in Section
3 hereof shall be true and correct in all material respects as of the Closing
Date.
6.2 Covenants. All covenants, agreements and conditions contained in this
Agreement and the Redemption Agreement to be performed by the Investors on or
prior to the Closing Date shall have been performed or complied with.
-17-
<PAGE> 18
6.3 Permit to Issue Subordinated Notes. IMS Delaware shall have obtained
from the California Department of Corporations a Permit for Qualification
pursuant to Section 25113 of the California Corporate Securities Law to issue
the Subordinated Notes.
6.4 HSR Act. If a filing shall be required under the HSR Act, the waiting
period thereunder shall have been terminated or expired.
6.5 Blue Sky. IMS Delaware shall have obtained all necessary Blue Sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Common Stock, Preferred
Stock or Subordinated Notes pursuant to this Agreement or the Common Stock
issuable upon conversion of the Preferred Stock.
6.6 Governmental Authorizations, etc. All material governmental
authorizations, consents, approvals, exemptions, or other actions required to
issue or purchase the Securities pursuant to this Agreement and for the conduct
of the Business following the Closing, shall have been obtained and shall be in
full force and effect unless the failure to obtain such authorizations,
consents, approvals, exemptions or other actions would not have a material
adverse effect on the business, financial condition or results of operations of
the Company, taken as a whole.
6.7 Redemption Conditions. IMS Delaware and Maxtor shall have entered into
the Redemption Agreement and all of the conditions to the obligations of the
Company to close the transactions under the Redemption Agreement (other than the
closing of the transactions hereunder) shall have been satisfied or waived by
the Company.
SECTION 7
INDEMNIFICATION, ETC.
7.1 Survival Of Representations And Covenants.
(a) The representations, warranties, covenants and obligations in
this Agreement (including the representations and warranties incorporated herein
pursuant to Section 2.6) and in the Redemption Agreement shall survive (without
limitation): (i) the Closing and the sale of the Securities to the Investors,
(ii) the sale by Maxtor of shares in the Company to the Company; and (iii) the
sale or dissolution of any party to this Agreement or the Redemption Agreement,
and (except for those set forth in Sections 2.1, 3.1, 3.3, 3.14, 3.17, 3.21 and
5.7 of the Redemption Agreement and incorporated in this Agreement) shall expire
on the second anniversary of the Closing Date. Those representations and
warranties set forth in Sections 3.14 and 3.17 of the Redemption Agreement shall
survive until 30 days after the expiration of the applicable statute of
limitations period, and the representations, warranties, covenants and
obligations set forth in Sections 2.1, 3.1, 3.3, 3.21 and 5.7 of the Redemption
Agreement shall survive for an unlimited period of time. No Indemnitee shall be
entitled to indemnification resulting from the Breach of a representation,
warranty, covenant or obligation of Maxtor unless Maxtor has received during the
applicable survival period a Claim Notice.
-18-
<PAGE> 19
(b) Notwithstanding the foregoing, if a Claim Notice relating to any
representation, warranty, covenant or obligation is given to Maxtor on or prior
to the second anniversary of the Closing Date (or such longer survival period as
applicable), then, notwithstanding anything to the contrary contained in Section
7.1(a), such representation or warranty shall not so expire solely with respect
to such claim, but rather shall remain in full force and effect until such time
as each and every claim specifically set forth in such Claim Notice has been
fully and finally resolved, either by means of a written settlement agreement
executed on behalf of Maxtor and the Company or by means of a final,
non-appealable judgment issued by a court of competent jurisdiction.
(c) For purposes of this Agreement and the Redemption Agreement, a
"Claim Notice" relating to a particular representation or warranty shall be
deemed to have been given if any Indemnitee, acting in good faith, delivers to
Maxtor a written notice stating that such Indemnitee believes that there is or
has been a possible Breach of a representation or warranty and containing (i) a
brief description, providing reasonable detail, of the circumstances supporting
such Indemnitee's belief that there is or has been such a possible Breach, and
(ii) a non-binding, preliminary estimate of the aggregate dollar amount of the
actual and potential c that have arisen and may arise as a direct or indirect
result of such possible Breach.
(d) For purposes of this Agreement, each representation, warranty
covenant or obligation of Maxtor in the Redemption Agreement and each statement
or other item of information set forth in the Disclosure Schedule or in any
update to the Disclosure Schedule (to the extent such update is accepted by the
Investors as contemplated by Section 5.3 of the Redemption Agreement) shall be
deemed to be a representation, warranty, covenant or obligation of Maxtor in
this Agreement.
(e) Promptly after any Indemnitee (A) receives notice of any claim
or Damages or the commencement of any action or proceedings against it, (B) has
knowledge of any claim, Damages, action or proceeding against it, or (C) has
knowledge of any matter or Damages for which it intends to seek indemnification
hereunder, such Indemnitee shall, if a claim for reimbursement with respect
thereto is to be made against Maxtor hereunder, give to Maxtor a Claim Notice
relating to the possible Breach or the commencement of the action or proceeding;
provided, however, that failure to give such notification shall not affect the
indemnification hereunder except to the extent that Maxtor (X) is unable to
defend or verify such claim solely as a result of such failure to notify or (Y)
is required to pay a greater amount or incurs additional expense with respect
thereto solely as a result of such failure to notify and then only to the extent
of such excess.
7.2 Indemnification By Maxtor.
(a) Maxtor shall hold harmless and indemnify each of the Indemnitees
from and against, and shall compensate and reimburse each of the Indemnitees
for, any Damages that are suffered or incurred by any of the Indemnitees or to
which any of the Indemnitees may otherwise become subject at any time
(regardless of whether or not such Damages relate to any third-party claim) and
that arise from or as a result of, or are connected with:
-19-
<PAGE> 20
(i) Any Breach of any of the representations, warranties,
covenants or obligations made by Maxtor in the Redemption Agreement (after
giving effect to any update to the Disclosure Schedule) or in the Closing
Certificate thereto, other than the representations and warranties set forth in
Section 3.14 of the Redemption Agreement, which shall be covered exclusively
under Section 11.2 of the Redemption Agreement;
(ii) Any Breach of any representation, warranty, statement,
information or provision contained in the Disclosure Schedule (after giving
effect to any update to the Disclosure Schedule) or in any other document
delivered or otherwise made available to the Investors, the Company or any of
their Representatives by or on behalf of Maxtor or any Representative of Maxtor,
other than the representations and warranties set forth in Section 3.14 of the
Redemption Agreement, which shall be covered exclusively under Section 11.2 of
the Redemption Agreement; or
(iii) Any Proceeding relating to any Breach, alleged Breach,
Liability or matter of the type referred to in clauses "(i)" and "(ii)" above
(including any Proceeding commenced by any Indemnitee for the purpose of
enforcing any of its rights under this Section 7).
(b) Maxtor shall not be required to make any indemnification payment
pursuant to Section 7.2(a) for any Breach of any of its representations and
warranties (other than Breach of the representations and warranties contained in
Sections 2.1, 3.1, 3.3, 3.21, 3.27 and 5.7 of the Redemption Agreement) until
such time as, and only to the extent that, the total amount of all Damages
(including the Damages arising from such Breach and all other Damages arising
from any other Breaches of its representations or warranties) that have been
directly or indirectly suffered or incurred by Indemnitees, or to which
Indemnitees have otherwise become subject, equals or exceeds the amount of
$500,000 in the aggregate, in which case Maxtor will be liable for all such
Damages including the first $500,000. The aggregate indemnification payments
that Maxtor is required to make pursuant to Section 7.2(a) shall in no event
exceed $17,500,000 (except in the case of a Breach of the representations and
warranties contained in Sections 3.14, 3.17 and 5.7 of the Redemption Agreement
in which case there shall be no maximum). In the event that the Company actually
recovers amounts under insurance policies with respect to any loss (offset by
any increase in insurance premiums or other insurance costs as a result of any
claim with respect to any loss) or actually realizes a Tax benefit arising from
the incurrence or payment of a loss, each as set forth in the definition of
"Damages" in Section 1.1 of the Redemption Agreement, following Maxtor's payment
of any Claim to which such insurance recovery or Tax benefit relates, Maxtor
shall be promptly reimbursed by the party or parties indemnified (on a pro-rata
basis) for the amount recovered or benefit realized. Maxtor shall not be
required to pay any Claim more than once and in the event that a dispute arises
between or among Indemnitees over payment of a Claim, Maxtor shall pay to the
Company the amount claimed or the amount determined pursuant to Section 7.5
hereof and shall have no further liability with respect to such Claim.
(c) The parties hereto acknowledge that notwithstanding the fact
that an Indemnitee is not a party to this Agreement, such Indemnitee is entitled
to the benefits of and to enforce all provisions hereof as an intended third
party hereof.
-20-
<PAGE> 21
(d) The amount of Damages for which indemnification is provided
under this Section 7.2 shall be net of any amounts recovered or recoverable by
the Company or the Indemnitees under insurance policies.
(e) Any amount payable by Maxtor pursuant to this Section 7.2 shall
be reduced by any reduction in the income tax liability of the Company as a
result of the payment or incurrence of Damages giving rise to such indemnity
payment; provided that in computing any such reduction in Income Tax Liability,
it shall be assumed that the Company (i) is subject to federal, state and local
income tax at the highest marginal statutory rates (with respect to the income
tax returns on which such reduction in income tax liability is reported) and
(ii) has sufficient income to utilize any deductions, credits (other than
foreign tax credits, the use of which shall be determined on an actual basis)
and other Tax benefits arising from such payment of Damages.
(f) Maxtor, the Company and the other Indemnitees agree to treat any
payment of Damages pursuant to this Section 7.2 as a purchase price adjustment
with respect to both the redemption of the Company's stock held by Maxtor and
the purchase of the Company's stock by the Indemnitees. However, to the extent
any such payment is properly characterized by Maxtor as a deduction on its
income tax returns and by the Indemnitees as taxable income on their income tax
returns, and the payment does not represent reimbursement of expenses of the
Indemnitees which are or were deductions on their income tax returns, the amount
of such payment shall be increased by the deemed increase in income tax
liability of the Indemnitees. In computing the deemed increase in income tax
liability, it shall be assumed that the Indemnitees are subject to federal,
state and local income tax at the highest marginal statutory rates (with respect
to the income tax return on which such income is reported, and taking into
account the deductibility of state and local taxes for federal income tax
purposes).
(g) Maxtor agrees to indemnify, compensate and reimburse each of the
Indemnitees for any Damages exceeding $50,000HK that are suffered or incurred by
any of the Indemnitees or to which any of the Indemnitees may otherwise become
subject at any time (regardless of whether or not such Damages relate to any
third-party claim) and that arise from or as a result of, or are connected with
the HK Government Claim referred to in Part 3.17 of the Disclosure Schedule to
the Redemption Agreement. Maxtor shall further defend, indemnify and hold
harmless each of the Indemnitees from any and all Damages arising out of or in
connection with any and all claims for any and all personal injuries sustained
as a result of the Cleaning Matter referred to in part 3.17 Disclosure Schedule.
Maxtor's indemnification obligations under this Section 7.2(g) are exclusive of
and not subject to the $500,000 threshold for indemnification set forth in
Section 7.2(b) above.
7.3 Exclusivity. The indemnification remedies and other remedies provided
in this Section 7 shall be the sole and exclusive right and remedy exercisable
by the Indemnitees or their permitted assigns with respect to the matters
described in Section 7.2(a) and the indemnification remedies and other remedies
set forth in Section 11.2 of the Redemption Agreement shall be the sole and
exclusive right and remedy exercisable by the Indemnitees or their permitted
assigns with respect to the breach of representations and warranties set forth
in Section 3.14 of the Redemption Agreement.
-21-
<PAGE> 22
7.4 Defense Of Third Party Claims.
(a) In the event of the assertion or commencement by any Person of
any claim or Proceeding (whether against the Company, against any Indemnitee or
against any other Person) with respect to which Maxtor may become obligated to
indemnify, hold harmless, compensate or reimburse any Indemnitee pursuant to
this Section 7 or Section 11.2 of the Redemption Agreement, the party hereto who
becomes aware of such claim or Proceeding promptly shall notify the other party,
and the parties shall cooperate in investigating the claim or Proceeding and
determining the appropriate response.
(b) Maxtor shall have the right to compromise or defend, at its own
expense and by its counsel, any such matter involving the asserted liability of
the Indemnitee; provided, however, that:
(i) no compromise of any claim shall be made without the
consent of the Indemnitee, unless such compromise results in the full and
unconditional release of all claims against the Indemnitee by the party
asserting such claim; and
(ii) if the Company or the Indemnitee reasonably determines
that the matter is likely to involve (A) a compromise of any right by the
Company or the Indemnitee or otherwise involve interests significant to the
continuing operation of the Company and/or to the Indemnitee or (B) claims in
excess of Maxtor's maximum liability under this Section 7 (taking into account
all potential liabilities of Maxtor as a result of other claims made hereunder),
then the counsel chosen by Maxtor shall be subject to the approval of the
Company, which approval shall not be unreasonably withheld.
The opportunity to compromise or defend, as herein provided, shall be a
condition precedent to any liability of Maxtor under the provisions hereof. If
Maxtor shall undertake to compromise or defend any such asserted liability, it
shall promptly notify the Indemnitee of its intention to do so. The Indemnitee,
at Maxtor's expense, shall cooperate with Maxtor and its Representatives in the
defense against any such asserted liability and in any compromise thereof. Such
cooperation shall include, but not be limited to, furnishing the Indemnitee with
any books, records or information reasonably requested by Maxtor. After Maxtor
has notified the Indemnitee of its intention to undertake to compromise or
defend any such asserted liability, Maxtor shall not be liable for any
additional legal expenses incurred by the Indemnitee (except as provided below)
and the Indemnitee shall be indemnified by Maxtor for the amount of any judgment
or settlement and for all Damages incurred by Maxtor in connection with the
defense or settlement of such claim. In addition, Maxtor shall keep the
Indemnitee informed of all material developments and events relating to such
claim and in the event a settlement, adjustment or compromise involves any
compromise of any right of the Company or the Indemnitee, then Maxtor shall not
do so without the prior written consent of the Indemnitee, which shall not be
unreasonably withheld, and provided further that if in the reasonable judgment
of any Indemnitee a conflict of interest may exist between Maxtor and any
Indemnitees with respect to such claim, Maxtor shall be obligated to reimburse
with respect to one additional counsel for each such Indemnitee for whom such a
conflict exists. Each of the Company and the Indemnitee shall have the right to
participate in the defense of such claim at its own expense, in which case
Maxtor shall cooperate in providing information to and consulting with the
Company and/or the Indemnitee about the claim. Unless and until Maxtor assumes
the defense of any such claim, the Indemnitee may defend against or settle such
claim in such manner and on such terms
-22-
<PAGE> 23
as it in good faith deems appropriate, provided that the Indemnitee shall keep
Maxtor informed of all material developments and events relating to such claim,
and in the event a settlement, adjustment or compromise involves any compromise
of any right of Maxtor (other than pursuant hereto), then the Indemnitee shall
not do so without the prior written consent of Maxtor, which shall not be
unreasonably withheld. No compromise of any claims shall be made without
Maxtor's consent, unless the compromise results in the full unconditional
release of all claims by the party asserting such claim. If Maxtor elects not to
assume the defense of a claim, Maxtor will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by Maxtor with
respect to such claim, unless in the reasonable judgment of any Indemnitee a
conflict of interest may exist among the respective Indemnitees with respect to
such claim, in which case Maxtor shall be obligated to reimburse with respect to
one additional counsel for each such Indemnitee with for whom such a conflict
exists.
7.5 Dispute Resolution.
(a) Within the period of thirty (30) business days following receipt
by any Claim Notice Maxtor shall have the right to deliver a notice (a "Dispute
Notice") stating that Maxtor disputes the validity or the amount specified in
such Claim Notice or any portion thereof (a "Disputed Amount") and providing in
reasonable detail the reasons therefor. In case Maxtor delivers a Claim Notice
with regard to any claim or claims by an Indemnitee made in any Claim Notice,
the Indemnitee(s) will have thirty (30) business days to respond in a written
statement to the objection of Maxtor. If after such thirty (30) business day
period there remains a dispute as to any claims, Maxtor and the Indemnitee(s)
will attempt in good faith for sixty (60) days to agree upon the rights of the
respective parties with respect to each of such claims. If Maxtor and the
Indemnitee(s) should so agree, a memorandum setting forth such agreement will be
prepared and signed by both parties and any agreed upon indemnification shall be
paid promptly by Maxtor.
(b) If no such agreement can be reached after good faith
negotiation, either the Indemnitee(s) or Maxtor may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or loss
is at issue in pending litigation with a third party, in which event arbitration
will not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter will be settled by arbitration
conducted by three arbitrators.
(c) Within fifteen (15) business days after written notice demand
arbitration by one party is sent, the Indemnitee(s) (acting as one party) and
Maxtor will each select one arbitrator, and the two arbitrators so selected will
select a third arbitrator. In the event either party fails to select an
arbitrator within the fifteen (15) business days after written notice is sent,
the arbitrator selected by the other party shall select the second arbitrator,
and the two arbitrators shall select a third arbitrator. The decision of the
arbitrators as to the matter submitted will be binding and conclusive upon the
parties to this Agreement. Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such arbitration will be
held in San Jose, California under the commercial rules then in effect of the
American Arbitration Association. In any arbitration hereunder, the
Indemnitee(s) will be deemed to be the Non-Prevailing Party unless the
arbitrators award the Indemnitee(s) more than one-half (1/2) of the amount in
dispute, plus any amounts not in dispute; otherwise, Maxtor will be deemed to be
the Non-Prevailing Party. The Non-Prevailing Party to an arbitration will pay
its own
-23-
<PAGE> 24
expenses, the fees of each arbitrator, the administrative fee of the American
Arbitration Association, and the expenses, including without limitation,
attorneys' fees and costs, incurred by the other party to the arbitration.
SECTION 8
MISCELLANEOUS
8.1 Entire Agreement. This Agreement and the other agreements referred to
herein set forth the entire understanding among the parties with respect to the
subject matter hereof and thereof.
8.2 Amendment. This Agreement can be amended only by an instrument in
writing signed by IMS Delaware, Maxtor and all Investors.
8.3 Defaults. If any Investor fails to invest the full amount set forth
opposite such Investor's name on Exhibit A hereto (a "Default"), then any other
Investor may cure such Default.
8.4 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs
and representatives; provided, however, that no Investor may assign any of its
rights hereunder except to any creditor of the Company as collateral security
for any creditor of the Company to an investment partnership under common
control with such Investor, to an affiliate of such Investor, or to any member
of such person's immediate family or any trust for the benefit of such
individual or family member. Maxtor expressly consents to the assignment by the
Company of this Agreement, the Manufacturing Services Agreement and related
agreements as collateral security for the benefit of any creditor of the
Company.
8.5 Termination. This Agreement may be terminated by any party hereto by
delivery of written notice to the other parties hereto to that effect if the
Closing shall not have occurred by August 15, 1996, other than as a result of
any failure on the part of the terminating party (or its affiliates) to comply
with or perform its covenants and obligations under this Agreement. No party
shall have liabilities of any nature to any other party hereto for failure to
close the transactions contemplated hereby, unless such failure is attributable
to the breach of a specific representation, warranty, covenant or obligation of
such party set forth herein.
8.6 Survival or Representations and Warranties. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery hereof and transfer of any Securities.
8.7 Governing Law; Jurisdiction.
(a) This Agreement shall be governed by and construed in accordance
with and governed in all respects by the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
-24-
<PAGE> 25
(b) The parties hereby consent to the jurisdiction of the courts of
the State of California and the federal courts of the Northern District of
California for all disputes arising under this Agreement.
8.8 Attorneys' Fees. If any legal action or other legal proceeding
relating to any of the Transactional Agreements or the enforcement of any
provision of any of the Transactional Agreements is brought against any party to
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).
8.9 Allocation of Expenses.
(a) If the Closing occurs, the Company shall bear and pay all fees,
costs and expenses that have been incurred or that are in the future incurred
by, on behalf of or for the benefit of the Company, the Company's Management or
the Investors in connection with the Transactional Agreements and the
Transactions (including all fees, costs and expenses payable to the
environmental consultant engaged in connection with the Transactions, Price
Waterhouse LLP, Chemical Bank, Chemical Securities Asia Limited, Cravath, Swaine
& Moore, Wilson Sonsini Goodrich & Rosati, P.C., Kirkland & Ellis, Johnson
Stokes & Master, Chandler & Thong-Ek and Maples & Calder).
(b) If the Closing does not occur (i) because of a decision by
Maxtor not to consummate the Transactions or because of any other material
breach of the Transactional Agreements by Maxtor or the Company, then Maxtor
shall bear and pay only fees, costs and expenses in connection with the
Transactional Agreements and the Transactions payable to Chemical Bank, Chemical
Securities Asia Limited, Cravath, Swaine & Moore, Wilson Sonsini Goodrich &
Rosati, P.C., any environmental consultant engaged in connection with the
Transactions and Price Waterhouse LLP, provided that the fees of Price
Waterhouse LLP payable by Maxtor pursuant to this Section 8.9(b) shall not
exceed $100,000 and the fees, costs and expenses payable to Wilson Sonsini
Goodrich & Rosati, P.C. payable pursuant to this Section 8.9(b) shall be only
agreed upon reasonable fees, costs and expenses and shall not exceed $175,000,
and the Investors shall pay fees, costs and expenses of foreign counsel acting
on behalf of the Company and the Investors and the fees, costs and expenses of
Kirkland & Ellis; (ii) because of a decision by the Investors not to consummate
the Transactions not due to a material breach of the Transactional Agreements by
Maxtor or the Company or because of any other material breach of the
Transactional Agreements by the Investors, then the Investors shall bear and pay
only fees, costs and expenses in connection with the Transactional Agreements
and the Transactions payable to Chemical Bank, Chemical Securities Asia Limited,
Cravath, Swaine & Moore, Wilson Sonsini Goodrich & Rosati, P.C., any
environmental consultant engaged in connection with the Transactions (and the
Investors exclusively shall be entitled to own and to use the work product of
any such consultant) and Price Waterhouse LLP; or (iii) for any reason other
than as set forth in (i) or (ii) above, the Investors shall bear and pay only
fees, costs and expenses in connection with the Transactional Agreements and the
Transactions payable to Chemical Bank, Chemical Securities Asia Limited,
Cravath, Swaine & Moore, foreign counsel acting on behalf of the Company and the
Investors and Price Waterhouse LLP, and Maxtor shall pay only fees, costs and
expenses in connection with the Transactional Agreements and the Transactions
payable to Wilson Sonsini Goodrich & Rosati, P.C., and any environmental
consultant engaged in connection with the Transactions, provided that the fees,
costs and expenses payable to
-25-
<PAGE> 26
Wilson Sonsini Goodrich & Rosati, P.C. payable pursuant to this section shall
only be agreed upon reasonable fees, costs and expenses and shall not exceed
$175,000, and provided in all events that Maxtor shall pay the fees, costs and
expenses of Gray Cary Ware & Freidenrich and foreign counsel acting on behalf of
Maxtor.
8.10 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Maxtor, to: Maxtor Corporation
2190 Miller Drive
Longmont, Colorado 80501
Telecopier: 303-678-3111
Attention: Glenn H. Stevens, Esq.
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Telecopier: 415-327-3699
Attention: Diane Holt Frankle, Esq.
If to IMS Delaware, to: International Manufacturing Services, Inc.
211 River Oaks Parkway
San Jose, California 95134
Telecopier: 408-432-4337
Attention: Robert G. Behlman
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telecopier: 415- 493-6811
Attention: Jeffrey D. Saper, Esq.
If to Investors to: Prudential Private Equity Investors III, L.P.
717 Fifth Avenue, 11th Floor
New York, New York 10022
Telecopier: 212-826-6798
Attention: Mark Rossi
John A. Downer
Oak Investment Partners
525 University Avenue, Suite 1300
Palo Alto, California 94301
Telecopier: 415-328-6345
Attention: Fredric W. Harman
-26-
<PAGE> 27
with a copy to: Kirkland & Ellis
Citicorp Center
153 East 53rd Street, 39th Floor
New York, New York 10022
Telecopier: 212-446-4900
Attention: Frederick Tanne, Esq.
8.11 Construction.
(a) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall be
applied in the construction or interpretation of this Agreement.
(b) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
8.12 Incorporation of Exhibits. The Exhibits identified in this Agreement
are incorporated herein by reference and made a part hereof.
8.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same instrument.
-27-
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound by
the terms hereof, have caused this Agreement to be executed, as of the date
first above written by their officers or other representatives thereunto duly
authorized.
INTERNATIONAL MANUFACTURING SERVICES, INC.
a Delaware corporation
By:
-------------------------------------------
Robert G. Behlman
Title: President
MAXTOR CORPORATION
a Delaware corporation
By:
-------------------------------------------
Title:
-------------------------------------------
INVESTORS
Oak Investment Partners VI, L.P.
By:
--------------------------------------------
Fredric W. Harman
Managing Member of Oak Associates VI, LLC,
The General Partner of Oak Investment
Partners VI, Limited Partnership
Oak VI Affiliates Fund, L.P.
By:
--------------------------------------------
Fredric W. Harman
Managing Member of Oak VI Affiliates, LLC
The General Partner of Oak VI Affiliates
Fund, Limited Partnership
<PAGE> 29
Prudential Private Equity Investors III, L.P.
By: Prudential Equity Investors, Inc.
General Partner
By:
--------------------------------------------
Name:
Title:
<PAGE> 30
EXHIBIT A
LIST OF INVESTORS AND MANAGERS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
AGGREGATE NUMBER OF PURCHASE AMOUNT
NUMBER OF PURCHASE SHARES OF PRICE FOR OF
SHARES OF PRICE FOR SERIES A SERIES A SUBORDINATED TOTAL
COMMON COMMON PREFERRED PREFERRED NOTES PURCHASE
STOCK STOCK STOCK STOCK PURCHASED PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
*Prudential ... 1,130,000 $1.1061945 2,000,000 $2.50 $ 6,250,000 $12,500,000
*Oak .......... 1,130,000 1.1061945 2,000,000 2.50 6,250,000 12,500,000
________.......
________.......
--------- ---------- --------- ----------- ----------- -----------
Total 2,260,000 $2,500,000 4,000,000 $10,000,000 $12,500,000 $25,000,000
========= ========== ========= =========== =========== -----------
</TABLE>
*These Investors reserve the right to reallocate or assign their respective
shares of the Common Stock, Series A Preferred Stock and the Subordinated Notes
prior to Closing.
- -------------------
(1)
--------------------
--------------------
--------------------
(2)
--------------------
--------------------
--------------------
<PAGE> 31
EXHIBIT B
RESTATED CERTIFICATE OF INCORPORATION
<PAGE> 32
EXHIBIT C
TERMS OF SUBORDINATED NOTES
<PAGE> 33
EXHIBIT D
STOCKHOLDERS' AGREEMENT
<PAGE> 34
EXHIBIT E
1996 STOCK PLAN
AND
FORM OF OPTION AGREEMENT
<PAGE> 35
EXHIBIT F
LEGAL OPINION OF IMS DELAWARE COUNSEL
<PAGE> 36
EXHIBIT G
FORM OF RESTATED BYLAWS OF IMS DELAWARE
<PAGE> 37
================================================================================
RECAPITALIZATION AGREEMENT
INTERNATIONAL MANUFACTURING SERVICES, INC.,
A DELAWARE CORPORATION
----------------------------
DATED AS OF MAY 16, 1996
----------------------------
================================================================================
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1 - PURCHASE, SALE AND TERMS OF STOCK AND NOTES.........................2
1.1 The Stock...........................................................2
1.2 The Notes...........................................................2
1.3 The Securities......................................................2
1.4 The Closing of the Purchase and Sale of Stock and Notes.............2
1.5 Legends.............................................................3
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF IMS DELAWARE......................3
2.1 Corporate Status....................................................3
2.2 Corporate Authorization.............................................3
2.3 Securities..........................................................3
2.4 Option Plans........................................................4
2.5 Authority Regarding and Binding Nature of Transactional Agreements..4
2.6 Redemption Agreement Representations and Warranties.................4
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.....................5
3.1 Authorization.......................................................5
3.2 Restricted Securities...............................................5
3.3 Access to Information...............................................5
3.4 Control of Securities...............................................5
SECTION 4 - COVENANTS...........................................................6
4.1 Access And Investigation............................................6
4.2 Operation of Business...............................................6
4.3 Filings And Consents................................................8
4.4 Notification; Updates To Disclosure Schedule........................8
4.5 No Negotiation......................................................9
4.6 Confidentiality....................................................10
4.7 Reasonable Commercial Efforts......................................10
4.8 Redemption Agreement...............................................10
4.9 Audited March 30 Financial Statements..............................10
4.10 Reimbursement of Maxtor Advances...................................11
4.11 Environmental Condition............................................11
4.12 Restricted Actions.................................................12
4.13 Required Actions...................................................13
</TABLE>
-i-
<PAGE> 39
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 5 CONDITIONS TO CLOSING OF INVESTORS..................................14
5.1 Representations and Warranties Correct.............................14
5.2 Covenants..........................................................14
5.3 Compliance Certificate.............................................14
5.4 Secretary's Certificate............................................14
5.5 Good Standing Certificates.........................................14
5.6 Stockholders Agreement.............................................15
5.7 HEA Side Letter....................................................15
5.8 Senior Debt........................................................15
5.9 Redemption Agreement...............................................15
5.10 HSR Act............................................................15
5.11 Permit to Issue Subordinated Notes.................................15
5.12 Blue Sky...........................................................15
5.13 Governmental Authorizations, etc...................................15
5.14 Audited Financial Statements.......................................15
5.15 No Material Adverse Change.........................................15
5.16 No Illegality......................................................16
5.17 Opinion of Company Counsel.........................................16
5.18 Opinions Delivered Pursuant to Redemption Agreement................16
5.19 Board of Directors.................................................16
5.20 Other Agreements...................................................16
5.21 Accounting Treatment...............................................16
5.22 Termination of Existing Options, Warrants and Other Rights.........16
5.23 Restated Certificate of Incorporation..............................16
5.24 Restated Bylaws....................................................17
5.25 Transition to Consignment Relationship with Maxtor.................17
5.26 Environmental Matters..............................................17
5.27 Compensation of Employees..........................................17
5.28 Indemnification Agreements.........................................17
5.29 Reorganization Complete; Officers' Certificate.....................17
SECTION 6 - CONDITIONS TO CLOSING OF COMPANY...................................17
6.1 Representations....................................................17
6.2 Covenants..........................................................17
6.3 Permit to Issue Subordinated Notes.................................17
6.4 HSR Act............................................................18
6.5 Blue Sky...........................................................18
</TABLE>
-ii-
<PAGE> 40
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.6 Governmental Authorizations, etc...................................18
6.7 Redemption Conditions..............................................18
SECTION 7 - INDEMNIFICATION, ETC...............................................18
7.1 Survival Of Representations And Covenants..........................18
7.2 Indemnification By Maxtor..........................................19
7.3 Exclusivity........................................................21
7.4 Defense Of Third Party Claims......................................22
7.5 Dispute Resolution.................................................23
SECTION 8 - MISCELLANEOUS......................................................24
8.1 Entire Agreement...................................................24
8.2 Amendment..........................................................24
8.3 Defaults...........................................................24
8.4 Successors and Assigns.............................................24
8.5 Termination........................................................24
8.6 Survival or Representations and Warranties.........................24
8.7 Governing Law; Jurisdiction........................................24
8.8 Attorneys' Fees....................................................25
8.9 Allocation of Expenses.............................................25
8.10 Notices............................................................26
8.11 Construction.......................................................27
8.12 Incorporation of Exhibits..........................................27
8.13 Counterparts.......................................................27
</TABLE>
EXHIBIT A LIST OF INVESTORS AND MANAGERS
EXHIBIT B RESTATED CERTIFICATE OF INCORPORATION
EXHIBIT C TERMS OF SUBORDINATED NOTES
EXHIBIT D STOCKHOLDERS' AGREEMENT
EXHIBIT E 1996 STOCK PLAN AND FORM OF OPTION AGREEMENT
EXHIBIT F LEGAL OPINION OF IMS DELAWARE COUNSEL
EXHIBIT G FORM OF RESTATED BYLAWS OF IMS DELAWARE
-iii-
<PAGE> 1
EXHIBIT 2.2
INTERNATIONAL MANUFACTURING SERVICES, INC.
REDEMPTION AGREEMENT
THIS REDEMPTION AGREEMENT is entered into as of May 16, 1996, by and
between INTERNATIONAL MANUFACTURING SERVICES, INC., a Delaware corporation
(individually, "IMS Delaware" and together with the Holding Companies (as
hereinafter defined) and the International IMS Entities (as hereinafter
defined), the "Company"), and MAXTOR CORPORATION, a Delaware corporation
("Maxtor").
RECITALS
A. Maxtor owns 10,000,000 shares of Common Stock of IMS Delaware,
representing all of the issued and outstanding capital stock of the Company.
B. IMS Delaware wishes to redeem from Maxtor, and Maxtor wishes to
sell to IMS Delaware, 8,010,000 shares of Common Stock of IMS Delaware (the
"Shares") on the terms set forth in this Agreement and in accordance with the
Delaware General Corporation Law.
C. IMS Delaware, Maxtor and the investors named on Exhibit A
thereto (the "Investors") have entered into a Recapitalization Agreement, dated
the date hereof (the "Recapitalization Agreement"), pursuant to which,
immediately prior to the Closing (as hereinafter defined) and on the Closing
Date (as hereinafter defined), IMS Delaware will sell, and the Investors will
purchase, common stock and convertible preferred stock of IMS Delaware.
D. IMS Delaware contemplates that, in connection with the
Transactions (as hereinafter defined), it will obtain (i) senior debt financing
in an amount of not less than $32,000,000 (the "Senior Debt") and (ii) junior
subordinated debt financing in an amount of not less than $12,500,000 (the
"Junior Debt").
E. IMS Delaware and the Investors have required, as a condition to
entering into the Transactions and incurring the Senior Debt and the Junior
Debt, that Maxtor make certain representations and warranties and perform
certain covenants set forth in this Agreement.
F. IMS Delaware, the Investors and Maxtor contemplate that certain
reorganization actions, as set forth in Part 3.3 of the Disclosure Schedule (the
"Reorganization Actions"), will be taken prior to Closing.
G. Maxtor, the Investors and IMS Delaware contemplate that as a
condition to entering into the Transactions that Maxtor and IMS Delaware will
enter into the Manufacturing Services Agreement (as hereinafter defined) and the
Transition Services Agreement (as hereinafter defined).
<PAGE> 2
AGREEMENT
The parties to this Agreement, intending to be legally bound, and in
consideration of the mutual promises and covenants set forth herein, in the
Recapitalization Agreement, the Manufacturing Services Agreement and the
Transition Services, agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions. For purposes of the Agreement, except as otherwise
expressly provided:
"Agreement" shall mean this Redemption Agreement, including the
documents referenced herein and the exhibits and schedules attached hereto
(including the Disclosure Schedule), as it may be amended from time to time.
A "Breach" of a representation, warranty, covenant, obligation or other
provision shall be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach (including any inadvertent or innocent breach) of, or
any failure (including any inadvertent failure) to comply with or perform, such
representation, warranty, covenant, obligation or other provision, or (b) any
claim by any Person or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
"Business" shall have the meaning specified in Section 3.6(c) of the
Agreement.
"Claim Notice" shall have the meaning specified in Section 10.1(c) of
the Agreement.
"Closing" shall have the meaning specified in Section 2.3(c) of the
Agreement.
"Closing Certificate" shall have the meaning specified in Section
2.3(b)(v) of the Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean International Manufacturing Services, Inc., a
Delaware corporation (or any successor thereto), together with the Holding
Companies and the International IMS Entities.
"Comparable Entities" shall mean Entities (other than the Company) that
are engaged in businesses similar to the business of the Company.
-2-
<PAGE> 3
"Common Stock" shall mean the Class A Common Stock, $0.001 par value,
and Class B Common Stock, $0.001 par value, of IMS Delaware.
"Consent" shall mean any approval, consent, ratification, permission,
waiver or authorization (including any Governmental Authorization).
"Contract" shall mean any written, oral, implied or other agreement,
contract, understanding, arrangement, instrument, note, guaranty, indemnity,
representation, warranty, deed, assignment, power of attorney, certificate,
purchase order, work order, insurance policy, benefit plan, commitment,
covenant, assurance or undertaking of any nature.
"Damages" shall include any loss, damage, injury, decline in value, lost
opportunity, Liability, claim, demand, Settlement, judgment, award, fine,
penalty, Tax, fee (including any legal fee (excluding costs relating solely to
in-house attorneys), expert fee, accounting fee or advisory fee), charge, cost
(including any cost of investigation) (but excluding in-house costs of
investigation) or expense of any nature; provided, however, that the amount of
any Damages shall be net of (i) any amounts actually recovered by the Company
under insurance policies with respect to any loss (offset by any increase in
insurance premiums or other insurance costs as a result of any claim with
respect to any loss) and (ii) any Tax benefit actually realized by the Company
arising from the incurrence or payment of any such loss.
"Disclosure Schedule" shall mean the schedule (dated as of the date of
the Agreement) delivered to IMS Delaware on behalf of Maxtor.
"Employee Benefit Plan" shall mean (i) a plan described in Section 3(3)
of ERISA, and (ii) each salary, bonus, deferred compensation, incentive
compensation, fringe benefit, stock purchase, severance, termination pay plan,
program, agreement or arrangement.
"Encumbrance" shall mean any lien, pledge, hypothecation, charge,
mortgage, security interest, encumbrance, equity, trust, equitable interest,
claim, preference, right of possession, lease, tenancy, license, encroachment,
covenant, infringement, interference, Order, proxy, option, right of first
refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
transfer of any asset, any restriction on the receipt of any income derived from
any asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset).
"Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
-3-
<PAGE> 4
"ERISA Affiliate" shall mean any Entity that is (or at any time was) a
member of a "controlled group of corporations" with, under "common control"
with, or a member of an "affiliated service group" with Maxtor or the Company
under Section 414 of the Code.
"Fully-Diluted Common Share Equivalents" shall mean all outstanding
shares of IMS Delaware's Common Stock and all shares of Common Stock issuable
upon conversion of outstanding Preferred Stock or upon exercise of outstanding
options or warrants.
"GAAP" shall mean generally accepted accounting principles, applied on a
basis consistent with the basis on which the Financial Statements were prepared.
"Governmental Authorization" shall mean any:
(a) Permit, license, certificate, franchise, concession,
approval, consent, ratification, permission, clearance, confirmation,
endorsement, waiver, certification, designation, rating, registration,
qualification or authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement; or
(b) right under any Contract with any Governmental Body.
"Governmental Body" shall mean any:
(a) Nation, principality, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) Federal, state, local, municipal, foreign or other
government;
(c) Governmental or quasi-governmental authority of any
nature (including any governmental division, subdivision, department, agency,
bureau, branch, office, commission, council, board, instrumentality, officer,
official, representative, organization, unit, body or Entity and any court or
other tribunal);
(d) Multi-national organization or body; or
(e) Individual, Entity or body exercising, or entitled to
exercise, any executive, legislative, judicial, administrative, regulatory,
police, military or taxing authority or power of any nature.
"Hazardous Material" shall include:
(a) Any petroleum, waste oil, crude oil, asbestos, urea
formaldehyde or polychlorinated biphenyl;
-4-
<PAGE> 5
(b) Any waste, gas or other substance or material that is
explosive or radioactive;
(c) Any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "hazardous chemical" or "toxic chemical" as designated,
listed or defined (whether expressly or by reference) in any statute, regulation
or other Legal Requirement (including CERCLA and any other so-called "superfund"
or "superlien" law and the respective regulations promulgated thereunder);
(d) Any compound, mixture, solution, product or other
substance or material that contains any substance or material referred to in
clause "(a)", "(b)" or "(c)" above.
"Holding Companies" shall mean IMS Borrower, a Delaware corporation to
be formed prior to the Closing, and IMS Holdco, a Delaware corporation to be
formed prior to the Closing (and any successors thereto or subsidiaries thereof,
respectively).
"Hong Kong Note" shall have the meaning specified in Section 2.2 of the
Agreement.
"IMS Affiliated Group" means any consolidated, combined or unitary Tax
group that includes one or more of IMS, the Holding Companies and the
International IMS Entities for any Tax period that (i) ends before the Closing
Date or (ii) includes any period through the Closing Date.
"IMS Contract" shall mean any Contract: (a) to which the Company is a
party; (b) by which the Company or any of its assets is or may become bound or
under which the Company has, or may become subject to, any obligation; or (c)
under which the Company has or may acquire any right or interest.
"IMS Delaware Note" shall have the meaning specified in Section 2.3 of
the Agreement.
"IMS Guarantee" shall have the meaning specified in Section 2.3 of the
Agreement.
"IMS Plan" shall mean any Employee Benefit Plan that is currently
maintained, sponsored or contributed to by Maxtor or the Company or any ERISA
Affiliate for the benefit of any current or former employee of the Company.
"Indemnitee" shall mean the Company and the Investors, and their
respective Representatives, successors and assigns.
"International IMS Entities" shall mean IMS International Manufacturing
Services Limited, an exempted Company incorporated in the Cayman Islands ("IMS
Cayman"), IMS International Manufacturing Services (Thailand) Limited, a Company
organized under the laws
-5-
<PAGE> 6
of Thailand ("IMS Thailand"), and Maxtor (Hong Kong) Limited ("IMS Hong Kong")
(and any successors thereto or subsidiaries thereof, respectively).
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign or other law, statute, legislation, constitution, principle of common
law, resolution, ordinance, code, edict, decree, proclamation, treaty,
convention, rule, regulation, ruling, directive, pronouncement, requirement,
specification, determination, decision, opinion or interpretation issued,
enacted, adopted, passed, approved, promulgated, made, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
"Liability" shall mean any debt, obligation, duty or liability of any
nature (including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability), regardless of whether such debt, obligation,
duty or liability would be required to be disclosed on a balance sheet prepared
in accordance with generally accepted accounting principles and regardless of
whether such debt, obligation, duty or liability is immediately due and payable
and includes the principal, notional or capitalized amount of any liability or
obligation, together with any unpaid interest, finance charges, transactional
costs, fees, expenses and any other amounts owing in respect thereof.
"Manufacturing Services Agreement" shall have the meaning specified in
Section 2.4(b)(vi) of the Agreement.
"Material Adverse Change" means any material adverse change that has
occurred in the business, financial condition, assets, liabilities, results of
operations, financial performance, net income or prospects of the Company, taken
as a whole, including, without limitation any material adverse legislation or
rule making; provided, however, that any change directly relating to the
conversion of the commercial relationship between the Company and Maxtor from a
turnkey basis to a consignment basis shall not in and of itself be deemed to be
a Material Adverse Change.
"Material Adverse Effect" means any material adverse effect on the
business, financial condition, assets, liabilities, results of operations,
financial performance, net income or prospects of the Company, taken as a whole.
"Material Contract" shall mean any
(a) Collective bargaining agreement;
(b) Mortgage, indenture, note or installment obligation or
other instrument or contract for or relating to any borrowing of an amount in
excess $100,000 by the Company;
(c) Guaranty of any obligation in excess of $100,000 by the
Company (excluding any endorsement made in the Ordinary Course of Business for
collection);
-6-
<PAGE> 7
(d) License agreement involving the payment or receipt by
the Company of $100,000 or more during any 12-month period during the term
thereof;
(e) Lease of real or personal property under which the
Company is lessor involving annual rentals in excess of $100,000;
(f) Lease of real property under which the Company is lessee
involving annual rentals in excess of $100,000;
(g) Lease of personal property under which the Company is
lessee and which any such entity is obligated to make annual aggregate payments
of more than $100,000;
(h) Agreement for the purchase by the Company of equipment
involving outstanding commitments in excess of $100,000;
(i) Agreement purporting to limit the right of the Company
to compete in any line of business, with any person or other entity or in any
geographic area;
(j) Agreement for the purchase or sale of raw materials,
products or goods or the provision of services (i) involving payments in excess
of $100,000, (ii) at prices that vary from the prices therefor generally
prevailing in customary, arms-length transactions or (iii) that may not be
terminated by Company on not more than thirty (30) days' notice without penalty;
(k) Contract with any Governmental Body or
quasi-governmental authority involving payments in excess $100,000;
(l) Bond, deposit, financial assurance requirement or
insurance coverage in excess of $100,000 individually required to be submitted
to customers of the Company, as the case may be, under any sale, lease or
service arrangement or to any Governmental Body under any Legal Requirement;
(m) Agreement or instrument relating to the acquisition by
the Company of any entity or all or substantially all of the assets of any
person or entity;
(n) Agreement or commitment relating to the borrowing of
money or the guaranty or indemnity (direct or indirect) in respect of or the
granting of security for any obligation for the borrowing of money, by the
Company in excess of $100,000, including, without limitation, guarantees,
accommodation collateral, letters of credit, mortgages, deeds of trust,
indentures, loan agreements and credit agreements;
(o) Agreement or commitment relating to clean-up or
remediation involving Hazardous Materials;
-7-
<PAGE> 8
(p) Agreement that creates an encumbrance or any restriction
on the ability of the Company to (i) pay dividends or make similar
distributions; (ii) make loans or advances to any person or entity, or (iii)
sell, lease or transfer any of their respective properties or assets, except (in
each case) for such restrictions or encumbrances existing under or by reason of
(A) applicable Legal Requirements, (B) customary non-assignment provisions in
leases and other contracts entered into in the ordinary course of business, or
(C) any instrument governing any outstanding debt of the Company;
(q) Material indemnification obligations in favor of any
person or entity, and any escrow agreements related to any material
indemnification or obligation;
(r) Material confidentiality, secrecy, development or
settlement agreement pertaining to any Proprietary Asset;
(s) Other agreement, Contract or obligation of the Company
calling for or involving the payment, potential payment or accrued obligation by
or to the Company, as the case may be, from the date hereof through the earliest
date /such agreement, contract or obligation can be terminated unilaterally
without material penalty by the Company, as the case may be, of an amount in
excess of $100,000; or
(t) Any other Contract, the violation, breach, default or
termination of which could result in a Material Adverse Effect.
"Maxtor" shall mean Maxtor Corporation, a Delaware corporation, or any
successor thereof.
"Maxtor's Knowledge" shall mean, after reasonable investigation, the
current actual knowledge of any executive officer or director of each of Maxtor,
IMS Delaware, the Holding Companies or the International IMS Entities, except
for Melonie Brophy, Katherine Young, Patrick Ngo and Walter Amaral.
"Maxtor Notes" shall have the meaning specified in Section 2.3 of the
Agreement.
"Maxtor Warrant" shall have the meaning specified in Section 2.2 of the
Agreement.
"Order" shall mean any:
(a) Order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award issued, made, entered, rendered or otherwise put into effect by or
under the authority of any court, administrative agency or other Governmental
Body or any arbitrator or arbitration panel; or
-8-
<PAGE> 9
(b) Contract with any Governmental Body entered into in
connection with any Proceeding.
"Ordinary Course of Business" shall mean any action taken by or on
behalf of the Company that:
(a) Is recurring in nature, is consistent with the past
practices of the Company and is taken in the ordinary course of the normal
day-to-day operations of the Company;
(b) Is taken in accordance with sound and prudent business
practices;
(c) Is not required to be authorized by the stockholder of
the Company, the board of directors of the Company or any committee of the board
of directors of the Company and does not require any other separate or special
authorization of any nature; and
(d) Is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in the
ordinary course of the normal day-to-day operations of Comparable Entities.
"Person" shall mean any individual, Entity or Governmental Body.
"Pre-Closing Period" shall mean the period from the date of the
Agreement through the Closing Date.
"Preferred Stock" shall mean the convertible preferred stock of IMS
Delaware including the Series A Preferred Stock, $0.001 par value, and Series B
Preferred Stock and any subsequently created series.
"Proceeding" shall mean any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding and any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination or investigation commenced,
brought, conducted or heard by or before, or otherwise involving, any
Governmental Body or any arbitrator or arbitration panel.
"Proprietary Asset" shall mean any patent, patent application, trademark
(whether registered or unregistered), trademark application, trade name,
fictitious business name, service mark (whether registered or unregistered),
service mark application, trade styles, trade dress, logos, other source of
business identifiers, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how, customer
list, franchise, system, computer software, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset, and all rights arising or
derivative from, or associated with, any of the foregoing, including without
limitation license rights, renewals, extensions, continuations,
continuations-in-part,
-9-
<PAGE> 10
rights to sue for past infringement, associated goodwill, formulae, algorithms,
quality control procedures, product and service specifications, and operating,
production and quality control manuals.
"Recapitalization Agreement" shall have the meaning set forth in Recital
C of the Agreement.
"Related Party" shall mean each of the following:
(a) Each individual (including Maxtor) who is, or who has at
any time been, an officer, director or stockholder of IMS Delaware or any
International IMS Entity;
(b) Each member of the family of each of the individuals
referred to in clause "(a)" above;
(c) Any Entity (other than IMS Delaware) in which any one of
the individuals referred to in clauses "(a)" and "(b)" above holds or held (or
in which more than one of such individuals collectively hold or held),
beneficially or otherwise, a controlling interest or a material voting,
proprietary or equity interest; and
(d) Any Entity (other than IMS Delaware) which possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of IMS Delaware, whether through the ownership of voting
securities, by contract or otherwise.
"Representatives" shall mean officers, directors, employees, agents,
attorneys and advisors.
"Scheduled Closing Time" shall have the meaning specified in Section
2.3(a) of the Agreement.
"Stockholders Agreement" shall mean the Stockholders Agreement dated the
Closing Date among IMS Delaware, Maxtor and the other Investors pursuant to the
Recapitalization Agreement.
"Subsidiary Notes" shall have the meaning specified in Section 2.3 of
the Agreement.
"Tax" (and, with the correlative meaning, "Taxes" and "Taxable") shall
mean (i) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Body responsible for the imposition of any such tax
(domestic or foreign), (ii) any liability for the
-10-
<PAGE> 11
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period and (ii) any liability for the payment of any amounts of the type
described in (i) or (ii) any liability for the payment of any amounts of the
type described in (i) or (ii) as a result of any express or implied obligation
to indemnify any other person.
"Tax Return" shall mean any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information that is, has been or may
in the future be filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
"Thailand Note" shall have the meaning specified in Section 2.2 of the
Agreement.
"Transactional Agreements" shall mean:
(a) The Agreement;
(b) The Recapitalization Agreement;
(c) The Stockholders' Agreement;
(d) The Maxtor Notes;
(e) The Subordinated Notes; and
(f) The Maxtor Warrant.
"Transactions" shall mean (a) the execution and delivery of the
respective Transactional Agreements, and (b) all of the transactions
contemplated by the respective Transactional Agreements, including:
(i) The sale of the Shares by Maxtor to IMS Delaware in
accordance with the Agreement;
(ii) The sale by IMS Delaware to the Investors in the
Recapitalization Agreement of all securities called for thereby; and
(iii) The performance by IMS Delaware, Maxtor and the
Investors pursuant to the Recapitalization Agreement of their respective
obligations under the Transactional
-11-
<PAGE> 12
Agreements, and the exercise by IMS Delaware, Maxtor and the Investors pursuant
to the Recapitalization Agreement of their respective rights under the
Transactional Agreements.
"Transition Services Agreement" shall have the meaning specified in
Section 2.4(b)(vii) of the Agreement.
"Unaudited Financial Statements" shall mean: (i) the unaudited combined
balance sheets of IMS Delaware as of March 30, 1996 (the "Unaudited Balance
Sheet") and March 25, 1995, and the related combined statements of income,
stockholders' equity and cash flows for the fiscal years ended March 30, 1996,
March 25, 1995 and March 26, 1994, and (ii) a pro forma combined balance sheet
as of March 30, 1996, giving effect to the conversion of the commercial
relationship between the Company and Maxtor from a turnkey basis to consignment
basis (the "Pro Forma Balance Sheet").
1.2 Interpretations. The words "herein," "hereof," and "hereunder,"
and other words of similar import refer to this Agreement as a whole and not to
any particular article, section or other subdivision of this Agreement.
SECTION 2
REDEMPTION AND RELATED TRANSACTIONS
2.1 Purchase of Shares. Maxtor shall cause to be sold, assigned,
transferred, conveyed and delivered to IMS Delaware at the Closing, good, valid
and marketable title to the Shares free of any Encumbrances on the terms and
subject to the conditions set forth in this Agreement.
2.2 Purchase Price. As consideration for the sale of the Shares to
IMS Delaware at the Closing, IMS Delaware shall (a) pay to Maxtor, by cashier's
check or by wire transfer of immediately available funds, $23,700,000, (b) cause
IMS Hong Kong to pay to Maxtor $1,300,000 in full satisfaction of a promissory
note of IMS Hong Kong to Maxtor (the "Hong Kong Note") (c) issue to Maxtor a
promissory note in the amount of $1,700,000 containing the terms set forth in
the Terms of Maxtor Notes (as hereinafter defined) attached hereto as Exhibit B
(the "IMS Delaware Note"), and (c) issue to Maxtor a warrant to purchase 200,000
shares of IMS Delaware's Class A Common Stock upon substantially the terms
described in the Form of Warrant attached hereto as Exhibit A (the "Maxtor
Warrant").
2.3 Ownership of the Holding Companies and the International IMS
Entities. On or prior to the Closing, Maxtor shall have (a) caused IMS Delaware
to be the sole stockholder, either directly or indirectly, of each of the
Holding Companies, IMS Holdco to be the sole stockholder of IMS Hong Kong and
IMS Cayman, and IMS Cayman to be the sole stockholder of IMS Thailand (other
than directors' qualifying shares or the like, to the extent required by local
-12-
<PAGE> 13
law) and the corporate structure to be as set forth on Part 2.3 of the
Disclosure Schedule and (b) taken the Reorganization Actions set forth on Part
3.3 of the Disclosure Schedule, including the issuance to Maxtor by IMS Hong
Kong and IMS Thailand of notes in the aggregate principal amounts of $16,300,000
and $2,000,000, respectively (the "Subsidiary Notes"), containing the terms set
forth in the Terms of Maxtor Notes attached hereto as Exhibit B (the IMS
Delaware Note and the Subsidiary Notes are hereinafter referred to collectively
as the "Maxtor Notes"), and the issuance by IMS Delaware of a guarantee with
respect to the Maxtor Notes containing the terms set forth in the term sheet
attached hereto as Exhibit B (the "IMS Guarantee").
2.4 Closing.
(a) The closing of the sale of the Shares to IMS Delaware
(the "Closing") shall take place at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California, 94304 at 10:00 a.m. (Pacific
Time) on May 31, 1996 (or at such other place or time as IMS Delaware and Maxtor
may jointly designate with the consent of the Investors). For purposes of this
Agreement, "Scheduled Closing Time" shall mean the time and date as of which the
Closing is required to take place pursuant to this Section 2.4(a), and "Closing
Date" shall mean the time and date as of which the Closing actually takes place.
(b) At the Closing:
(i) Maxtor shall execute and deliver to IMS Delaware
the stock certificates representing the Shares, duly endorsed (or accompanied by
duly executed stock powers);
(ii) IMS Delaware shall pay to Maxtor $23,700,000 by
cashier's check or by wire transfer of immediately available funds as
contemplated by Section 2.2(a);
(iii) IMS Delaware shall cause IMS Hong Kong to pay
the Hong Kong Note in full by cashier's check or by wire transfer of immediately
available funds as contemplated by Section 2.2(b).
(iv) IMS Delaware shall issue to Maxtor the IMS
Delaware Note;
(v) IMS Delaware shall issue to Maxtor the Maxtor
Warrant as contemplated by Section 2.2(b);
(vi) Maxtor shall execute and deliver to IMS Delaware
a certificate (the "Closing Certificate") certifying that (A) each of the
representations and warranties made by Maxtor in this Agreement was accurate in
all respects as of the date of this Agreement and is accurate in all respects as
of the Closing Date as if made on the Closing Date, (B) each of the covenants
and obligations that Maxtor is required to have complied with or performed
pursuant to this Agreement at or prior to the Closing has been duly complied
with and performed in all
-13-
<PAGE> 14
respects, and (C) except as expressly set forth in the Closing Certificate, each
of the conditions set forth in Sections 7.3 and 7.4 has been satisfied in all
respects;
(vii) IMS Delaware shall execute and deliver to Maxtor
a certificate (the "IMS Delaware Closing Certificate") certifying that (A) each
of the representations and warranties made by IMS Delaware in this Agreement was
accurate in all respects as of the date of this Agreement and is accurate in all
respects as of the Closing Date as if made on the Closing Date, (B) each of the
covenants and obligations that IMS Delaware is required to have complied with or
performed pursuant to this Agreement at or prior to Closing has been duly
complied with and performed in all respects; and (C) except as expressly set
forth in the IMS Delaware Closing Certificate, each of the conditions in Section
8 has been satisfied in all respects;
(viii) Robert G. Behlman shall execute and deliver to
Maxtor a certificate in the form attached hereto as Exhibit C (the "IMS Officer
Certificate").
(ix) Maxtor, at its own expense and without any
additional consideration from the Company or the Investors, shall execute and
deliver all reasonable assignments and licenses and such other documents and
instruments as the Company may reasonably request for the purpose of effecting
the transfer or license from Maxtor to the Company of the assets listed on Parts
3.6(c) and 3.9(c) of the Disclosure Schedule (it also being understood that, to
the extent following the Closing it is reasonably determined that any other
assets necessary to enable the Company to conduct the Business have not been
transferred or licensed to the Company, Maxtor shall execute and deliver all
reasonable assignments and licenses and such other documents and instruments as
the Company may reasonably request for the purpose of effecting the transfer or
license of such other assets from Maxtor to the Company);
(x) Maxtor and IMS Delaware shall execute and
deliver the Manufacturing Services Agreement in substantially the form attached
hereto as Exhibit D (the "Manufacturing Services Agreement"); and
(xi) Maxtor and IMS Delaware shall execute and
deliver the Transition Services Agreement in substantially the form attached
hereto as Exhibit E (the "Transition Services Agreement").
SECTION 3
REPRESENTATIONS AND WARRANTIES OF MAXTOR
Maxtor represents and warrants, to and for the benefit of the Company
and the other Indemnities, except as set forth on the Disclosure Schedule, which
is numbered to correspond to the section numbers of this Agreement, as follows:
-14-
<PAGE> 15
3.1 Due Organization; Subsidiaries; Etc.
(a) IMS Delaware is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Except as
set forth in Part 3.1(a) of the Disclosure Schedule, each of the Holding
Companies will be prior to the Closing, and each of the International IMS
Entities is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation.
(b) Except as set forth in Part 3.3 of the Disclosure
Schedule, since January 1, 1996, neither IMS Delaware nor any of the Holding
Companies or the International IMS Entities has merged with, assumed any
liabilities of or acquired or succeeded to a substantial portion of the business
of any other Entity.
(c) Each of IMS Delaware and the International IMS Entities
is, and each of the Holding Companies will be on or prior to the time IMS Holdco
becomes the sole stockholder of IMS Hong Kong and IMS Cayman, duly qualified,
licensed or admitted to do business and is in good standing in those
jurisdictions specified in Part 3.1(c) of the Disclosure Schedule, which are the
only jurisdictions in which the ownership, use or leasing of each such entity's
assets and properties, or nature of its business, makes such qualification,
licensing or admission necessary, except for those jurisdictions in which the
adverse effects of all such failures by such entity to be qualified, licensed or
admitted or in good standing could not in the aggregate reasonably be expected
to have a Material Adverse Effect.
(d) As of the Closing Date, IMS Delaware will be the sole
stockholder, either directly or indirectly, of each of the Holding Companies and
the International IMS Entities (other than directors qualifying shares or the
like required by local law). As of the Closing Date the Holding Companies will
be formed as part of the Reorganization Actions set forth on Part 3.3 of the
Disclosure Schedule. Other than the International IMS Entities themselves,
neither IMS Delaware nor any of the International IMS Entities owns,
beneficially or otherwise, any shares or other securities of, or has any direct
or indirect interest of any nature in, any other Entity.
3.2 Certificate of Incorporation and Bylaws; Records.
(a) Except as set forth in Part 3.2(b) of the Disclosure
Schedule, the Company's records include accurate and complete copies of:
(i) The Certificate of Incorporation and Bylaws (or
equivalent charter documents) of IMS Delaware, each of the Holding Companies and
each of the International IMS Entities, including all amendments thereto;
(ii) The stock records of IMS Delaware, each of the
Holding Companies and each of the International IMS Entities, respectively; and
-15-
<PAGE> 16
(iii) The minutes and other records of the meetings
and other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the stockholders of IMS Delaware, each of the
Holding Companies and each of the International IMS Entities, respectively, the
board of directors of IMS Delaware and each of the International IMS Entities,
respectively, and all committees of the board of directors of IMS Delaware and
each of the International IMS Entities, respectively.
(b) Except as set forth in Part 3.2(b) of the Disclosure
Schedule, the books of account, stock records, minute books and other corporate
records of IMS Delaware, each of the Holding Companies and each of the
International IMS Entities, respectively are accurate, up-to-date and complete.
All of the corporate records of IMS Delaware and each of the International IMS
Entities, respectively, are in the direct control of IMS Delaware.
3.3 Capitalization. Maxtor is, and will be as of the Closing Date,
the sole stockholder of IMS Delaware. Part 3.3 of the Disclosure Schedule sets
forth a complete description of the capitalization of IMS Delaware, each of the
Holding Companies and each International IMS Entity (i) as of March 30, 1996
(except with respect to the Holding Companies, which shall be formed following
the execution of this Agreement), and (ii) following the Reorganization Actions
set forth on Part 3.3 of the Disclosure Schedule. Except as set forth in Part
3.3 of the Disclosure Schedule, other than as set forth in the Transactional
Agreements and as contemplated in Recital A of the Recapitalization Agreement,
there is no: (a) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of IMS Delaware, any of the Holding Companies or any
International IMS Entity; (b) outstanding security, instrument or obligation
that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of IMS Delaware, any of the Holding Companies
or any International IMS Entity; or (c) Contract under which IMS Delaware, any
of the Holding Companies or any International IMS Entity is or may become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities.
3.4 Financial Statements. The Unaudited Financial Statements were,
and when delivered pursuant to Section 5.4 the Audited Financial Statements will
be, prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered (except that the Unaudited Financial Statements do not have
notes), present fairly the financial position of the Company as of the
respective dates thereof and the results of operations and cash flows of the
Company for the periods covered thereby, are correct and complete in all
material respects and are consistent with the books and records of the Company.
3.5 Absence Of Changes. Except as set forth in Part 3.5 of the
Disclosure Schedule, since the date of the Unaudited Balance Sheet:
(a) There has not been any Material Adverse Change, and no
event has occurred that could reasonably be expected to have a Material Adverse
Effect.
-16-
<PAGE> 17
(b) There has not been any material loss, damage or
destruction to, or any interruption in the use of, any of the tangible or
intangible assets of the Company (whether or not covered by insurance);
(c) Other than as set forth in Part 3.3 of the Disclosure
Schedule, the Company has not (i) declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock or other securities, or (ii) repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities;
(d) The Company has not purchased or otherwise acquired any
asset from any other Person having a value of greater than $100,000 individually
or $250,000 in the aggregate, except for supplies or inventory (or capital
equipment as provided under Section 3.4(f)) acquired by the Company in the
Ordinary Course of Business;
(e) The Company has not leased or licensed any asset from
any other Person having a value of greater than $100,000, except in the Ordinary
Course of Business;
(f) The Company has not made any capital expenditure having
a value of greater than $100,000 individually or $250,000 in the aggregate;
(g) The Company has not sold or otherwise transferred,
leased or licensed any asset to any other Person, except for sales of the
Company's products in the Ordinary Course of Business and sales of assets that
are not material;
(h) The Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness having a value of greater than $100,000 individually or
$250,000 in the aggregate;
(i) The Company has not made any loan or advance to any
other Person, except travel and other similar expense advances to employees made
in the Ordinary Course of Business;
(j) The Company has not (i) established or adopted any
Employee Benefit Plan, or (ii) paid any bonus or made any profit-sharing or
similar payment to, or increased the amount of the wages, salary, commissions,
fees, fringe benefits or other compensation or remuneration payable to, any of
its directors, officers, employees or independent contractors, except wage and
salary increases made in connection with annual reviews in the Ordinary Course
of Business, none of which exceeded 10% of current salary;
(k) No Contract by which the Company or any of the assets
owned or used by the Company is or was bound, or under which the Company has or
had any rights or interest, has been amended or terminated (except for scheduled
terminations in accordance with the terms of such Contract) in a manner or under
circumstances that will have a Material Adverse Effect;
-17-
<PAGE> 18
(l) The Company has not discharged any Encumbrance or
discharged or paid any indebtedness or other Liability having a value in excess
of $100,000 individually or $250,000 in the aggregate, except for accounts
payable that (i) are reflected as current liabilities in the "liabilities"
column of the Unaudited Balance Sheet or have been incurred by the Company since
the date of the Unaudited Balance Sheet in bona fide transactions entered into
in the Ordinary Course of Business, and (ii) have been discharged or paid in the
Ordinary Course of Business;
(m) The Company has not forgiven any debt or otherwise
released or waived any right or claim which has had or will have, in any case or
in the aggregate, a Material Adverse Effect;
(n) The Company has not changed any of its methods of
accounting or accounting practices in any material respect for financial,
accounting or Tax purposes;
(o) The Company has not incurred any Liability other than
the current Liabilities incurred, or obligations under Contracts entered into,
in the Ordinary Course of Business;
(p) The Company has not entered into any transaction or
taken any other action outside the Ordinary Course of Business which has had or
could have, in any case or in the aggregate, a Material Adverse Effect;
(q) The Company has not suffered any labor difficulty; and
(r) The Company has not agreed, committed or offered (in
writing or otherwise) to take any of the actions referred to in clauses "(c)"
through "(p)" above.
3.6 Title to Assets.
(a) The Company owns, and has good, valid and marketable
title to, all assets purported to be owned by it, including: (i) all assets
reflected on the Unaudited Balance Sheet; (ii) all assets acquired by the
Company since the date of the Unaudited Balance Sheet; (iii) all assets referred
to in Part 3.9 of the Disclosure Schedule identified as being owned by the
Company; and (iv) all other assets reflected in the books and records of the
Company as being owned by the Company. As of the Closing, all of said assets are
owned by the Company free and clear of any Encumbrances, except as set forth in
Part 3.6(a) of the Disclosure Schedule and except for Encumbrances incidental to
the conduct of the Company's business or the ownership of said assets (and not
incurred in connection with the borrowing of money or the acquisition of said
assets), which do not materially detract from the value of said assets or impair
the use thereof in the conduct of the Company's business or the financing
thereof.
-18-
<PAGE> 19
(b) Part 3.6(b) of the Disclosure Schedule identifies all
assets that are being leased or licensed to the Company under agreements
providing for aggregate lease or license payments greater than $100,000.
(c) The assets owned by, and leased and licensed to, the
Company (including the assets reflected on the Pro Forma Balance Sheet) will
collectively constitute, as of the Closing Date, all of the properties, rights,
interests and other tangible and intangible assets reasonably necessary to
enable the Company to conduct its business in the manner in which such business
is currently being conducted (the "Business"). Maxtor does not possess any
assets which would be reasonably necessary to produce the results set forth in
the Financial Statements, except for the assets set forth on Part 3.6(c) of the
Disclosure Schedule.
(d) Since March 30, 1996, neither IMS Delaware nor any of
the International IMS Entities has changed its name or corporate structure.
Except as set forth in Parts 3.3 and 3.9 of the Disclosure Schedule, the Company
does not use any trade names.
3.7 Equipment, Etc. Each item of equipment, material, prototype,
tool, supply, vehicle, item of furniture, fixture, improvement and other
tangible asset owned by or leased to the Company (i) is in good condition and
repair (reasonable wear and tear excepted); (ii) complies in all material
respects with, and is being operated and otherwise used in material compliance
with, all applicable Legal Requirements; and (iii) is reasonably suitable for
the uses to which it is being put.
3.8 Real Property. The Company does not own any real property or any
leasehold interest in real property, except as identified in Part 3.8 of the
Disclosure Schedule. Part 3.8 of the Disclosure Schedule provides an accurate
and complete description of the premises owned or occupied by the Company or
covered by said leases and the facilities located on such premises. The Company
enjoys peaceful and undisturbed possession of such premises. Except as set forth
on Part 3.8 of the Disclosure Schedule, there exists no event of default by the
Company or Maxtor (nor any event which with notice or lapse of time would
constitute an event of default by the Company or Maxtor) with respect to any
agreement or instrument with regard to such premises and facilities, and to the
knowledge of Maxtor, there exists no event of default by any of the other
parties thereto (nor any event which with notice or lapse of time would
constitute an event of default by any of the other parties thereto) with respect
to any such agreement or instrument, except where such default would not have a
Material Adverse Effect on the Business. Except as set forth on Part 3.8 of the
Disclosure Schedule, all such agreements and instruments are in full force and
effect.
3.9 Proprietary Assets.
(a) Set forth on Part 3.9(a) of the Disclosure Schedule is a
list of all (i) patented or registered Proprietary Assets and pending
applications for the registration of Proprietary Assets, in each case owned by
the Company relating to the Business; (ii) trade or
-19-
<PAGE> 20
corporate names used by the Company relating to the Business; (iii) material
computer software and material third party databases created or used by the
Company related to the Business; (iv) material unregistered trademarks owned or
used by the Company relating to the Company; and (v) material licenses and other
rights granted by the Company to any third party or material licenses granted by
any third party to the Company, in each case with respect to Proprietary Assets
relating to the Business.
(b) Except as set forth on Part 3.9(b) of the Disclosure
Schedule, (i) the Company owns all right, title and interest in or has a valid
license from a third party to use all Proprietary Assets reasonably necessary
for the operation of the Business, free and clear of any Encumbrances or adverse
claims; (ii) no claim by any third party contesting the validity,
enforceability, ownership or use of any of the Proprietary Assets owned or used
by the Company relating to the Business has been made, is currently outstanding
or is threatened, and there are no grounds for the same; (iii) no loss or
expiration of any individual Proprietary Assets right or related group of
Proprietary Assets rights owned or used by the Company relating to the Business
is threatened, pending or foreseeable to Maxtor's Knowledge; (iv) the Company
has not received any notice of, and is not aware of any facts which indicate a
likelihood of, any infringement or misappropriation by, or conflict with, any
third party with respect to the Proprietary Asset owned or used by the Company
relating to the Business; (v) the Company has not infringed, misappropriated or
otherwise conflicted with any Proprietary Asset of any third party, to Maxtor's
Knowledge, nor received any claims of such infringement, misappropriation or
conflict from a third party, and, to Maxtor's Knowledge, there is no
infringement, misappropriation or conflict which will occur as a result of the
continued operation of the Business; and (vi) the Company has taken all action
reasonably necessary to maintain and protect the Proprietary Assets relating to
the Business owned or used by it and will continue to reasonably maintain and
protect such Proprietary Assets prior to the Closing so as not to affect
adversely the validity or enforceability of such Proprietary Assets.
(c) Without limiting the foregoing, and except for Maxtor
Proprietary Assets which are licensed to and used by the Company to provide
services to Maxtor, none of the Proprietary Assets necessary to enable the
Company to conduct the Business is licensed to or from Maxtor, nor does Maxtor
have any ownership interest in or claim thereto, except as set forth on Part
3.9(c) of the Disclosure Schedule, all of which interest will be transferred to
the Company.
(d) Except as set forth in Part 3.9(d) of the Disclosure
Schedule, each current and former employee of the Company has executed a
non-disclosure and invention assignment agreement in the Company's current
standard form thereof or in substantially similar form. Copies of all such
agreements are in the possession of the Company.
-20-
<PAGE> 21
3.10 Contracts.
(a) Part 3.10(a) of the Disclosure Schedule identifies each
IMS Contract that is a Material Contract and to Maxtor's Knowledge provides an
accurate and complete description of all oral IMS Contracts that are Material
Contracts. The Company has in its actual possession and direct control accurate
and complete copies of all IMS Contracts that are Material Contracts, including
all amendments thereto. Each IMS Contract is valid and in full force and effect.
(b) Except as set forth in Part 3.10(b) of the Disclosure
Schedule:
(i) No Person has violated or breached, or declared
or committed any default under, any IMS Contract, except for any violation,
breach or default which has not resulted in, and could not reasonably be
expected to result in, a Material Adverse Effect;
(ii) No event has occurred, and no circumstance or
condition exists, that could reasonably be expected to (with or without notice
or lapse of time) (A) result in a violation or breach of any of the provisions
of any IMS Contract, except for any violation or breach which could not
reasonably be expected to result in a Material Adverse Effect, (B) give any
Person the right to declare a default or exercise any remedy under any IMS
Contract, except for any default or remedy which could not reasonably be
expected to result in a Material Adverse Effect, (C) give any Person the right
to accelerate the maturity or performance of any IMS Contract, except for any
such acceleration in maturity or performance which could not reasonably be
expected to result in a Material Adverse Effect, or (D) give any Person the
right to cancel, terminate or modify any IMS Contract, except for any such
cancellation, termination or modification which could not reasonably be expected
to result in a Material Adverse Effect;
(iii) The Company has not received any notice or other
communication (in writing or otherwise) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any IMS Contract, except
for any violation, breach or default which has not resulted in, and could not
reasonably be expected to result in, a Material Adverse Effect; and
(iv) The Company has not knowingly waived any right
under any IMS Contract, except for any waiver which has not resulted in, and
could not reasonably be expected to result in, a Material Adverse Effect.
(c) Except as set forth in Part 3.10(a) of the Disclosure
Schedule, the Company has not guaranteed or otherwise agreed to cause, insure or
become liable for, and the Company has not pledged any of its assets to secure,
the performance or payment of any obligation or other Liability of any other
Person.
(d) The Contracts identified in Part 3.10(a) of the
Disclosure Schedule collectively constitute all of the Contracts necessary to
enable the Company to conduct the Business prior to and following the Closing.
-21-
<PAGE> 22
3.11 Liabilities. Except as set forth in Part 3.11 of the Disclosure
Schedule, the Company has no Liabilities, except for:
(a) Liabilities identified in the Unaudited Balance Sheet as
and to the extent reflected or reserved therein;
(b) Liabilities incurred by the Company in bona fide
transactions entered into in the Ordinary Course of Business since the date of
the Unaudited Balance Sheet, and not otherwise in contravention of this
Agreement;
(c) Obligations under the Contracts listed in Part 3.10(a)
of the Disclosure Schedule, to the extent that the existence of such obligations
is ascertainable by reference to such Contracts; and
(d) Obligations which individually and in the aggregate
arose in the Ordinary Course of Business, are not material to the Company and
have not resulted in, and could not reasonably be expected to result in, a
Material Adverse Effect.
3.12 Compliance With Legal Requirements. Except as set forth in Part
3.12 of the Disclosure Schedule:
(a) The Company is in compliance in all material respects
with each Legal Requirement that is applicable to it or reasonably necessary to
enable it to conduct the Business or to own or use any of its assets and to
occupy its facilities;
(b) Since March 30, 1996, the Company has at all times been
in compliance with each Legal Requirement, the default of which could have a
Material Adverse Effect, that is or was applicable to it or to the conduct of
its business or the ownership or use of any of its assets;
(c) No event has occurred, and no condition or circumstance
exists, that could (with or without notice or lapse of time) constitute or
result directly or indirectly in a violation by the Company of, or a failure on
the part of the Company to comply with, any Legal Requirement, the default of
which could reasonably be expected to have a Material Adverse Effect or
interfere with the consummation of the transactions contemplated hereby; and
(d) The Company has not received, at any time since March
30, 1996, any notice or other communication (in writing or otherwise) from any
Governmental Body or any other Person regarding (i) any actual, alleged,
possible or potential violation of, or failure to comply with, any Legal
Requirement, the violation or default of which could have a Material Adverse
Effect, or (ii) any actual, alleged, possible or potential obligation on the
part of the Company to undertake, or to bear all or any portion of the cost of,
any cleanup or any remedial,
-22-
<PAGE> 23
corrective or response action of any nature, the violation or default of which
could have a Material Adverse Effect.
3.13 Governmental Authorizations.
(a) Part 3.13(a) of the Disclosure Schedule identifies each
Governmental Authorization that is held by the Company. Each Governmental
Authorization identified in Part 3.13 of the Disclosure Schedule is valid and in
full force and effect.
(b) Except as set forth in Part 3.13(b) of the Disclosure
Schedule:
(i) The Company is and at all times since March 30,
1996, has been in compliance with all of the terms and requirements of each
Governmental Authorization identified in Part 3.13(b) of the Disclosure
Schedule; and
(ii) No event has occurred, and to Maxtor's Knowledge
no condition or circumstance exists, that could (with or without notice or lapse
of time) (A) constitute or result directly or indirectly in a violation of or a
failure to comply with any term or requirement of any Governmental Authorization
identified in Part 3.13(b) of the Disclosure Schedule, or (B) result directly or
indirectly in the revocation, withdrawal, suspension, cancellation, termination
or modification of any Governmental Authorization identified in Part 3.13(b) of
the Disclosure Schedule.
(c) The Governmental Authorizations held by the Company
constitute all of the Governmental Authorizations necessary (i) to enable the
Company to conduct the Business, (ii) to permit the Company to own and use its
assets in the manner in which they are currently owned and used, and (iii) to
enable and permit the Company, following the Closing, to do the same.
3.14 Tax Matters.
(a) All Tax returns, statements, reports and forms
(including estimated Tax returns and reports and information returns and
reports) required to be filed with any taxing authority with respect to any
Taxable period ending on or before the Closing, by or on behalf of the Company,
and each IMS Affiliated Group (collectively, the "Company Returns"), have been
or will be filed when due (including any extensions of such due date). All such
Company Returns were or will be correct and complete when filed. All Taxes owed
by the Company that are due have been paid. The Unaudited Balance Sheet (i)
fully accrues all actual and contingent liabilities for Taxes with respect to
all periods through the date thereof, and the Company will not incur any Tax
liability in excess of the amount reflected on the Unaudited Balance Sheet with
respect to such periods, and (ii) properly accrues in accordance with GAAP all
liabilities for Taxes payable after March 30, 1996, with respect to all
transactions and events occurring on or
-23-
<PAGE> 24
prior to such date. Any and all information set forth in the notes to the
Company's consolidated financial statements relating to Tax matters is true,
complete and accurate in all respects.
(b) No Tax liability since March 30, 1996, has been incurred
by the Company or any IMS Affiliated Group other than in the Ordinary Course of
Business and adequate provision has been made for all Taxes since that date in
accordance with GAAP on at least a quarterly basis. The Company has withheld and
paid to the applicable financial institution or Governmental Body, as the case
may be, all amounts required to be withheld. All Company Returns filed with
respect to Taxable years of the Company through the Taxable year ended March 28,
1992, have been examined and closed or are Tax Returns with respect to which the
applicable period for assessment under applicable law, after giving effect to
extensions or waivers, has expired. Neither the Company nor any IMS Affiliated
Group has granted any extension or waiver of the limitation period applicable to
any Taxes.
(c) There is no claim, audit, action, suit, proceeding, or
investigation now pending or threatened against or with respect to the Company
or any IMS Affiliated Group in respect of any Tax or assessment. No notice of
deficiency or similar document of any Governmental Body has been received by the
Company or any IMS Affiliated Group, and there are no liabilities for Taxes
(including liabilities for interest, additions to tax and penalties thereon and
related expenses) with respect to the issues that have been raised (and are
currently pending) by any Governmental Body that could, if determined adversely
to the Company, materially and adversely affect the liability of the Company or
any IMS Affiliated Group for Taxes. Neither the Company, nor any other person on
behalf of the Company, has entered into nor will it enter into any agreement or
consent pursuant to Section 341(f) of the Code. There are no liens for Taxes
upon the assets of the Company, except liens for current Taxes not yet due.
Except as may be required as a result of the transactions contemplated hereby,
the Company has not been and will not be required to include any adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions, events or accounting methods employed prior to the
Closing.
(d) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
employee or independent contractor or former employee or independent contractor
of the Company that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to Section 280G, 162
or 404 of the Code. Other than pursuant to this Agreement and as set forth in
Part 3.14 of the Disclosure Schedule, the Company is not a party to or bound by
(or will prior to the Closing become a party to or bound by) any tax indemnity,
tax sharing or tax allocation agreement (whether written, unwritten or arising
under operation of federal law as a result of being a member of a group filing
consolidated tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) other than by virtue of any obligation arising by
operation of law as a result of being a member of an IMS Affiliated Group of
which Maxtor is the common parent. None of
-24-
<PAGE> 25
the assets of the Company (i) directly or indirectly secures any debt the
interest on which is tax exempt under Section 103(a) of the Code or (ii) is "tax
exempt use property" within the meaning of Section 168(h) of the Code. The
Company has not participated in (or will prior to the Closing participate in) an
international boycott within the meaning of Section 999 of the Code. The Company
has heretofore provided or made available to the Investors true and correct
copies of all Tax Returns, and, as reasonably requested by the Investors prior
to or following the date hereof, information statements, reports, work papers,
Tax opinions and memoranda and other Tax data and documents.
(e) Part 3.14(e) of the Disclosure Schedule lists (i) any
Tax exemption, Tax holiday or other Tax-sparing agreement that the Company has
in any jurisdiction, including the nature, amount and lengths or such Tax
exemption, Tax holiday or other Tax-sparing arrangement and (ii) any expatriate
tax programs or policies affecting the Company. The Company is in full
compliance with all terms and conditions of any Tax exemption, Tax holiday or
other Tax-sparing agreement or order of a foreign government and the
consummation of the transactions contemplated hereby shall not have any adverse
effect on the continued validity and effectiveness of any such Tax exemption,
Tax holiday or other Tax sharing agreement or order.
3.15 Employee And Labor Matters. Except as set forth in Part 3.15 of
the Disclosure Schedule:
(a) The Company is not a party to or bound by any employment
agreement or any union contract, collective bargaining agreement or similar
Contract.
(b) The employment of the employees of the Company is
terminable by the Company at will. The Company has in its actual possession and
direct control accurate and complete copies of all employee manuals and
handbooks, disclosure materials, policy statements and other materials relating
to the employment of the current and former employees of the Company.
(c) The Company is not engaged in any unfair labor practice
of any nature. Since January 1, 1994, there has never been any slowdown, work
stoppage, labor dispute or union organizing activity, or any similar activity or
dispute, affecting the Company or any of its employees, and no Person has
threatened to commence any such slowdown, work stoppage, labor dispute or union
organizing activity or any similar activity or dispute.
(d) The Company has at all times conducted its business in
compliance in all respects with the local labor laws of all jurisdictions in
which the Company has conducted its business and the United States Fair Labor
Standards Act, to the extent applicable, except for any noncompliance which
could not be reasonably expected to have a Material Adverse Effect.
-25-
<PAGE> 26
(e) The Company is not a party to or bound by any employment
agreement which obligates the Company to pay separation, severance, termination
or similar benefits as a result of or arising out of any of the Transactions.
3.16 Benefit Plans; ERISA.
(a) Part 3.16(a) of the Disclosure Schedule identifies each
IMS Plan. The Company has not incurred any Liability with respect to any IMS
Plan, except as set forth in Part 3.16(a) of the Disclosure Schedule.
(b) No IMS Plan:
(i) Provides or provided any benefit guaranteed by
the Pension Benefit Guaranty Corporation;
(ii) Is or was a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA; or
(iii) Is or was subject to the minimum funding
standards of Section 412 of the Code or Section 302 of ERISA.
(iv) Obligates the Company to pay separation,
severance, termination or similar benefits as a result of or arising out of any
of the Transactions.
(c) The Company has in its actual possession and direct
control, with respect to each IMS Plan:
(i) An accurate and complete copy of such IMS Plan
and all amendments thereto (including any amendment that is scheduled to take
effect in the future);
(ii) An accurate and complete copy of each Contract
(including any trust agreement, funding agreement, service provider agreement,
insurance agreement, investment management agreement or recordkeeping agreement)
relating to such IMS Plan; an accurate and complete copy of any description,
summary, notification, report or other document that has been furnished to any
employee of the Company with respect to such IMS Plan;
(iii) An accurate and complete copy of any form,
report, registration statement or other document that has been filed with or
submitted to any Governmental Body with respect to such IMS Plan; and
(iv) An accurate and complete copy of any
determination letter, notice or other document that has been issued by, or that
has been received by the Company from, any Governmental Body with respect to
such IMS Plan.
-26-
<PAGE> 27
(d) Each IMS Plan is being and at all times has been
operated and administered in compliance with the provisions thereof. Each
contribution or other payment that is required to have been accrued or made
under or with respect to any IMS Plan has been duly accrued and made on a timely
basis.
(e) Each IMS Plan at all times has complied and been
operated and administered in compliance with all applicable reporting,
disclosure and other requirements of ERISA and the Code and all other applicable
Legal Requirements. The Company has not incurred any Liability to the Internal
Revenue Service or any other Governmental Body with respect to any IMS Plan; and
no event has occurred, and no condition or circumstance exists, that might (with
or without notice or lapse of time) give rise directly or indirectly to any such
Liability. Neither the Company, nor any Person that is or was an administrator
or fiduciary of any IMS Plan (or that acts or has acted as an agent of the
Company or any such administrator or fiduciary), has engaged in any transaction
or has otherwise acted or failed to act in a manner that has subjected or may
subject the Company to any Liability for breach of any fiduciary duty or any
other duty. No IMS Plan, and no Person that is or was an administrator or
fiduciary of any IMS Plan (or that acts or has acted as an agent of any such
administrator or fiduciary) has in any respect:
(i) Engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code;
(ii) Failed to perform any of the responsibilities or
obligations imposed upon fiduciaries under Title I of ERISA; or
(iii) Taken any action that (A) may subject such IMS
Plan or such Person to any Tax, penalty or Liability relating to any "prohibited
transaction," or (B) may directly or indirectly give rise to or serve as a basis
for the assertion (by any employee or by any other Person) of any claim under,
on behalf of or with respect to such IMS Plan.
(f) Except as set forth in Part 3.16(f) of the Disclosure
Schedule, neither the execution and delivery of this Agreement or other related
Transactional Agreements by Maxtor or the Company nor the consummation of the
Transactions contemplated hereby or the related Transactions will result in the
acceleration or creation of any rights of any person to benefits under any IMS
Plan (including, without limitation, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of any benefits
under any IMS Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
3.17 Environment, Health and Safety.
(a) For the purpose of this Section the following terms are
defined as set forth below:
-27-
<PAGE> 28
"Contamination" is the presence of any Hazardous
Material in the soil, groundwater, surface water, ambient air, or building
materials of any real property in a concentration exceeding a level which would
require any investigation, remediation, removal, or monitoring pursuant to
Applicable Environmental Health and Safety Requirements, or which would
otherwise exceed the concentrations allowed by Applicable Environmental Health
and Safety Requirements.
"Applicable Environmental Health and Safety Requirement"
are all currently applicable Legal Requirements (including common laws and
equitable principles) regulating, prohibiting or relating to any Hazardous
Material, any Hazardous Material Activity, public health, worker health or
safety, pollution, protection of the environment, and any currently applicable
order, injunction, settlement agreement, consent decree, or guideline issued by
any court of competent jurisdiction or any Governmental Body pursuant to or with
respect to any of the foregoing.
"Hazardous Materials" are any materials or substances
prohibited or regulated by any Applicable Environmental Health and Safety
Requirement or designated by any Governmental Body to be radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the environment,
(including without limitation solvents, petroleum, crude oil fractions,
pesticides, asbestos containing materials, radon gas, radioactive materials,
blood, biological substances used in or produced from the diagnosis, treatment
or immunization of human beings or animals or from research or testing
pertaining thereto, and medical "sharps" waste). For the purposes of this
agreement, Hazardous Materials do not include janitorial or office materials in
customary quantities used solely for office and janitorial purposes, provided no
permit or approval is required by any Governmental Body for such use.
"Hazardous Materials Activity" is the transportation,
transfer, recycling, storage, use, handling, treatment, manufacture,
investigation, removal, remediation, release, exposure of others to, sale, or
distribution of any Hazardous Material or any product or material containing a
Hazardous Material.
(b) Compliance With Applicable Environmental Health and
Safety Requirements and Agreements. Except as set forth on Part 3.17 of the
Disclosure Schedule, to Maxtor's Knowledge, all Hazardous Materials Activities
of the Company have been conducted in compliance with Applicable Environmental
Health and Safety Requirements, except any non-compliance with which will not
have a Material Adverse Effect on the Company. Except as set forth on Part 3.17
of the Disclosure Schedule, the current Hazardous Materials Activities of the
Company comply in all material respects with Applicable Environmental Health and
Safety Requirements and with any Contract currently binding upon Company with
respect to the Hazardous Materials Activities currently conducted by the
Company.
(c) Contamination. Except as disclosed on Part 3.17 of the
Disclosure Schedule, the Company is not discharging, releasing, or disposing of,
Hazardous Materials to the
-28-
<PAGE> 29
soil, groundwater, surface water or building materials of any facility currently
occupied by the Company nor any manner which violates any Applicable
Environmental Health and Safety Requirement or contract binding upon the
Company's Hazardous Materials Activities. Except as disclosed on Part 3.17 of
the Disclosure Schedule, to Maxtor's Knowledge, the Company has not discharged,
released, disposed of or emitted any Hazardous Materials to the soil,
groundwater, surface water or building materials of any facility in an amount or
in a manner that would, if known by a Governmental Body having jurisdiction over
such matters, result in any fine or monetary obligation or require
investigation, containment, remediation, monitoring, or removal under Applicable
Environmental Health and Safety Requirements that would in the aggregate have a
Material Adverse Effect. Except as disclosed on Part 3.17 of the Disclosure
Schedule, to Maxtor's knowledge as of the Closing, no Contamination which would
be the legal responsibility of the Company in whole or in part (a) is present at
any real property which is now operated, or which has anytime been owned, by the
Company; (b) was present at any real property operated by the Company at the
time the Company's legal and possessory rights in the property ended, or (c) is
present at any other real property to which Hazardous Materials produced,
generated or transported by the Company have been delivered that would in the
aggregate have a Material Adverse Effect.
(d) Permits. Except as set forth on Part 3.17 of the
Disclosure Schedule, all approvals, permits, licenses, environmental clearances
and consents required for the conduct of Hazardous Materials Activities of the
Company as presently conducted ("Environmental Permits") are in full force and
effect, and the Company is in compliance in material respects with all covenants
and conditions of said Permits. Except as set forth on Part 3.17 of the
Disclosure Schedule, the occurrence of the Transaction, in and of themselves,
will not cause any such Environmental Permit to be revoked, modified, or
rendered non-renewable upon payment of typical permit fees and no filing is
required with any governmental authority issuing an Environmental Permit in
connection with the occurrence of the Transactions.
(e) Environmental Expenditures. Except as set forth on Part
3.17 of the Disclosure Schedule, as of the Closing, except for expenditures
which have been reserved against in the Company's Unaudited Financial Statements
and Audited Financial Statements or which in the aggregate do not exceed
$100,000, neither the Company nor Maxtor has received any notice that (and
neither is otherwise aware that) any Applicable Environmental Health and Safety
Requirement or any Contract currently binding upon the Company with respect to
its Hazardous Materials Activities currently requires (a) the making of any
capital improvement or repair, (b) the making of any modification, cessation or
removal of any manufacturing, storage, or assembly process or equipment; or (c)
the investigation, monitoring, removal, remediation or monitoring of any
Contamination.
3.18 Insurance. The Company has in its actual possession and direct
control accurate and complete copies of all of the insurance policies (including
all renewals thereof and endorsements thereto) maintained by or on behalf of
the Company. Each of such policies is valid, enforceable and in full force and
effect, and such insurance policies are in coverage amounts,
-29-
<PAGE> 30
scope and terms of a nature as is customary for Comparable Entities and
reasonably sufficient to insure the Company against the risks associated with
the Business. All of the information contained in the applications submitted in
connection with said policies was (at the times said applications were
submitted) accurate and complete in all material respects, and all premiums and
other amounts owing with respect to said policies have been paid in full on a
timely basis.
3.19 Related Party Transactions. Except as set forth in Part 3.3 or
Part 3.19 of the Disclosure Schedule or as contemplated by the Transaction
Agreements:
(a) No Related Party has any ownership interest of any
nature in any of the assets of the Company;
(b) No Related Party is indebted to the Company;
(c) The Company is not indebted to any Related Party; and
(d) No Related Party currently has any direct or indirect
financial interest in, any Contract, transaction or business dealing of any
nature involving the Company (other than employee non-disclosure and invention
assignment agreements entered into in the Ordinary Course of Business).
3.20 Proceedings; Orders.
(a) Except as set forth in Part 3.20 of the Disclosure
Schedule, there is no pending Proceeding, nor, to Maxtor's Knowledge, any threat
thereof by any Person:
(i) That involves the Company, any of its assets or
the Shares or that otherwise relates to or might affect the Business or any of
the Company's assets or the Shares or the Company's interest in the Shares
following the Closing (whether or not the Company is named as a party thereto);
or
(ii) That challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
Transactions.
Except as set forth in Part 3.20 of the Disclosure Schedule, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
could directly or indirectly to give rise to or serve as a basis for the
commencement of any such Proceeding.
(b) The Company has in its actual possession and direct
control accurate and complete copies of all pleadings, correspondence and other
written materials (to which Maxtor or the Company has access) that relate to the
Proceedings required to be identified in Part 3.20 of the Disclosure Schedule
and all other Proceedings completed since January 1, 1994.
-30-
<PAGE> 31
(c) There is no Order to which the Company, or any of the
assets owned or used by the Company, is subject. Neither Maxtor nor any other
Related Party is subject to any Order could reasonably be expected to have a
Material Adverse Effect.
(d) To Maxtor's Knowledge, no employee of the Company is
subject to any Order that may prohibit such officer or employee from engaging in
or continuing any conduct, activity or practice involving his or her employment
by the Company.
(e) To Maxtor's Knowledge, there is no proposed Order that,
if issued or otherwise put into effect, (i) could reasonably be expected to have
a Material Adverse Effect or materially adversely affect the ability of Maxtor
or the Company to comply with or perform any covenant or obligation under any of
the Transactional Agreements, or (ii) may have the effect of preventing,
delaying, making illegal or otherwise interfering with any of the Transactions.
3.21 Authority; Binding Nature of Agreements. Each of Maxtor, IMS
Delaware, the Holding Companies and the International IMS Entities has the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under each of the Transactional Agreements to which it
is or may become a party. The execution, delivery and performance by each of
Maxtor, IMS Delaware, the Holding Companies and the International IMS Entities
of the Transactional Agreements to which it is or may become a party have been,
or prior to Closing will be, duly authorized by all necessary action on the part
of Maxtor, IMS Delaware, the Holding Companies or the International IMS
Entities, as the case may be, and their respective stockholders, boards of
directors and officers. This Agreement constitutes the legal, valid and binding
obligation of each of Maxtor and IMS Delaware, enforceable against each of them
in accordance with its terms. Upon the execution and delivery of each of the
other Transactional Agreements at the Closing, each of such other Transactional
Agreements to which Maxtor, IMS Delaware, the Holding Companies or any of the
International IMS Entities is a party will constitute the legal, valid and
binding obligation of each of Maxtor, IMS Delaware, the Holding Companies and
the International IMS Entities, as the case may be, and will be enforceable
against each of them in accordance with its terms.
3.22 Non-Contravention; Consents. Except as set forth in Part 3.22 of
the Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions (excluding any consummation or performance to occur after the
Closing), will directly or indirectly (with or without notice or lapse of time):
(a) Contravene, conflict with or result in a violation of,
or give any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Maxtor or the Company, or any of the assets of
the Company, is subject;
-31-
<PAGE> 32
(b) Contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or any employee of the Company;
(c) Contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any IMS Contract,
except for any contravention, conflict, violation, breach or default which could
not reasonably be expected to result in a Material Adverse Effect;
(d) Give any Person the right to (i) declare a default or
exercise any remedy under any IMS Contract, except where any such default or
exercise of a remedy could not reasonably be expected to result in a Material
Adverse Effect, (ii) accelerate the maturity or performance of any IMS Contract,
except where such acceleration could not reasonably be expected to result in a
Material Adverse Effect, or (iii) cancel, terminate or modify any IMS Contract,
except where any such cancellation, termination or modification could not
reasonably be expected to result in a Material Adverse Effect;
(e) Contravene, conflict with or result in a violation or
breach of or a default under any provision of, or give any Person the right to
declare a default under, any Contract to which Maxtor is a party or by which
Maxtor is bound; or
(f) Result in the imposition or creation of any Encumbrance
upon or with respect to any of the Shares or the assets of the Company.
Except as set forth in Part 3.22 of the Disclosure Schedule, and assuming the
representations in Section 3 of the Recapitalization Agreement are accurate,
neither Maxtor nor the Company was, is or will be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person in
connection with the execution and delivery of any of the Transactional
Agreements or the consummation or performance of any of the Transactions.
3.23 Notes and Accounts Receivable. All notes and accounts receivable
of the Company comprising part of the assets of the Company are reflected
properly on its books and records in accordance with GAAP consistently applied,
are current (according to the historical accounting practices of IMS Delaware
and each of the International IMS Entities) and are valid receivables subject to
no Encumbrances, setoffs or counterclaims, except for an allowance for doubtful
accounts set forth on the face of the Unaudited Balance Sheet, as reasonably
adjusted for the passage of time through the Closing Date.
3.24 Inventory. Except as set forth on Part 3.24 of the Disclosure
Schedule, the inventory of the Company consists of raw materials and supplies,
manufactured and purchased parts, goods in process and finished goods, all of
which is merchantable and fit for the purpose for which it was procured or
manufactured, and none of which is slow-moving, obsolete,
-32-
<PAGE> 33
damaged or defective, subject only to the reserve for inventory write down set
forth on the face of the Pro Forma Balance Sheet (rather than in any notes
thereto), as reasonably adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Company.
3.25 Product Warranty. Each product manufactured, sold, leased or
delivered by the Company has been manufactured, sold, leased or delivered in
conformity with all applicable contractual commitments and all express and
implied warranties, and the Company does not have any liability (and to Maxtor's
Knowledge there is no basis for any present or future action, suit, Proceeding,
claim or demand against the Company giving rise to any liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims as set forth on the face of the
Unaudited Balance Sheet (rather than in any notes thereto) as reasonably
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company. Except as set forth on Part 3.25 of the
Disclosure Schedule, no product manufactured, sold, leased or delivered by the
Company is subject to any guarantee, warranty or other indemnity beyond the
Company's applicable standard terms and conditions of sale or lease.
3.26 Product Liability. To Maxtor's Knowledge, the Company does not
have any liability (and there is no basis for any present or future action,
suit, Proceeding, claim or demand against the Company giving rise to any
liability) arising out of any injury to individuals or property as a result of
the ownership, possession or use of any product manufactured, sold, leased or
delivered by the Company.
3.27 Brokers. Neither Maxtor nor any of its officers or directors has
agreed to or become obligated to pay, or has taken any action that might result
in any Person claiming to be entitled to receive, any brokerage commission,
finder's fee or similar commission or fee in connection with any of the
Transactions.
3.28 Manufacturing Services Agreement. To Maxtor's Knowledge, Maxtor
has no current reason to believe that products to be manufactured by the Company
for Maxtor pursuant to the Manufacturing Services Agreement will not be
competitive in terms of price or quality, provided that Maxtor's future
assertion of its right not to purchase products under the Manufacturing Services
Agreement if the Company is not competitive in terms of price and quality shall
not be deemed to be a breach of this representation and shall not be limited in
any manner by this representation.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF IMS DELAWARE
IMS Delaware represents and warrants, to and for the benefit of Maxtor,
as follows:
-33-
<PAGE> 34
4.1 Brokers. Neither IMS Delaware nor its officers or directors has
agreed or become obligated to pay, or has taken any action that might result in
any Person claiming to be entitled to receive, any brokerage commission,
finders' fee or similar commission or fee from Maxtor in connection with any of
the Transactions.
SECTION 5
CLOSING COVENANTS OF MAXTOR.
5.1 Access And Investigation. At all times from and after the date
hereof and until the Closing, Maxtor shall provide the Company, its
Representatives and the Investors: (i) full access during normal business hours
to all facilities and existing books, records, Tax Returns, work papers and
other documents and other information relating to the Company and the Business;
and (ii) all such additional financial, operating and other data and information
with respect to the business and affairs of the Company and the Business as they
may reasonably request. Such investigation shall be conducted in a manner which
does not unreasonably interfere with the Company or the Business.
5.2 Filings And Consents. Maxtor shall ensure that all filings,
notices and Consents required to be made, given and obtained by Maxtor in order
to consummate the Transactions (including the filings, notices and Consents
referred to in Part 3.22 of the Disclosure Schedule and including, if
applicable, any filings by Maxtor or the Company required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 and the rules promulgated
thereunder) are made, given and obtained on a timely basis.
5.3 Notification; Updates To Disclosure Schedule.
(a) During the Pre-Closing Period, Maxtor shall promptly
notify the Company and the Investors in writing of:
(i) The discovery by Maxtor of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material Breach of any representation
or warranty made by Maxtor in this Agreement;
(ii) Any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute a Breach of any representation or warranty made by Maxtor in this
Agreement if (A) such representation or warranty had been made as of the time of
the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of this Agreement;
-34-
<PAGE> 35
(iii) Any Breach of any covenant or obligation of
Maxtor; and
(iv) Any event, condition, fact or circumstance that
may make the timely satisfaction of any of the conditions set forth in Section 7
or Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 5.3(a) requires any change in the
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Disclosure Schedule were dated as of the date
of the occurrence, existence or discovery of such event, condition, fact or
circumstance, then Maxtor shall promptly deliver to IMS Delaware and the
Investors an update to the Disclosure Schedule specifying such change, provided,
however, that any update to the Disclosure Schedule so delivered to the Company
and the Investors shall not be deemed to amend the representations and
warranties of Maxtor unless each of the Company and the Investors accept in
writing any such updates.
5.4 Audited March 30 Financial Statements.
(a) As soon as practicable after the date hereof, but in any
event prior to the Closing Date, Maxtor shall cause IMS Delaware to prepare and
deliver to the Investors audited consolidated balance sheets of IMS Delaware and
the International IMS Entities (and/or any predecessors, if appropriate) as of
March 30, 1996 (the "Combined Balance Sheet") and 1995 and related statements of
operations and cashflows for the three fiscal year periods ended March 30, 1996
(collectively, the "Audited Financial Statements"). The Combined Balance Sheet
shall contain only those assets and those liabilities in nature and amount
appropriate for the normal operation of the Business in the ordinary course. The
Audited Financial Statements (i) shall be prepared in accordance with GAAP,
consistent with the prior audited financial statements included in the Financial
Statements, (ii) shall satisfy the U.S. Securities and Exchange Commission's
requirements under Regulation S-X, and (iii) shall not differ materially from
the Unaudited Financial Statements.
(b) Notwithstanding the foregoing, if the Closing shall not
have occurred prior to June 29, 1996, then Maxtor shall cause IMS Delaware to
deliver, in addition to the Audited Financial Statements referred to in Section
5.4(a), an unaudited consolidated balance sheet of IMS Delaware, the Holding
Companies and the International IMS Entities (and/or any predecessors, if
appropriate) as of June 29, 1996, and related statements of operations and
cashflows for the three month period then ended. In such event, such June 29,
1996 financial statements shall (i) be prepared in accordance with GAAP applied
on a consistent basis with the Audited Financial Statements, (ii) present fairly
the financial position of the Company as of the date thereof and the results of
operations and cash flows of the Company for the period covered thereby, (iii)
be correct and complete in all material respects, and (iv) be consistent with
the books and records of the Company.
-35-
<PAGE> 36
5.5 Reasonable Commercial Efforts. During the Pre-Closing Period,
Maxtor shall use reasonable commercial efforts to cause the conditions set forth
in Sections 7 (it being acknowledged that the condition set forth in Section 7.7
hereof is not under Maxtor's control or supervision) and 8 to be satisfied on a
timely basis.
5.6 Maintenance of Records. From and after the Closing Date, Maxtor
shall use reasonable care to maintain the books, records, Tax Returns, work
papers and other documents and information in its possession relating to the
Company arising prior to the Closing and, damage by fire or other casualty or
accident excepted, shall not for a period of six (6) years after the Closing
Date destroy or dispose of any such records unless it shall first have notified
the Company of its intention to do so and shall have afforded the Company an
opportunity to take possession thereof. From and after the Closing Date, Maxtor
shall afford the Company access to all preclosing business record and
information of the Company in its possession, including data processing
information, upon reasonable notice during ordinary business hours for all
reasonable business purposes, and Maxtor shall permit the Company to make copies
of any such records and retain possession of such copies.
5.7 Indemnification Agreements. Prior to the Closing Date Maxtor
shall have, entered into indemnification agreements with each officer or
director of IMS Delaware, each of the Holding Companies and each of the
International IMS Entities, pursuant to which Maxtor shall indemnify any such
officer or director to the maximum extent permitted by law in connection with
any action taken by any such officer or director in his or her capacity as an
officer or director of IMS Delaware, the Holding Companies and/or the
International IMS Entities relating to the Transactions and the Reorganization
Actions. Maxtor further agrees to indemnify the Company for any and all
liabilities and/or expenses incurred by the Company as a result of any claim
relating to any such action taken by any such officer or director in connection
with the Transactions and the Reorganization Actions. Maxtor's obligation to
indemnify such officers and directors and the Company with regard to such
actions shall survive the Closing for an unlimited period of time.
SECTION 6
COVENANTS OF IMS DELAWARE
6.1 Reasonable Commercial Efforts. During the Pre-Closing Period,
IMS Delaware shall use its reasonable commercial efforts to cause all of the
conditions to the obligations of Maxtor and the Company under this Agreement
which are within its control to be satisfied as promptly as practicable, and
will not undertake any course of action inconsistent therewith or which would
make any of such representations or warranties contained herein untrue at or
prior to the Closing and will not undertake any course of action inconsistent
therewith or which makes its representations or warranties contained herein
untrue at or prior to the Closing.
-36-
<PAGE> 37
6.2 Filings and Consents. IMS Delaware shall ensure that all
filings, notices and Consents required to be made, given and obtained by IMS
Delaware in order to consummate the Transactions (including, if applicable, any
filings by IMS Delaware required under the HSR Act and the rules promulgated
thereunder) are made, given and obtained on a timely basis.
6.3 Notification. During the Pre-Closing Period, IMS Delaware shall
promptly notify Maxtor in writing of any event, condition, fact or circumstance
that may make the timely satisfaction of any of the conditions set forth in
Section 7 or Section 8 impossible or unlikely.
6.4 Maintenance of Records. From and after the Closing Date, the
Company shall use reasonable care to maintain the books, records, Tax Returns,
work papers and other documents and information in its possession relating to
the Company arising prior to the Closing and, damage by fire or other casualty
or accident excepted, shall not for a period of six (6) years after the Closing
Date destroy or dispose of any such records unless it shall first have notified
Maxtor of its intention to do so and shall have afforded Maxtor an opportunity
to take possession thereof. From and after the Closing Date, the Company shall
afford Maxtor access to all preclosing business record and information of the
Company in its possession, including data processing information, upon
reasonable notice during ordinary business hours for all reasonable business
purposes, and the Company shall permit Maxtor to make copies of any such records
and retain possession of such copies.
6.5 Release from Guarantees. Promptly after the Closing, the Company
shall take such commercially reasonable actions as may be necessary to relieve
Maxtor from any guarantee with respect to the funded debt or operating liens of
the Company with G.E. Capital and Comdisco set forth in Part 3.10(a) of the
Disclosure Schedule.
6.6 Reimbursement for Capital Expenditures. At the Closing, the
reimbursement of expenditures under Section 4.10 of the Recapitalization
Agreement shall be paid to Maxtor.
SECTION 7
CONDITIONS PRECEDENT TO IMS DELAWARE'S OBLIGATION TO CLOSE
IMS Delaware's obligation to purchase the Shares, and to issue the IMS
Note and the Warrant and take the other actions required to be taken by IMS
Delaware at the Closing is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived by IMS
Delaware in whole or in part, in writing, and with the written consent of the
Investors):
7.1 Accuracy of Representations. The representations and warranties
made by Maxtor in this Agreement shall be accurate in all respects as of the
Closing Date as if made at the Closing Date except that to the extent any such
representation or warranty relates expressly to
-37-
<PAGE> 38
another date, such representation or warranty shall be accurate in all respects
as of such date, and the Recapitalization Agreement shall not have been
terminated pursuant to Section 4.4(b) thereof.
7.2 Performance of Obligations.
(a) The transactions contemplated by Section 2.3 hereof
shall have been consummated.
(b) Each of the documents referred to in Sections 2.4(b)(i),
2.4(b)(vi), 2.4(b)(ix), 2.4(b)(x) and 2.4(b)(xi) shall have been executed by
each of the parties thereto and delivered to IMS Delaware.
(c) All covenants, conditions and agreements contained in
this Agreement to be performed by Maxtor on or prior to the Closing, shall have
been duly complied with and performed in all respects.
7.3 Consents. Each of the Consents identified in Part 3.22 of the
Disclosure Schedule shall have been obtained and shall be in full force and
effect, except for such consents, the failure to obtain such consents would not
either individually or in the aggregate result in a Material Adverse Effect with
regard to the Company or any of the International IMS Entities.
7.4 No Material Adverse Change. There shall have been no Material
Adverse Change since the date of the Unaudited Balance Sheet, and, if the
Closing has not occurred prior to June 29, 1996, the results set forth in the
financial statements as of and for the period ended June 29, 1996, delivered
pursuant to Section 5.4(b) hereof shall not differ materially from the results
for such period set forth in the financial projections provided to the Investors
on or prior to the date hereof and attached as Schedule 7.4 to this Agreement.
7.5 Additional Documents. The Company shall have received the
following documents:
(a) An opinion letter from Gray Cary Ware & Freidenrich with
respect to matters relating to Maxtor and IMS Delaware, an opinion letter of
Stephenson Harwood & Co. as to matters relating to IMS Hong Kong and an opinion
letter of Ian Boxall & Co. as to matters relating to IMS Cayman, in
substantially the respective forms set forth as Exhibit F. With respect to an
opinion letter of Baker & McKenzie as to matters relating to IMS Thailand the
Company shall have received an opinion in a form reasonably acceptable to the
Company and the Investors.
(b) Such other documents as IMS Delaware may reasonably
request in good faith at least five (5) business days prior to the Closing Date
for the purpose of (i) evidencing the accuracy of any representation or warranty
made by Maxtor, (ii) evidencing the compliance by Maxtor with, or the
performance by Maxtor of, any covenant or obligation set forth in this
-38-
<PAGE> 39
Agreement, (iii) evidencing the satisfaction of any condition set forth in this
Section 7, or (iv) otherwise facilitating the consummation or performance of any
of the Transactions.
7.6 No Illegality. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Transactions shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending,
nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Transactions, which makes
the consummation of the Transactions illegal.
7.7 Financing. The Company shall have obtained commitments to
provide the debt and equity financings contemplated by the Transactional
Agreements, all Transactional Agreements and definitive agreements for such debt
financings reasonably satisfactory in form and substance to the Company and the
Investors shall have been entered into by all parties thereto, and all
conditions to such commitments and to the parties' obligations to close the
transactions contemplated thereby (including such financings) (other than the
closing of the transactions hereunder) shall have been satisfied or waived.
7.8 Termination of Existing Options, Warrants and Other Rights. Any
Option, warrant or other right to purchase the capital stock of any of IMS
Delaware, the Holding Companies or the International IMS Entities pursuant to
any IMS Plan or otherwise shall have been canceled, redeemed or otherwise
terminated on or prior to the Closing Date.
7.9 HEA Side Letter. The Company and the Investors shall have
received a letter from Hyundai Electronics America ("HEA") in substantially the
form previously supplied in draft form to the Investors indicating that it has
not elected and will not elect push-down accounting treatment with respect to
the acquisition of Maxtor by HEA.
7.10 Compensation of Employees. Prior to the Closing, Maxtor shall
have paid all accrued salary and bonus obligations to any and all employees,
officers and directors of the Company pursuant to any employment agreement,
arrangement or understanding.
7.11 Indemnification Agreements. Prior to the Closing, Maxtor and
each of the officers and directors of IMS Delaware, each of the Holding
Companies and each of the International IMS entities shall have entered into
indemnification agreements as contemplated by Section 5.7 hereof and in form and
substance satisfactory to the Investors.
-39-
<PAGE> 40
SECTION 8
CONDITIONS PRECEDENT TO MAXTOR'S OBLIGATION TO CLOSE
Maxtor's obligation to sell the Shares and to take the other actions
required to be taken by Maxtor at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Maxtor, in whole or in part, in writing):
8.1 Accuracy of Representations. All of the representations and
warranties made by the Company in this Agreement and by the Investors in the
Recapitalization Agreement shall have been accurate as of the date of this
Agreement and shall be accurate as of the Closing Date as if made at the Closing
Date.
8.2 Company's Performance.
(a) The Transactions contemplated by Section 2.3 hereof and
the Reorganization Actions shall have been consummated.
(b) IMS Delaware shall have paid $23.7 million to Maxtor
shall have caused IMS Hong Kong to repay the Hong Kong Note, and shall have
issued the IMS Delaware Note and the Maxtor Warrant to Maxtor.
(c) The certificate from IMS Delaware required under Section
2.4 hereof, the Stockholders Agreement, the Manufacturing Services Agreement and
the Transition Services Agreement shall have been executed by each of the
parties thereto and delivered to Maxtor.
(d) All of the other covenants, conditions and agreements
contained in this Agreement to be performed by the Company on or prior to the
Closing shall have been duly complied with and performed in all respects.
8.3 No Illegality. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Transactions shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Transactions, which makes
the consummation of the Transactions illegal.
8.4 Financing. The Company shall have obtained commitments to
provide the debt and equity financings contemplated by the Transactional
Agreements, all Transactional Agreements shall have been entered into by all
parties thereto, and all conditions to such commitments and to the parties'
obligated to close such agreements (other than the closing of the transactions
hereunder) shall have been satisfied or waived.
-40-
<PAGE> 41
8.5 Additional Documents. Maxtor shall have received the following:
(a) A certificate from the Investors to the effect that the
representations of the Investors in Section 3 of the Recapitalization Agreement
are accurate as of the Closing and that all covenants, agreements and conditions
contained in the Recapitalization Agreement to be performed by the Investors on
or prior to the Closing Date shall have been performed or complied with.
(b) The IMS Officer Certificate.
8.6 Key Employees Confidentiality Agreements. Key employees of the
Company and the International IMS entities shall have signed or reaffirmed
confidentiality agreements with Maxtor in consideration of Maxtor entering to
the Transactional Agreements.
8.7 Legal Opinion. Maxtor shall have received an opinion letter from
Wilson Sonsini Goodrich & Rosati, P.C. as to the valid and binding effect of the
IMS Guarantee in form and substance reasonably satisfactory to Maxtor.
SECTION 9
TERMINATION
9.1 Termination Events. This Agreement may be terminated prior to
the Closing:
(a) By the Company or Maxtor, if the Recapitalization
Agreement shall have been terminated;
(b) By the Company if the Closing has not taken place on or
before August 15, 1996 (other than as a result of any failure on the part of the
Company to comply with or perform any covenant or obligation under this
Agreement);
(c) By Maxtor if the Closing has not taken place on or
before August 15, 1996 (other than as a result of any failure on the part of
Maxtor to comply with or perform any covenant or obligation set forth in this
Agreement); or
(d) By the Company, in the event that the Company and the
Investors have not accepted any update to the Disclosing Schedule delivered by
Maxtor pursuant to Section 5.3 hereof, or Maxtor, the Company and the Investors
have not reached a resolution as to Environmental Matters as contemplated by
Section 4.11 of the Recapitalization Agreement.
9.2 Termination Procedures. If the Company wishes to terminate this
Agreement, the Company shall deliver to Maxtor a written notice stating that the
Company is terminating this
-41-
<PAGE> 42
Agreement and setting forth a brief description of the basis on which the
Purchaser is terminating this Agreement. If Maxtor wishes to terminate this
Agreement, Maxtor shall deliver to the Company a written notice stating that
Maxtor is terminating this Agreement and setting forth a brief description of
the basis on which Maxtor is terminating this Agreement.
9.3 Effect Of Termination. If this Agreement is terminated pursuant
to Section 9.1, all further obligations of the parties under this Agreement
shall terminate and, subject to the proviso of this sentence, neither Maxtor, on
the one hand, nor the Company and the other Indemnitees, on the other, shall
have any obligations to the other for any Damages in connection with or arising
out of this Agreement; provided, however, that: (a) no party shall be relieved
of any obligation or other Liability arising from any Breach by such party of
any provision of this Agreement; and (b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Section 12.3.
SECTION 10
SURVIVAL OF REPRESENTATIONS AND COVENANTS
10.1 Survival Of Representations And Covenants.
(a) The representations, warranties, covenants and
obligations of each party to this Agreement shall survive (without limitation):
(i) the Closing and the sale of the Shares to the Company; (ii) any sale or
other disposition of any or all of the Shares by the Company; and (iii) the sale
or dissolution of any party to this Agreement, and (except for those set forth
in Sections 2.1, 3.1, 3.3, 3.14, 3.17, 3.21 and 5.7) shall expire on the second
anniversary of the Closing Date. Those representations and warranties set forth
in Sections 3.14 and 3.17 shall survive until 30 days after the expiration of
the applicable statute of limitations period, and the representations,
warranties, covenants and obligations set forth in Sections 2.1, 3.1, 3.3, 3.21
and 5.7 shall survive for an unlimited period of time. No party shall be
entitled to any remedy resulting from the Breach of a representation, warranty,
covenant or obligation of the other party unless the Breaching party has
received during the applicable survival period a Claim Notice (as defined in the
Recapitalization Agreement). Notwithstanding the foregoing, if a Claim Notice
relating to any representation, warranty, covenant or obligation is given to
Maxtor on or prior to the second anniversary of the Closing Date (or such longer
survival period as applicable), then, notwithstanding anything to the contrary
contained in this Section 10.1(a), such representation or warranty shall not so
expire, but rather shall remain in full force and effect solely with respect to
such claim until such time as each and every claim specifically set forth in
such Claim Notice has been fully and finally resolved, either by means of a
written settlement agreement executed on behalf of Maxtor and the Company or by
means of a final, non-appealable judgment issued by a court of competent
jurisdiction.
(b) For purposes of this Agreement, each statement or other
item of infor-
-42-
<PAGE> 43
mation set forth in the Disclosure Schedule or in any update to the Disclosure
Schedule shall be deemed to be a representation and warranty made by Maxtor in
this Agreement.
SECTION 11
CERTAIN POST-CLOSING COVENANTS
11.1 Publicity. Maxtor and the Company shall ensure that, on and at
all times after the date hereof, neither the Company nor Maxtor will furnish any
communication to the public generally if the subject matter thereof describes
any substantive provision of the Transactions without the prior approval of the
other of them as to the content thereof, which approval shall not be
unreasonably withheld; provided that the foregoing shall not be deemed to
prohibit any disclosure required by any applicable law, the rules and
regulations of any securities exchange or automated quotation system on which
such party is listed or traded or by any competent Governmental Body.
11.2 Tax Indemnification and Returns.
(a) Maxtor shall be responsible for and shall pay or cause
to be paid (i) any and all Taxes (other than IMS' Taxes, as defined below) with
respect to or relating to the Company, whensoever arising, including any
transferee or secondary liability for Taxes, that are attributable to any
taxable period ending on or prior to the Closing Date and, in the case of a
taxable period that includes, but does not end on the Closing Date, the portion
of such taxable period that ends on the Closing Date, (ii) any and all Taxes of
Maxtor and its affiliates, whensoever arising, including any transferee or
secondary liability for Taxes, (x) for which the Company is or would be liable
or responsible as a result of having been (or ceasing to be) a member of any
affiliated, consolidated, combined or unitary group which included Maxtor and
its affiliates or (y) attributable to the transactions contemplated by this
Agreement, and (iii) any and all Taxes arising out of a breach of any
representation or warranty contained in Section 3.14 hereof ("Maxtor's Taxes");
provided, however, that, with respect to Taxes for any period described in (i)
above, Maxtor shall be responsible for and shall pay such Taxes only to the
extent that they exceed $1,145,245 (the "Current Income Taxes Payable"). For
purposes of this Section 11.2(a), Maxtor will not be liable to the Company as a
result of the eventual reversal of the deferred tax liability of $299,016
accrued on the Company's Unaudited Balance Sheet, which equals the difference
between the Company's total income tax liability on the Unaudited Balance Sheet
and the Current Income Taxes Payable.
(b) The Company shall be responsible for and shall timely
pay or cause to be paid (i) any and all Taxes (other than Maxtor's Taxes) with
respect to the Company, whensoever arising, including any transferee or
secondary liability for Taxes, that are attributable to any taxable period
commencing after the Closing Date and, in the case of a taxable period that
includes, but does not end on, the Effective Time, the portion of such taxable
period that begins
-43-
<PAGE> 44
on the day after the Closing Date, (other than any liability for the Taxes of
Maxtor and its affiliates (other than the Company) which arises pursuant to
Treas. Reg. Section 1.1502-6 or a corresponding provision of state, local, or
foreign law) and (ii) Taxes of the Company for which Maxtor is otherwise
responsible (because such Taxes are attributable to taxable periods ending on or
prior to the Closing Date), where such Taxes arise as a result of actions taken
by the Company after the Closing, and relate to the loss, in whole or in part,
of a Tax exemption, Tax holiday, or other Tax-sparing arrangement ("IMS'
Taxes").
(c) If the Company files any Tax Return which includes
payment of Maxtor's Taxes, Maxtor shall promptly reimburse the Company for such
Maxtor's Taxes when such Return is filed. If Maxtor files any Return which
includes payments of IMS' Taxes, the Company shall promptly reimburse Maxtor for
such IMS' Taxes when such Return is filed. Maxtor shall timely provide to the
Company all information and documents within the possession of Maxtor (or its
auditors, advisors or affiliates) and signatures and consents necessary for the
Company to properly prepare and file the Returns described in the second
preceding sentence or in connection with the determination of any Tax liability
or any audit, examination or proceeding. The Company shall timely provide to
Maxtor all information and documents within its possession or the possession of
its auditors, advisors or affiliates and signatures and consents necessary for
Maxtor to properly prepare and file the Returns described in the second
preceding sentence or in connection with the determination of any Tax liability
or any audit, examination or proceeding. Each party hereto shall reasonably
cooperate with the other (at their own expense) party to obtain other
information or documents necessary or appropriate to prepare and file Returns or
elections or necessary or appropriate in connection with the determination of
any Tax liability or any audit, examination or proceeding. Any amount payable
pursuant to this Section 11.2 shall not be payable unless and until the party
requesting payment has made available all information reasonably necessary to
verify the amount of the requested payment. The party responsible for the
payment of Taxes under the indemnity provisions of this Agreement shall have
ultimate control, in an audit, with respect to decisions related to items for
which it is responsible.
(d) For all United States Federal income tax purposes, and,
to the extent not prohibited by applicable law, for purposes of United States
state and local income tax laws, Maxtor shall include the Closing Date in their
holding period for the non-U.S. subsidiaries of the Company.
11.3 Agreement Not to Compete.
(a) Maxtor understands that the Company shall be entitled to
protect and preserve the going concern value of the Business to the extent
permitted by law and that IMS Delaware would not have entered into this
Agreement absent the provisions of this Section 11.3 and, therefore, Maxtor
agrees that Maxtor will not (except for activities contemplated by the
Manufacturing Services Agreement) (i) prior to the third anniversary of the
Closing Date, directly or indirectly engage in any business competing with the
Business, and (ii) at any time communicate or divulge any secret or confidential
information, knowledge or data related to the
-44-
<PAGE> 45
Business to any Person other than the Company, all of which it agrees to hold in
confidence and protect as it protects its own confidential information for the
benefit of the Company; provided that nothing contained in this Agreement shall
in any way restrict or impair Maxtor's right to use, disclose or otherwise deal
with information which at the time of disclosure is generally available to the
public through no act of Maxtor. For purposes of this Section 11.3, the phrase
"directly or indirectly engage in" shall include having a direct or indirect
ownership interest (other than ownership of less than 5% of the outstanding
voting securities of a Person) in any Person which is primarily engaged in a
business competing with the Business and shall not include any pre-existing or
current activities by Hyundai Electronics Industries ("HEI") or its subsidiaries
other than activities conducted by Maxtor and its subsidiaries.
(b) Notwithstanding any other provision of this Agreement,
it is understood and agreed that the remedy of indemnity payments pursuant to
Section 10 hereof and other remedies at law would be inadequate in the case of
any Breach of the covenants contained in Section 11.3(a) and Maxtor agrees that
the Company shall be entitled to equitable relief, including the remedy of
specific performance, with respect to any breach or attempted breach of such
covenants.
11.4 Waiver of Defense. IMS Delaware hereby agrees that neither it
nor any of the Holding Companies or the International IMS Entities will assert
as a defense to the enforcement by Maxtor of any Transactional Agreement (i) the
failure of any such entity to have the absolute and unrestricted right, power
and authority to enter into and to perform its obligations under each such
agreement, or (ii) the failure of each such agreement to be executed and
delivered by such entity to have been duly authorized by all necessary action on
the part of such entity and its board of directors.
SECTION 12
MISCELLANEOUS PROVISIONS
12.1 Obligations of Maxtor. The obligations and liability of Maxtor
under this Agreement and the other Transactional Agreements shall not be limited
in any way by:
(a) The dissolution or insolvency of, or the appointment of
any receiver, conservator or liquidator for, or the commencement of any
bankruptcy, reorganization, moratorium, arrangement or other proceeding by,
against or with respect to, the Company or Maxtor;
(b) Any merger of the Company with or into any other Entity;
or
(c) Any right or claim, including with respect to
indemnification, that Maxtor may have under the Recapitalization Agreement or
the Stockholders Agreement.
-45-
<PAGE> 46
12.2 Further Assurances. Each party hereto shall execute and/or cause
to be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the Transactions.
12.3 Fees And Expenses.
(a) Maxtor shall bear and pay (i) all fees, costs and
expenses that have been incurred or that are in the future incurred by, on
behalf of or for the benefit of Maxtor in connection with the Transactional
Agreements and the Transactions and (ii) all legal fees, costs and expenses
payable to Gray Cary Ware & Freidenrich and, Stephenson Harwood & Co., Baker &
McKenzie and Ian Boxall & Co. in connection with the Transactional Agreements
and the Transactions. The Company shall indemnify and hold Maxtor harmless from
any brokerage commissions, finders fee or similar commission or fees incurred by
the Company or its management in connection with any of the Transactions.
(b) If the Closing occurs, the Company shall bear and pay
all fees, costs and expenses that have been incurred or that are in the future
incurred by, on behalf of or for the benefit of the Company, the Company's
management or the Investors in connection with the Transactional Agreements and
the Transactions (including all fees, costs and expenses payable to the
environmental consultant engaged in connection with the Transactions, Price
Waterhouse LLP, Chemical Bank, Chemical Securities Asia Limited, Cravath, Swaine
& Moore, Wilson Sonsini Goodrich & Rosati, P.C., Kirkland & Ellis, Johnson
Stokes & Master, Chandler & Thong-Ek and Maples & Calder).
(c) If the Closing does not occur (i) because of a decision
by Maxtor not to consummate the Transactions or because of any other material
breach of the Transactional Agreements by Maxtor or the Company, then Maxtor
shall bear and pay only fees, costs and expenses in connection with the
Transactional Agreements and the Transactions payable to Chemical Bank, Chemical
Securities Asia Limited, Cravath, Swaine & Moore, Wilson Sonsini Goodrich &
Rosati, P.C., any environmental consultant engaged in connection with the
Transactions and Price Waterhouse LLP, provided that the fees of Price
Waterhouse LLP payable by Maxtor pursuant to this Section 12.3(c) shall not
exceed $100,000 and the fees, costs and expenses payable to Wilson Sonsini
Goodrich & Rosati, P.C., payable pursuant to this Section 12.3(c) shall be only
agreed upon reasonable fees, costs and expenses and shall not exceed $175,000,
and the Investors shall pay fees, costs and expenses of foreign counsel acting
on behalf of the Company and the Investors and the fees, costs and expenses of
Kirkland & Ellis; (ii) because of a decision by the Investors not to consummate
the Transactions not due to a material breach of the Transactional Agreements by
Maxtor or the Company or because of any other material breach of the
Transactional Agreements by the Investors, then the Investors shall bear and pay
only fees, costs and expenses in connection with the Transactional Agreements
and the Transactions payable to Chemical Bank, Chemical Securities Asia Limited,
Cravath, Swaine & Moore, Wilson Sonsini Goodrich & Rosati, P.C., any
environmental consultant engaged in connection with the Transactions (and the
Investors exclusively shall be entitled to own and to
-46-
<PAGE> 47
use the work product of any such consultant) and Price Waterhouse LLP; or (iii)
for any reason other than as set forth in (i) or (ii) above, the Investors shall
bear and pay only fees, costs and expenses in connection with the Transactional
Agreements and the Transactions payable to Chemical Bank, Chemical Securities
Asia Limited, Cravath, Swaine & Moore, foreign counsel acting on behalf of the
Company and the Investors and Price Waterhouse LLP, and Maxtor shall pay only
fees, costs and expenses in connection with the Transactional Agreements and the
Transactions payable to Wilson Sonsini Goodrich & Rosati, P.C., and any
environmental consultant engaged in connection with the Transactions, provided
that the fees, costs and expenses payable to Wilson Sonsini Goodrich & Rosati,
P.C. payable pursuant to this section shall only be agreed upon reasonable fees,
costs and expenses and shall not exceed $175,000, and provided in all events
that Maxtor shall pay the fees, costs and expenses of Gray Cary Ware &
Freidenrich and foreign counsel acting on behalf of Maxtor.
12.4 Attorneys' Fees. If any legal action or other legal proceeding
relating to this Agreement or the enforcement of any provision of this Agreement
is brought against any party to this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
12.5 Notices. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
If to Maxtor, to: Maxtor Corporation
2190 Miller Drive
Longmont, Colorado 80501
Telecopier: 303-678-3111
Attention: Glenn H. Stevens, Esq.
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Telecopier: 415-327-3699
Attention: Diane Holt Frankle, Esq.
If to the Company, to: International Manufacturing Services, Inc.
211 River Oaks Parkway
San Jose, California 95134
Telecopier: 408-432-4337
Attention: Robert G. Behlman
-47-
<PAGE> 48
with copies to: Prudential Private Equity Investors III, L.P.
717 Fifth Avenue, 11th Floor
New York, New York 10022
Telecopier: 212-826-6798
Attention: Mark Rossi
John A. Downer
Oak Investment Partners
525 University Avenue, Suite 1300
Palo Alto, California 94301
Telecopier: 415-328-6345
Attention: Fredric W. Harman
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telecopier: 415- 493-6811
Attention: Jeffrey D. Saper, Esq.
Kirkland & Ellis
Citicorp Center
153 East 53rd Street, 39th Floor
New York, New York 10022-4675
Telecopier: 212-446-4900
Attention: Frederick Tanne, Esq.
12.6 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
12.7 Governing Law.
(a) This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
(b) The parties hereby consent to the jurisdiction of the
courts of the State of California and the federal courts of the Northern
District of California for all disputes arising under this Agreement.
(c) Nothing in this Section 12.7 shall be deemed to limit or
otherwise affect the right of any Indemnitee to commence any legal proceeding or
otherwise against Maxtor in any forum or jurisdiction.
-48-
<PAGE> 49
12.8 Successors And Assigns; Parties In Interest.
(a) This Agreement shall be binding upon the Company and its
successors and assigns (if any), and Maxtor and its successors and assigns (if
any). This Agreement shall inure to the benefit of the Company, Maxtor, the
other Indemnitees, and the respective successors and assigns (if any) of the
foregoing.
(b) Except for an assignment of rights for the benefit of
any creditor of the Company, neither Maxtor nor the Company shall be permitted
to assign any of its rights or delegate any of its obligations under this
Agreement.
(c) Except for the provisions of Sections 5.1, 10, 12.1,
12.3 and 12.8 hereof, none of the provisions of this Agreement is intended to
provide any rights or remedies to any Person other than the parties to this
Agreement and their respective successors and permitted assigns, if any.
12.9 Remedies Cumulative; Specific Performance. The rights and
remedies of the parties hereto shall be cumulative and not alternative. Maxtor
and the Company agree that:
(a) In the event of any Breach or threatened Breach either
party of any covenant, obligation or other provision set forth in this
Agreement, the other party shall be entitled (in addition to any other remedy
that may be available to it) to (i) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and/or (ii) an injunction restraining such Breach or
threatened Breach; and
(b) No Party shall be required to provide any bond or other
security in connection with any such decree, order or injunction or in
connection with any related action or Proceeding.
12.10 Severability. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof or default in the performance hereof shall not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
12.11 Amendments. This Agreement may not be amended, modified, altered
or supplemented, and no provision of this Agreement may be waived, other than
by means of a written instrument duly executed and delivered on behalf of Maxtor
and IMS Delaware, which instrument shall be satisfactory in form and substance
to, and consented to in writing by, the Investors.
-49-
<PAGE> 50
12.12 Waiver. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances, other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
12.13 Entire Agreement. The Transactional Agreements set forth the
entire under standing of the parties relating to the subject matter thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter thereof.
12.14 Construction. The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement. As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation." Except
as otherwise indicated, all references in this Agreement to "Sections" and
"Exhibits" are intended to refer to Sections of this Agreement and Exhibits to
this Agreement.
-50-
<PAGE> 51
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed and delivered as of ____________, 1996.
INTERNATIONAL MANUFACTURING
SERVICES, INC.
a Delaware corporation
By:______________________________________
Robert G. Behlman
Its: President
MAXTOR CORPORATION
a Delaware Corporation
By:______________________________________
_____________________________________
Its:_____________________________________
<PAGE> 52
- --------------------------------------------------------------------------------
REDEMPTION AGREEMENT
between
INTERNATIONAL MANUFACTURING SERVICES, INC.,
a Delaware corporation;
and
MAXTOR CORPORATION,
a Delaware corporation
------------------------
Dated as of May 16, 1996
------------------------
- --------------------------------------------------------------------------------
<PAGE> 53
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 - DEFINITIONS......................................................................2
1.1 Definitions...................................................................2
1.2 Interpretations..............................................................12
SECTION 2 - REDEMPTION AND RELATED TRANSACTIONS.............................................12
2.1 Purchase of Shares...........................................................12
2.2 Purchase Price...............................................................12
2.3 Ownership of the Holding Companies and the International IMS Entities........12
2.4 Closing......................................................................13
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MAXTOR.......................................14
3.1 Due Organization; Subsidiaries; Etc..........................................15
3.2 Certificate of Incorporation and Bylaws; Records.............................15
3.3 Capitalization...............................................................16
3.4 Financial Statements.........................................................16
3.5 Absence Of Changes...........................................................16
3.6 Title to Assets..............................................................18
3.7 Equipment, Etc...............................................................19
3.8 Real Property................................................................19
3.9 Proprietary Assets...........................................................19
3.10 Contracts....................................................................21
3.11 Liabilities..................................................................22
3.12 Compliance With Legal Requirements...........................................22
3.13 Governmental Authorizations..................................................23
3.14 Tax Matters..................................................................23
3.15 Employee And Labor Matters...................................................25
3.16 Benefit Plans; ERISA.........................................................26
3.17 Environment, Health and Safety...............................................27
3.18 Insurance....................................................................29
3.19 Related Party Transactions...................................................30
3.20 Proceedings; Orders..........................................................30
3.21 Authority; Binding Nature of Agreements......................................31
3.22 Non-Contravention; Consents..................................................31
3.23 Notes and Accounts Receivable................................................32
3.24 Inventory....................................................................32
3.25 Product Warranty.............................................................33
3.26 Product Liability............................................................33
3.27 Brokers......................................................................33
3.28 Manufacturing Services Agreement.............................................33
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF IMS DELAWARE..................................33
4.1 Brokers......................................................................34
</TABLE>
-i-
<PAGE> 54
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 5 - CLOSING COVENANTS OF MAXTOR.....................................................34
5.1 Access And Investigation.....................................................34
5.2 Filings And Consents.........................................................34
5.3 Notification; Updates To Disclosure Schedule.................................34
5.4 Audited March 30 Financial Statements........................................35
5.5 Reasonable Commercial Efforts................................................36
5.6 Maintenance of Records.......................................................36
5.7 Indemnification Agreements...................................................36
SECTION 6 - COVENANTS OF IMS DELAWARE.......................................................36
6.1 Reasonable Commercial Efforts................................................36
6.2 Filings and Consents.........................................................37
6.3 Notification.................................................................37
6.4 Maintenance of Records.......................................................37
6.5 Release from Guarantees......................................................37
6.6 Reimbursement for Capital Expenditures.......................................37
SECTION 7 - CONDITIONS PRECEDENT TO IMS DELAWARE'S OBLIGATION TO CLOSE......................37
7.1 Accuracy of Representations..................................................37
7.2 Performance of Obligations...................................................38
7.3 Consents.....................................................................38
7.4 No Material Adverse Change...................................................38
7.5 Additional Documents.........................................................38
7.6 No Illegality................................................................39
7.7 Financing. .................................................................39
7.8 Termination of Existing Options, Warrants and Other Rights. ................39
7.9 HEA Side Letter..............................................................39
7.10 Compensation of Employees....................................................39
7.11 Indemnification Agreements...................................................39
SECTION 8 - CONDITIONS PRECEDENT TO MAXTOR'S OBLIGATION TO CLOSE............................40
8.1 Accuracy of Representations..................................................40
8.2 Company's Performance........................................................40
8.3 No Illegality................................................................40
8.4 Financing....................................................................40
8.5 Additional Documents.........................................................41
8.6 Key Employees Confidentiality Agreements.....................................41
8.7 Legal Opinion................................................................41
SECTION 9 - TERMINATION.....................................................................41
9.1 Termination Events...........................................................41
</TABLE>
-ii-
<PAGE> 55
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
9.2 Termination Procedures.......................................................41
9.3 Effect Of Termination........................................................42
SECTION 10 - SURVIVAL OF REPRESENTATIONS AND COVENANTS......................................42
10.1 Survival Of Representations And Covenants....................................42
SECTION 11 - CERTAIN POST-CLOSING COVENANTS.................................................43
11.1 Publicity....................................................................43
11.2 Tax Indemnification and Returns..............................................43
11.3 Agreement Not to Compete.....................................................44
11.4 Waiver of Defense............................................................45
SECTION 12 - MISCELLANEOUS PROVISIONS.......................................................45
12.1 Obligations of Maxtor........................................................45
12.2 Further Assurances...........................................................46
12.3 Fees And Expenses............................................................46
12.4 Attorneys' Fees..............................................................47
12.5 Notices......................................................................47
12.6 Counterparts.................................................................48
12.7 Governing Law................................................................48
12.8 Successors And Assigns; Parties In Interest..................................49
12.9 Remedies Cumulative; Specific Performance....................................49
12.10 Severability.................................................................49
12.11 Amendments...................................................................49
12.12 Waiver.......................................................................50
12.13 Entire Agreement.............................................................50
12.14 Construction.................................................................50
</TABLE>
-iii-
<PAGE> 56
EXHIBITS
Exhibit A: Form of Maxtor Warrant
Exhibit B: Terms of Maxtor Notes and Terms of IMS Guarantee
Exhibit C: Form of IMS Officer Certificate
Exhibit D: Form of Manufacturing Services Agreement
Exhibit E: Form of Transition Services Agreement
Exhibit F: Forms of Opinion Letters from Gray Cary Ware & Freidenrich and
Foreign Counsel
-iv-
<PAGE> 57
INTERNATIONAL MANUFACTURING SERVICES INC.
TERMS OF GUARANTY TO MAXTOR CORPORATION
Guarantor: International Manufacturing Services, Inc., a Delaware
corporation ("IMS") and each of its current and future
subsidiaries (individually and collectively "Delaware Corp.")
Obligations
Guaranteed: Long Term Notes (the "Guaranteed Obligations") issued to
Maxtor Corporation ("Maxtor") by Delaware Corp.'s Hong Kong
and Thailand subsidiaries (the "Borrowers") in aggregate
principal amount of Twenty Million Dollars.
Nature of
Guaranty: Guaranty of payment (i.e., Maxtor can request payment under
the Guaranty without first seeking payment from the
Borrowers).
Time of
Issuance: Concurrent with the issuance of the Borrowers' Notes.
Term: Guaranty to remain in effect until the Guaranteed Obligations
are satisfied in cash. Delaware Corp. may not terminate the
Guaranty for any reason.
Security: No assets (except the Subordinated Notes (as defined below),
on the terms set forth herein) are pledged (or will at any
time be pledged) to secure the Guaranteed Obligations.
Priority of
Guaranty: H. Subordinated to (i) the bank group (the "Bank Group")
credit facility obligations and any modifications or
increases thereto or refinancings or replacements
thereof up to an aggregate amount not to exceed
$50,000,000 (the "Bank Facility"), and (ii) any other
indebtedness (other than trade payables) or
contingent obligations of Delaware Corp. that are
specified as "Senior Indebtedness," provided that the
aggregate amount of indebtedness and contingent
obligations referred to in clause (i) shall not
exceed $50,000,000, and provided further, that the
indebtedness and contingent obligations referred to
in clause (ii) shall not constitute Senior
Indebtedness to the extent including the same would
cause the aggregate principal amount plus commitments
outstanding under Senior Indebtedness, including the
Bank Facility, to exceed $50,000,000. Such other
Senior Indebtedness shall not contain any limitations
on the repayment of the Guaranteed Obligations that
<PAGE> 58
are more restrictive than those provided for in the
Bank Facility, but may contain limitations on the
ability of the holders thereof to exercise the rights
given to holders of Senior Indebtedness under the
subordination provisions of the Guaranty and the
Guaranteed Obligations.
I. Senior to the 12% Subordinated Notes (the
"Subordinated Notes") made payable to Prudential
Equity Partners and Oak Investment Partners
(collectively, "Investors").
Terms of
Subordination
to Bank Facility: A. No payment may be made with respect to the Guaranteed
Obligations during the existence of a payment default
under Senior Indebtedness, or a non-payment default
under the Bank Facility, or a non-payment default
under Senior Indebtedness other than the Bank
Facility, if the aggregate amount of such Senior
Indebtedness equals or exceeds $5,000,000. So long as
any amounts are outstanding or any commitments to
advance funds exist in respect of the Bank Facility,
only scheduled interest payments and permitted
principal payments (whether expressly permitted by
the terms of the Bank Facility or by consent of the
holders thereof) may be made with respect to the
Guaranteed Obligations.
B. If Delaware Corp. or any Borrower under the Bank
Facility is dissolved or in bankruptcy, no payments
may be made with respect to the Guaranteed
Obligations until the Senior Indebtedness obligations
are satisfied in cash (or the Event of Default caused
by such dissolution or bankruptcy is waived or cured
to the satisfaction of the holders of the Bank
Facility or, if the Bank Facility is not then in
effect, the holders of the other Senior
Indebtedness). If, as of the date of dissolution or
bankruptcy, the agent under the Bank Facility has not
made any demand for payment by Delaware Corp. under
its obligations in respect of the Bank Facility, then
payments to Maxtor under the Note shall be held by
the agent under the Bank Facility as collateral for
the obligations thereunder. The agent and the Bank
Group shall have no liability to Maxtor with respect
to the handling of such collateral, except such
losses arising from their gross negligence or willful
misconduct.
C. Maxtor may not enforce any rights and remedies with
respect to the Guaranty or the Guaranteed Obligations
while the Senior Indebtedness remains outstanding.
Maxtor shall enforce its rights and remedies with
respect to the Guaranty and the Guaranteed
Obligations at the direction of the agent for the
Bank Facility during the continuance of any Event of
Default until the obligations under the Bank Facility
are
-vi-
<PAGE> 59
satisfied in cash (provided that the Bank Group shall
indemnify Maxtor for liabilities resulting from
actions taken by Maxtor at the direction of the agent
for the Bank Facility) .
D. The agent for the Bank Facility shall have the right
to submit claims on Maxtor's behalf in a bankruptcy
proceeding, and shall have the right to vote its
claims in such proceeding.
E. Any payments received in respect of the Guaranteed
Obligations in contravention hereof (or pursuant to
enforcement actions taken at the direction of the
agent for the Bank Facility) shall be paid over to
the agent for the Bank Facility (or, after all
obligations under the Bank Facility are satisfied in
cash, the holders of the Senior Indebtedness, as
their interests may appear, if so provided in the
definitive documentation for the Guaranty and the
Notes) and applied to all obligations thereunder
until such obligations are satisfied in cash.
F. If any Default or Event of Default occurs or if
payment is due under the Senior Indebtedness (e.g.
upon an initial public offering), then the
obligations under the Senior Indebtedness that are
then due and payable shall be paid in cash before any
payment is made in respect of the Guaranteed
Obligations.
G. Maxtor shall waive any right to bring, or to cause
any other party to bring, any fraudulent conveyance
or similar action with respect to the guaranty made
by Delaware Corp. under the Senior Indebtedness.
H. The subordination of the Guaranteed Obligations to
the obligations of Delaware Corp. in respect of the
Senior Indebtedness shall remain effective in the
event that such obligations of Delaware Corp. are
equitably subordinated for any reason in a bankruptcy
proceeding. Thus, any payments that Maxtor receives
in the proceeding, including distributions with
respect to Delaware Corp.'s obligations in respect of
the Senior Indebtedness (or in respect of the
Subordinated Notes), shall be turned over to the
agent for the Bank Facility (or, after all
obligations under the Bank Facility are satisfied in
cash, the holders of the Senior Indebtedness, as
their interests may appear, if so provided in the
definitive documentation for the Guaranty and the
Notes), for application to the obligations
thereunder.
Terms of
Notes
Subordination: A. Only scheduled payments may be made with respect to
the Subordinated Notes; however, during continuance
of Event of Default no payments may be made until the
Event of Default is cured or waived.
-vii-
<PAGE> 60
B. If Delaware Corp. or any Borrower under the
Guaranteed Obligations is dissolved or in bankruptcy,
no payments may be made with respect to the
Subordinated Notes until the Guaranteed Obligations
are satisfied in cash (or the Event of Default caused
by such dissolution or bankruptcy is waived or cured
to the satisfaction of Maxtor). If Maxtor, as of the
date of dissolution or bankruptcy, has not made any
demand for payment under the Guaranty, the
Subordinated Notes payments shall be held by Maxtor
as collateral for the Guaranteed Obligations (except
to the extent being held as collateral for the Bank
Facility). Maxtor shall not have any liability to the
Subordinated Notes holders (the "Subordinated
Noteholders") with respect to the handling of such
collateral, except for losses arising from gross
negligence or willful misconduct.
C. If an Event of Default (as defined below) occurs or
if payment is due under the Guaranteed Obligations
(e.g., upon an initial public offering), then the
Guaranteed Obligations due and payable shall be paid
in cash before any Subordinated Notes payment is
made.
D. The Subordinated Noteholders may not enforce any
rights and remedies with respect to the Subordinated
Notes while the Guaranty is outstanding (except as
directed or undertaken by the agent for the Bank
Facility, provided that the Bank Group shall
indemnify Subordinated Noteholders for any
liabilities resulting from actions taken by the
Subordinated Noteholders at the direction of the
agent for the Bank Group).
E. The Subordinated Noteholders shall waive any right to
bring, or to cause any other party to bring, any
fraudulent conveyance or similar action with respect
to the Guaranty.
F. The subordination of the Subordinated Notes to the
Guaranty shall remain effective in the event that the
Guaranty is equitably subordinated for any reason in
a bankruptcy proceeding. Thus, any payments that the
Subordinated Noteholders receive in the proceeding,
including distributions with respect to the
Guaranteed Obligations, shall, after the obligations
under the Bank Facility are satisfied in cash, be
turned over to Maxtor for application to the
Guaranteed Obligations.
G. Subject to the rights of the agent for the Bank
Facility, Maxtor shall have to right to submit claims
on the Subordinated Noteholders' behalf in a
bankruptcy proceeding, if they are not acting in a
timely manner, and shall have the right to vote their
claims in such proceeding.
Covenants: Guaranty to contain the following covenants and such other
covenants as may
-viii-
<PAGE> 61
be mutually agreed upon:
A. IMS shall not declare or pay any shareholder
distribution or repurchase any of its securities
except to the extent permitted under the Bank
Facility and except for employee stock repurchases;
B. Delaware Corp. shall not grant any security interests
in its assets to secure indebtedness for borrowed
money, except for liens existing at closing, and
liens in connection with the Bank Facility and other
Senior Indebtedness;
C. Delaware Corp. shall not engage in any business other
than the businesses conducted by IMS or any of its
subsidiaries on the closing date and other businesses
related or incidental thereto;
D. Delaware Corp. shall deliver periodic financial
information to Maxtor; and
E. At reasonable times and upon reasonable notice,
Delaware Corp. shall permit Maxtor to inspect its
properties.
Waivers: Guaranty to contain standard guarantor waivers of defenses to
enforcement.
Events of
Default: As defined in the Guaranteed Obligations (Guaranteed
Obligations' definitions to include specific Events of Default
relating to the Guaranty and Delaware Corp.). Specific Events
of Default relating to Delaware Corp.:
A. Dissolution or winding up of IMS;
B. Bankruptcy or similar proceeding initiated by or
against IMS;
C. Payment default under Senior Indebtedness;
non-payment default under the Bank Facility; and
non-payment default under Senior Indebtedness other
than the Bank Facility if the aggregate amount of
such Senior Indebtedness equals or exceeds
$5,000,000. (Upon the waiver or cure any such default
under Senior Indebtedness, the cross-default caused
under the Guaranty shall be automatically waived);
and
D. Event of Default under the Subordinated Notes (upon
the waiver or cure any Event of Default under the
Subordinated Notes, the cross-default caused under
the Guaranty shall be automatically waived).
Assignments: No assignments are permitted, except that Maxtor may assign to
Hyundai Electronics America ("Hyundai") or any of its
affiliates (provided that Hyundai shall own at least 51% of
the economic interests and at least 51% of
-ix-
<PAGE> 62
the voting interests of such affiliate, and such affiliate
shall not have been created in anticipation of such
assignment); and provided that the Guaranty and the Guaranteed
Obligations must be assigned concurrently, and the assignment
documents must provide that if the assignee of the Guaranty
and the Guaranteed Obligations ceases to be an affiliate of
Hyundai, then either such assignment will automatically be
rescinded, or the Guaranty and the Guaranteed Obligations must
be assigned to another affiliate of Hyundai.
Offsets: Delaware Corp. may (with the prior written consent of the
agent under the Bank Facility) offset amounts due under the
Guaranty against amounts due from Maxtor to Delaware Corp. in
respect of Maxtor's indemnification obligations under the
Recapitalization Agreement, Redemption Agreement and other
agreements involving Delaware Corp., Maxtor and the other
parties thereto. In addition, Delaware Corp. may (with the
prior written consent of the agent under the Bank Facility)
offset amounts under the Guaranty against amounts due from
Maxtor to Investors in respect of Maxtor's indemnification
obligations under such agreements, but only to the extent such
indemnification rights have been assigned by Investors to
Delaware Corp. Amounts shall not be deemed to be "due" from
Maxtor in respect of its indemnification obligations until
such time as any applicable dispute resolution procedures set
forth in the relevant agreement have been satisfied.
Governing
Law: California, except that the subordination provisions shall be
governed by New York law.
-x-
<PAGE> 63
INTERNATIONAL MANUFACTURING SERVICES INC. HONG KONG
TERMS OF LONG TERM NOTE TO MAXTOR CORPORATION
Issuer: IMS Hong Kong ("Hong Kong").
Consideration: Issued as payment for stock redeemed.
Amount: Sixteen Million Three Hundred Thousand Dollars.
Interest: Interest shall accrue at the rate of seven and forty-three one
hundredths percent (7.43%) per annum (computed on the basis of
a 360-day year and the actual number of days elapsed in any
year) on the unpaid principal amount outstanding; provided,
however, that on the first anniversary date of the Note,
interest shall automatically adjust to, and be calculated in
accordance with the formula for, the Bank Facility Interest
Rate (as defined below) in effect on the first anniversary
date of the Note plus forty-three one hundredths percent
(0.43%); provided that in no event shall the rate of interest,
as so adjusted, exceed the rate equal to the Bank Facility
Interest Rate in effect on the closing date plus one and
forty-three one hundredths percent (1.43%). As used herein,
"Bank Facility Interest Rate" means, as of any date of
determination, the fixed rate of interest that would then be
applicable to a LIBOR loan under the Bank Facility (as defined
below) with a six-month interest period commencing on such
date, plus the interest rate spread then applicable under the
Bank Facility. Accrued interest to be paid quarterly on the
last day of each March, June, September and December,
commencing June 1996. Payments shall be subject to any
applicable withholding or other taxes imposed by taxing
authorities.
Term: Anniversary date of issuance in 2001.
Security: No assets are pledged to secure the Note.
Scheduled
Amortization: Straight line principal amortization on the third, fourth and
fifth anniversaries of the Note, payable solely under the
circumstances and to the extent permitted in the Bank Facility
Documentation (as in effect on the closing date). Any material
changes in the circumstances under which, and the extent to
which, such payments are permitted in the Bank Facility
Documentation shall require the consent of Maxtor. Any
amortization payments that cannot be made as a result of the
limitations set forth in the Bank Facility Documentation shall
be due and payable on the following scheduled amortization
date.
Mandatory
Prepayment: A. Upon closing of the initial public offering ("IPO")
by International Manufacturing Services, Inc., a
Delaware corporation ("Delaware
<PAGE> 64
Corp.") or any of Delaware Corp.'s direct or indirect
subsidiaries, the Note and the Notes issued by IMS
Thailand and Delaware Corp. shall be prepaid, either
ratably or as otherwise selected by IMS, in amount
equal to the IPO Proceeds Amount (as defined below),
subject to (a) the consent of the underwriters for
the IPO, (b) no default under the Bank Credit
Facility, and (c) any changes in the IPO Proceeds
Amount required to be applied to the Bank Facility,
so long as such changes were made as a result of or
in conjunction with any potential or actual default
under the Bank Facility, or were reasonably
necessary, in the reasonable opinion of Delaware
Corp., to allow Delaware Corp. or any of its
subsidiaries to continue the availability of or to
obtain financing under the Bank Facility. The "IPO
Proceeds Amount" shall be an amount equal to a
portion of the net proceeds of the IPO payable to
Delaware Corp., after deduction of underwriters
discounts and expenses, determined in accordance with
Schedule A attached hereto.
B. Upon closing of a secondary public offering (an
"Offering") by Delaware Corp. or any of Delaware
Corp.'s direct or indirect subsidiaries, the Note and
the Notes issued by IMS Thailand and Delaware Corp.
shall be prepaid, either ratably or as otherwise
selected by IMS, in amount equal to the Offering
Proceeds Amount (as defined below), subject to (a)
the consent of the underwriters for the Offering and
(b) satisfaction of the capital needs of Delaware
Corp., as determined by the board of directors of
Delaware Corp. in the exercise of its reasonable
discretion. The "Offering Proceeds Amount" shall be
fifty percent of the net proceeds of the Offering
payable to Delaware Corp., after deduction of
underwriters discounts and expenses, and deduction of
such amounts as shall be applied to the Bank
Facility.
C. Principal outstanding due on termination date.
D. Upon a Change in Ownership or Fundamental Change
(using definitions comparable to those in IMS's
restated Certificate of Incorporation) of IMS, then
the net cash proceeds received from such change shall
be applied to prepay scheduled principal amortization
payments under the Note and the Notes made by
Thailand and Delaware Corp., in order of their
maturity.
E. Upon a Change in Ownership or Fundamental Change of
Hong Kong or any subsidiary of Delaware Corp. of
which Hong Kong is a subsidiary (unless Hong Kong
remains, directly or indirectly, a subsidiary of
Delaware Corp., or the assets sold will be owned,
directly or indirectly, by Delaware Corp. or any of
its subsidiaries), then the net cash proceeds
received from such change shall, to the extent not
required to be used to repay the Bank Facility, be
applied to prepay scheduled principal amortization
payments under the Note and the
-ii-
<PAGE> 65
Notes made by Thailand and Delaware Corp., in order
of their maturity.
F. Upon a Change in Ownership or Fundamental Change of
Thailand (unless Thailand remains, directly or
indirectly, a subsidiary of Delaware Corp. or the
assets sold will be owned, directly or indirectly, by
Delaware Corp. or any of its subsidiaries), then (a)
Delaware Corp. shall commit, within three months
following the consummation of such change, to
reinvest the net cash proceeds thereof attributable
to Thailand in businesses comparable, related or
incidental to the businesses of Delaware Corp., or
(b) if Delaware Corp. shall fail to make such
commitment within such three month period, than such
net cash proceeds shall, to the extent not required
to be used to repay the Bank Facility, be applied to
prepay scheduled principal amortization payments
under the Note and the Notes made by Thailand and
Delaware Corp., in order of their maturity.
Optional
Prepayment: Hong Kong may prepay the Note, in part or in full, at any time
without payment of any premium or penalty, subject to the
consent of the holders of the Bank Facility.
Subordination: Subordinated to (i) the bank group (the "Bank Group") credit
facility obligations and any modifications or increases
thereto or refinancings or replacements thereof (the "Bank
Facility"), regardless of the amount thereof, and (ii) any
other indebtedness or contingent obligations of Delaware Corp.
and its subsidiaries, including Hong Kong, that are specified
as "Senior Indebtedness," up to a maximum aggregate
outstanding amount and subject to such other limitations as
set forth in the term sheet for the Delaware Corp. Guaranty.
Terms of subordination are same as those for subordination of
the Delaware Corp. Guaranty to the Bank Facility.
Covenants: Note to contain the following covenants and such other
covenants as may be mutually agreed upon:
A. Hong Kong shall not grant any security interests in
its assets to secure indebtedness for borrowed money,
except for liens existing at closing, and liens in
connection with the Bank Facility and other Senior
Indebtedness;
B. Hong Kong shall not engage in any business other than
the businesses conducted by Delaware Corp. or any of
its subsidiaries on the closing date and other
businesses related or incidental thereto;
-iii-
<PAGE> 66
C. Hong Kong shall deliver periodic financial
information to Maxtor; and
D. At reasonable times and upon reasonable notice, Hong
Kong shall permit Maxtor to inspect its properties.
Events of
Default: Events of Default to be mutually agreed upon. Specific Events
of Default relating to Hong Kong:
A. Dissolution or winding up of Hong Kong;
B. Bankruptcy or similar proceeding initiated by or
against Hong Kong; and
C. Payment default under Senior Indebtedness;
non-payment default under the Bank Facility; and
non-payment default under Senior Indebtedness other
than the Bank Facility if the aggregate amount of
such Senior Indebtedness equals or exceeds
$5,000,000. (Upon the waiver or cure any such default
or event of default under such Senior Indebtedness,
the cross-default caused under the Note shall be
automatically waived).
Remedies: A. Increase in interest rate
B. May accelerate principal balance
C. May exercise rights and remedies granted by law
Assignments: Assignments permitted only on the terms applicable to the
Delaware Corp. Guaranty.
Offsets: Offsets permitted only on the terms applicable to the Delaware
Corp. Guaranty.
Governing Law: California, except that the subordination provisions shall
be governed by New York law.
Venue: Hong Kong submits to jurisdiction of California and New York
courts.
-iv-
<PAGE> 67
EXHIBIT B
INTERNATIONAL MANUFACTURING SERVICES INC.
TERMS OF LONG TERM NOTE TO MAXTOR CORPORATION
Issuer:IMS Thailand.
Consideration:Issued as payment for stock redeemed.
Amount:Two Million Dollars.
All other terms shall mirror those applicable to the Notes issued to Maxtor
Corporation by IMS Hong Kong and IMS Delaware, except that except that the
interest rate shall be three and five tenths percent (3.5%) per annum until the
first anniversary, and then shall be changed to the Bank
Facility Interest Rate minus three and five tenths (3.5%).
<PAGE> 68
INTERNATIONAL MANUFACTURING SERVICES INC.
TERMS OF LONG TERM NOTE TO MAXTOR CORPORATION
Issuer: IMS Delaware.
Consideration: Issued as payment for stock redeemed.
Amount: One Million Seven Hundred Thousand Dollars.
All other terms shall mirror those applicable to the Notes issued to Maxtor
Corporation by IMS Hong Kong and IMS Thailand, except that the interest rate
shall be seven percent (7%) per annum until the first anniversary, and then
shall be changed to the Bank Facility Interest Rate plus one percent (1%).
<PAGE> 69
SCHEDULE A
ALLOCATION OF IPO PROCEEDS
<TABLE>
<CAPTION>
IPO PROCEEDS PAYABLE TO BANK
AMOUNT* GROUP** PAYABLE TO MAXTOR PAYABLE TO IMS
- ------------ --------------- ----------------- --------------
<S> <C> <C> <C>
$30,000,000 10 12 8
35,000,000 10 15 10
40,000,000 10 19 11
45,000,000 10 20 15
50,000,000 10 20 20
</TABLE>
* In the event the IPO Proceeds Amount is (i) less than $30,000,000, then
IPO Proceeds Amount payable to Maxtor and IMS shall be reduced on a pro
rata basis; (ii) greater than $50,000,000, then the IPO Proceeds Amount
payable to IMS shall be increased by such excess amount; (iii) in
between two of the amounts set forth above, then the IPO Proceeds
Amount payable to Maxtor and IMS shall be interpolated in the ratios
set forth in the above table (until Maxtor is paid in full).
** In the event the IPO Proceeds Amount payable to the Bank Group is
greater than or less than $10,000,000, then the IPO Proceeds Amount
payable to Maxtor and IMS shall be decreased or increased, as
applicable, on a pro rata basis (until Maxtor is paid in full).
<PAGE> 70
EXHIBIT C
INTERNATIONAL MANUFACTURING SERVICES, INC.
OFFICER CERTIFICATE
Pursuant to Section 8.6(c) of the Redemption Agreement, dated May 16,
1996, by and between International Manufacturing Services, Inc., a Delaware
corporation ("IMS Delaware"), and Maxtor Corporation, a Delaware corporation
("Maxtor") (the "Redemption Agreement"), the undersigned, Robert G. Behlman,
hereby certifies to Maxtor on behalf of the IMS Delaware that:
1. To the undersigned's current actual knowledge, he is the duly elected,
qualified and acting President and Chief Executive Officer of IMS
Delaware and is authorized to execute this certificate on behalf of the
management of IMS Delaware and in that capacity is familiar with the
operations of the Company (as defined in the Redemption Agreement).
2. The undersigned has carefully reviewed the Redemption Agreement and the
related Disclosure Schedule.
3. To the undersigned's current actual knowledge, after duly inquiring
orally as to the actual knowledge of Julie Mahowald, N.K. Quek, and
Monica Fung, but without any further investigation, the representations
and warranties made by Maxtor in the Sections 3.5(a), (b), (d), (e),
(f), (g), (i), (j)(ii), (k), (o), (p), (q) and (r) (exclusively with
respect to the representations set forth in this certificate), 3.7,
3.9(a)(iii) and (v), 3.10, 3.11, 3.15(c) and (e), 3.19, 3.20(a)(i), (c)
and (d), 3.24, 3.25 and 3.26 of the Redemption Agreement (considered
collectively), after giving effect to any update to the Disclosure
Schedule delivered in accordance with Section 5.3 prior to Closing, are
accurate in all material respects as of the Closing Date as if made at
the Closing Date;
This IMS Officer Certificate may be relied upon solely by Maxtor for
the purpose of making representations and warranties contained in the Redemption
Agreement, and may not be relied upon by any other Person, including any other
party to the Redemption Agreement and the related Recapitalization Agreement. No
Person other than the undersigned shall have any liability hereunder, and the
undersigned shall have no liability hereunder except in the case of willful
deception or gross negligence. Nothing herein shall affect in any way any
obligation of Maxtor, whether pursuant to contract, law or otherwise, to
indemnify Robert G. Behlman for any matter regardless of whether such matter may
be covered by one or more representation or warranty referenced to above. In
addition, nothing herein shall affect in any way the indemnification obligations
of Maxtor to any Indemnitee pursuant to the Recapitalization Agreement.
All capitalized terms not otherwise defined herein shall have the
meaning set forth in the Redemption Agreement.
IN WITNESS WHEREOF, the undersigned has executed this IMS Officer
Certificate this ____ day of June, 1996.
INTERNATIONAL MANUFACTURING SERVICES, INC.
-----------------------------------------
Robert G. Behlman,
President and Chief Executive Officer
-ii-
<PAGE> 71
EXHIBIT E
FORM OF TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement ("Agreement") is entered into by and
between Maxtor Corporation, a Delaware corporation, with its principal place of
business at 211 River Oaks Parkway, San Jose, California 95134, USA ("Maxtor")
and International Manufacturing Services, Inc., a Delaware corporation, with its
principal place of business at 211 River Oaks Parkway, San Jose, California
95134, USA ("IMS"). This Agreement is effective as of May 16, 1996 ("Effective
Date").
RECITALS
WHEREAS, concurrent with the execution of this Agreement, Maxtor and
IMS will close certain related transactions set forth in that certain
Recapitalization Agreement, Redemption Agreement and Stockholders Agreement of
even date herewith, and will execute that certain Manufacturing Services
Agreement of even date herewith (collectively, the "Related Agreements");
WHEREAS, IMS wishes to-procure certain services from Maxtor;
WHEREAS, Maxtor is willing to provide such services on the terms and
conditions set forth below;
NOW THEREFORE, in consideration of the mutual promises and covenants
set forth in the Related Agreements and herein, the parties agree as follows:
AGREEMENT
D. Services Appendix. IMS will purchase and Maxtor will provide
the services set forth in Exhibit A. as amended from time to time by mutual
agreement ("Services"). The Services are currently being provided by Maxtor to
IMS as Maxtor's wholly-owned subsidiary. Maxtor will continue to provide these
Services in a manner similar to the services as currently provided for the
period of this Agreement, subject to the provisions of Section 5.
E. Purchase Price. Fees for Services are to be based upon current
transfer pricing levels unless such levels have not been established. In such
case, pricing shall be at Maxtor's reasonable cost. Maxtor shall be entitled to
increase any and all pricing levels in an amount commensurate with actual cost
increases. The Services and the corresponding fees as of the Effective Date are
set forth in Exhibit A.
F. Payment Term. As of the Effective Date, payment for Services
shall be fifteen (15) days from invoice date. Thirty (30) days thereafter,
payment terms shall be twenty (20) days
-iii-
<PAGE> 72
from invoice date. Sixty (60) days from the Effective Date and thereafter,
payment terms shall be net thirty (30) days from receipt of invoice by IMS.
During the transition period herein .defined, the same payment terms shall apply
under the Manufacturing Services Agreement being executed concurrently by the
parties. All invoices shall be paid in U.S. dollars.
G. Term and Termination. The term of this Agreement shall begin
on the Effective Date and continue for 6 months thereafter unless earlier
terminated as provided herein and subject to section 5 below. Either party may
terminate this Agreement for default by the other party of any material
obligation, unless the defaulting party cures such material breach within thirty
(30) days after receipt of written notice from the non-defaulting party.
Additionally, IMS may terminate, in whole or in part, any of the Services
provided upon fifteen (15) days written notification to Maxtor. Except for
Services referred to in Section 5 hereafter, IMS has the option to extend this
agreement for Services not previously canceled by written notice and subject to
Maxtor's acceptance, which may be conditioned on the scope, type and price of
added services.
H. Office Space and Related Services. Subject to compliance by
IMS with such facility security requirements as may be established by Maxtor
from time to time, Maxtor shall continue to provide office space and related
services to IMS in its current location as specified in Exhibit A throughout the
term of this Agreement including any extension under Section 4, or until Maxtor
moves its principal offices, whichever is earlier. Following written notice from
Maxtor that it is moving out of its current space, IMS shall have ninety (90)
days to relocate to its own office space and to provide its own related
services. If, however, IMS is not successful in locating its own space, IMS may
request and Maxtor may, at its sole option, continue to provide equivalent
office space and related services in its new facilities.
I. Indemnification. Each party hereto ("Indemnitor") shall
defend, indemnify and hold harmless the other ("Indemnitee") from and against
all actions, claims, liabilities, losses and expenses (including reasonable
attorneys' fees) where it is alleged that the tortious conduct of Indemnitor
related to its performance hereunder has proximately caused death or injury to
persons or damage to real or tangible personal property.
J. No Warranty. All Services are provided by Maxtor AS IS, with
no warranty, express, implied or statutory of any kind. Except for the express
obligations undertaken by Maxtor herein, Maxtor disclaims any warranties as to
the nature or quality of the Services. IMS assumes sole responsibility for
determining whether the Services are appropriate to IMS' requirements.
K. Limits of Liability. Maxtor shall not be responsible for
indirect, special, or consequential damages of any kind (including, without
limitation, lost profits or revenues), whether or not informed of the
possibility thereof, or for direct damages in excess of the aggregate fees paid
to Maxtor by IMS hereunder.
L. Miscellaneous Provisions.
1 Entire Agreement. This Agreement constitutes the
entire agreement
-iv-
<PAGE> 73
between the parties regarding the subject matter hereof and supersedes all prior
agreements and understandings between the parties relating thereto. This
Agreement may not be modified except by a writing signed by an authorized
representative of both parties.
2 Independent Contractor. The relationship of the
parties established by this Agreement is that of independent contractors, and
nothing contained herein shall be constructed to constitute either party as the
agent of the other party or as partners, joint ventures, co-owners or otherwise
as participants in a joint or common undertaking.
3 Advertising. No advertising by either party shall
display or contain any trademarks or references to the other party without the
other part's prior written approval.
4 Assignment and Subcontracting. This Agreement may not
be assigned by either party without the advance written consent of the other
party, which shall not be unreasonably withhold, except to its affiliate or
subsidiary or pursuant to a merger, sale of all or substantially all of its
assets, or other corporate reorganization.
5 Force Majeure. Except for IMS' payment obligations,
neither party, shall be liable to the other party arising out of delays or
failures to perform under the Agreement to the extent that any such delays or
failures result from any cause beyond the reasonable control of the party
affected by a force majeure event. If any such force majeure extends to beyond
ninety (90) days, either party shall have the right to terminate this Agreement
upon written notice to the other party.
6 Governing Law. This Agreement shall be governed by
the laws of the State of California, without reference to conflict of laws
principles.
7 Venue. All disputes arising under this Agreement
shall be brought in the Superior Court of the State of California in Santa Clara
County or the Federal District Court of San Jose, California, as applicable. The
Superior Court of Santa Clara County and the Federal District Court of San Jose
shall each have exclusive jurisdiction over disputes under this Agreement. Both
parties consent to the personal jurisdiction of the above courts.
8 English Language. This Agreement is executed in the
English language only, and any transitions hereof are of no force and effect.
9 Invalidity. If any provisions or portion thereof of
this Agreement is held to be unenforceable or invalid, the remaining provisions
and portions thereof shall nevertheless be given full force and effect.
10 No Waiver. No failure to delay on the part of either
party in exercising any right or remedy hereunder shall operate as waiver
thereof, nor shall any single or partial exercise of any such right or remedy
preclude any other or further exercise thereof or of any other right or remedy.
No provision of this Agreement may be waived except in a writing signed by the
party granting such waiver.
-v-
<PAGE> 74
11 No Licenses Created. Nothing contained in this
Agreement shall be construed as conferring any license, right to use or other
right with respect to information, trademark or trade names of either party.
12 Counterparts. This Agreement may be executed in
counterparts, all of which taken together shall constitute one single agreement
between the parties.
13 Limitation of Actions. No action, regardless of form,
arising out of this Agreement, may be brought by either party more than one year
after the cause of action has arisen.
14 Survival. Sections 6 through 9 shall survive any
expiration or termination of this Agreement.
15 Construction. This Agreement has been negotiated by
the parties and their respective counsel. This Agreement will be fairly
interpreted in accordance with its terms and without any strict construction in
favor of or against any party. Any ambiguity will not be interpreted against the
drafting party.
IN WITNESS WHEREOF, Maxtor and IMS have caused this Transition Services
Agreement to be executed by their respective officers, duly authorized.
MAXTOR: IMS:
Maxtor Corporation International Manufacturing Services,
Inc.
By:_______________________________ By:_______________________________
Name:_____________________________ Name:_____________________________
Title:____________________________ Title:____________________________
-vi-
<PAGE> 75
EXHIBIT A
SERVICES APPENDIX
I. Description of Services
A. Receivables Accounting and Cash Collections. Maxtor will
continue to print invoices based upon data input by IMS and apply the cash
receipts against outstanding invoices by customer.
B. Accounts Payable Accounting and Payment Made to Vendors.
Maxtor will continue to process and voucher vendor invoices, as well as process
weekly check runs to pay the vendor invoices. Maxtor will be available to
process manual checks on an as needed basis. When separate bank accounts have
been established by IMS, IMS must provide the checks which are compatible with
Maxtor's printer. Maxtor will continue to process expense reports after IMS has
approved them for payment.
C. General Accounting and Support. Maxtor will continue to
process (but not approve) monthly journal vouchers (posted directly to IMS
accounts) and the bi-weekly payroll. The payroll process will affect the IMS
accounts directly rather than be processed into Maxtor's accounts and be billed
as an intercompany transaction. Maxtor will continue to capitalize into
property, plant and equipment and perform month end procedures to reconcile the
IMS property, plant and equipment accounts (including depreciation accounts).
Maxtor will continue to print general ledgers as currently supplied to IMS.
D. Financial Statements Preparation. Maxtor will make available
its personnel to answer any questions and provide supporting data to IMS while
performing its monthly consolidation procedures. IMS will be responsible for
filing its government compliance reports effective for all reports requiring
information as of and subsequent to April 1, 1996.
E. Credit Management. Maxtor will continue to provide and update
credit evaluation procedures of current and potential future IMS customers in
the same capacity as currently performed.
F. Foreign Exchange Management. Maxtor will purchase foreign
currencies on IMS' behalf at spot rates as instructed by IMS approved personnel.
G. Data Processing Support. Maxtor will continue to provide
information system support including data base maintenance and general ledger
application and will continue to provide month end reports as currently
provided. Maxtor will also make available EDS support for immediate computer
needs.
H. Office Space and Related Services. Subject to Section 5 of the
Agreement, Maxtor will continue to provide the same office space as currently
used and will continue to make available copies, telephone services, securities,
supplies and e-mail access so IMS has adequate facilities to perform its work
efforts.
-vii-
<PAGE> 76
I. Health and Insurance Coverage. Except in cases where Maxtor's
health and insurance providers decline to extend coverage, U.S.-based employees
of IMS shall continue to have health and insurance coverage as currently
provided under Maxtor's plans.
II. Fees for Services
The fees below are subject to change by Maxtor in an amount
commensurate with any increased direct cost to Maxtor.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Service Monthly Fee
- ------------------------------------------------------------------------------------------
<S> <C> <C>
1. Receivables Accounting and Cash Collections $2,300
- ------------------------------------------------------------------------------------------
2. Accounts Payable Accounting and Payment Made to Vendors. 1,000
- ------------------------------------------------------------------------------------------
3. General Accounting and Support. 1,000
- ------------------------------------------------------------------------------------------
4. Financial Statements Preparation. 500
- ------------------------------------------------------------------------------------------
5. Credit Management. 1,000
- ------------------------------------------------------------------------------------------
6. Foreign Exchange Management. 1,000
- ------------------------------------------------------------------------------------------
7. Data Processing Support. 3,000
- ------------------------------------------------------------------------------------------
8. Office Space and Related Services. 5,200
- ------------------------------------------------------------------------------------------
TOTAL: $15,000
- ------------------------------------------------------------------------------------------
</TABLE>
The fees for health and insurance coverage shall be as quoted by the
provider on a per employee basis.
-viii-
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS
OF
INTERNATIONAL MANUFACTURING SERVICES, INC.
----------------
A DELAWARE CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation
in the State of Delaware shall be located at Corporation Trust Center, 1209
Orange Street, Wilmington Delaware 19801, in the County of New Castle. The name
of the corporation's registered agent at such address shall be The Corporation
Trust Company. The registered office and/or registered agent of the corporation
may be changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. The date,
time and place of the annual meeting may be determined by resolution of the
board of directors or as set by the president of the corporation.
Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose (including, without limitation, the filling of board
vacancies and newly created directorships), and may be held at such time and
place, within or without the State of Delaware, as shall be stated in a notice
of meeting or in a duly executed waiver of notice thereof. Such meetings may be
called at any time by two or more members of the board of directors, the
president or the holders of shares entitled to cast not less than a majority of
the votes at the meeting or the holders of not less than ten percent (10%) of
the outstanding shares of any series or class of the corporation's capital
stock.
<PAGE> 2
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting is otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose(s), of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than 10 nor more than 60 days before the date of the meeting. All such notices
shall be delivered, either personally or by mail, by or at the direction of the
board of directors, the president or the secretary, and if mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. If the meeting is called by one or more shareholders of the
corporation, the secretary of the corporation shall deliver or cause to be
delivered the notice required by this Section 4.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. Except as otherwise provided by applicable law or by
the corporation's certificate of incorporation, a majority of the outstanding
shares of the corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders. If less than a majority
of the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time in accordance with
Section 7 of this Article, until a quorum shall be present or represented.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting, at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
-2-
<PAGE> 3
Section 8. Vote Required. When a quorum is present, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the corporation's certificate of incorporation a different
vote is required, in which case such express provision shall govern and control
the decision of such question. Where a separate vote by class is required, the
affirmative vote of the majority of shares of such class present in person or
represented by proxy at the meeting shall be the act of such class, unless the
question is one upon which by express provisions of an applicable law or of the
corporation's certificate of incorporation a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto, every stockholder shall at every
meeting of the stockholders be entitled to one vote in person or by proxy for
each share of common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person(s) to act for him, her or it by
proxy. Every proxy must be signed by the stockholder granting the proxy or by
his, her or its attorney-in-fact. No proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
Section 11. Action by Written Consent. Unless otherwise provided in the
corporation's certificate of incorporation, any action required to be taken at
any annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a
consent(s) in writing, setting forth the action so taken and bearing the dates
of signature of the stockholders who signed the consent(s), shall be signed by
the holders of outstanding shares of stock having not less than a majority of
the shares entitled to vote, or, if greater, not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in the state
of Delaware, or the corporation's principal place of business, or an officer or
agent of the corporation having custody of the book(s) in which proceedings of
meetings of the stockholders are recorded. Delivery made to the corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested, provided, however, that no consent(s) delivered by certified
or registered mail shall be deemed delivered until such consent(s) are actually
received at the registered office. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered to the
corporation as required by this section, written consents signed
-3-
<PAGE> 4
by the holders of a sufficient number of shares to take such corporate action
are so recorded. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any action taken pursuant to
such written consent(s) of the stockholders shall have the same force and effect
as if taken by the stockholders at a meeting thereof. Immediately upon receipt
of the requisite number of consents (or as otherwise set forth in such consents)
the board of directors or officers of the corporation, as applicable, shall take
such actions as are necessary to implement the matters that are the subject of
any shareholder consent.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the first board shall be eight (8), which number may be
increased or decreased from time to time by resolution of the board or by action
of the shareholders. The directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote in the election of directors. The directors shall be elected in
this manner at the annual meeting of the stockholders, except as provided in
Section 4 of this Article III. Each director elected shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Except as otherwise provided by the certificate of
incorporation of the corporation or any amendments thereto, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority vote of the holders of the corporation's
outstanding stock entitled to vote thereon. Each director so chosen shall hold
office until a successor is duly elected and qualified or until his or her
earlier death, resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected
board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
-4-
<PAGE> 5
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the president or any vice president on at least 48 hours notice to
each director, either personally, by telephone or telefax, by mail, or by
telegraph; in like manner and on like notice the president must call a special
meeting immediately upon the written request of at least two directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the
total number of directors shall constitute a quorum for the transaction of
business, provided however, that a quorum shall not be established if the PPEI
Designated Directors (as defined in Section 6 of the Stockholders Agreement
dated as of June 14, 1996 among the corporation and certain of its stockholders
(the "Stockholders Agreement")) represent more than a minority of the directors
present at any meeting. The vote of a majority of directors present at a meeting
at which a quorum is present shall be the act of the board of directors. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these by-laws shall have and may
exercise the powers of the board of directors in the management and affairs of
the corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee(s) shall have such name(s) as may be determined from time to time by
resolution adopted by the board of directors. Each committee shall keep regular
minutes of its meetings and report the same to the board of directors when
required. Notwithstanding the foregoing provisions of this Section 8, the
corporation's board of directors shall have a compensation committee and audit
committee which shall be comprised of directors in a manner strictly consistent
with Section 6 of the Stockholders Agreement for so long as the Stockholders
Agreement shall be in effect. In addition, in the event that the corporation's
board of directors establishes an executive committee, such committee shall be
comprised of directors in a manner strictly consistent with Section 6 of the
Stockholders Agreement for so long as the Stockholders Agreement shall be in
effect.
Section 9. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum, provided however, that a quorum shall
not be established for any meeting of any committee if the PPEI Designated
Directors represent more than a minority of the members present at any meeting
of such committee. In the event that a member and that member's alternate, if
alternates are designated by the board of directors as provided in Section 8 of
this Article III, of such committee is or are absent or disqualified, the
member(s) thereof present at any
-5-
<PAGE> 6
meeting and not disqualified from voting, whether or not such member(s)
constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in place of any such absent or disqualified
member.
Section 10. Communications Equipment. Members of the board of directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of
the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by
the corporation's certificate of incorporation, any action required or permitted
to be taken at any meeting of the board of directors, or of any committee
thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing(s)
are filed with the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by
the board of directors and shall consist of a chairman, if any is elected, a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. Any number of offices may be held by the same person, except
that no person may simultaneously hold the office of president and secretary. In
its discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. The president shall appoint other officers to serve for such terms as he
or she deems desirable. Vacancies may be filled or new offices created and
filled
-6-
<PAGE> 7
at any meeting of the board of directors. Each officer shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. The Chairman of the Board. The Chairman of the Board, if one
shall have been elected, shall be a member of the board, and, if present, shall
preside at each meeting of the board of directors or shareholders. He shall
advise the president, and in the president's absence, other officers of the
corporation, and shall perform such other duties as may from time to time be
assigned to him by the board of directors.
Section 7. The President. The president shall be the chief executive
officer of the corporation. In the absence of the Chairman of the Board or if a
Chairman of the Board shall have not been elected, the president (i) shall
preside at all meetings of the stockholders and board of directors at which he
or she is present; (ii) subject to the powers of the board of directors, shall
have general charge of the business, affairs and property of the corporation,
and control over its officers, agents and employees; and (iii) shall see that
all orders and resolutions of the board of directors are carried into effect.
The president shall have such other powers and perform such other duties as may
be prescribed by the board of directors or as may be provided in these by-laws.
Section 8. Vice-presidents. The vice-president, if any, or if there
shall be more than one, the vice-presidents in the order determined by the board
of directors shall, in the absence or disability of the president, act with all
of the powers and be subject to all the restrictions of the president. The
vice-presidents shall also perform such other duties and have such other powers
as the board of directors, the president or these by-laws may, from time to
time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book(s) to be kept for that purpose. Under the president's
supervision, the secretary (i) shall give, or cause to be given, all notices
required to be given by these by-laws or by law; (ii) shall have such powers and
perform such duties as the board of directors, the president or these by-laws
may, from time to time, prescribe; and (iii) shall have custody of the corporate
seal of the corporation. The secretary, or an assistant secretary,
-7-
<PAGE> 8
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his or her signature. The assistant secretary, or if
there be more than one, the assistant secretaries in the order determined by the
board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors, the
president, or secretary may, from time to time, prescribe.
Section 10. The Treasurer and Assistant Treasurers. The treasurer (i)
shall have the custody of the corporate funds and securities; (ii) shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the corporation; (iii) shall deposit all monies and other valuable effects in
the name and to the credit of the corporation as may be ordered by the board of
directors; (iv) shall cause the funds of the corporation to be disbursed when
such disbursements have been duly authorized, taking proper vouchers for such
disbursements; (v) shall render to the president and the board of directors, at
its regular meeting or when the board of directors so requires, an account of
the corporation; and (vi) shall have such powers and perform such duties as the
board of directors, the president or these by-laws may, from time to time,
prescribe. If required by the board of direc tors, the treasurer shall give the
corporation a bond (which shall be rendered every six years) in such sums and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of the office of treasurer and for
the restoration to the corporation, in case of death, resignation, retirement,
or removal from office, of all books, papers, vouchers, money, and other
property of whatever kind in the possession or under the control of the
treasurer belonging to the corporation. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors, shall in the absence or disability of the treasurer, perform
the duties and exercise the powers of the treasurer. The assistant treasurers
shall perform such other duties and have such other powers as the board of
directors, the president or treasurer may, from time to time, prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 12. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
-8-
<PAGE> 9
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
(i) the chairman of the board, the president or a vice-president and (ii) the
secretary or an assistant secretary of the corporation, certifying the number of
shares owned by such holder in the corporation. If such a certificate is
countersigned (1) by a transfer agent or an assistant transfer agent other than
the corporation or its employee or (2) by a registrar, other than the
corporation or its employee, the signature of any such chairman of the board,
president, vice-president, secretary, or assistant secretary may be facsimiles.
In case any officer(s) who have signed, or whose facsimile signature(s) have
been used on, any such certificate(s) shall cease to be such officer(s) of the
corporation whether because of death, resignation or otherwise before such
certificate(s) have been delivered by the corporation, such certificate(s) may
nevertheless be issued and delivered as though the person or persons who signed
such certificate(s) or whose facsimile signature(s) have been used thereon had
not ceased to be such officer(s) of the corporation. All certificates for shares
shall be consecutively numbered or otherwise identified. The name of the person
to whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the corporation. Shares of stock
of the corporation shall only be transferred on the books of the corporation by
the holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the corporation of the certificate(s) for such shares
endorsed by the appropriate person(s), with such evidence of the authenticity of
such endorsement, transfer, authorization, and other matters as the corporation
may reasonably require, and accompanied by all necessary stock transfer stamps.
In that event, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate(s), and
record the transaction on its books. The board of directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate(s) to be issued in place of any certificate(s) previously issued by
the corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen, or destroyed. When authorizing such issue of a new
certificate(s), the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate(s), or his or her legal representative, to give the
corporation a bond sufficient to indemnify the corporation against any claim
that may be made against the corporation on account of the loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date
-9-
<PAGE> 10
of such meeting. If no record date is fixed by the board of directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be the close of business on the day immediately
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day immediately preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date (i) shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and (ii)
shall not be more than ten days after the earlier of the date upon which the
resolution fixing the record date is adopted by the board of directors or the
date upon which the first signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation. If no record date has
been fixed by the board of directors, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the board of directors is required by statute,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights of the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
corporation of the certificate(s) for a share(s) of stock with a request to
record the transfer of such share(s), the corporation may treat the registered
owner as the person entitled to receive dividends, to vote, to receive
notifications, and otherwise to exercise all the rights and powers of an owner.
The corporation shall not be bound to recognize any equitable or other claim to
or interest in such share(s) on the part of any other person, whether or not it
shall have express or other notice thereof.
-10-
<PAGE> 11
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum(s) as the directors
from time to time, in their absolute discretion, think proper as a reserve(s) to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or any other purpose and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer(s), agent(s) of the corporation, and in such manner, as shall be
determined by resolution of the board of directors or a duly authorized
committee thereof.
Section 3. Contracts. The board of directors may authorize any
officer(s), or any agent(s), of the corporation to enter into any contract or to
execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
-11-
<PAGE> 12
Section 5. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record,
in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the corporation's
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, such provision of these by-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VII
AMENDMENTS
These by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the board of directors by a majority vote. The fact
that the power to adopt, amend, alter, or repeal the by-laws has been conferred
upon the board of directors shall not divest the stockholders of the same
powers.
-12-
<PAGE> 1
EXHIBIT 3.4
AMENDMENT TO AMENDED AND RESTATED BYLAWS
On July 26, 1996 Article III, Section 4 of the Amended and Restated
Bylaws was amended to read as follows:
Section 4. Vacancies. Vacancies in the board of directors may be
filled by a majority of the remaining directors, even if less than a quorum, or
by a sole remaining director; however, a vacancy created by the removal of a
director by the vote of the stockholders or by court order may be filled only
by the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum). Each
director so elected shall hold office until the next annual meeting of the
stockholders and until a successor has been elected and qualified.
Unless otherwise provided in the certificate of incorporation or these bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled
by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and newly
created directorships of such class or classes or series may be filled
by a majority of the directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so
elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may
apply to the Court of Chancery for a degree summarily ordering an election as
provided in Section 211 of the General Corporation Law of Delaware.
Notwithstanding the foregoing powers of the Board to fill any vacancy
or newly created directorship, if, at the time of filling any vacancy or any
newly created directorship, the directors then in office constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least ten (10) percent of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office as aforesaid, which election shall be governed by the provisions of
Section 211 of the General Corporation Law of Delaware as far as applicable.
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
Number CA-[FIELD](cert#) INCORPORATED UNDER THE LAWS OF **[FIELD](#shares)**Shares
THE STATE OF DELAWARE Class A Common Stock
November 21, 1994
</TABLE>
INTERNATIONAL MANUFACTURING SERVICES, INC.
<TABLE>
<S> <C>
Authorized Common Stock: 17,000,000 Shares Authorized Preferred Stock: 5,672,950 Shares
Class A Common Stock: 12,000,000 Shares Series A Preferred Stock: 4,000,000 Shares
Class B Common Stock: 5,000,000 Shares Series B Preferred Stock: 1,672,950 Shares
</TABLE>
THIS CERTIFIES THAT [FIELD](NAME) is the record holder of
[FIELD](alphashares) (**[FIELD](#shares)**) shares of the Class A Common Stock
of INTERNATIONAL MANUFACTURING SERVICES, INC., transferable only on the share
register of said corporation by the holder, in person or by duly authorized
attorney, upon surrender of this Certificate properly endorsed or assigned.
This Certificate and the shares represented hereby are issued and shall
be held subject to all the provisions of the Certificate of Incorporation and
the Bylaws of said corporation and any amendments thereof, to all of which the
holder of this Certificate, by acceptance hereof, assents. The shares
represented by this Certificate are subject to the legend(s) affixed to the back
of this Certificate.
A statement of all the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes or series of shares of stock
of the Corporation and upon the holders thereof may be obtained by any
stockholder, upon request, at the principal office of the Corporation, and the
Corporation will furnish any stockholder, upon request and without charge, a
copy of such statement.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers of the Corporation this [FIELD (date)]
day of August, 1997.
- ---------------------------------- -----------------------------------
President Secretary
<PAGE> 2
FOR VALUE RECEIVED I DO HEREBY SELL, ASSIGN, AND TRANSFER UNTO
_______________________________________ _______________ SHARES REPRESENTED BY
THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
________________________________________ AS ATTORNEY TO TRANSFER THE SAID SHARES
ON THE SHARE REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED _____________, _____
IN PRESENCE OF __________________________ ____________________________________
(Witness) (Stockholder)
____________________________________________
(Stockholder)
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONERS RULES.
<PAGE> 1
EXHIBIT 4.2
COMMON STOCK PURCHASE WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED UPON THE
EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE, OFFER,
PLEDGE OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS UNLESS SOLD
PURSUANT TO RULE 144 OF THE ACT.
VOID AFTER JUNE 12, 2006
NO. CS-1 INTERNATIONAL MANUFACTURING SERVICES, INC.
WARRANT TO PURCHASE 200,000 SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Maxtor Corporation, a Delaware
corporation (the "Holder") is entitled to subscribe for and purchase on or after
June 13, 1998, 200,000 shares (as adjusted pursuant to Section 3 hereof) of the
fully paid and nonassessable Class A Common Stock, no par value, (the "Shares"),
of International Manufacturing Services, Inc., a Delaware corporation (the
"Company"), at the price of $10.00 per share (the "Exercise Price") (as adjusted
pursuant to Section 3 hereof), subject to the provisions and upon the terms and
conditions hereinafter set forth.
1. Method of Exercise; Payment.
(a) Cash Exercise. The purchase rights represented by this
Warrant may be exercised by the Holder, in whole or in part, by the surrender of
this Warrant (with the notice of exercise form attached hereto as Exhibit A duly
executed) at the principal office of the Company, and by the payment to the
Company, by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Exercise Price of the shares being purchased.
(b) Net Issue Exercise. In lieu of exercising this Warrant,
if and only if the Company's Common Stock is quoted in the Over-The-Counter
Market Summary or listed on any exchange, the Holder may elect to receive shares
equal to the value of this Warrant (or the portion
<PAGE> 2
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with notice of such election, in which event the Company
shall issue to the Holder a number of shares of the Company's Common Stock
computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the Holder.
Y = the number of shares of Common Stock purchasable under this Warrant.
A = the fair market value of one share of the Company's Common Stock.
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of this Section 1, the
fair market value of the Company's Common Stock shall mean the average of the
closing bid and asked prices of the Company's Common Stock quoted in the
Over-The-Counter Market Summary or the closing price quoted on any exchange on
which the Common Stock is listed, whichever is applicable, as published in the
Western Edition of The Wall Street Journal for the ten trading days prior to the
date of determination of fair market value.
(d) Stock Certificates. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of Common Stock
so purchased shall be delivered to the Holder within a reasonable time and,
unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to the Holder within such time.
2. Stock Fully Paid; Reservation of Shares. All of the Shares
issuable upon the exercise of the rights represented by this Warrant will, upon
issuance and receipt of the Exercise Price therefor, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company shall at all times have authorized and
reserved for issuance sufficient shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
3. Adjustment of Exercise Price and Number of Shares. Subject to
the provisions of Section 11 hereof, the number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price therefor
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
2
<PAGE> 3
(a) Reclassification, Consolidation or Merger. In case of
any reclassification or change of the Common Stock (other than a change in par
value, or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is a continuing
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation as the case may be, shall execute a
new Warrant, providing that the holder of this Warrant shall have the right to
exercise such new Warrant, and procure upon such exercise and payment of the
same aggregate Exercise Price, in lieu of the shares of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change, consolidation, sale of all or substantially all of the Company's assets
or merger by a holder of an equivalent number of shares of Common Stock. Such
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 3. The
provisions of this subsection (a), subject to Section 11 hereof, shall similarly
apply to successive reclassifications, changes, consolidations, mergers,
transfers and the sale of all or substantially all of the Company's assets.
(b) Stock Splits, Dividends and Combinations. In the event
that the Company shall at any time subdivide the outstanding shares of Common
Stock or shall issue a stock dividend on its outstanding shares of Common Stock
(excluding any dividends issued with respect to any shares of Preferred Stock)
the number of Shares issuable upon exercise of this Warrant immediately prior to
such subdivision or to the issuance of such stock dividend shall be
proportionately increased, and the Exercise Price shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding shares of Common Stock the number of Shares issuable upon exercise
of this Warrant immediately prior to such combination shall be proportionately
decreased, and the Exercise Price shall be proportionately increased, effective
at the close of business on the date of such subdivision, stock dividend or
combination, as the case may be.
4. Notice of Adjustments. Whenever the number of Shares purchasable
hereunder or the Exercise Price thereof shall be adjusted pursuant to Section 3
hereof, the Company shall provide notice by first class mail to the holder of
this Warrant setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the number of Shares which may be purchased and the Exercise
Price therefor after giving effect to such adjustment.
5. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder. In lieu of such fractional
shares the Company shall make a cash payment therefor based upon the Exercise
Price then in effect.
6. Representations of the Company. The Company represents that all
corporate actions on the part of the Company, its officers, directors and
shareholders necessary for the sale and issuance of the Shares pursuant hereto
and the performance of the Company's obligations hereunder were taken prior to
and are effective as of the effective date of this Warrant.
3
<PAGE> 4
7. Representations and Warranties by the Holder. The Holder
represents and warrants to the Company as follows:
(a) This Warrant and the Shares issuable upon exercise
thereof are being acquired for its own account, for investment and not with a
view to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act of 1933, as amended (the
"Act"). Upon exercise of this Warrant, the Holder shall, if so requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
securities issuable upon exercise of this Warrant are being acquired for
investment and not with a view toward distribution or resale.
(b) The Holder understands that the Warrant and the Shares
have not been registered under the Act by reason of their issuance in a
transaction exempt from the registration and prospectus delivery requirements of
the Act pursuant to Section 4(2) thereof, and that they must be held by the
Holder indefinitely, and that the Holder must therefore bear the economic risk
of such investment indefinitely, unless a subsequent disposition thereof is
registered under the Act or is exempted from such registration. The Holder
further understands that the Shares have not been qualified under the California
Securities Law of 1968 (the "California Law") by reason of their issuance in a
transaction exempt from the qualification requirements of the California Law
pursuant to Section 25102(f) thereof, which exemption depends upon, among other
things, the bona fide nature of the Holder's investment intent expressed above.
(c) The Holder has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the purchase of this Warrant and the Shares purchasable pursuant to the
terms of this Warrant and of protecting its interests in connection therewith.
(d) The Holder is able to bear the economic risk of the
purchase of the Shares pursuant to the terms of this Warrant.
8. Restrictive Legends.
The Shares issuable upon exercise of this Warrant (unless
registered under the Act) shall be stamped or imprinted with legends in
substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
THE ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE
4
<PAGE> 5
SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS AGREEMENT, DATED AS OF
JUNE 13, 1996 AMONG INTERNATIONAL MANUFACTURING SERVICES, INC.
(THE "COMPANY") AND CERTAIN HOLDERS OF SHARES OF THE OUTSTANDING
CAPITAL STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE COMPANY.
9. Restrictions Upon Transfer and Removal of Legend.
(a) The Company need not register a transfer of Shares
bearing the restrictive legend set forth in Section 8 hereof, unless the
conditions specified in such legend are satisfied. The Company may also instruct
its transfer agent not to register the transfer of the Shares, unless one of the
conditions specified in the legend referred to in Section 8 hereof is satisfied.
(b) Notwithstanding the provisions of paragraph (a) above,
no opinion of counsel or "no-action" letter shall be necessary for a transfer
without consideration by any holder (i) to an affiliate of the holder, (ii) if
such holder is a partnership, to a partner or retired partner of such
partnership who retires after the date hereof or to the estate of any such
partner or retired partner, (iii) if such holder is a corporation, to a
shareholder of such corporation, or to any other corporation under common
control, direct or indirect, with such holder, or (iv) by gift, will or
intestate succession of any individual holder to his spouse or siblings, or to
the lineal descendants or ancestors of such holder or his spouse, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if such transferee were the original holder hereunder.
10. Rights of Shareholders. No holder of this Warrant shall be
entitled, as a Warrant holder, to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company which may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the holder of this Warrant, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, consolidation, merger, conveyance, or otherwise) or to receive
notice of meetings, or to receive dividends or subscription rights or otherwise
until the Warrant shall have been exercised and the Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
5
<PAGE> 6
11. Expiration of Warrant. This Warrant shall expire and shall no
longer be exercisable upon the earlier to occur of:
(a) 5:00 p.m., California local time, on June 12, 2006.
(b) Such time as the Maxtor Note(s) issued in connection
with the Redemption Agreement between the Holder and the Company dated as of May
16, 1996 shall have been fully paid by the Company, if the final payment has
been made prior to June 13, 1998.
12. Notices, Etc. All notices and other communications from the
Company to the Holder shall be mailed by first class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by the Holder.
13. Governing Law, Headings. This Warrant is being delivered in the
State of California and shall be construed and enforced in accordance with and
governed by the laws of such State. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
Issued this 13th day of June, 1996.
INTERNATIONAL MANUFACTURING
SERVICES, INC.
By:_____________________________________
Title:__________________________________
6
<PAGE> 7
EXHIBIT A
NOTICE OF EXERCISE
TO: INTERNATIONAL MANUFACTURING SERVICES, INC.
211 River Oaks Parkway
San Jose, California 95134
Attention: President
1. The undersigned hereby elects to purchase __________ shares of
Common Stock of INTERNATIONAL MANUFACTURING SERVICES, INC. pursuant to the terms
of the attached Warrant.
2. Method of Exercise (Please initial the applicable blank):
___ The undersigned elects to exercise the attached Warrant
by means of a cash payment, and tenders herewith payment
in full for the purchase price of the shares being
purchased, together with all applicable transfer taxes,
if any.
___ The undersigned elects to exercise the attached Warrant
by means of the net exercise provisions of Section 1(b)
of the Warrant.
3. Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
---------------------------------
(Name)
---------------------------------
---------------------------------
(Address)
4. The undersigned hereby represents and warrants that the
aforesaid shares of Common Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale, in connection
with the distribution thereof, and that the undersigned has no present intention
of distributing or reselling such shares and all representations and warranties
of the undersigned set forth in Section 7 of the attached Warrant are true and
correct as of the date hereof. In support thereof, the undersigned hereby
delivers an Investment Representation Statement in a form substantially similar
to the form attached to the Warrant as Exhibit B.
--------------------------------
(Signature)
Title: __________________________
- ----------------------------
(Date)
<PAGE> 8
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : _________________________
SELLER : INTERNATIONAL MANUFACTURING SERVICES, INC.
COMPANY : INTERNATIONAL MANUFACTURING SERVICES, INC.
SECURITY : COMMON STOCK ISSUED UPON EXERCISE OF THE STOCK
PURCHASE WARRANT ISSUED ON JUNE 13, 1996
AMOUNT : __________ SHARES
DATE : ____________, ____
In connection with the purchase of the above-listed Securities, the Purchaser
represents to the Seller and to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities.
Purchaser is purchasing these Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Securities Act").
(b) Purchaser understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of its investment intent as expressed herein. In this connection,
Purchaser understands that, in the view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if its representation was predicated solely upon a present intention
to hold these Securities for the minimum capital gains period specified under
tax statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.
(c) Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, Purchaser
understands that the Company is under no obligation to register the Securities.
In addition, Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel for the Company.
<PAGE> 9
(d) Purchaser is familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions.
The Securities may be resold in certain limited circumstances subject to
the provisions of Rule 144, which requires among other things: (1) the
availability of certain public information about the Company, (2) the resale
occurring not less than two years after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities less
than three years, (3) the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) Purchaser agrees, in connection with any underwritten public
offering of the Company's securities, (1) not to sell, make short sale of, loan,
grant any options for the purchase of, or otherwise dispose of any shares of
Common Stock of the Company held by me (other than those shares included in the
registration) without the prior written consent of the Company or the
underwriters managing such underwritten public offering of the Company's
securities for one hundred eighty (180) days from the effective date of such
registration, and (2) Purchaser further agrees to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering; provided however that the officers and directors of the Company
who own the stock of the Company also agree to such restrictions.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 are
not exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial burden
of proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
By:___________________________________
Title:________________________________
Date: __________________________, 19__
2
<PAGE> 10
EXHIBIT C
FORM OF TRANSFER
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________________________________________ the right represented by
the attached Warrant to purchase ____________* shares of Common Stock of
INTERNATIONAL MANUFACTURING SERVICES, INC., to which the attached Warrant
relates, and appoints ______________ Attorney to transfer such right on the
books of INTERNATIONAL MANUFACTURING SERVICES, INC., with full power of
substitution in the premises.
Dated: ____________________
-----------------------------------------------
(Signature must conform in all respects to name
of Holder as specified on the face of the
Warrant)
-----------------------------------------------
(Address)
Signed in the presence of:
- ----------
* Insert here the number of shares without making any adjustment for
additional shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the Warrant,
may be deliverable upon exercise.
<PAGE> 1
EXHIBIT 10.1
INTERNATIONAL MANUFACTURING SERVICES, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of this
____ day of ________________, 199__, by and between International Manufacturing
Services, Inc. a Delaware corporation (the "Company"), and
_______________________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for its directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company, wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
<PAGE> 2
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of Indemnitee while serving in such
capacity (hereinafter an "Indemnifiable Event") against any and all expenses
(including attorneys' fees and all other costs, expenses and obligations
incurred in connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to defend, be a witness in
or participate in, any such action, suit, proceeding, alternative dispute
resolution mechanism, hearing, inquiry or investigation), judgments, fines,
penalties and amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "Expenses"), including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than five (5) days after written demand
by Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
-2-
<PAGE> 3
(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. Subject to Section 1(b), the
Company shall advance all Expenses incurred by Indemnitee. The advances to be
made hereunder shall be paid by the Company to Indemnitee as soon as practicable
but in any event no later than five (5) days after written demand by Indemnitee
therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court
-3-
<PAGE> 4
has determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by
the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company shall
give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of the Indemnitee, all amounts payable as a result of such
action, suit, proceeding, inquiry or investigation in accordance with the terms
of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee, upon the delivery to Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same Claim; provided
that, (i) Indemnitee shall have the right to employ Indemnitee's separate
counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment
of separate counsel by Indemnitee has been previously authorized by the Company,
(B) Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such separate counsel to defend
such Claim, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event
-4-
<PAGE> 5
of any change in any applicable law, statute or rule which narrows the right of
a Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorpo ration, its Bylaws, any other
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though
Indemnitee may have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any Claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, Certificate of Incorporation, Bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. Liability Insurance. To the extent the Company maintains
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as to
provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if Indemnitee is a director; or of
the Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
-5-
<PAGE> 6
(a) Excluded Action or Omissions. To indemnify Indemnitee
for acts, omissions or transactions from which Indemnitee may not be relieved of
liability under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise as required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a con stituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees, agents or fiduciaries, so that if Indemnitee is or was a director,
officer, employee, agent or fiduciary of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, Indemnitee shall
stand in the same position under the provisions of this Agreement with respect
to the resulting or surviving corporation as Indemnitee would have with respect
to such constituent corporation if its separate existence had continued.
-6-
<PAGE> 7
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control"
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company acting in such capacity, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than fifty percent
(50%) of the total voting power represented by the Company's then outstanding
Voting Securities, (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof, or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than a merger or
consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 50% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in accordance
with the provisions of Section 1(c) hereof, who shall not have otherwise
performed services for the Company or Indemnitee within the last three years
(other than with respect to matters concerning the rights of Indemnitee under
this Agreement, or of other indemnities under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party"
shall mean any appropriate person or body consisting of a member or members of
the Company's Board of Directors
-7-
<PAGE> 8
or any other person or body appointed by the Board of Directors who is not a
party to the particular Claim for which Indemnitee is seeking indemnification,
or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities"
shall mean any securities of the Company that vote generally in the election of
directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company, spouses, heirs, and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business or
assets of the Company, by written agreement in form and substance satisfactory
to Indemnitee, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
if no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary (as applicable) of the Company or of any other
enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless as a part of such action a court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
-8-
<PAGE> 9
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitations, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
-9-
<PAGE> 10
21. No Construction as Employment Agreement. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INTERNATIONAL MANUFACTURING
SERVICES, INC.
By:______________________________________
Title:___________________________________
Address:_________________________________
_________________________________
_________________________________
AGREED TO AND ACCEPTED
INDEMNITEE:
_____________________________________
(signature)
_____________________________________
(name of Indemnitee)
_____________________________________
_____________________________________
(address)
-11-
<PAGE> 1
EXHIBIT 10.2
INTERNATIONAL MANUFACTURING SERVICES, INC.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to
the administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options will be or are being granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Class A Common Stock of the
Company.
(g) "Company" means International Manufacturing Services,
Inc., a Delaware corporation.
(h) "Consultant" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services
and is compensated for such services, and any director of the Company whether
compensated for such services or not. If and in the event the Company registers
any class of any equity security pursuant to the Exchange Act, the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(i) "Continuous Status as an Employee or Consultant" means
that the employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or
<PAGE> 2
terminated. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of (i) any leave of absence approved by the
Company or (ii) transfers between locations of the Company or between the
Company, its Parent, any Subsidiary, or any successor. A leave of absence
approved by the Company shall include sick leave, military leave, or any other
personal leave approved by an authorized representative of the Company. For
purposes of Incentive Stock Options, no such leave may exceed 90 days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract,
including Company policies. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, on the 181st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(j) "Employee" means any person, including Officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination,
or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(m) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(n) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
-2-
<PAGE> 3
(o) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the
Plan.
(q) "Optioned Stock" means the Common Stock subject to an
Option.
(r) "Optionee" means an Employee or Consultant who receives an
Option.
(s) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 1996 Stock Option Plan.
(u) "Section 16(b)" means Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(w) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 2,235,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an option exchange
program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
repurchased by the Company at their original purchase price, and the original
purchaser of such Shares did not receive any benefits of ownership of such
Shares, such Shares shall become available for future grant under the Plan. For
purposes of the preceding sentence, voting rights shall not be considered a
benefit of Share ownership.
4. Administration of the Plan.
(a) Initial Plan Procedure. Prior to the date, if any, upon
which the Company becomes subject to the Exchange Act, the Plan shall be
administered by the Board or a committee appointed by the Board.
-3-
<PAGE> 4
(b) Plan Procedure after the Date, if any, upon Which the
Company becomes Subject to the Exchange Act.
(i) Administration with Respect to Directors and
Officers. With respect to grants of Options to Employees who are also Officers
or directors of the Company, the Plan shall be administered by (A) the Board if
the Board may administer the Plan in compliance with the rules under Rule 16b-3
promulgated under the Exchange Act or any successor thereto ("Rule 16b-3")
relating to the disinterested administration of employee benefit plans under
which Section 16(b) exempt discretionary grants and awards of equity securities
are to be made, or (B) a Committee designated by the Board to administer the
Plan, which Committee shall be constituted to comply with the rules under Rule
16b-3 relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made.
(ii) Multiple Administrative Bodies. If permitted by
Rule 16b-3, the Plan may be administered by different bodies with respect to
directors, non-director Officers and Employees who are neither directors nor
Officers.
(iii) Administration With Respect to Consultants and
Other Employees. With respect to grants of Options to Employees or Consultants
who are neither directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy Applicable Laws.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any stock exchange upon
which the Common Stock is listed, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(l) of the Plan;
-4-
<PAGE> 5
(ii) to select the Consultants and Employees to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions of any
award granted hereunder;
(vii) to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(f) instead of
Common Stock;
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
-5-
<PAGE> 6
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any
class of common equity securities required to be registered under Section 12 of
the Exchange Act or upon the Plan being assumed by a corporation having a class
of common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year
of the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial
employment, an Employee may be granted Options to purchase up to an additional
500,000 Shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.
(iv) If an Option is cancelled in the same fiscal
year of the Company in which it was granted (other than in connection with a
transaction described in Section 11), the cancelled Option will be counted
against the limit set forth in subsection (i) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
-6-
<PAGE> 7
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of
the grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
-7-
<PAGE> 8
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan, but in no case at a rate of less than 20% per year
over five (5) years from the date the Option is granted.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment allowable under Section 8(b)
of the Plan. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. In
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company (but not in the event of an Optionee's change of
status from Employee to Consultant (in which case an Employee's Incentive Stock
Option shall automatically convert to a Nonstatutory Stock Option on the date
three (3) months and one day from the date of such change of status) or from
Consultant to Employ ee), such Optionee may, but only within such period of time
as is determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
-8-
<PAGE> 9
(c) Disability of Optionee. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee as a
result of his or her disability, Optionee may, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the day three months and
one day following such termination. To the extent that Optionee is not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the Optionee
was not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
10. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in
-9-
<PAGE> 10
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option will terminate immediately
prior to the consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or
into another corporation, the Option may be assumed or an equivalent option may
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option for
each Share of Optioned Stock subject to the Option to be solely common stock of
the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation,
-10-
<PAGE> 11
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
16. Agreements. Options shall be evidenced by written agreements in
such form as the Administrator shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws and the rules of any
stock exchange upon which the Common Stock is listed.
18. Information to Optionees and Purchasers. The Company shall provide
to each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such
-11-
<PAGE> 12
individual owns such Shares. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company assure
their access to equivalent information.
-12-
<PAGE> 13
INTERNATIONAL MANUFACTURING SERVICES, INC.
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
XIX. NOTICE OF STOCK OPTION GRANT
FIELD(1)
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number FIELD(2)
---------------------------------
Date of Grant January 10, 1997
---------------------------------
Vesting Commencement Date January 10, 1997
---------------------------------
Exercise Price per Share $2.50
---------------------------------
Total Number of Shares Granted FIELD(3)
---------------------------------
Total Exercise Price FIELD(4)
---------------------------------
Type of Option: X Incentive Stock Option
------
Nonstatutory Stock Option
------
Term/Expiration Date: January 10, 2007
---------------------------------
Vesting Schedule:
Subject to the acceleration provisions pursuant to Section 5 of the
Employment, Non- Competition and Severance Agreement entered into as of the date
hereof, you may exercise this Option, in whole or in part, according to the
following vesting schedule:
-13-
<PAGE> 14
Ninety (90) days following the Vesting Commencement Date 3/48ths of the
total number of shares granted shall vest, and on each monthly anniversary
thereafter 1/48th of the total number of shares granted shall vest, until all
shares granted hereunder have vested.
-14-
<PAGE> 15
Termination Period:
You may exercise this Option for three months after your employment or
consulting relationship with the Company terminates, or for such longer period
upon your death or disability as provided in the Plan. If your status changes
from Employee to Consultant or Consultant to Employee, this Option Agreement
shall remain in effect. In no case may you exercise this Option after the
Term/Expiration Date as provided above.
XX. AGREEMENT
1. Grant of Option. International Manufacturing Services, Inc., a
Delaware corporation (the "Company"), hereby grants to the Optionee named in the
Notice of Grant (the "Optionee"), an option (the "Option") to purchase the total
number of shares of Common Stock (the "Shares") set forth in the Notice of
Grant, at the exercise price per share set forth in the Notice of Grant (the
"Exercise Price") subject to the terms, definitions and provisions of the 1996
Stock Plan (the "Plan") adopted by the Company, which is incorporated herein by
reference. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
as defined in Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated
as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Grant
and with the applicable provisions of the Plan and this Option Agreement. In the
event of Optionee's death, disability or other termination of the employment or
consulting relationship, this Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by
written notice (in the form attached as Exhibit A) which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements as to
the holder's investment intent with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The written notice shall
be accompanied by payment of the Exercise Price. This Option shall be deemed to
be exercised upon receipt by the Company of such written notice accompanied by
the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock
-15-
<PAGE> 16
exchange upon which the Shares may then be listed. Assuming such compliance, for
income tax purposes the Shares shall be considered transferred to the Optionee
on the date on which the Option is exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.
4. Lock-Up Period. Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to the
first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company
which (A) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by the Optionee for more than six (6) months on the date
of surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(d) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the Exercise Price.
6. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any
-16-
<PAGE> 17
applicable federal or state securities or other law or regulation, including any
rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation
G") as promulgated by the Federal Reserve Board.
7. Termination of Relationship. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 6
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination; provided, however, that
if such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option on the day three months
and one day following such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
9. Death of Optionee. In the event of termination of Optionee's
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 10 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
10. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
11. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
-17-
<PAGE> 18
12. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal and state tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability or state income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of ISO Following Disability. If the Optionee's
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Optionee must exercise an ISO within three months of such termination for the
ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a
regular federal income tax liability and state income tax liability upon the
exercise of a Nonstatutory Stock Option. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee or a former Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares
are held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal and state income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the Option
are held for at least one year after exercise and are disposed of at least two
years after the Date of Grant, any gain realized on disposition of the Shares
will also be treated as long-term capital gain for federal and state income tax
purposes. If Shares purchased under an ISO are disposed of within such one-year
period or within two years after the Date of Grant, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the difference between the Exercise Price and the lesser
of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the
sale price of the Shares.
(e) Notice of Disqualifying Disposition of ISO Shares. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing
-18-
<PAGE> 19
of such disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by the
Optionee.
13. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by state law except for that body of law
pertaining to conflict of laws.
INTERNATIONAL MANUFACTURING SERVICES, INC.
a Delaware corporation
By:
----------------------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
-19-
<PAGE> 20
Optionee acknowledges receipt of a copy of the Plan and represents that
he is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has reviewed
the Plan and this Option in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option and fully understands all
provisions of the Option. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Option. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
Dated:
--------------------- ------------------------------------
FIELD(1)
Residence Address:
------------------------------------
------------------------------------
-20-
<PAGE> 21
EXHIBIT A
1996 STOCK OPTION PLAN
EXERCISE NOTICE
International Manufacturing Services, Inc.
211 River Oaks Parkway
San Jose, CA 95134
Attention: Corporate Secretary
1. Exercise of Option. Effective as of today, , 19 , the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
shares of the Common Stock (the "Shares") of International
Manufacturing Services, Inc. (the "Company") under and pursuant to the 1996
Stock Option Plan, as amended (the "Plan") and the [X] Incentive [ ]
Nonstatutory Stock Option Agreement dated January 15, 1997 (the "Option
Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have
-1-
<PAGE> 22
a right of first refusal to purchase the Shares on the terms and conditions set
forth in this Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Company, and the Company and/or its assignees shall
again be offered the Right of First Refusal before any Shares held by the Holder
may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the
-2-
<PAGE> 23
benefit of the Optionee's immediate family shall be exempt from the provisions
of this Section. "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares 90 days after the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
5. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares
together with any other legends that may be required by the Company or by state
or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL
HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE
EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH TRANSFER RESTRIC TIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
-3-
<PAGE> 24
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be
restricted by Section 260.141.11 of the Rules of the California Corporations
Commissioner, a copy of which is attached to Exhibit B, the Investment
Representation Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
7. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
9. Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
-4-
<PAGE> 25
11. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee
Submitted by: Accepted by:
OPTIONEE: INTERNATIONAL MANUFACTURING
SERVICES, INC.
By:
-------------------------------
Its:
--------------------------------
- ---------------------------
(Signature)
Address: Address:
2071 Concourse Drive
- ----------------------------------
San Jose, CA 95131
- ----------------------------------
-5-
<PAGE> 26
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE : FIELD(1)
COMPANY : INTERNATIONAL MANUFACTURING SERVICES, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
state and any other legend required under applicable state securities laws.
-1-
<PAGE> 27
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than two years after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than three years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
(e) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
-------------------------------------
-2-
<PAGE> 28
Date: , 19
-------------------------- ---
-3-
<PAGE> 29
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security upon
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory
or country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at
the sale that transfer of the securities is restricted under this rule,
(ii) delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the bene ficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification require ment
by subdivision (f) of Section 25102; provided that any such transfer is on
the condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY,
OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES."
-1-
<PAGE> 1
EXHIBIT 10.3
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
o to attract and retain the best available personnel for
positions of substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means International Manufacturing Services, Inc.,
a Delaware corporation.
<PAGE> 2
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
-2-
<PAGE> 3
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1997 Stock Option Plan.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
-3-
<PAGE> 4
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,750,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
-4-
<PAGE> 5
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right of the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
-5-
<PAGE> 6
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
-6-
<PAGE> 7
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 250,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 250,000
Shares which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
-7-
<PAGE> 8
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
-8-
<PAGE> 9
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option,
-9-
<PAGE> 10
the Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her Option
within the time specified by the Administrator, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such
-10-
<PAGE> 11
offer. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not
-11-
<PAGE> 12
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the
-12-
<PAGE> 13
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be
-13-
<PAGE> 14
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-14-
<PAGE> 15
INTERNATIONAL MANUFACTURING SERVICES, INC.
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number ______________________________
Date of Grant ______________________________
Vesting Commencement Date ______________________________
Exercise Price per Share $_____________________________
Total Number of Shares Granted ______________________________
Total Exercise Price $_____________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: ______________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest one (1) year after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
<PAGE> 16
Termination Period:
This Option may be exercised for three (3) months after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for one year after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE> 17
3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
-3-
<PAGE> 18
(ii) Incentive Stock Option. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
-4-
<PAGE> 19
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: INTERNATIONAL MANUFACTURING
SERVICES, INC.
- -------------------------------- ---------------------------------------
Signature By
- -------------------------------- ---------------------------------------
Print Name Title
- --------------------------------
Residence Address
- --------------------------------
-5-
<PAGE> 20
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
-6-
<PAGE> 21
EXHIBIT A
INTERNATIONAL MANUFACTURING SERVICES, INC.
EXERCISE NOTICE
International Manufacturing Services, Inc.
2071 Concourse Drive
San Jose, California 95131
Attention: [Title]
1. Exercise of Option. Effective as of today, _______________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of International Manufacturing Services, Inc.
(the "Company") under and pursuant to the International Manufacturing Services,
Inc. 1997 Stock Option Plan (the "Plan") and the Stock Option Agreement dated ,
19___ (the "Option Agreement"). The purchase price for the Shares shall be $
_______________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
<PAGE> 22
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: INTERNATIONAL MANUFACTURING
SERVICES, INC.
- ------------------------------ ------------------------------------------
Signature By
- ------------------------------ ------------------------------------------
Print Name Its
Address: Address:
- ------------------------------ International Manufacturing Services, Inc.
- ------------------------------ 2071 Concourse Drive
San Jose, California 95131
------------------------------------------
Date Received
-2-
<PAGE> 23
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between
International Manufacturing Services, Inc., a Delaware corporation ("Pledgee"),
and _________________________ ("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's International Manufacturing Services, Inc. 1997 Stock Option Plan, and
Pledgor's election under the terms of the Option to pay for such shares with his
promissory note (the "Note"), Pledgor has purchased _________ shares of
Pledgee's Common Stock (the "Shares") at a price of $________ per share, for a
total purchase price of $__________. The Note and the obligations thereunder are
as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledge holder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to
enter into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum
of the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE> 24
c. Margin Regulations. In the event that Pledgee's Common Stock
is now or later becomes margin-listed by the Federal Reserve Board and Pledgee
is classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees
to cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and
of this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in
the Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder here-
-2-
<PAGE> 25
under upon payments of the principal of the Note. The number of the pledged
Shares which shall be released shall be that number of full Shares which bears
the same proportion to the initial number of Shares pledged hereunder as the
payment of principal bears to the initial full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
-3-
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" ------------------------------------------
Signature
------------------------------------------
Print Name
Address: ------------------------------------------
------------------------------------------
"PLEDGEE" INTERNATIONAL MANUFACTURING
SERVICES, INC.,
a Delaware corporation
------------------------------------------
Signature
------------------------------------------
Print Name
------------------------------------------
Title
"PLEDGEHOLDER" ------------------------------------------
Secretary of
International Manufacturing Services, Inc.
-4-
<PAGE> 27
EXHIBIT C
NOTE
$_______________ San Jose,California
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to International
Manufacturing Services, Inc., a Delaware corporation (the "Company"), or order,
the principal sum of _______________________ ($_____________), together with
interest on the unpaid principal hereof from the date hereof at the rate of
_______________ percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
------------------------------------
------------------------------------
<PAGE> 28
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 STOCK OPTION PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative
below, you and the Company agree that this Stock Purchase Right is granted under
and governed by the terms and conditions of the 1997 Stock Option Plan and the
Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of
which are made a part of this document. You further agree to execute the
attached Restricted Stock Purchase Agreement as a condition to purchasing any
shares under this Stock Purchase Right.
GRANTEE: INTERNATIONAL MANUFACTURING
SERVICES, INC.
- --------------------------- --------------------------------
Signature By
- --------------------------- --------------------------------
Print Name Title
<PAGE> 29
EXHIBIT A-1
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is
an Service Provider, and the Purchaser's continued participation is considered
by the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Admin istrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider
for any or no reason (including death or disability) before all of the Shares
are released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's
<PAGE> 30
indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by
a combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such
Shares, then each such designee or assignee shall pay the Company cash equal to
the difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares shall
be released from the Company's Repurchase Option [one year] after the Date of
Grant and __________________ percent (______%) of the Shares [at the end of each
month thereafter], provided that the Purchaser does not cease to be a Service
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in
Section 6 or the transfer of the Shares to the Company or its assignees
contemplated by this Agreement, none of the Shares or any beneficial interest
therein shall be transferred, encumbered or otherwise disposed of in any way
until such Shares are released from the Company's Repurchase Option in
accordance with the provi sions of this Agreement, other than by will or the
laws of descent and distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock
-2-
<PAGE> 31
assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any,
issued hereunder shall be endorsed with the following legend (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock
-3-
<PAGE> 32
dividend or other change in the Shares which may be made by the Company after
the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contem plated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Purchaser understands that the
Purchaser (and not the Company) shall be responsible for the Purchaser's own tax
liability that may arise as a result of the transactions contemplated by this
Agreement. The Purchaser understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the purchase price for the Shares and the Fair Market Value of the
Shares as of the date any restrictions on the Shares lapse. In this context,
"restriction" includes the right of the Company to buy back the Shares pursuant
to the Repurchase Option. The Purchaser understands that the Purchaser may elect
to be taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the IRS within 30 days from the date of purchase. The form for making this
election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
-4-
<PAGE> 33
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: INTERNATIONAL MANUFACTURING
SERVICES, INC.
- ------------------------------ ----------------------------------
Signature By
- ------------------------------ ----------------------------------
Print Name Title
-5-
<PAGE> 34
Signature By
- ------------------------------ ----------------------------------
Print Name Title
-6-
<PAGE> 35
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto ________________________________ (__________) shares of the
Common Stock of International Manufacturing Services, Inc. standing in my name
of the books of said corporation represented by Certificate No. _____ herewith
and do hereby irrevocably constitute and appoint to transfer the said stock on
the books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, 19__.
Dated: _______________, 19
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 36
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
_________, 19___
Corporate Secretary
International Manufacturing Services, Inc.
2071 Concourse Drive
San Jose, California 95131
Dear _________________:
As Escrow Agent for both International Manufacturing Services, Inc., a
Delaware corporation (the "Company"), and the undersigned purchaser of stock of
the Company (the "Purchaser"), you are hereby authorized and directed to hold
the documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing hereunder at the principal office of
the Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE> 37
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE> 38
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
COMPANY: International Manufacturing Services, Inc.
2071 Concourse Drive
San Jose, California 95131
PURCHASER: ------------------------------------------
------------------------------------------
------------------------------------------
ESCROW AGENT: Corporate Secretary
International Manufacturing Services, Inc.
2071 Concourse Drive
San Jose, California 95131
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
-3-
<PAGE> 39
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
INTERNATIONAL MANUFACTURING
SERVICES, INC.
-------------------------------------
By
-------------------------------------
Title
PURCHASER:
-------------------------------------
Signature
-------------------------------------
Print Name
ESCROW AGENT:
- -------------------------------------
Corporate Secretary
-4-
<PAGE> 40
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of International Manufacturing Services, Inc., as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: _______________, 19
-----------------------------------------
Signature of Spouse
<PAGE> 41
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ___________ shares (the "Shares") of the Common Stock of
International Manufacturing Services, Inc. (the "Company").
3. The date on which the property was transferred is: ______________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is:
$---------------.
6. The amount (if any) paid for such property is:
$---------------.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ _________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ _________________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.4
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean International Manufacturing Services,
Inc., a Delaware corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which
has been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
<PAGE> 2
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement on Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Period" shall mean a period of approximately six
(6) months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after June 1 and terminating on the
last Trading Day in the period ending the following September 30, or commencing
on the first Trading Day on or after November 1 and terminating on the last
Trading Day in the period ending the following May 31; provided, however, that
the first Offering Period under the Plan shall commence with the first Trading
Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before May 31. The duration of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1997 Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
-2-
<PAGE> 3
(p) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after June 1st and November 1st of each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof; provided, however, that the first Offering Period under
the Plan shall commence with the first Trading Day on or after the date on which
the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before May 31,
1998. The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected
thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date, in accordance with the applicable due
dates established by the Company from time to time.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
-3-
<PAGE> 4
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period; provided, however, that for the first Offering Period under the Plan a
participant may elect to have payroll deductions at a rate not exceeding fifteen
percent (15%) of the Compensation such participant receives on each pay day
during the Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. A participant may change his or her payroll deduction
rate only one time per Offering Period. The change in rate shall be effective
with the first full payroll period following five (5) business days after the
Company's receipt of the new subscription agreement unless the Company elects to
process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise
-4-
<PAGE> 5
Date by the applicable Purchase Price; provided that in no event shall an
Employee be permitted to purchase during each Offering Period more than 20,000
shares (subject to any adjustment pursuant to Section 19), and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of the shares purchased upon exercise of his
or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the
-5-
<PAGE> 6
person or persons entitled thereto under Section 15 hereof, and such
participant's option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment (but not a participant receiving severance pay) shall
be treated as continuing to be an Employee for the participant's customary
number of hours per week of employment during the period in which the
participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 250,000 shares
less any shares issued under the Company's 1997 Non-U.S. Employee Stock Purchase
Plan, subject to adjustment upon changes in capitalization of the Company as
provided in Section 19 hereof. If, on a given Exercise Date, the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such parti cipant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
-6-
<PAGE> 7
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the Reserves, the maximum number of shares
each participant may purchase per Offering Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class,
-7-
<PAGE> 8
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, the
Offering Period then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date"). The New Exercise Date shall be before the date
of the Company's proposed sale or merger. The Board shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a
-8-
<PAGE> 9
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being pur chased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-9-
<PAGE> 10
EXHIBIT A
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the International Manufacturing Services, Inc. 1997 Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to 15% for the first
Offering Period) during the Offering Period in accordance with the
Employee Stock Purchase Plan. (Please note that no fractional
percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
_____________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at
the time of such disposition in an amount equal to the excess of the
fair market value of the shares at the time such shares were purchased
by me over the price which I paid for the shares. I hereby agree to
notify the Company in writing within 30 days after the date of any
disposition of shares and I will make adequate provision for Federal,
state or other tax
<PAGE> 11
withholding obligations, if any, which arise upon the disposition of the
Common Stock. The Company may, but will not be obligated to, withhold
from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year holding period, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which
I paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) __________________________________________________
(First) (Middle) (Last)
_________________________ __________________________________________________
Relationship
__________________________________________________
(Address)
Employee's Social
Security Number: __________________________________________________
Employee's Address: _________________________________________________
__________________________________________________
__________________________________________________
-2-
<PAGE> 12
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: _______________ _____________________________________________________
Signature of Employee
_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE> 13
EXHIBIT B
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the International
Manufacturing Services, Inc. 1997 Employee Stock Purchase Plan which began on
___________ 19____ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
_____________________________________
_____________________________________
_____________________________________
Signature:
_____________________________________
Date: _______________________________
<PAGE> 1
EXHIBIT 10.5
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 NON-U.S. EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide non-U.S. employees of
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions.
2. Definitions.
(a) "Applicable Law" shall mean legal requirements relating to the
administration of employee stock purchase plans under the applicable laws of any
country or jurisdiction to which this Plan is extended.
(b) "Board" shall mean the Board of Directors of the Company or any
of its committees that may be administering the Plan.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean International Manufacturing Services, Inc.,
a Delaware corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship may, pursuant to
regulations established by the Board and as permitted or required by Applicable
Law, be treated as continuing intact while the individual is on sick leave or
other leave of absence approved by the Company.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq
-1-
<PAGE> 2
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement on Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Period" shall mean a period of approximately six (6)
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after June 1 and terminating on the
last Trading Day in the period ending the following September 30, or commencing
on the first Trading Day on or after November 1 and terminating on the last
Trading Day in the period ending the following May 31; provided, however, that
the first Offering Period under the Plan shall commence with the first Trading
Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before May 31. The duration of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1997 Non-U.S. Employee Stock Purchase
Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
-2-
<PAGE> 3
(p) "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who is not an Employee for U.S. tax purposes and
who shall be employed by the Company on a given Enrollment Date shall be
eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on the first Trading Day on or
after June 1st and November 1st of each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 20 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before May 31, 1998. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a Participation Agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date in accordance with the applicable due dates
established by the Company from time to time.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE> 4
(c) Notwithstanding anything to the contrary contained herein, an
Employee's enrollment in the Plan shall also constitute enrollment in the
Company's 1997 Employee Stock Purchase Plan (the "U.S. ESPP") as of the
Enrollment Date of the current Offering Period under the U.S. ESPP. Such
Employee's payroll deductions with respect to the U.S. ESPP prior to the
effective date of a transfer of the Employee to the Company or a Designated
Subsidiary that results in the Employee becoming an Employee for U.S. tax
purposes shall be zero percent (0%), and such Employee's payroll deductions with
respect to the U.S. ESPP following the effective date of the Employee's transfer
may be at the same rate as the Employee's rate of payroll deductions with
respect to this Plan prior to such transfer, or may be adjusted by the Employee
pursuant to Section 6 of the U.S. ESPP. Such Employee's payroll deductions with
respect to this Plan shall be zero percent (0%) as of the effective date of such
transfer.
6. Payroll Deductions.
(a) At the time a participant files his or her Participation
Agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period; provided, however, that for the first Offering Period under the Plan a
participant may elect to have payroll deductions made at a rate not exceeding
fifteen percent (15%) of the Compensation such participant receives on each
payday during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new Participation Agreement authorizing a change in payroll
deduction rate. A participant may only change his or her payroll deduction rate
one time per Offering Period. The change in rate shall be effective with the
first full payroll period following five (5) business days after the Company's
receipt of the new Participation Agreement unless the Company elects to process
a given change in participation more quickly. A participant's Participation
Agreement shall remain in effect for successive Offering Periods unless
terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's Participation Agreement at the beginning of the first
Offering Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
-4-
<PAGE> 5
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than
20,000 shares (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, notice of exercise of his or her option shall be
deemed to have been given by the participant and his or her option for the
purchase of shares shall be exercised automatically on the Exercise Date, and
the maximum number of full shares subject to option shall be purchased for such
participant at the applicable Purchase Price with the accumulated payroll
deductions in his or her account. No fractional shares shall be purchased; any
payroll deductions accumulated in a participant's account which are not
sufficient to purchase a full share shall be retained in the participant's
account for the subsequent Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of the shares purchased upon exercise of his or her
option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant
-5-
<PAGE> 6
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new Participation Agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment (but not a participant who is receiving severance pay)
shall be treated as continuing to be an Employee for the participant's customary
number of hours per week of employment during the period in which the
participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be the number of shares
reserved and still available under the U.S. ESPP, subject to adjustment upon
changes in capitalization of the Company as provided in Section 19 hereof. If,
on a given Exercise Date, the number of shares with respect to which options are
to be exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and
-6-
<PAGE> 7
exclusive discretionary authority to construe, interpret and apply the terms of
the Plan, to determine eligibility and to adjudicate all disputed claims filed
under the Plan and to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations necessary to conform the
Plan to Applicable Law. Every finding, decision and determination made by the
Board or its committee shall, to the full extent permitted by law, be final and
binding upon all parties and to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations necessary to
conform the Plan to Applicable Law.
15. Designation of Beneficiary.
(a) Subject to Applicable Law, a participant may file a written
designation of a beneficiary who is to receive any shares and cash, if any, from
the participant's account under the Plan in the event of such participant's
death subsequent to an Exercise Date on which the option is exercised but prior
to delivery to such participant of such shares and cash. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death prior to exercise of the option. If a participant is married
and the designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
-7-
<PAGE> 8
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
-8-
<PAGE> 9
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Applicable Law, the Company shall obtain shareholder approval in
such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being pur chased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-9-
<PAGE> 10
EXHIBIT A
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 NON-U.S. EMPLOYEE STOCK PURCHASE PLAN
PARTICIPATION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
International Manufacturing Services, Inc. 1997 Non-U.S. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to
purchase shares of the Company's Common Stock in accordance with this
Participation Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 15% for the first
Offering Period only) during the Offering Period in accordance with the
Employee Stock Purchase Plan. (Please note that no fractional percentages
are permitted.)
3. I understand that said payroll deductions shall be accumulated in order to
exercise the option(s) granted to me pursuant to the Plan and to purchase
shares of Common Stock at the applicable Purchase Price determined in
accordance with the Employee Stock Purchase Plan. I understand that if I
do not withdraw from an Offering Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Participation Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only): .
6. I understand that:
(a) neither the Plan nor this Participation Agreement shall form any
part of any contract of employment between me and the Company or any
Designated Subsidiary, and it shall not confer on me any legal or
equitable rights (other than those constituting the options granted
under the Plan themselves) against the Company or any Designated
-1-
<PAGE> 11
Subsidiary, directly or indirectly, or give rise to any cause of
action in law or in equity against the Company or any subsidiary;
(b) my benefits under the Plan shall not form any part of my wages, pay
or remuneration or count as wages, pay or remuneration for pension
fund or other purposes;
(c) in no circumstances shall I, upon ceasing to hold my office or
employment by virtue of which I am eligible to participate in the
Plan, be entitled to any compensation for any loss of any right or
benefit or prospective right or benefit under the Plan, which I
might otherwise have enjoyed, whether such compensation is claimed
by way of damages for wrongful dismissal or other breach of contract
or by way of compensation for loss of office or otherwise.
(d) that the Company expressly retains the right to terminate the Plan
at any time and that I will have no right to continued option grants
under the Plan in such event.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Participation Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
-------------------------------------------------------
(First) (Middle) (Last)
- ------------------------- --------------------------------------------------
Relationship
--------------------------------------------------
(Address)
Employee's Social
Security Number:
--------------------------------------------------
Employee's Address:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
-2-
<PAGE> 12
I UNDERSTAND THAT THIS PARTICIPATION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------- --------------------------------------------------
Signature of Employee
--------------------------------------------------
Spouse's Signature
(If beneficiary other than spouse)
-3-
<PAGE> 13
EXHIBIT B
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 NON-U.S. EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the International
Manufacturing Services, Inc. 1997 Non-U.S. Employee Stock Purchase Plan which
began on ___________ 19____ (the "Enrollment Date") hereby notifies the Company
that he or she hereby withdraws from the Offering Period. He or she hereby
directs the Company to pay to the undersigned as promptly as practicable all the
payroll deductions credited to his or her account with respect to such Offering
Period. The undersigned understands and agrees that his or her option for such
Offering Period will be automatically terminated. The undersigned understands
further that no further payroll deductions will be made for the purchase of
shares in the current Offering Period and the undersigned shall be eligible to
participate in succeeding Offering Periods only by delivering to the Company a
new Participation Agreement.
Name and Address of Participant:
------------------------------------
------------------------------------
------------------------------------
Signature:
------------------------------------
Date:
------------------------------
<PAGE> 1
EXHIBIT 10.6
INTERNATIONAL MANUFACTURING SERVICES, INC.
SUMMARY OF
MANAGEMENT INCENTIVE PLAN
I OVERVIEW
This plan is created to provide an incentive to management and key
employees for achieving planned business objectives established for a
fiscal year. The Plan is designed to reward all participants when the
Company's financial objectives are attained. The Plan is a key element
for ensuring that the compensation of IMS's key employees supports IMS's
business objectives as well as maintaining competitiveness for
participating employees.
This plan will be revised annually, based on annual financial objectives
and other corporate objectives.
Participants must be regular, full-time employees on the date payment is
made to be eligible for payment. Any participants entering the plan
after a specified date will be eligible for prorated payments per the
payment provisions of the plan, if they have worked at least 2/3rds of
the payout period.
II. TARGET INCENTIVE AND BASIS FOR PAYMENT
o Annual target incentive is established at differing levels for
different categories of participants as a percentage of annual
base salary.
o The annual target incentive is tied to accomplishment of
Corporate EBIT Objectives. EBIT is defined in the Plan, reviewed
and approved by senior management and the IMS Board of
Directors.
o Results are assessed and paid against these objectives on a
quarterly basis, subject to certain holdbacks.
III. ELIGIBILITY REQUIREMENTS
Eligible participants for the Plan are:
o President & CEO
o Vice Presidents
o Direct Reports to Vice Presidents (Directors & Key Managers)
o Plant Managers
o Other key employees as determined by Company management and
approved by the Compensation Committee.
o There will be no payout if the Company loses money, or if
payment would take the Company to a loss position.
IV. CHANGES
Changes to the plan may only occur with the Chief Executive Officer and
IMS Compensation Committee approval.
V. PAYOUT MATRIX FOR ACCOMPLISHMENT OF FINANCIAL (EBIT) OBJECTIVES
Financial Objective payouts will be triggered by the attainment of
financial break-even of specified consolidated corporate earnings before
interest and taxes (including bonus accrual) ("EBIT"). No payouts will
be made if the Company is in a loss situation, or if payout of an
incentive bonus would trigger a loss.
IMS must be in compliance with bank covenants or have obtained
waiver/amendments.
<PAGE> 1
EXHIBIT 10.7
INTERNATIONAL MANUFACTURING SERVICES, INC.
1997 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Director Option
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means International Manufacturing Services,
Inc., a Delaware corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the date of
<PAGE> 2
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" means the Common Stock subject to an
Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an
Employee.
(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1997 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. Stock Subject to the Plan. Subject to the provisions of Section
10 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 225,000 Shares of Common Stock (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
-2-
<PAGE> 3
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically
granted an Option to purchase 25,000 Shares (the "First Option") on the date on
which such person first becomes an Outside Director, whether through election by
the shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that (1) an Inside Director who ceases to be an Inside
Director but who remains a Director and (2) persons who are Outside Directors on
the date this Plan is adopted by the Board shall not receive a First Option.
(iii) Each Outside Director shall be automatically
granted an Option to purchase 10,000 Shares (a "Subsequent Option") on the date
of the annual stockholders' meeting of each year provided he or she is then an
Outside Director and if as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(iv) Each Outside Director shall be automatically
granted an Option to purchase 10,000 Shares on the date the Company's initial
public offering is declared effective (the "IPO Option").
(v) Notwithstanding the provisions of subsections (ii),
(iii) and (iv) hereof, any exercise of an Option granted before the Company has
obtained shareholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.
(vi) The terms of the IPO Option and a First Option
granted hereunder shall be as follows:
(A) the term of the IPO Option and the First
Option shall be ten (10) years.
(B) the IPO Option and the First Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100%
of the Fair Market Value per Share on the date of grant of the IPO Option and
First Option.
(D) subject to Section 10 hereof, the IPO Option
and the First Option shall become exercisable as to twenty-five percent (25%) of
the Shares subject to the IPO Option and the First Option on the first
anniversary of its grant date and 1/48th each month thereafter, provided that
the Optionee continues to serve as a Director on such dates.
-3-
<PAGE> 4
(vii) The terms of a Subsequent Option granted hereunder
shall be as follows:
(A) the term of the Subsequent Option shall be
ten (10) years.
(B) the Subsequent Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100%
of the Fair Market Value per Share on the date of grant of the Subsequent
Option.
(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to twenty-five percent (25%) of the Shares
subject to the Subsequent Option on the one year anniversary of its grant date
and 1/48th of the Shares subject to the Option at the end of each month
thereafter, provided that the Optionee continues to serve as a Director on such
dates.
(viii) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms set
forth in Section 4 hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case
of Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) consideration
received by the Company under a cashless exercise
-4-
<PAGE> 5
program implemented by the Company in connection with the Plan, or (v) any
combination of the foregoing methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as
a Director terminates as a result of total and permanent disability (as defined
in Section 22(e)(3) of the Code), the Optionee may exercise his or her Option,
but only within twelve (12) months following the date of such termination, and
only to the extent that the Optionee was entitled to exercise it on the date of
-5-
<PAGE> 6
such termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. Unless otherwise provided for by
the Administrator, the Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent options
may be substituted by the successor corporation or a Parent or
-6-
<PAGE> 7
Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or
substituted for, the Option or equivalent option shall continue to be
exercisable as provided in Section 4 hereof for so long as the Optionee serves
as a Director or a director of the Successor Corporation. Following such
assumption or substitution, if the Optionee's status as a Director or director
of the Successor Corporation, as applicable, is terminated other than upon a
voluntary resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(b) through (d) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4 hereof.
-7-
<PAGE> 8
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
-8-
<PAGE> 9
INTERNATIONAL MANUFACTURING SERVICES, INC.
DIRECTOR OPTION AGREEMENT
International Manufacturing Services, Inc., a Delaware corporation (the
"Company"), has granted to ______________________________________ (the
"Optionee"), an option to purchase a total of [ __________________ (_________)]
shares of the Company's Common Stock (the "Optioned Stock"), at the price
determined as provided herein, and in all respects subject to the terms,
definitions and provisions of the Company's 1997 Director Option Plan (the
"Plan") adopted by the Company which is incorporated herein by reference. The
terms defined in the Plan shall have the same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and
is not intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as follows:
(a) Right to Exercise.
(i) This Option shall become exercisable in
installments cumulatively with respect to __________ percent (___%) of the
Optioned Stock one year after the date of grant, and as to an additional
______________ percent (__%) of the Optioned Stock on each anniversary of the
date of grant, so that one hundred percent (100%) of the Optioned Stock shall be
exercisable [_______] years after the date of grant; provided, however, that in
no event shall any Option be exercisable prior to the date the stockholders of
the Company approve the Plan.
(ii) This Option may not be exercised for a fraction of
a share.
(iii) In the event of Optionee's death, disability or
other termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(b) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such written
notice, in the form attached hereto as Exhibit A, shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice shall be accompanied by payment of the
exercise price.
-1-
<PAGE> 10
4. Method of Payment. Payment of the exercise price shall be by any
of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check; or
(c) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together
with such other documentation as the Company and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten
(10) years from the date of grant of this Option, and may be exercised during
such period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the
-2-
<PAGE> 11
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
DATE OF GRANT: ______________
INTERNATIONAL MANUFACTURING
SERVICES, INC.,
a Delaware corporation
By: _________________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: _________________
_____________________________________
Optionee
-3-
<PAGE> 12
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
International Manufacturing Services, Inc.
2071 Concourse Drive
San Jose, California 95131
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of International Manufacturing Services, Inc. (the "Company") under
and pursuant to the Company's 1997 Director Option Plan and the Director Option
Agreement dated _______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee
has received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is under
no obligation to register the Shares and that an exemption may not be available
or may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company
the aggregate purchase price for the Shares that Optionee has elected to
purchase and has made provision for the payment of any federal or state
withholding taxes required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by
reference. This Exercise Notice and the Agreement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the
-1-
<PAGE> 13
subject matter hereof. This Exercise Notice and the Agreement are governed by
California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: INTERNATIONAL MANUFACTURING
SERVICES, INC.
- ---------------------------- ----------------------------------
Signature By
- ---------------------------- ----------------------------------
Print Name Title
Address:
- ----------------------------
- ----------------------------
Dated: ______________________ Dated: ____________________________
-2-
<PAGE> 1
EXHIBIT 10.8
INTERNATIONAL MANUFACTURING SERVICES, INC.
COMMON STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of June 13, 1996, between International
Manufacturing Services, Inc., a Delaware corporation (the "Company"), and Robert
G. Behlman ("Purchaser").
WHEREAS Purchaser is an employee of or consultant to the Company whose
continued affiliation with the Company is considered to be important for the
Company's continued growth; and
WHEREAS in order to provide Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for Purchaser to continue to participate
in the affairs of the Company, the Company is willing to sell to Purchaser and
Purchaser desires to purchase shares of Common Stock according to the terms and
conditions hereof;
THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF STOCK. Subject to the terms and conditions of
this Agreement, the Company hereby agrees to sell to Purchaser and Purchaser
agrees to purchase from the Company 100,000 shares of the Company's Common Stock
(the "Stock") at a price of $1.1061945 per share, for an aggregate purchase
price of $110,619.45. Payment of the aggregate purchase price shall be by a full
recourse promissory note in the amount of $110,619.45 (the "Note") in the form
attached hereto as Exhibit A. The Note shall bear interest at a rate no less
than the "applicable federal rate" prescribed under the Internal Revenue Code
and its regulations at time of purchase, and shall be secured by a pledge of the
Stock purchased by the Note pursuant to a Security Agreement in the form
attached hereto as Exhibit B (the "Security Agreement") accompanied by executed
stock powers in the form attached hereto as Exhibit C. Upon such payment, the
Company shall issue a duly executed certificate evidencing the Stock in the name
of Purchaser, said certificate to be held by the Secretary of the Company
subject to the terms and conditions of the Security Agreement.
2. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The share certificate evidencing the Stock issued
hereunder shall be endorsed with the following legends (in addition to any
legends required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF
<PAGE> 2
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A STOCKHOLDERS AGREEMENT, DATED AS OF JUNE 13, 1996
AMONG INTERNATIONAL MANUFACTURING SERVICES, INC. (THE "COMPANY") AND
CERTAIN HOLDERS OF SHARES OF THE OUTSTANDING CAPITAL STOCK OF THE
COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
3. PURCHASER'S REPRESENTATIONS AND COVENANTS. In connection with the
purchase of the Stock, Purchaser hereby represents and warrants to the Company
as follows:
(a) INVESTMENT INTENT; CAPACITY TO PROTECT INTERESTS. Purchaser is
purchasing the Stock solely for Purchaser's own account for investment and not
with a view to or for sale in connection with any distribution of the Stock or
any portion thereof and not with any present intention of selling, offering to
sell or otherwise disposing of or distributing the Stock or any portion thereof.
Purchaser also represents that the entire legal and beneficial interest of the
Stock is being purchased, and will be held, for Purchaser's account only, and
neither in whole or in part for any other person. Purchaser either (i) has a
pre-existing business or personal relationship with the Company or at least one
of its officers, directors or controlling persons, or (ii) by reason of
Purchaser's business or financial experience (or the business or financial
experience of Purchaser's professional advisors who are unaffiliated with and
who are not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly), can be reasonably assumed to have the capacity
to evaluate the merits and risks of an investment in the Company and to protect
Purchaser's own interests in connection with this transaction.
(b) RESIDENCE. Purchaser's principal residence is within the State of
California and is located at the address indicated beneath Purchaser's signature
below.
(c) INFORMATION CONCERNING COMPANY. Purchaser has discussed the
Company and its plans, operations and financial condition with the Company's
officers and has received all such information as Purchaser has deemed necessary
and appropriate to enable Purchaser to evaluate the financial risk inherent in
making an investment in the Stock. Purchaser has received satisfactory and
-2-
<PAGE> 3
complete information concerning the business and financial condition of the
Company in response to all inquiries in respect thereof.
(d) ECONOMIC RISK. Purchaser realizes that the purchase of the Stock
will be a highly speculative investment and involves a high degree of risk.
Purchaser is able, without impairing Purchaser's financial condition, to hold
the Stock for an indefinite period of time and to suffer a complete loss on
Purchaser's investment.
(e) RESTRICTED SECURITIES. Purchaser understands and acknowledges
that:
(i) The Stock has not been registered under the Securities Act
of 1933, as amended, in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. In this connection, Purchaser understands
that, in the view of the Securities and Exchange Commission ("SEC"), the
statutory basis for such exemption may be unavailable if Purchaser's
representation was predicated solely upon a present intention to hold the Stock
for the minimum capital gains period specified under tax statutes, for a
deferred sale, for or until an increase or decrease in the market price of the
Stock, or for a period of one year or any other fixed period in the future.
(ii) The Stock must be held indefinitely unless it is
subsequently registered under the Securities Act or unless an exemption from
such registration is otherwise available. Purchaser further acknowledges and
understands that the Company is under no obligation to register the Stock. In
addition, Purchaser understands that the certificate evidencing the Stock will
be imprinted with a legend which prohibits the transfer of the Stock unless it
is registered or such registration is not required in the opinion of counsel
satisfactory to the Company.
(f) DISPOSITION UNDER RULE 144. Purchaser understands that:
(i) The shares of Stock are restricted securities within the
meaning of Rule 144 promulgated under the Securities Act; that the exemption
from registration under Rule 144 will not be available in any event for at least
two (2)) years from the date of purchase and payment of the Stock, and even then
will not be available unless (i) a public trading market then exists for the
Common Stock of the Company, (ii) adequate information concerning the Company is
then available to the public, and (iii) other terms and conditions of Rule 144
are complied with; and that any sale of the Stock may be made only in limited
amounts in accordance with such terms and conditions of Rule 144;
(ii) That at the time Purchaser wishes to sell the Stock there
may be no public market upon which to make such a sale; that, even if such a
public market then exists, the Company may not be satisfying the current public
information requirements of Rule 144; and that, in such event, Purchaser would
be precluded from selling the Stock under Rule 144 even if the two (2) year
minimum holding period had been satisfied; and
-3-
<PAGE> 4
(iii) In the event all of the requirements of Rule 144 are not
satisfied, registration under the Securities Act or compliance with Regulation A
or another registration exemption will be required; that, notwithstanding the
fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its
opinion that persons proposing to sell private placement securities other than
in a registered offering or pursuant to Rule 144 will have a substantial burden
of proof in establishing that an exemption from registration is available for
such offers or sales; and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
(g) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
Purchaser's representations set forth above, Purchaser further agrees that
Purchaser shall in no event make any disposition of all or any portion of the
Stock unless and until:
(i) Either:
(A) there is then in effect a Registration Statement under
the Securities Act covering such proposed disposition, and such disposition is
made in accordance with said Registration Statement; or
(B) (1) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition; (2)
Purchaser shall have furnished the Company with an opinion of Purchaser's
counsel to the effect that such disposition will not require registration of
such shares under the Securities Act; and (3) such opinion of Purchaser's
counsel shall have been concurred in by counsel for the Company, and the Company
shall have advised Purchaser of such concurrence; and,
(ii) Purchaser shall have complied with the Standoff Agreement
set forth in Section 4 hereof.
(h) VALUATION OF COMMON STOCK.
(i) Purchaser understands that the Stock has been valued by the
Company's Board of Directors and that the Company believes this valuation
represents a fair attempt at reaching an accurate appraisal of its worth.
Purchaser understands, however, that the Company can give no assurances that
such price is in fact the fair market value of the Stock, and that it is
possible that, with the benefit of hindsight, the Internal Revenue Service would
successfully assert that the value of the Stock on the date of purchase is
substantially greater than so determined.
(ii) If the Internal Revenue Service were to succeed in a tax
determination that the Stock had a value greater than that upon which this
transaction is based, the additional value would constitute ordinary income to
Purchaser as of the date of its receipt. The additional taxes (and interest) due
would be payable by Purchaser. There is no provision for the Company to
reimburse Purchaser for that tax liability, and Purchaser assumes all
responsibility therefor. Furthermore, in
-4-
<PAGE> 5
the event such additional value represents more than twenty-five percent (25%)
of Purchaser's gross income for the year in which the value of the shares would
be taxable, the Internal Revenue Service would have six (6) years from the due
date for filing the return for such year (or the actual filing date of the
return if filed thereafter) within which to assess Purchaser the additional tax
and interest which would then be due.
(iii) The Company would have the benefit, in any such transaction,
if a determination was made prior to the three (3) year statute of limitations
period affecting the Company, of an increase in its deduction for compensation
paid, which would offset its operating profits, or, if the Company were not
profitable at such time, would create net operating loss carry-forwards arising
from operations in that year.
4. STANDOFF AGREEMENT. Purchaser agrees, in connection with a public
offering of the Company's equity securities, upon request of the Company or the
underwriters managing such offering, (i) not to sell, make any short sale of,
loan, grant any option for the purchase of or otherwise dispose of any shares of
Stock (other than those included in the registration, if any) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180) days) from the
effective date of such registration) as may be requested by the Company or such
underwriters, and (ii) to execute any agreement regarding (i) above as may be
requested by the Company or underwriters at the time of the public offering;
provided, that the officers and directors of the Company who own stock of the
Company also agree to such restrictions.
5. RIGHT OF FIRST REFUSAL.
(a) RIGHT. Purchaser hereby grants the Company a right of first
refusal (the "First Refusal Right") in connection with any proposed sale or
other transfer of Stock. For purposes of this Section 5, the term "transfer"
shall include any assignment, pledge, encumbrance or other disposition for the
value of Stock intended to be made by Purchaser.
(b) NOTICE OF DISPOSITION. In the event Purchaser desires to accept a
bona fide third-party offer for any or all Stock (the shares subject to such
offer to be hereinafter called, for the purpose of this Section 5, the "Target
Shares"), Purchaser shall promptly (i) deliver to the Secretary of the Company
written notice (the "Disposition Notice") of the offer, which notice shall
describe the basic terms and conditions thereof, including the proposed
purchase price, and (ii) provide satisfactory proof that the disposition of the
Target Shares to the third-party offeror would not be in contravention of the
provisions of this Agreement, including without limitation, Section 3 hereof.
(c) EXERCISE OF RIGHT. The Company (or its assignees) shall, for a
period of thirty (30) days following receipt of the Disposition Notice, have the
right to repurchase all, but not less than all, of the Target Shares upon
substantially the same terms and conditions specified therein. Such right shall
be exercisable by written notice (the "Exercise Notice") delivered to Purchaser
prior to the
-5-
<PAGE> 6
expiration of the thirty day exercise period. If such right is exercised with
respect to the Target Shares, then the Company (or its assignees) shall effect
the repurchase of the Target Shares, including payment of the purchase price,
not more than five (5) business days after the delivery of the Exercise Notice;
and at such time Purchaser shall deliver to the Company the certificates
representing the Target Shares to be repurchased, each certificate properly
endorsed for transfer. The Target Shares so purchased shall thereupon be
cancelled and cease to be issued and outstanding shares of the Company's Common
Stock.
(d) NON-CASH CONSIDERATION. Should the purchase price specified in
the Disposition Notice be payable in property other than cash or evidences of
indebtedness, the Company (or its assignees) shall have the right to pay the
purchase price in the form of cash equal in amount to the value of such
property. If Purchaser and the Company (or its assignees) cannot agree on such
cash value within ten (10) days after the Company's receipt of the Disposition
Notice, the valuation shall be made by an appraiser of recognized standing
selected by Purchaser and the Company (or its assignees). If Purchaser and the
Company cannot agree on an appraiser within twenty (20) days after the Company's
receipt of the Disposition Notice, each shall select an appraiser of recognized
standing, and the two appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Purchaser and the Company. The closing of
the purchase of the Targeted Shares by the Company shall then be held on the
later of (i) the fifth business day following delivery of the Exercise Notice,
or (ii) the 15th day after such cash valuation shall have been made.
(e) DISPOSITION OF TARGET SHARES. In the event an Exercise Notice is
not given to Purchaser within thirty (30) days following the date of the
Company's receipt of the Disposition Notice, Purchaser shall have a period of
thirty (30) days thereafter, in which to sell or otherwise dispose of the Target
Shares upon terms and conditions (including the purchase price) no more
favorable to a third-party purchaser than those specified in the Disposition
Notice; provided, however, that any such sale or disposition must not be
effected in contravention of the provisions of this Agreement, including without
limitation, Section 3 hereof. In the event Purchaser does not sell or otherwise
dispose of all Target Shares within the specified thirty (30) day period, the
First Refusal Right shall continue to be applicable to any subsequent
disposition of the Target Shares by Purchaser until such right lapses in
accordance with Section 5(g).
(f) STOCK SPLITS, ETC. In the event of any stock dividend, stock
split, recapitalization or other transaction affecting the Company's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Stock shall be immediately
subject to the First Refusal Right.
(g) LAPSE OF RIGHT. The First Refusal Right shall lapse and cease to
have effect upon the occurrence of a firm commitment underwritten public
offering pursuant to an effective
-6-
<PAGE> 7
registration statement under the Securities Act, covering the offer and sale of
the Company's Common Stock in the aggregate amount of at least $10,000,000.
6. GOVERNING LAW. This Agreement shall be governed and construed by the
laws of the State of California as applied to agreements made and performed in
California by residents of the State of California.
7. MISCELLANEOUS.
(a) FURTHER ASSURANCES. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
(b) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery
(including by express courier) or upon deposit in the United States Post Office,
by First Class mail with postage and fees prepaid, addressed to Purchaser at
his/her address shown on the Company's employment records and to the Company at
the address of its principal corporate offices (attention: President) or at such
other address as such party may designate by ten (10) days' advance written
notice to the other party.
(c) ASSIGNMENT. The Company may assign its rights and delegate its
duties under this Agreement. This Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser, his/her heirs, executors,
administrators, successors and assigns. The rights of Purchaser under this
Agreement may be assigned only with the prior written consent of the Company.
(d) NO EFFECT ON EMPLOYMENT/CONSULTING RELATIONSHIP. PURCHASER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREUNDER DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS EMPLOYEE OR CONSULTANT OF THE COMPANY FOR ANY PERIOD OR AT ALL.
NOTHING IN THIS AGREEMENT SHALL AFFECT IN ANY MANNER WHATSOEVER OR INTERFERE
WITH THE RIGHT OR POWER OF THE COMPANY, OR A PARENT OR SUBSIDIARY OF THE
COMPANY, TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY AT ANY TIME, FOR ANY OR NO REASON, WITH OR WITHOUT CAUSE.
(e) WAIVER. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights granted
both parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
-7-
<PAGE> 8
(f) ADVICE OF COUNSEL. Purchaser has reviewed this Agreement in its
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Agreement and fully understands all provisions hereof.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which together shall
constitute one instrument.
(h) ENTIRE AGREEMENT. This Agreement together with the Security
Agreement and the Note represent the entire agreement between the parties with
respect to the purchase of Common Stock by Purchaser, may be modified or amended
only in writing signed by both parties, and satisfies all of the Company's
obligations to Purchaser with regard to the issuance or sale of securities.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
INTERNATIONAL MANUFACTURING ROBERT G. BEHLMAN
SERVICES, INC.
a Delaware corporation
----------------------------------------
(Signature)
By:
--------------------------------- ----------------------------------------
(Address)
Title:
------------------------------ ----------------------------------------
-8-
<PAGE> 9
CONSENT OF SPOUSE
I, __________________________, spouse of Robert G. Behlman, have read and
approve the foregoing Agreement. In consideration of the granting to my spouse
of the right to purchase shares of International Manufacturing Services, Inc.,
as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact
in respect to the exercise of any rights under the Agreement and agree to be
bound by the provisions of the Agreement insofar as I may have any rights in the
Agreement or in any shares issued pursuant thereto under the community property
laws of the State of California or similar laws relating to marital property in
effect in the state of our residence as of the date of the signing of the
Agreement.
Dated: _______________, 19___.
-----------------------------------
(Signature of Spouse)
<PAGE> 10
Exhibit A
RECOURSE PROMISSORY NOTE
$110,619.45 San Jose, California
June 13, 1996
FOR VALUE RECEIVED, Robert G. Behlman promises to pay to International
Manufacturing Services, Inc., a Delaware corporation (the "Company"), or order,
the principal sum of One Hundred Ten Thousand Six Hundred Nineteen Dollars and
Forty-Five Cents ($110,619.45), together with interest on the unpaid principal
hereof from the date hereof at the rate of 6.58% per annum, compounded annually.
Principal and interest shall be due and payable on June 13, 2001.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Common Stock Purchase
Agreement, dated as of June 13, 1996. This Note is secured by a pledge of the
Company's Common Stock under the terms of a Security Agreement of even date
herewith and is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned. This Note shall be governed and construed in accordance with the
laws of the State of California.
------------------------------------
Robert G. Behlman
<PAGE> 11
Exhibit B
SECURITY AGREEMENT
This Security Agreement is made as of June 13, 1996 between
International Manufacturing Services, Inc., a Delaware corporation ("Pledgee"),
and Robert G. Behlman ("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Stock under the Stock
Purchase Agreement dated June 13, 1996 (the "Agreement") and Pledgor's election
to pay for such shares with a promissory note (the "Note"), Pledgor has
purchased 100,000 shares of Pledgee's Common Stock (the "Stock") at a price of
$1.1061945 per share, for a total purchase price of $110,619.45. The Note and
the obligations thereunder are as set forth in Exhibit A to the Agreement.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Stock to Pledgor under the Agreement, Pledgor, pursuant to
the California Commercial Code, hereby pledges all of such Stock (herein
sometimes referred to as the "Collateral") represented by certificate number
CA-20, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Stock to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Agreement, and
the Pledgeholder shall not encumber or dispose of such Stock except in
accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to
enter into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum
of the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
b. Encumbrances. The Stock is free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Stock without the
prior written consent of Pledgee.
c. Margin Regulations. In the event that Pledgee's Common
Stock is now or later becomes margin-listed by the Federal Reserve Board and
Pledgee is classified as a "lender" within the meaning of the regulations under
Part 207 of Title 12 of the Code of Federal Regulations
<PAGE> 12
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Stock pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the
pledge any stock dividend, reclassification, readjustment or other changes are
declared or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Stock originally pledged hereunder. In the
event of substitution of such securities, Pledgor, Pledgee and Pledgeholder
shall cooperate and execute such documents as are reasonable so as to provide
for the substitution of such Collateral and, upon such substitution, references
to "Stock" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Stock, such rights, Options and options shall be the
property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Stock then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Stock pledged.
6. Default. Pledgor shall be deemed to be in default of the Note
and of this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in
the Agreement or contained in this Security Agreement for a period of 10 days
after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Stock held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Stock which shall be released shall be that
number of full Stock which bears the same proportion to the initial number of
Stock pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
-2-
<PAGE> 13
8. Withdrawal or Substitution of Collateral. Pledgor shall not
sell, withdraw, pledge, substitute or otherwise dispose of all or any part of
the Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Stock shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree
that the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the laws of the State of California.
-3-
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" -------------------------------------------
Robert G. Behlman
-------------------------------------------
Address
-------------------------------------------
-------------------------------------------
"PLEDGEE" International Manufacturing Services, Inc.
By:
----------------------------------------
Title:
-------------------------------------
"PLEDGEHOLDER"
-------------------------------------
Secretary of International Manufacturing
Services, Inc.
-4-
<PAGE> 15
Exhibit C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Security Agreement
dated as of June 13, 1996 (the "Agreement"), Robert G. Behlman ("Purchaser")
hereby sells, assigns and transfers unto
________________________________________________________________________________
__________________________________ (________) shares of the Common Stock of
International Manufacturing Services, Inc., a Delaware corporation, standing in
the undersigned's name on the books of said corporation represented by
certificate no. _______ herewith, and does hereby irrevocably constitute and
appoint __________________ attorney to transfer the said stock on the books of
the said corporation with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS
THERETO.
Dated _____________________ PURCHASER
Signature ___________________________
Robert G. Behlman
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the corporation to acquire the shares
upon default under Purchaser's Note without requiring additional signatures on
the part of the Purchaser.
<PAGE> 1
EXHIBIT 10.9
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (the "Agreement") dated as of June 13,
1996, among International Manufacturing Services, Inc., a Delaware corporation
(the "Company"), Prudential Private Equity Investors III, L.P., a Delaware
limited partnership ("PPEI"), Oak Investment Partners VI, L.P., a California
limited partnership, Oak VI Affiliates Fund, L.P., a California limited
partnership (collectively with Oak Investment Partners VI, L.P., "Oak"), the
Investor Stockholders listed on the signature pages hereof (collectively, with
PPEI and Oak, the "Investor Stockholders"), Maxtor Corporation, a Delaware
corporation ("Maxtor"), and the Management Stockholders listed on the signature
pages hereof (collectively, the "Management Stockholders"). Maxtor, the
Management Stockholders and the Investor Stockholders are referred to herein
collectively as the "Stockholders".
RECITALS
(a) Certain of the Stockholders, have entered into a
Recapitalization Agreement with the Company, dated as of the date hereof (the
"Recapitalization Agreement") (capitalized terms used herein and not otherwise
defined have the meanings ascribed to such terms in the Recapitalization
Agreement), pursuant to which the Investor Stockholders, simultaneously with the
execution hereof, are purchasing from the Company the number of shares of Series
A Convertible Preferred Stock, par value $.001 per share, and Series B
Convertible Preferred Stock, par value $.001 per share (collectively, the
"Preferred Stock"), and Class A Common Stock, par value $.001 per share, and
Class B Common Stock, par value $.001 per share (collectively, the "Common
Stock") of the Company set forth opposite each of their respective names on
Schedule I hereto. After giving effect to the Redemption Agreement (as defined
in the Recapitalization Agreement) and the transactions contemplated thereby and
by the Recapitalization Agreement, Maxtor will hold the number of shares of
Common Stock of the Company set forth opposite its name on Schedule I hereto. In
addition, pursuant to the Stock Plan the Management Stockholders have the right
to acquire the shares of Common Stock set forth opposite their names on Schedule
I hereto. The shares of Common Stock which the Stockholders own or have the
right to acquire immediately after giving effect to the Recapitalization
Agreement and the transactions contemplated thereby are referred to herein
collectively as the "Initial Shares".
(b) As of the date of this Agreement, the Preferred
Stock purchased by each Investor Stockholder pursuant to the Recapitalization
Agreement entitles its holder to receive, upon conversion thereof, the number of
shares of the Common Stock as is set forth opposite such holders name on
Schedule I, which number of shares are subject to adjustment in accordance with
the provisions of Article Fourth of the Restated Certificate of Incorporation of
the Company (the "Articles").
<PAGE> 2
(c) The Company desires to grant to the Stockholders
certain registration rights with respect to its Common Stock and rights of first
refusal to purchase its equity securities and any other Equity Equivalents (as
hereinafter defined) upon any proposed issuance thereof.
(d) The Stockholders believe that it is in the best
interests of the Company and the Stockholders that provision be made for the
continuity and stability of the business and policies of the Company and desire
to make certain arrangements among themselves with respect to sales of the
Company's securities and the election of directors of the Company, and with
respect to certain other matters.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Right of First Refusal on Company's Issuance of Equity
Equivalents.
(a) If at any time the Company wishes to issue any equity
securities (including, without limitation, Common Stock) or any options,
warrants or other rights to acquire equity securities (collectively, "Equity
Equivalents") to any person or persons, the Company shall promptly deliver a
notice of intention to sell (the "Company's Notice of Intention to Sell") to
each of the Investor Stockholders and Maxtor setting forth a description of the
Equity Equivalents to be sold and the proposed purchase price and terms of sale.
Upon receipt of the Company's Notice of Intention to Sell, each Investor
Stockholder and Maxtor shall have the right to elect to purchase, at the price
and on the terms stated in the Company's Notice of Intention to Sell, a number
of the Equity Equivalents equal to such person's aggregate proportionate
ownership of Common Stock and rights to acquire Common Stock (calculated on a
fully-diluted basis assuming all holders of then outstanding warrants, options
and convertible securities of the Company (including the Preferred Stock) had
converted such securities or exercised such warrants or options immediately
prior to the delivery of the Company's Notice of Intention to Sell) held by all
stockholders of the Company multiplied by the number of Equity Equivalents to be
issued. Such election is to be made by each of the Investor Stockholders and/or
Maxtor by written notice to the Company within fifteen (15) days after receipt
by such Investor Stockholder of the Company's Notice of Intention to Sell (the
"Acceptance Period for Equity Equivalents"). Each Investor Stockholder and
Maxtor shall also have the option, exercisable by so specifying in such written
notice, to purchase on a pro rata basis similar to that described above, any
remaining Equity Equivalents not purchased by other Investor Stockholders or
Maxtor, in which case the person(s) exercising such further option shall be
deemed to have elected to purchase such remaining Equity Equivalents on such pro
rata basis as described above (provided that the denominator used to determine
pro rata ownership shall be the number of shares of Common Stock, determined on
a fully diluted basis, held by all holders exercising such further option). In
the event that the Equity Equivalents to be issued at any time as contemplated
by this Section 1 are either voting securities of the Company or securities
which are convertible, exercisable or otherwise exchangeable for voting
securities of the Company and for any reason any Investor Stockholder determines
in its sole discretion that it would be detrimental to such Investor Stockholder
or its affiliates to purchase such securities as provided for hereby, then the
Company
-2-
<PAGE> 3
shall make available to such Investor Stockholder an amount of alternative
securities equal to the amount of such Equity Equivalents as such Investor
Stockholder is entitled to purchase pursuant to the terms hereof which are
identical to such Equity Equivalents in all respects except for the fact that
such alternate securities shall be non-voting securities or convertible,
exercisable or otherwise exchangeable for non-voting securities (the
"Alternative Securities"); provided further that if such Alternative Securities
are nonvoting securities, such securities will be convertible into voting
securities upon the occurrence of such events as are specified by such Investor
Stockholder.
(b) If effective acceptances shall not be received pursuant
to Section 1(a) above in respect of all Equity Equivalents or Alternative
Securities, then the Company may, at its election, during a period of ninety
(90) days following the expiration of the Acceptance Period for Equity
Equivalents, sell and issue all of the offered Equity Equivalents not elected to
be purchased pursuant to Section 1(a) above to another person at a price and
upon terms not more favorable to such person than those stated in the Company's
Notice of Intention to Sell; provided, however, that failure by any Investor
Stockholder or Maxtor to exercise its option to purchase with respect to one
offering, sale and issuance of Equity Equivalents shall not affect its option to
purchase Equity Equivalents or rights to acquire Equity Equivalents in any
subsequent offering, sale and purchase. In the event the Company has not sold
the Equity Equivalents, or entered into a binding agreement to sell the Equity
Equivalents, within such ninety (90) day period, the Company shall not
thereafter issue or sell any Equity Equivalents without first offering such
securities to the Investor Stockholders and Maxtor in the manner provided in
Section 1(a) hereof.
(c) If any Investor Stockholder or Maxtor gives the Company
notice, pursuant to the provisions of this Section 1, that such Investor
Stockholder or Maxtor desires to purchase any of the Equity Equivalents or
Alternative Securities, payment therefor shall be by check or wire transfer,
against delivery of the securities at the executive offices of the Company
within fifteen (15) days after giving the Company such notice (or such later
time as may be necessary to allow compliance with applicable laws and
regulations governing such sale), or, if later, the closing date as mutually
agreed between the Company and such person for the sale of such Equity
Equivalents or Alternative Securities. In the event that any such proposed
issuance is for a consideration other than cash, any Investor Stockholder or
Maxtor will be entitled to pay cash for each share or other unit, in lieu of
such other consideration, in the amount determined in good faith by the Board of
Directors of the Company (the "Board") to constitute the fair value of such
consideration other than cash to be paid per share or other unit.
(d) The right of first refusal contained in this Section 1
shall not apply to (i) the issuance of shares of Equity Equivalents as a stock
dividend or upon any subdivision or stock split of the outstanding shares of
Common Stock; (ii) the issuance of shares of Equity Equivalents upon conversion
of any shares of convertible securities (including, without limitation, the
Preferred Stock); (iii) the issuance of shares of Equity Equivalents to
officers, directors and other employees of the Company pursuant to stock options
outstanding as of the date hereof to purchase up to 1,710,000 shares of Common
Stock and pursuant to the exercise of options to purchase up to 525,000 shares
of Common Stock that may be issued subsequent to the date hereof to such
persons, in each case that are issued pursuant to the Stock Plan; (iv) the
issuance of up to 200,000 shares of
-3-
<PAGE> 4
Common Stock (as such number is proportionately adjusted for stock splits,
combinations and dividends payable in Common Stock) pursuant to the warrant to
purchase Common Stock which was issued to Maxtor on the date hereof; (v) the
issuance of Common Stock upon a Qualifying Public Offering or (vi) the issuance
of Equity Equivalents in connection with any joint venture, acquisition, credit
facility, lease or debt financing to the extent such joint venture, acquisition,
credit facility, lease or debt financing is approved by the Board.
(e) For purposes of this Agreement, a "Qualifying Public
Offering" means an underwritten initial public offering (underwritten by an
investment banking firm or firms of national reputation) involving shares of the
Company's Common Stock (1) providing aggregate gross proceeds (before deducting
underwriting discounts and expenses) to the Company and any selling stockholders
of at least $30 million and (2) at a public offering price per share equal to
(i) 200% of the Conversion Price (as defined in the Company's Certificate of
Incorporation) of the Company's Preferred Stock, if such initial public offering
is consummated before the first anniversary of the date hereof, or (ii) 300% of
the Conversion Price (as defined in the Company's Certificate of Incorporation)
of the Company's Preferred Stock.
(f) The Company, Maxtor and each of the Management
Stockholders represents and warrants that it is not a party to any agreement
(other than any agreement that will terminate or be superseded by this Agreement
upon execution by such person of this Agreement) other than this Agreement with
any persons relating to any right of first refusal or preemptive right upon
issuances of Equity Equivalents.
2. Right of First Refusal on Sale of Maxtor Shares.
(a) If Maxtor wishes to sell or transfer all or any portion
of its Common Stock, rights to acquire Common Stock or other equity securities
of the Company, Maxtor shall promptly deliver a notice of intention to sell (a
"Maxtor Notice of Intention to Sell") to the Company and to each Investor
Stockholder setting forth the securities to be sold ("Subject Securities") and
the proposed purchase price and terms of sale. Upon receipt of the Maxtor Notice
of Intention to Sell, each Investor Stockholder shall have the right to elect to
purchase at the price and on the terms stated in the Maxtor Notice of Intention
to Sell, a pro rata portion of the Subject Securities (calculated on a
fully-diluted basis assuming all holders of then outstanding warrants, options
and convertible securities of the Company (including the Preferred Stock) had
converted such securities or exercised such warrants or options immediately
prior to the delivery of the Maxtor Notice of Intention to Sell) equal to a
fraction the numerator of which is such Investor Stockholder's aggregate
proportionate ownership of Common Stock, Preferred Stock and rights to acquire
Common Stock (calculated on a fully-diluted basis assuming all holders of then
outstanding warrants, options and convertible securities of the Company
(including the Preferred Stock) had converted such securities or exercised such
warrants or options immediately prior to delivery of the Maxtor Notice of
Intention to Sell) and the denominator of which is the aggregate proportionate
ownership of Common Stock, Preferred Stock and rights to acquire Common Stock
(calculated on a fully-diluted basis assuming all holders of then outstanding
warrants, options and convertible securities of the Company (including the
Preferred Stock) had converted such securities or exercised such warrants or
options immediately
-4-
<PAGE> 5
prior to the Maxtor Notice of Intention to Sell) held by all the Investor
Stockholders. Such election is to be made by each of the Investor Stockholders
by written notice to the Company and Maxtor within fifteen (15) days after
receipt by such Investor Stockholder of the Maxtor Notice of Intention to Sell
(the "Acceptance Period"). Each Investor Stockholder shall also have the option,
exercisable by so specifying in such written notice, to purchase on a pro rata
basis similar to that described above, any remaining Subject Securities not
purchased by other Investor Stockholders, in which case the Investor
Stockholders exercising such further option shall be deemed to have elected to
purchase such remaining Subject Securities on such pro rata basis as described
above (provided that the denominator used to determine pro rata ownership shall
be the number of shares of Common Stock, determined on a fully diluted basis,
held by all holders exercising such further option).
(b) If effective acceptances shall not be received pursuant
to Section 2(a) above in respect of all Subject Securities, then Maxtor may, at
its election, during a period of one hundred and twenty (120) days following the
expiration of the Acceptance Period, sell all of the Subject Securities not
elected to be purchased pursuant to Section 2(a) above to another person at a
price and upon terms not more favorable to such person than those stated in
Maxtor's Notice of Intention to Sell; provided, however, that failure by any
Investor Stockholder to exercise its option to purchase with respect to one
offering and sale of Subject Securities shall not affect its option to purchase
Subject Securities or rights to acquire Subject Securities in any subsequent
offering, sale and purchase. In the event Maxtor has not sold the Subject
Securities, or entered into a binding agreement to sell the Subject Securities,
within such one hundred and twenty (120) day period, Maxtor shall not thereafter
sell any Common Stock, rights to acquire Common Stock or other equity securities
of the Company, without first offering such securities to the Investor
Stockholders in the manner provided in Section 2(a) hereof.
(c) If any Investor Stockholder gives Maxtor notice,
pursuant to the provisions of this Section 2, that such Investor Stockholder
desires to purchase any of the Subject Securities, payment therefor shall be by
check or wire transfer, against delivery of the securities at the executive
offices of Maxtor within fifteen (15) days after giving Maxtor such notice, or,
if later, the closing date as mutually agreed between Maxtor and such Investor
Stockholder for the sale of such Subject Securities. In the event that any such
proposed sale for a consideration other than cash, any Investor Stockholder will
be entitled to pay cash for each share or other unit, in lieu of such other
consideration, in the amount equal to the fair value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Corporation shall be the Market
Price thereof as of the date of receipt. The fair value of any consideration
other than cash and securities shall be determined jointly by Maxtor and the
Investor Stockholders. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such consideration shall be
determined by an independent appraiser experienced in valuing such type of
consideration jointly selected by Maxtor and the Investor Stockholders. The
determination of such appraiser shall be final and binding upon the parties, and
the fees and expenses of such appraiser shall be borne equally by the Investor
Stockholders and Maxtor. As used in this Section 2, "Market Price" with respect
to any security shall mean the average of the closing prices of such security's
sales on the principal securities exchanges on which such security may at the
time be listed, or, if there has been no sales on any such exchange on any day,
the average of the highest
-5-
<PAGE> 6
bid and lowest asked prices on all such exchanges at the end of such day, or, if
on any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or,
if on any day such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 11 days consisting of the day as of which "Market Price" is
being determined and the 10 consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted in the
NASDAQ System or the over-the-counter market, the "Market Price" shall be the
fair value thereof determined jointly by Maxtor and the Investor Stockholders.
If such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an independent appraiser
experienced in valuing securities jointly selected by Maxtor and the Investor
Stockholders. The determination of such appraiser shall be final and binding
upon the parties, and the fees and expenses of such appraiser shall be borne
equally by the Investor Stockholders and Maxtor.
(d) This Section 2 shall not apply to any transfer by Maxtor
to an Affiliate provided, that any such transferee shall agree in writing with
the parties hereto to be bound by, and to comply with, all applicable provisions
of this Agreement (including to be subject to this Section 2 on the same terms
as Maxtor) and shall be deemed to be a Stockholder for purposes of this
Agreement. This Section 2 shall also not apply to a bonafide pledge of
securities by Maxtor; provided that, any execution on the pledge such that
Maxtor is no longer the record owner of such securities shall be subject to this
Section 2.
3. Right of Co-Sale.
(a) If any Stockholder (the "Selling Stockholder") wishes to
sell or transfer all or any portion of its Common Stock, rights to acquire
Common Stock, Preferred Stock or other equity securities of the Company, such
Selling Stockholder shall promptly deliver a notice of intention to sell (a
"Sale Notice") to the Company and to each other Stockholder setting forth the
securities to be sold ("Subject Securities") and the proposed purchase price and
terms of sale, which shall be for cash or obligations to pay cash. Upon receipt
of the Sale Notice, each other Stockholder shall have the right to elect to
sell, at the price and on the terms stated in the Sale Notice, a pro rata
portion of the total holdings of Common Stock, Preferred Stock and rights to
acquire Common Stock (calculated on a fully-diluted basis assuming all holders
of then outstanding warrants, options and convertible securities of the Company
(including the Preferred Stock) had converted such securities or exercised such
warrants or options immediately prior to the delivery of the Sale Notice) to be
sold equal to a fraction the numerator of which is such Stockholder's aggregate
proportionate ownership of Common Stock, Preferred Stock and rights to acquire
Common Stock (calculated on a fully-diluted basis assuming all holders of then
outstanding warrants, options and convertible securities of the Company
(including the Preferred Stock) had converted such securities or exercised such
warrants or options immediately prior to delivery of the Sale Notice) and the
denominator of which is the aggregate proportionate ownership of Common Stock,
Preferred Stock and rights to acquire Common Stock (calculated on a
fully-diluted basis assuming all holders of then outstanding warrants, options
and convertible securities of the Company (including the Preferred Stock) had
-6-
<PAGE> 7
converted such securities or exercised such warrants or options immediately
prior to the Sale Notice) held by the Selling Stockholder and the other
Stockholders exercising their rights under this Section 3. Such election shall
be made by written notice to the Company and the Selling Stockholder within
fifteen (15) days after the receipt by such Stockholder of the Sale Notice. For
purposes of participating in any such sale of Subject Securities, if any
Stockholder is selling Preferred Stock such Stockholder shall be deemed to be
selling the Common Stock to which such Preferred Stock relates, at the price and
on the terms applicable to the Common Stock being sold by the Selling
Stockholder as set forth in the Sale Notice. Any Subject Securities not sold
pursuant to the foregoing shall again be subject to the restrictions contained
in this Agreement and shall not thereafter be sold, pledged or transferred,
except in compliance with the applicable provisions of this Agreement.
(b) This Section 3 shall not apply to any transfer (i) for
estate planning purposes or by gift to a Management Stockholder's spouse,
children or other direct family members or to any trust or family partnership
established for the benefit of such person and/or such person's spouse,
children, other family members or the estate of any such person, (ii) by Maxtor
or an Investor Stockholder to an Affiliate; provided, in each case, that any
such transferee shall agree in writing with the parties hereto to be bound by,
and to comply with, all applicable provisions of this Agreement and shall be
deemed to be a Stockholder for purposes of this Agreement, or (iii) a bonafide
pledge of securities by Maxtor; provided that, any execution on the pledge such
that Maxtor is no longer the record owner of such securities shall be subject to
this Section 3.
4. Take-Along Right.
(a) If any Stockholder, or group of Stockholders,
individually or collectively owning in excess of 50% of the then issued and
outstanding Common Stock (treating the Preferred Stock as if it had been
converted into Common Stock) (the "Prospective Sellers") shall, in any
transaction or series of related transactions, directly or indirectly, propose
to sell for cash, cash equivalents or marketable securities all of the stock
held by them (the "Required Shares") to a Third Party or Parties (a "Take-along
Offer"), the Prospective Sellers may, at their option, require each of the other
Stockholders (the "Take-along Stockholders") to sell all the Common Stock and/or
Preferred Stock owned or held by such Take-along Stockholders to the Third Party
or Parties for the same consideration per share and otherwise on the same terms
and conditions upon which the Prospective Sellers shall sell the Required Shares
(assuming the conversion of the Preferred Stock); provided that, Maxtor shall
not be obligated to sell its Common Stock pursuant to this Section 4 unless in
connection with such sale the Maxtor Note is to be repaid in full.
(b) (i) The Prospective Sellers shall provide a written
notice (the "Take-along Notice") of such Take-along Offer to each of the
Take-along Stockholders not later than the twentieth (20th) Business Day prior
to the consummation of the sale contemplated by the Take-along Offer. The
Take-along Notice shall contain written notice of the exercise of the
Prospective Sellers' rights pursuant to Section 4(a), setting forth the
consideration per share to be paid by the Third Party or Parties and the other
material terms and conditions of the Take-along Offer. Within fifteen (15)
Business Days following the date the Take-along Notice is given (or such later
time as may be necessary to allow compliance with applicable laws and
regulations governing such sale),
-7-
<PAGE> 8
each of the Take-along Stockholders shall deliver to the Prospective Sellers (A)
the certificate or certificates evidencing all the Common Stock and/or Preferred
Stock owned or held by such Take-along Stockholder duly endorsed in blank or
accompanied by written instruments of transfer in form satisfactory to the
Prospective Sellers executed by such Take-along Stockholder, and (B) a special
irrevocable power-of-attorney authorizing the Prospective Sellers, on behalf of
such Take-along Stockholder, to sell or otherwise dispose of such Common Stock
and/or Preferred Stock (the "Take-along Shares") pursuant to this Section 4 and
to take all such actions as shall be necessary or appropriate in order to
consummate such sale or disposition in accordance with the terms and conditions
contained in the Take-along Notice.
(ii) Within two (2) Business Days after the consummation of
the sale of Common Stock and/or Preferred Stock of the Prospective Sellers and
the Take-along Stockholders to the Third Party or Parties pursuant to the
Take-along Offer, the Prospective Sellers shall remit to each of the Take-along
Stockholders the aggregate sales price of the Common Stock and/or Preferred
Stock of such Take-along Stockholders sold pursuant thereto (less a pro rata
portion of the expenses (including, without limitation, reasonable legal
expenses) incurred by the Prospective Sellers in connection with such sale).
(iii) If, at the end of the sixty (60) day period following
the giving of the Take-along Notice, the Prospective Sellers shall not have
completed the sale of all the Required Shares and the Common Stock and/or
Preferred Stock delivered to the Prospective Sellers pursuant to Section
4(b)(i), the Prospective Sellers shall return to each of the Take-along
Stockholders all certificates evidencing the Common Stock and/or Preferred Stock
that such Take-along Stockholder delivered for sale pursuant to this Section 4
and such Take-along Stockholder's related power-of-attorney.
(iv) Except as expressly provided in this Section 4, the
Prospective Sellers shall have no obligation to any Take-along Stockholder with
respect to the sale of any Common Stock or Preferred Stock owned by such
Take-along Stockholder in connection with this Section 4. Anything herein to the
contrary notwithstanding, the Prospective Sellers shall have no obligation to
any Take-along Stockholder to sell or otherwise dispose of the Take-along Shares
pursuant to this Section 4 or as a result of any decision by the Prospective
Sellers not to accept or consummate any Take-along Offer or sale with respect to
the Take-along Shares (it being understood that any and all such decisions shall
be made by the Prospective Sellers in their sole discretion). No Take-along
Stockholder shall be entitled to make any sale of Common Stock or Preferred
Stock directly to any Third Party pursuant to a Take-along Offer (it being
understood that all such sales shall be made only on the terms and pursuant to
the procedures set forth in this Section 4). Nothing in this Section 4 shall
affect any of the obligations of any of the Stockholders under any other
provision of this Agreement.
5. Sale of the Company.
(a) If the Board and the holders of at least a majority of
the Preferred Stock approve a Sale of the Company (an "Approved Sale"), the
Stockholders will (i) consent to and
-8-
<PAGE> 9
raise no objections to the Approved Sale or the process pursuant to which the
Approved Sale is arranged, (ii) waive any dissenter's rights and similar rights
with respect thereto and (iii) if the Approved Sale is structured as a sale of
stock, agree to sell their Preferred Stock or Common Stock on the terms and
conditions approved by the Board and such holders of the Preferred Stock. The
Stockholders will take all necessary and desirable actions in connection with
the consummation of any Approved Sale as requested by the Board.
(b) The obligations of the Stockholders with respect to the
Approved Sale are subject to the satisfaction of the condition that upon the
consummation of the Approved Sale, all of the holders of Preferred Stock and
Common Stock will receive the same form and amount of consideration per share of
Common Stock (treating the Preferred Stock as if it were fully converted), or if
any holders of Common Stock or Preferred Stock are given an option as to the
form and amount of consideration to be received, all holders will be given the
same option and provided that Maxtor shall not be obligated with regard to an
Approved Sale hereunder unless the Maxtor Note is to be repaid in full in
connection with such Approved Sale.
(c) If the Company or the holders of the Company's
securities enter into any negotiation or transaction pursuant to which such
holders are to receive securities for which Rule 506 (or any similar rule then
in effect) promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), may be available with respect to such negotiation or
transaction (including a merger, consolidation or other reorganization), the
Stockholders will, at the request of the Company, appoint a purchaser
representative (as such term is defined in Rule 501(h) (or any similar rule then
in effect) promulgated pursuant to the Securities Act) reasonably acceptable to
the Company. If any Stockholder appoints a purchaser representative designated
by the Company, the Company will pay the fees of such purchaser representative,
but if any Stockholder declines to appoint the purchaser representative
designated by the Company, such holder will appoint another purchaser
representative (reasonably acceptable to the Company) and such holder will be
responsible for the fees of the purchaser representative so appointed.
(d) The rights enumerated in Sections 1 through 4 hereof
shall not apply to any Approved Sale.
6. Election of Directors. (a) Each Stockholder who is the
holder of shares of Preferred Stock, Common Stock or any other capital stock of
the Company agrees to vote, in person or by proxy, at any annual or special
shareholders' meeting called for such purpose or by shareholders' consent
provided in lieu thereof, the shares of capital stock of the Company owned of
record or beneficially by such person and entitled to vote thereon, and shall
take all other necessary or desirable actions within its control (whether in its
capacity as a shareholder, director, member of a committee of the Board or
officer of the Company or otherwise), and the Company shall take all necessary
and desirable actions within its control, in order to cause:
(1) the election to the Board of two (2) individuals
(the "PPEI Designated Directors") designated by
PPEI, who shall initially be John A. Downer and
Mark Rossi, and the election to the Board of two
(2)
-9-
<PAGE> 10
individuals (the "Oak Designated Directors")
designated by Oak, one of whom shall
initially be Fredric Harman (the PPEI
Designated Directors and the Oak Designated
Directors shall collectively be referred to
as the "Investor Designated Directors");
(2) the election to the Board of one (1)
individual (the "Maxtor Designated Director"
and together with the Investor Designated
Directors, the "Designated Directors")
designated by Maxtor, who initially shall be
Patrick Verderico;
(3) the election to the Board of Robert G.
Behlman for so long as he remains the Chief
Executive Officer of the Company;
(4) the election to the Board of two (2)
independent directors acceptable
to both Oak and PPEI;
(5) the removal from the Board (with or without
cause) of any PPEI Designated Director, upon
PPEI's written request for removal of any
such person, but only upon PPEI's written
request and under no other circumstances;
the removal from the Board (with or without
cause) of any Oak Designated Director, upon
Oak's written request for removal of any
such person, but only upon Oak's written
request and under no other circumstances;
and the removal from the Board (with or
without cause) of any Maxtor Designated
Director, upon Maxtor's written request for
removal of any such person, but only upon
Maxtor's written request and under no other
circumstances;
(6) in the event that any PPEI Designated
Director, Oak Designated Director or Maxtor
Designated Director for any reason ceases to
serve as a member of the Board during such
representative's term of office, the
resulting vacancy on the Board to be filled
by a representative designated by PPEI, Oak
or Maxtor, as the case may be;
(7) three (3) Designated Directors (who shall
initially be J. Larry Smart, John A. Downer
and the Maxtor Designated Director) to be
appointed to the Audit Committee of the
Board and three (3) Designated Directors
(who shall initially be Fredric Harman, Marc
Rossi and William J. Almon) to be appointed
to the Compensation Committee of the Board
and the creation and continued existence of
each such committee; and
(8) the appointment of each of a PPEI Designated
Director and an Oak Designated Director to
the Executive Committee of the Board if one
shall be formed.
-10-
<PAGE> 11
Any designee elected pursuant to this Section 6 shall hold
office until his or her successor shall have been duly elected and qualified or
he or she shall have been earlier removed from said office pursuant to the
provision hereof. Notwithstanding any provision to the contrary contained
herein, Maxtor's right (the "Board Seat Right") to appoint a Maxtor Designated
Director shall terminate upon the repayment of the Maxtor Note and the earlier
of (i) the second anniversary of the date hereof or (ii) the date Maxtor ceases
to own at least 50% of the Initial Shares. Immediately following such time as
Maxtor shall no longer have the Board Seat Right, Maxtor agrees to cause the
Maxtor Designated Director to resign from the Board and understands that it may
not approve a successor Maxtor Designated Director.
(b) The Company agrees to reimburse all Designated
Directors for reasonable travel and other out-of-pocket expenses incurred by
each such director in respect of such director's attendance at meetings of the
Board or any committee thereof in accordance with Company policy. The Company
shall use best efforts to obtain promptly after execution of this Agreement
directors and officers insurance in an amount equal to that obtained by
companies engaged in a substantially similar business as the Company and to keep
such insurance in effect for so long as any Designated Director shall serve on
the Board.
(c) The Company and each of the Stockholders agree to
take all necessary or desirable action within their control (whether in such
person's capacity as a shareholder, director, member of a committee of the board
of directors or otherwise) to assure that the Board shall consist of not less
than eight (8) nor more than ten (10) members, unless such change is approved by
a majority of the Designated Directors.
7. Legend on Stock Certificates. Each certificate representing shares of
capital stock held by any Stockholder shall bear the following legend until such
time as the shares represented thereby are no longer subject to the provisions
hereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS AGREEMENT, DATED AS OF
JUNE 13, 1996 AMONG INTERNATIONAL MANUFACTURING SERVICES, INC.
(THE "COMPANY") AND CERTAIN HOLDERS OF SHARES OF THE
OUTSTANDING CAPITAL STOCK OF THE COMPANY. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE COMPANY."
Promptly following execution of this Agreement, each
Stockholder will tender to the Company all certificates representing capital
stock of the Company that are outstanding at the time of execution of this
Agreement for inscription of the legend required by this Section 7.
8. Duration of Agreement. The rights and obligations of the
parties under Sections 1 through 10 of this Agreement shall terminate as to (i)
all Stockholders and the Company
-11-
<PAGE> 12
upon the earliest to occur of (x) the consummation of a Qualifying Public
Offering, or (y) June 13, 2006 and (ii) as to each Stockholder at such time as
such Stockholder holds less than 25,000 shares of Common Stock (treating
Preferred Stock as if converted and as adjusted for stock splits,
recapitalizations, stock dividends and reorganizations); provided that, Maxtor's
Board Seat Right under Section 6 of this Agreement shall terminate only in
accordance with such Section 6.
9. Representations and Warranties. Each Stockholder represents
and warrants, severally and not jointly, to the Company as follows:
(a) The execution, delivery and performance of this
Agreement by such Stockholder will not violate any provision of law, any order
of any court or other agency of government, or any provision of any indenture,
agreement or other instrument to which such Stockholder or any of his or its
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice of lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of such Stockholder.
(b) This Agreement has been duly executed and delivered by
such Stockholder and constitutes the legal, valid and binding obligation of such
Stockholder, enforceable in accordance with its terms.
(c) The Shares of Common Stock and Preferred Stock listed on
Schedule I hereto opposite the name of each Stockholder constitute all the
shares of Common Stock and Preferred Stock of the Company owned by such
Stockholder or which such Stockholder has the right to acquire, such shares of
Preferred Stock and Common Stock are owned by such Stockholder free and clear of
any security interest, pledge, lien, claim, encumbrance or interest whatsoever
and may be voted by such Stockholder at his, her or its discretion without
hindrance of any person, and such Stockholder does not have any right or
obligation to acquire any additional shares of the capital stock of the Company
except as set forth in this Agreement or on Schedule I to this Agreement.
10. Benefits of Agreement; Transfer of Securities. This
Agreement is designed to benefit the Company, the Stockholders and any person
acquiring Common Stock or Preferred Stock from the Stockholders. Any person who
acquires Common Stock or Preferred Stock from a Stockholder shall become a
signatory to this Agreement, and each Stockholder agrees that it shall not
transfer its shares of Common Stock or Preferred Stock unless it provides a
written assurance to the Company and the other Stockholders stating that the
transferee agrees to be bound by the provisions of this Agreement. Any
Stockholder proposing to transfer any Common Stock or Preferred Stock shall
notify the Company of the facts of the proposed transfer at least fifteen (15)
Business Days (or such shorter time as may be required under Section 2 or 3 of
this Agreement) prior to the consummation of such proposed transfer and furnish
the Company, if requested, with an opinion of counsel reasonably satisfactory to
the Company (it being agreed that the opinion of Kirkland & Ellis or Gray Cary
Ware & Freidenrich shall be satisfactory) to the effect that such proposed
transfer may be effected without registration under the Securities Act of 1933,
as amended.
-12-
<PAGE> 13
11. Registration Rights.
11.1 Demand Registrations.
(a) Requests for Registration. (i) Subject to paragraphs
11.1(b) and 11.1(e) below, Maxtor may request at any time after the date hereof
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of all or part of its Registrable Securities on Form S-1 or any similar
long-form registration (a "Maxtor Long-Form Registration"), and to the extent
available registration under the Securities Act of all or part of its
Registrable Securities on Form S-2 or S-3 or any similar short-form registration
(a "Maxtor Short-Form Registration"), provided that no requests may be made
prior to the first anniversary of the date hereof. Each request for a Maxtor
Demand Registration shall specify the approximate number of Registrable
Securities requested to be registered and the anticipated per share price range
for such offering. Within ten days after receipt of any such request, the
Company will give written notice of such requested registration to all other
holders of Registrable Securities and will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the Company's
notice. All registrations requested pursuant to this paragraph 11.1(a)(i) are
referred to herein as "Maxtor Demand Registrations".
(ii) Subject to paragraphs 11.1(b) and 11.1(e) below,
the holders of at least 50% of the Registrable Securities (other than Maxtor)
may request at any time after the date hereof registration under the Securities
Act, of all or part of their Registrable Securities on Form S-1 or any similar
long-form registration (an "Other Long-Form Registration"), and the holders of
at least 50% of the Registrable Securities (other than Maxtor) may request
registration under the Securities Act of all or part of their Registrable
Securities on Form S-2 or S-3 or any similar short-form registration (an "Other
Short-Form Registration") if available. Each request for an Other Demand
Registration shall specify the approximate number of Registrable Securities
requested to be registered and the anticipated per share price range for such
offering. Within ten days after receipt of any such request, the Company will
give written notice of such requested registration to all other holders of
Registrable Securities and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice. All
registrations requested pursuant to this paragraph 11.1(a)(ii) are referred to
herein as "Other Demand Registrations".
(b) Long-Form Registrations. (i) Subject to paragraph
11.1(a)(i), Maxtor will be entitled at any time after the date hereof to request
Maxtor Long-Form Registrations in which (subject to Section 11.5(b)) the Company
will pay all Registration Expenses ("Company-paid Long-Form Registrations");
provided that Maxtor may not request more than two (2) Maxtor Long-Form
Registrations (each a "Maxtor Company-paid Long-Form Registration"), and
provided that no requests may be made prior to the first anniversary of the date
hereof. A registration will not count as one of the permitted Maxtor
Company-paid Long-Form Registrations until it has become effective, and no
Company-paid Long-Form Registration will count as one of the permitted Maxtor
Long-Form Registrations unless Maxtor is able to register and sell at least 85%
of its Registrable Securities requested to be included in such registration;
provided that in any event
-13-
<PAGE> 14
the Company will pay all Registration Expenses in connection with any
registration initiated as a Company-paid Long-Form Registration whether or not
it has become effective.
(ii) Subject to paragraph 11.1(a)(ii), the holders of
Registrable Securities will be entitled at any time to request Other Long-Form
Registrations in which (subject to Section 11.5(b)) the Company will pay all
Registration Expenses ("Company-paid Long- Form Registrations"); provided that
the holders of Registrable Securities may not request more than four (4) Other
Long-Form Registrations (each an "Other Company-paid Long-Form Registration"). A
registration will not count as one of the permitted Other Company-paid Long-Form
Registrations until it has become effective, and no Company-paid Long-Form
Registration will count as one of the permitted Other Long-Form Registrations
unless the holders of Registrable Securities are able to register and sell at
least 85% of the Registrable Securities requested to be included in such
registration; provided that in any event the Company will pay all Registration
Expenses in connection with any registration initiated as an Other Company-paid
Long-Form Registration whether or not it has become effective.
(c) Short-Form Registrations. (i) In addition to the Maxtor
Long-Form Registrations provided pursuant to paragraph 11.1(b)(i), Maxtor will
be entitled to request any number of Short-Form Registrations in which the
Company will pay all Registration Expenses. Maxtor Demand Registrations will be
Short-Form Registrations whenever the Company is permitted to use any applicable
short form. After the Company has become subject to the reporting requirements
of the Securities Exchange Act of 1934, the Company will use its best efforts to
make Short-Form Registrations on Form S-3 available for the sale of Registrable
Securities. Maxtor agrees that it will not request a Maxtor Long-Form
Registration when the Company is eligible to use a Short-Form Registration;
provided that the Company agrees to include in the prospectus included in any
Short-Form Registration Statement, such material describing the Company and
intended to facilitate the sale of securities being so registered as is
reasonably requested for inclusion therein by any of the shareholders selling
securities pursuant to such registration statement, whether or not the form used
for such registration statement requires the inclusion of such information.
(ii) In addition to the Other Long-Form Registrations
provided pursuant to paragraph 11.1(b)(ii), the holders of Registrable
Securities will be entitled to request any number of Short-Form Registrations in
which the Company will pay all Registration Expenses. Other Demand Registrations
will be Short-Form Registrations whenever the Company is permitted to use any
applicable short form. After the Company has become subject to the reporting
requirements of the Securities Exchange Act of 1934, the Company will use its
best efforts to make Short-Form Registrations on Form S-3 available for the sale
of Registrable Securities. The holders of Registrable Securities agree that they
will not request an Other Long-Form Registration when the Company is eligible to
use a Short-Form Registration; provided that the Company agrees to include in
the prospectus included in any Short-Form Registration Statement, such material
describing the Company and intended to facilitate the sale of securities being
so registered as is reasonably requested for inclusion therein by any of the
shareholders selling securities pursuant to
-14-
<PAGE> 15
such registration statement, whether or not the form used for such registration
statement requires the inclusion of such information.
(d) Priority on Demand Registrations. The Company will not include in
any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of at least 50.1% of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold therein without adversely affecting the marketability of the
offering, the Company will include in such registration (i) first, the
Registrable Securities requested to be included in such registration by Maxtor,
(ii) second, the Registrable Securities requested to be included in such
registration by the holders of Registrable Securities (other than Maxtor),
allocated pro rata among the holders of such Registrable Securities on the basis
of the number of Registrable Securities owned by each holder of Registrable
Securities participating in such offering (without regard to Maxtor), and (iii)
third, other securities requested to be included in such registration.
(e) Restrictions on Long-Form Registrations and Demand Registrations.
The Company will not be obligated to effect any Demand Long-Form Registration
during the period starting with the date sixty (60) days prior to the Company's
good faith estimate of the date of filing of, and ending on a date one hundred
and twenty (120) days after the effective date of, a Company-initiated
registration; provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective. The
Company will not be obligated to effect a Demand Long-Form Registration within
one year after the consummation of the Recapitalization Agreement. The Company
will not be obligated to effect any Demand Long-Form Registration within six (6)
months after the effective date of a previous Long-Form Registration. The
Company may postpone for up to six (6) months the filing or the effectiveness of
a registration statement for a Demand Registration if the Company and the
holders of at least 50.1% of the Registrable Securities agree that such Demand
Registration would reasonably be expected to have an adverse effect on any
proposal or plan by the Company or any of its subsidiaries to engage in any
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction; provided that in
such event, the holders of Registrable Securities initially requesting such
Demand Registration will be entitled to withdraw such request and such Demand
Registration will not count as one of the permitted Demand Registrations
hereunder and the Company will pay all Registration Expenses in connection with
such registration.
(f) Other Registration Rights. Except as provided in this Agreement,
the Company will not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of Maxtor and the holders of at least 50.1% of the Registrable
Securities; provided that the Company may grant rights to other Persons to (i)
participate in Piggyback Registrations so long as such rights are subordinate to
the rights of
-15-
<PAGE> 16
Maxtor and the other holders of Registrable Securities with respect to such
Piggyback Registrations; and (ii) request registrations so long as the holders
of Registrable Securities are entitled to participate in any such registrations
with such Persons pro rata on the basis of the number of shares owned by each
such holder.
11.2 Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes
to register any of its securities under the Securities Act (other than pursuant
to (i) a Demand Registration, (ii) a registration in connection with shares
issued by the Company in connection with the acquisition of any company or
companies or other entity or assets or (iii) a registration solely of shares
that have been or may be issued pursuant to the Company's employee benefit
plans) and the registration form to be used may be used for the registration of
Registrable Securities (a "Piggyback Registration"), the Company will give
prompt written notice to all holders of Registrable Securities of its intention
to effect such a registration and will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the Company's
notice.
(b) Piggyback Expenses. Subject to Section 11.5(b), the
Registration Expenses of the holders of Registrable Securities will be paid by
the Company in all Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without adversely
affecting the marketability of the offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in such registration
by Maxtor, (iii) third, the Registrable Securities requested to be included in
such registration by the other holders of Registrable Securities, allocated pro
rata among the holders of such Registrable Securities on the basis of the number
of Registrable Securities owned by each holder of Registrable Securities
participating in such offering (without regard to Maxtor), and (iv) fourth,
other securities requested to be included in such registration; provided that in
any event (except an initial public offering) the holders of Registrable
Securities shall be entitled to register at least 20% of the securities to be
included in any such registration.
(d) Priority on Secondary Registrations. If a Piggyback
Regis tration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, the Company will
include in such registration (i) first, the Registrable Securities requested to
be included in such registration by Maxtor, (ii) second, the Registrable
Securities requested to be included in such registration by the other holders of
Registrable Securities, pro rata among the holders of such Registrable
Securities on
-16-
<PAGE> 17
the basis of the number of Registrable Securities owned by each holder of
Registrable Securities participating in such offering (without regard to
Maxtor), and (iii) third, other securities requested to be included in such
registration.
(e) Other Registrations. If the Company has previously filed
a registration statement with respect to Registrable Securities pursuant to
paragraph 11.1 or pursuant to this paragraph 11.2, and if such previous
registration has not been withdrawn or abandoned, the Company will not file or
cause to be effected any other registration of any of its equity securities or
securities convertible or exchangeable into or exercisable for its equity
securities under the Securities Act (except on Form S-8 or any successor form),
whether on its own behalf or at the request of any holder or holders of such
securities, until a period of at least six months has elapsed from the effective
date of such previous registration.
11.3 Holdback Agreements.
(a) Each holder of Registrable Securities agrees not to
effect any sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the one
hundred and eighty (180)-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration in
which Registrable Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the one hundred and twenty (120)-day period beginning on the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree, and (ii)
to cause each holder of at least 5% (on a fully-diluted basis) of its Common
Stock, or any securities convertible into or exchangeable or exercisable for
Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
11.4 Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as reasonably possible:
-17-
<PAGE> 18
(a) prepare and file (in the case of a Demand
Registration not more than sixty (60) days after request therefor) with the
Securities and Exchange Commission a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective (provided that as far in advance as practicable
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such registration
statement (and counsel selected by each of the Investor Stockholders and
Maxtor), copies of all such documents proposed to be filed, which documents will
be subject to the review of such counsel);
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than one hundred and
eighty (180) days and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities
such number of copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Securities,
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
-18-
<PAGE> 19
(f) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the Company
are then listed and, if not so listed, to be listed on the National Association
of Securities Dealers automated quotation system;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities, which
holder, in its sole and exclusive judgment, might be deemed to be an underwriter
or a controlling person of the Company, to participate in the preparation of
such registration or comparable statement and to require the insertion therein
of material, furnished to the Company in writing, which in the reasonable
judgment of such holder and its counsel should be included;
(l) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any common stock included in such registration statement for
sale in any jurisdiction, promptly notify the holders of Registrable Securities
and use its reasonable best efforts promptly to obtain the withdrawal of such
order; and
(m) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the holders of a
majority of the Registrable Securities being sold reasonably request.
-19-
<PAGE> 20
11.5 Registration Expenses.
(a) All expenses incident to the Company's performance
of or compliance with this Agreement, including without limitation all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne as provided in this Agreement, except
that the Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the
National Association of Securities Dealers automated quotation system. The
Company shall not be required to pay an underwriting discount with respect to
any shares being sold by any party other than the Company in connection with an
underwritten public offering of any of the Company's securities pursuant to this
Agreement.
(b) In connection with each registration of equity
securities by the Company (including any Company-paid Long-Form Registration,
Short-Form Registration and Piggyback Registration), the Company will reimburse
each of the Investor Stockholders and Maxtor for the reasonable fees and
expenses (including the fees and expenses of two separate counsel, one chosen by
the Investor Stockholders and one chosen by Maxtor) incurred by such Investor
Stockholders and Maxtor in connection with such registration.
11.6 Indemnification.
(a) The Company agrees to indemnify, to the full extent
permitted by law, each holder of Registrable Securities, its officers and
directors and each Person who controls such holder (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material fact contained in
any registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company will indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in
which a holder of Registrable Securities is participating, each such holder will
furnish to the Company in writing
-20-
<PAGE> 21
such information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, will indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such holder
for use in such registration statement or prospectus; provided that the
obligation to indemnify will be individual to each holder and will be limited to
the net amount of proceeds received by such holder from the sale of Registrable
Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder
will (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and will survive the transfer of
securities. The Company also agrees to make such provisions, as are reasonably
requested by any indemnified party, for contribution to such party in the event
the Company's indemnification is unavailable for any reason.
11.7 Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements
11.8 Selection of Underwriter. The underwriter for any registration
hereunder shall be selected by the Company, in its sole discretion, and no
Person requesting registration hereunder shall have any rights with respect to
the selection of such underwriter.
-21-
<PAGE> 22
11.9 Registration Rights in Subsidiaries. In the event any of the
Company's subsidiaries issue equity securities to the Investor Stockholders and
provide registration rights to such Persons, the Company will cause such
subsidiary to extend equivalent rights to Maxtor.
12. Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such specified Person. For
purposes of this definition, "control" (including the terms "controlled by" and
"under common control with"), with respect to the relationship between or among
two or more Persons, means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Business Day" means any day that is not a Saturday, a Sunday or other day
on which banks are required or authorized by law to be closed in the State of
New York or the City of New York.
"Person" means any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity.
"Registrable Securities" means (i) any Initial Shares which are shares of
Common Stock (and any shares of Common Stock issuable upon conversion of Initial
Shares which are Preferred Shares) (whether held by a Stockholder or any
permitted successor or assignee of a Stockholder), (ii) any Common Stock issued
or issuable with respect to the securities referred to in clause (i) by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, (iii) Common
Stock issuable upon the exercise of the Maxtor Warrant (as defined in the
Redemption Agreement) and (iv) any other shares of Common Stock held by Persons
holding securities described in clauses (i) and (ii) above. As to any particular
Registrable Securities, such securities will cease to be Registrable Securities
when they have been distributed to the public pursuant to a offering registered
under the Securities Act or are permitted to be sold to the public through a
broker, dealer or market maker in compliance with Rule 144 (other than pursuant
to the provisions of Rule 144(k)) under the Securities Act (or any similar rule
then in force). For purposes of this Agreement, a Person will be deemed to be a
holder of Registrable Securities whenever such Person has the right to acquire
directly or indirectly such Registrable Securities (upon conversion or exercise
in connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
"Registration Expenses" has the meaning set forth in Section 11.5(a)
hereof.
-22-
<PAGE> 23
"Sale of the Company" means the sale of the Company pursuant
to which any Third Party or Parties acquire (i) capital stock of the Company
possessing the voting power under normal circumstances to elect a majority of
the Board (whether by merger, consolidation or sale or transfer of the Company's
capital stock) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis.
"Third Party" means a Person which is not an Affiliate of
another Person.
13. Notices. Except as otherwise expressly provided herein,
any and all notices, designations, consents, offers, acceptances or other
communications provided for herein shall be given in writing and shall be hand
delivered, mailed by first class registered or certified mail, postage prepaid,
sent by a nationally recognized overnight courier service or transmitted via
telecopier as follows:
If to the Company or the Management Stockholders:
International Manufacturing Services, Inc.
211 River Oaks Parkway
San Jose, California 95134
Telecopy: (408) 432-4337
Attention: President
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telecopy: (415) 493-6811
Attention: Jeffrey Saper, Esq.
If to PPEI:
Prudential Private Equity Investors, III, L.P.
717 Fifth Avenue, Suite 1100
New York, New York 10022
Telecopy: (212) 826-6798
Attention: Mark Rossi, President
John A. Downer, Vice President
-23-
<PAGE> 24
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 446-4900
Attention: Frederick Tanne, Esq.
If to Oak:
Oak Investment Partners
525 University Avenue, Suite 1300
Palo Alto, California 94301
Telecopy: (415) 328-6345
Attention: Fredric Harman, General Partner
If to Maxtor:
Maxtor Corporation
2190 Miller Drive
Longmont, Colorado 80501-6744
Telecopy: (303) 678-3111
Attention: General Counsel
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Telecopy: (415) 327-3699
Attention: Diane Holt Frankle, Esq.
Notice shall be deemed given, for all purposes, when hand delivered, deposited
in the United States mail as registered or certified mail, postage prepaid, in
which event the third day following the date of postmark on the receipt of such
registered or certified mail shall conclusively be deemed the date of giving of
such notice, on the first Business Day following collection by the courier
service, fees prepaid, or when acknowledged by the receiving telecopier. Notice
shall be given to any of the Management Stockholders at the address given for
such Management Stockholder on Schedule I hereto.
14. No Inconsistent Agreements. The Company has not granted any
registration rights to any other Person. The Company will not hereafter enter
into any agreement with respect
-24-
<PAGE> 25
to its securities which is inconsistent with or violates the rights granted to
the holders of Registrable Securities in this Agreement.
15. Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
16. Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
17. Amendment of Agreement. This Agreement may be amended,
modified or revoked in whole or in part, but only by a written instrument that
specifically refers to this Agreement and expressly states that it constitutes
an amendment, modification or revocation hereof, as the case may be, and only if
such written instrument has been signed by the Company, each of the Stockholders
and the holders of at least 66.67% of the Registrable Securities.
18. Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the permitted respective successors and assigns of the parties
hereto whether so expressed or not. The parties expressly agree that each of
Maxtor, PPEI and Oak and any of their respective successors and assigns shall
have the right to assign its rights and obligations hereunder to any transferee
of Registrable Securities who, immediately following such transfer, holds at
least 500,000 Initial Shares (as such number of shares may be adjusted for any
stock split, stock dividend or other transaction affecting the outstanding
shares of the Preferred Stock or the Common Stock (including adjustment pursuant
to the antidilution provisions of the Articles)).
19. Interpretation of Agreement; Severability. The provisions
of this Agreement shall be applied and interpreted in a manner consistent with
each other so as to carry out the purposes and intent of the parties hereto, but
if for any reason any provision hereof is determined to be unenforceable or
invalid, such provision or such part thereof as may be unenforceable or invalid
shall be deemed severed from the Agreement and the remaining provisions carried
out with the same force and effect as if the severed provision or part thereof
had not been a part of this Agreement.
-25-
<PAGE> 26
20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS (AND NOT THE
CONFLICTS LAW) OF THE STATE OF DELAWARE.
21. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same Agreement.
22. Entire Agreement. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
supersedes all previous agreements.
* * * * *
[END OF PAGE]
[SIGNATURE PAGES FOLLOW]
-26-
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date first written above.
INTERNATIONAL MANUFACTURING
SERVICES, INC.
By:
-------------------------------
Name:
Title:
PRUDENTIAL PRIVATE EQUITY INVESTORS
III, L.P.
By: Prudential Equity Investors, Inc.,
General Partner
By:
-------------------------------
Name:
Title:
OAK INVESTMENT PARTNERS VI, L.P.
By:
-------------------------------
Name:
Title: General Partner
OAK VI AFFILIATES FUND, L.P.
By:
-------------------------------
Name:
Title: General Partner
[SIGNATURE PAGES TO STOCKHOLDERS AGREEMENT]
<PAGE> 28
MAXTOR CORPORATION
By:
------------------------------
Name:
Title:
[SIGNATURE PAGES TO STOCKHOLDERS AGREEMENT]
<PAGE> 29
INVESTOR STOCKHOLDERS
BRINSON VENTURE CAPITAL FUND III, L.P.
By: Brinson Partners, Inc., general partner
By:
----------------------------------
Name:
Title:
BRINSON TRUST COMPANY,
as Trustee of the Brinson MAP Venture Capital
Fund III
By:
---------------------------------
Name:
Title:
-----------------------------------
William Allmon
(individually)
-----------------------------------
Dixon Doll
(individually)
-----------------------------------
Larry Smart
(individually)
-----------------------------------
Daniel Winnike
individually)
[SIGNATURE PAGES TO STOCKHOLDERS AGREEMENT]
<PAGE> 30
-----------------------------------
Jeffrey Saper
(individually)
WILSON SONSINI GOODRICH & ROSATI
By:
----------------------------
Name:
Title: general partner
[SIGNATURE PAGES TO STOCKHOLDERS AGREEMENT]
<PAGE> 31
MANAGEMENT STOCKHOLDERS:
-----------------------------------
Robert G. Behlman
(individually)
-----------------------------------
Nate Kawai
(individually)
-----------------------------------
N.K. Quek
(individually)
-----------------------------------
Anthony Pham
(individually)
-----------------------------------
Iris Grable
(individually)
-----------------------------------
Julie Mahowold
(individually)
[SIGNATURE PAGES TO STOCKHOLDERS AGREEMENT]
<PAGE> 1
Exhibit 10.10
AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT
AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT ("Amendment No. 1") dated as
of December 24, 1996 (the "Stockholders Agreement"), among International
Manufacturing Services, Inc., a Delaware corporation (the "Company"), Prudential
Private Equity Investors III, L.P., a Delaware limited partnership, Oak
Investment Partners VI, L.P., a California limited partnership, Oak VI
Affiliates Fund, L.P. a California limited partnership, the Investor
Stockholders listed on the signature pages hereof, Maxtor Corporation, a
Delaware corporation, and the management Stockholders listed on the signature
pages hereof.
WHEREAS, the Company wishes to acquire (the "Acquisition") the assets
and certain liabilities of Pentagon Systems, Inc. ("Pentagon"), a California
corporation, as contemplated by the Letter of Intent dated as of November 27,
1996 relating to the Acquisition, which is attached hereto as Exhibit A (the
"Letter of Intent");
WHEREAS, subject to the conditions of the Letter of Intent and the
related definitive documentation, the Company has agreed as part of the purchase
price to issue to Pentagon 300,000 shares of the Company's Common Stock;
WHEREAS, as a condition precedent to the Acquisition, the Company has
agreed to grant to those shareholders of Pentagon who acquire shares of the
Company's common stock in connection with the Acquisition "piggyback"
registration rights; and
WHEREAS, the Company desires to obtain the required consent under the
Stockholders Agreement to grant to Pentagon (including those shareholders of
Pentagon that acquire such shares from Pentagon) Piggyback Registration Rights
with respect to the Company's Common Stock issued in the Acquisition by amending
and restating the definition of the term "Registrable Securities" and adding
Pentagon (and such Pentagon shareholders) as parties to the Stockholder's
Agreement with respect to certain provisions thereof but solely as they relate
to such Piggyback Registration Rights.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties to this Amendment No. 1 hereby agree as
follows:
SECTION 1. Defined Terms. All capitalized terms used but not defined
herein shall have the meanings assigned thereto in the Stockholders Agreement.
1
<PAGE> 2
SECTION 2. Amendment of the term "Registrable Securities".
The definition of the term "Registrable Securities" located in Section
12 of the Stockholders Agreement is hereby deleted and replaced with the
following:
"'Registrable Securities' means (i) any Initial Shares
which are shares of Common Stock (and any shares of Common Stock
issuable upon conversion of Initial Shares which are Preferred Shares)
(whether held by a Stockholder or any permitted successor or assignee
of a Stockholder), (ii) any Common Stock issued or issuable with
respect to the securities referred to in clauses (i) and (iv) by way
of a stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other
reorganization, (iii) Common Stock issuable upon the exercise of the
Maxtor Warrant (as defined in the Redemption Agreement), (iv) up to
300,000 shares of Common Stock issued by the Company in connection
with acquisition by the Company of the assets of Pentagon Systems,
Inc., a California corporation ("Pentagon"), and (v) any other shares
of Common Stock held by Persons holding securities described in
clauses (i) and (ii) of this sentence above; provided, however, that
the term 'Registrable Securities' shall include the shares of Common
Stock covered by clause (iv) above and any shares issued in respect
thereof as contemplated by clause (ii) above (collectively, the
"Pentagon Company Shares") only with respect to the rights and
obligations set forth in Sections 11.2, 11.3, 11.4, 11.5, 11.6, 11.7,
11.8, 11.9, 12 (to the extent applicable) 15, 16, 18, 19, 20, 21 and
22 of this Agreement. As to any particular Registrable Securities,
such securities will cease to be Registrable Securities when they have
been distributed to the public pursuant to an offering registered
under the Securities Act or are permitted to be sold to the public
through a broker, dealer or market maker in compliance with Rule 144
(other than pursuant to the provisions of Rule 144(k)) under the
Securities Act (or any similar rule then in force). For purposes of
this Agreement, a Person will be deemed to be a holder of Registrable
Securities whenever such Person has the right to acquire directly or
indirectly such Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected."
SECTION 3. Addition of Section 23. The Stockholders Agreement is hereby
amended by inserting after Section 22 the following Section 23.
"23. Pentagon Provisions. (a) Solely with respect to Sections
11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 11.8, 11.9, 12 (to the extent
applicable), 15, 16, 18, 19, 20, 21 and 22 of this Agreement, and only
for so long as the Pentagon Company Shares constitute Registrable
Securities, Pentagon and any permitted transferee of the Pentagon
Company Shares shall be deemed to be a party to this Agreement in
respect of the Pentagon Company Shares and such provisions.
Notwithstanding the foregoing, any notice required to be given to any
holder of Pentagon Company Shares shall be required to be given only to
Pentagon in the manner contemplated by Section 13 of this Agreement to:
2
<PAGE> 3
Pentagon Systems, Inc.
2890 N. First Street
San Jose, California 94134-2016
Attention: Mr. Muder Kothari
Telephone: (408) 922-2720
Fax: (408) 922-2727
with a copy to:
Marc Freed, Esq.
Skjerven, Morrill, MacPherson, Franklin
& Friel LLP
25 Metro Drive, #700
San Jose, California 95110
Telephone: (408) 453-9200
Fax: (408) 453-7979
(b) Notwithstanding the other provisions of this Agreement and
for so long as any Pentagon Company Shares constitute Registrable
Securities, without the prior written consent of Pentagon (on its
behalf and on behalf of any holder of Pentagon Company Shares), this
Agreement shall not be amended in a manner that adversely impacts in
any material respect the rights or obligations in respect of the
Pentagon Company Shares under Section 11.2, 11.3, 11.4, 11.5, 11.6,
11.7, 11.8, 11.9, 12 (to the extent applicable), 15, 16, 18, 19, 20, 21
or 22 hereof."
SECTION 4. Effectiveness. This Amendment No. 1 shall become effective
upon (a) execution of this Amendment No. 1 by the Company and the holders of at
least 66.67% of the Registrable Securities and (b) the consummation of the
Acquisition and the issuance to Pentagon of the Company's Common Stock in
connection therewith.
SECTION 5. GOVERNING LAW. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS (AND NOT THE
CONFLICTS LAW) OF THE STATE OF DELAWARE.
SECTION 6. Counterparts. This Amendment No. 1 may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same Agreement.
SECTION 7. Entire Agreement. This Amendment No. 1 and the Agreement
constitute the entire agreement of the parties with respect to the subject
matter thereof, and supersedes all previous agreements.
3
<PAGE> 4
SECTION 8. Ratification. Except as expressly amended hereby, each
provision of the Agreement shall remain in full force and effect and; as amended
hereby, the Agreement is in all respects agreed to, ratified and confirmed by
each party to the Agreement.
4
<PAGE> 5
IN WITNESS WHEREOF, this Amendment No. 1 has been executed as of the
date first written above.
INTERNATIONAL MANUFACTURING
SERVICES, INC.
By:____________________________________
Robert G. Behlman, President and
Chief Executive Officer
PRUDENTIAL PRIVATE EQUITY
INVESTORS III, L.P.
By: Prudential Equity Investors, Inc.
General Partner
By:____________________________________
Name:
Title:
OAK INVESTMENT PARTNERS VI, L.P.
By:____________________________________
Name:
Title:
OAK VI AFFILIATES FUND, L.P.
By:____________________________________
Name:
Title:
5
<PAGE> 6
MAXTOR CORPORATION
By:____________________________________
Name:
Title:
MONTGOMERY ASSOCIATES, 1992 L.P.
By:____________________________________
Name:
Title:
6
<PAGE> 7
INVESTOR STOCKHOLDERS:
BRINSON VENTURE CAPITAL FUND III, L.P.
By: Brinson Partners, Inc., general partner
By:
------------------------------------------
Name:
Title:
BRINSON TRUST COMPANY,
as Trustee of the Brinson MAP Venture Capital
Fund III
By:
-----------------------------------------
Name:
Title:
--------------------------------------------
William J. Allmon
(individually)
DIXON AND CAROL DOLL FAMILY TRUST
By:
-----------------------------------------
Name:
Title:
J. LARRY SMART AND CHERYL L. SMART
TRUST DATED 3/29/95
By:
-----------------------------------------
Name:
Title:
7
<PAGE> 8
---------------------------------------
Daniel Winnike
(individually)
---------------------------------------
Jeffrey Saper
(individually)
---------------------------------------
Herbert P. Fockler
(individually)
WS INVESTMENT COMPANY 96A
By:
------------------------------------
Name:
Title: general partner
8
<PAGE> 9
MANAGEMENT STOCKHOLDERS:
--------------------------------------
Robert G. Behlman
(individually)
--------------------------------------
Nate Kawaye
(individually)
--------------------------------------
N.K. Quek
(individually)
--------------------------------------
Anthony Pham
(individually)
--------------------------------------
Iris Grable
(individually)
--------------------------------------
Julie Mahowold
(individually)
ACKNOWLEDGED AND AGREED:
PENTAGON SYSTEMS, INC.
By:
--------------------------------------
Muder Kothari
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.11
THE INDEBTEDNESS EVIDENCED BY
THIS SENIOR SUBORDINATED PROMISSORY NOTE
IS OR WILL BE SUBORDINATED TO THE PAYMENT OF
CERTAIN OTHER INDEBTEDNESS OF THE MAKER HEREOF
ON THE TERMS AND CONDITIONS SET FORTH IN
A SUBORDINATION AGREEMENT DESCRIBED BELOW
SENIOR SUBORDINATED PROMISSORY NOTE
(IMS)
U.S.$1,700,000 June 10, 1996
INTERNATIONAL MANUFACTURING SERVICES, INC., a corporation organized
under the laws of Delaware ("Company"), for value received, hereby promises to
pay to the order of MAXTOR CORPORATION, a Delaware corporation ("Maxtor", which
term shall include any successor or permitted assign thereof), at 2190 Miller
Drive, Longmont, Colorado 80501, or such other address of Maxtor in the United
States of America as Maxtor may specify from time to time, the principal sum of
One Million Seven Hundred Thousand United States Dollars (U.S.$1,700,000) on the
date or dates set forth below, and together with interest thereon calculated
from the date hereof at the rate or rates set forth below.
1. PAYMENT OF INTEREST. Interest on the unpaid principal amount of
this Senior Subordinated Promissory Note (this "Note") shall be payable at the
rate of seven percent (7%) per annum from the date hereof; provided that on the
first anniversary of the date of this Note, the applicable interest rate shall
thereafter be adjusted to the fixed interest rate equal to the Bank Facility
Interest Rate in effect on such first anniversary date. In no event shall the
interest rate determined in accordance with the forgoing exceed the rate per
annum equal to the Bank Facility Interest Rate in effect on the closing date of
the 1996 Credit Agreement. Interest shall be computed on the basis of a 360 day
year. In no event shall the interest charged exceed the maximum rate permitted
under applicable law. Interest shall be payable quarterly in arrears, on the
last day of each June, September, December and March commencing June 30, 1996,
and on the date the outstanding principal amount of this Note is paid in full
(whether at maturity or otherwise.)
2. PAYMENT OF PRINCIPAL.
(a) SCHEDULED PAYMENTS FROM EXCESS CASH FLOW. The principal
amount of this Note shall be payable in three substantially equal installments
of $566,666.67 on each of June 10, 1999, June 10, 2000 and June 10, 2001 (each,
an "Amortization Date"), but solely to the extent that the making of such
payments would not result in an event of default under the Bank Credit Facility,
or an event
<PAGE> 2
which with notice or lapse of time or both, would be an event of default under
the Bank Credit Facility. If any scheduled amortization payment or portion
thereof cannot be made because an event of default under the Bank Credit
Facility (or an event which, with notice or lapse of time or both, would be an
event of default under the Bank Credit Facility) would result therefrom, then
such payment or portion thereof shall instead be due on the next scheduled
Amortization Date. In any event, the outstanding principal balance of this Note
plus accrued and unpaid interest in respect thereof shall be due and payable in
full on June 13, 2001.
(b) MANDATORY PREPAYMENT FOLLOWING INITIAL PUBLIC OFFERING. Within
five (5) days after the receipt by the Company of the Available Offering
Proceeds in connection with the underwritten initial public offering of common
stock of Company (the "IPO"), Company shall prepay the outstanding principal
balance of this Note plus all accrued and unpaid interest in respect thereof,
subject to the following conditions: (i) the managing underwriters of Company in
connection with the IPO shall have approved of such prepayment (which approval
shall be evidenced by the use of proceeds presentation in the prospectus for the
IPO); (ii) concurrently with the prepayment of this Note, the outstanding
principal and accrued and unpaid interest in respect of the Related Senior
Subordinated Notes shall be prepaid (with such prepayment allocated among this
Note and the Related Senior Subordinated Notes as Company shall specify); and
(iii) the amount of the prepayment under this Note, when added to the amount of
the prepayment under the Related Senior Subordinated Notes, shall in no event
exceed that portion of the Available IPO Proceeds determined by reference to
Schedule A to this Note. The Available IPO Proceeds shall be applied to
scheduled payments of principal under this Note in order of their maturity.
(c) MANDATORY PREPAYMENT FOLLOWING SECONDARY OFFERING. Within five
(5) days after the receipt by Company of the Available Offering Proceeds in
connection with the underwritten secondary offering of common stock of Company
(the "Secondary Offering"), Company shall prepay all of the outstanding
principal balance of this Note plus all accrued and unpaid interest in respect
thereof, subject to the following conditions: (i) the managing underwriters of
Company in connection with the Secondary Offering shall have approved of such
prepayment (which approval shall be evidenced by the use of proceeds
presentation in the prospectus for the Secondary Offering); (ii) concurrently
with the prepayment of this Note, outstanding principal and accrued and unpaid
interest in respect of the Related Senior Subordinated Notes shall be prepaid
(with such prepayment allocated among this Note and the Related Senior
Subordinated Notes as Company shall specify); and (iii) the amount of the
prepayment under this Note, when added to the amount of the prepayment under the
Related Senior Subordinated Notes, shall in no event exceed fifty percent (50%)
of the Available Offering Proceeds. The Available Offering Proceeds shall be
applied to scheduled payments of principal under this Note in order of their
maturity.
(d) MANDATORY PREPAYMENT UPON CHANGE IN OWNERSHIP OR SALE OF ASSETS.
(1) If a Fundamental Change or Change in Ownership has occurred
with respect to Company, then the outstanding principal amount of this Note and
the Related Senior Subordinated Notes, plus accrued and unpaid interest
thereunder, shall be prepaid in full unless such
-2-
<PAGE> 3
prepayment would result in an event of default or an event that with the
passage of time or the giving of notice would become an event of default under
the Bank Credit Facility.
(2) If a Fundamental Change or Change in Ownership has occurred
with respect to Maxtor (Hong Kong) Limited ("IMS Hong Kong") or any subsidiary
of Company of which IMS Hong Kong is a direct or indirect subsidiary, then the
Hong Kong Net Cash Proceeds received from such sale or transfer shall, to the
extent not required to be used to repay the Bank Credit Facility pursuant to the
terms thereof, be applied to prepay scheduled principal amortization payments
under this Note and the Related Senior Subordinated Notes (with such prepayment
allocated among this Note and the Related Senior Subordinated Notes as Company
shall specify), in order of their maturity unless such prepayment would result
in an event of default or an event that with the passage of time or the giving
of notice would become an event of default under the Bank Credit Facility.
(3) If a Fundamental Change or Change in Ownership has occurred
with respect to IMS International Manufacturing Services (Thailand) Limited
("IMS Thailand") or any subsidiary of Company of which IMS Thailand is a direct
or indirect subsidiary, then (a) Company or one of its subsidiaries shall commit
in writing, within three months after the date of consummation of such change,
to reinvest the Thailand Net Cash Proceeds in businesses comparable, related or
incidental to the business of Company and its subsidiaries, or (b) if Company or
any of its subsidiaries shall fail to make such commitment within such three
month period, then, to the extent the Thailand Net Cash Proceeds are not
required to be used to repay the Bank Credit Facility pursuant to the terms
thereof, the Thailand Net Cash Proceeds shall be applied to prepay scheduled
principal amortization payments under this Note and the Related Senior
Subordinated Notes (with such prepayment allocated among this Note and the
Related Senior Subordinated Notes as Company shall specify), in order of their
maturity unless such prepayment would result in an event of default or an event
that with the passage of time or the giving of notice would become an event of
default under the Bank Credit Facility.
(e) OPTIONAL PREPAYMENTS. Company may prepay all or any portion of
this Note at any time, without penalty or premium, and without prior notice to
Maxtor, unless to do so would violate the provisions of the Bank Credit
Facility.
(f) PAYMENTS IN GENERAL. Payments of principal and interest shall be
made in lawful money of the United States of America. If any payment of
principal or interest on this Note shall be come due on a Saturday, Sunday or
legal holiday under the laws of the State of California, such payment shall be
made on the next succeeding business day, and such extension of time shall be
included in computing interest in connection with such payment. Withholding
taxes required by any applicable taxing authorities to be paid in respect of
payments made under this Note shall be paid to such taxing authorities by
Company, without offset against amounts payable to Maxtor, and at Maxtor's
request, Company shall provide Maxtor with copies of official receipts, if any,
issued by such taxing authorities or such other evidence as is reasonably
available to establish that such taxes have been paid. Notwithstanding the
foregoing, Maxtor shall assist Company and take such actions as are reasonably
necessary in order to secure available reductions or eliminations of such
withholding taxes.
3. SUSPENSION OF INTEREST PAYMENTS. Notwithstanding anything herein, in
the event that prior to June 30, 1997, Maxtor shall have breached its "Purchase
Commitment" under and as defined
-3-
<PAGE> 4
in that certain Manufacturing Services Agreement dated as of May 16, 1996
between Company and Maxtor, as amended or modified from time to time, then
Company shall not be obligated to make any payments of interest in respect of
this Note which otherwise would have been due on or before June 30, 1997, so
long as such breach remains uncured. Following cure of any such breach, then
scheduled payments of interest shall immediately resume, provided that the
aggregate amount of interest payments that were so suspended shall be paid by
Company to Maxtor in thirteen (13) substantially equal monthly payments, on the
last day of each calendar month, commencing on the first such date to follow the
date of such cure.
4. SUBORDINATION. THE OBLIGATIONS EVIDENCED BY THIS NOTE ARE TO BE AND
WILL BE SUBORDINATED TO ALL PRESENT AND FUTURE SENIOR INDEBTEDNESS OF COMPANY
AND CERTAIN AFFILIATES, INCLUDING, WITHOUT LIMITATION, THE SENIOR INDEBTEDNESS
UNDER THE BANK CREDIT FACILITY, ON THE TERMS AND CONDITIONS SET FORTH IN THE
SUBORDINATION AGREEMENT, TO BE ENTERED INTO AMONG COMPANY, IMS THAILAND, IMS
HONG KONG, IMS BORROWER, INC., A DELAWARE CORPORATION ("IMS DELAWARE"), IMS
HOLDCO, INC., A DELAWARE CORPORATION ("IMS HOLDCO"), IMS INTERNATIONAL
MANUFACTURING SERVICES, LIMITED, A CAYMAN ISLANDS CORPORATION ("IMS CAYMAN"),
DONGGUAN IMS ELECTRONICS COMPANY, LIMITED, A PEOPLE'S REPUBLIC OF CHINA
CORPORATION ("IMS PRC"), MAXTOR AND THE BANK CREDIT FACILITY AGENT (AS AMENDED,
MODIFIED OR REPLACED FROM TIME TO TIME, THE "SUBORDINATION AGREEMENT"), WHICH
SUBORDINATION AGREEMENT IS TO BE MADE FOR THE BENEFIT OF ALL PRESENT AND FUTURE
HOLDERS OF SENIOR INDEBTEDNESS. REFERENCE IS MADE TO THE SUBORDINATION AGREEMENT
FOR THE COMPLETE TERMS AND CONDITIONS OF SUCH SUBORDINATION. MAXTOR AND EACH
HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, AGREES TO THE TERMS AND
CONDITIONS SET FORTH IN THE SUBORDINATION AGREEMENT.
5. GUARANTY. The obligations of Company under this Note are guarantied by
the Guarantors pursuant to Guaranties, of even date herewith, executed by each
such Guarantor (the "Guaranties").
6. COVENANTS. So long as any amount remains outstanding under this Note:
(a) Company shall not grant any security interest in or lien upon any
of its property to secure Indebtedness, other than security interests and liens
(i) existing on the date hereof, and (ii) to secure Senior Indebtedness.
(b) Within 45 days after the end of each of the first three fiscal
quarters of Company, Company shall deliver to Maxtor a copy of its
Company-prepared balance sheet, income statement and statement of changes in
shareholders equity for such quarter, prepared in accordance with generally
accepted accounting principles consistently applied, subject to year-end
adjustments and the absence of footnotes.
(c) Within 90 days after the end of each fiscal year of Company,
Company shall deliver to Maxtor a copy of its balance sheet, income statement
and statement of changes in shareholders equity for such year, prepared in
accordance with generally accepted accounting principles consistently applied,
certified by independent public accountants selected by Company.
-4-
<PAGE> 5
(d) Upon at least five business days notice to Company, Maxtor may,
during reasonable business hours, inspect the properties of Company.
(e) Company shall not engage in any business other than the businesses
conducted by Company or any of its subsidiaries as of the date of this Note, or
other businesses related or incidental thereto.
7. DEFAULT; REMEDIES. Each of the following events shall constitute an
"Event of Default" hereunder:
(a) Company shall fail to make any payment of principal or interest
due hereunder (other than as a result of the provisions of Section 3 or 4 above)
and such failure shall have continued uncured for a period of at least thirty
(30) days; or
(b) Company shall fail to perform any covenant or agreement provided
for in this Note, and such failure shall continue uncured for a period of at
least thirty (30) days following written notice from Maxtor; or
(c) Any Reorganization Proceeding (i) shall be commenced by Company
or any Guarantor or (ii) shall be commenced against Company or any Guarantor and
the same shall not have been rescinded or stayed within ninety (90) days; or
(d) Any default shall occur under (i) any agreement or instrument
evidencing the Indebtedness under the Bank Credit Facility, if such default
shall continue after any applicable grace period and if the effect of such
default is to accelerate, or permit the holders of the Indebtedness under the
Bank Credit Facility to accelerate, the maturity of such Indebtedness; or (ii)
any agreement or instrument evidencing Senior Indebtedness other than the Bank
Credit Facility, if (x) such default results from the failure to make a payment
when due, (y) such default shall continue after any applicable grace period and
(z) the effect of such event is to accelerate, or permit the holders of such
Senior Indebtedness to accelerate, the maturity of such Indebtedness; or (iii)
any one or more instruments or agreements evidencing Senior Indebtedness in an
aggregate principal amount of at least $5,000,000, if (x) such default results
from a default other than the failure to make a payment when due, (y) such
default shall continue after any applicable grace period and (z) the effect of
such default is to accelerate, or permit the holders of such Senior Indebtedness
to accelerate, the maturity of such Senior Indebtedness; provided that upon the
waiver or cure any such default, then the Event of Default under this Note
resulting therefrom shall automatically be deemed waived or cured; or
(e) Any default shall occur under the Subordinated Notes, if such
default shall continue after any applicable grace period and if the effect of
such default is to accelerate, or permit the holders of the Indebtedness under
the Subordinated Notes to accelerate, the maturity of such Indebtedness;
provided that upon the waiver or cure any such default in respect of the
Subordinated Notes, then the Event of Default under this Note resulting
therefrom shall automatically be deemed waived or cured; or
-5-
<PAGE> 6
(f) Any default shall occur under any Guaranty, if such default shall
continue after any applicable grace period.
Upon the occurrence and during the continuance of any Event of
Default, then (i) Maxtor shall have the right to declare immediately due and
payable all or any portion of the outstanding principal balance of this Note, in
which case such principal balance and accrued and unpaid interest thereon shall
immediately be due and payable, and (ii) at Maxtor's option upon notice to
Company, the interest rate otherwise applicable to this Note shall be increased
by two percent (2%). Maxtor shall also have such other rights as may be
available to Maxtor under applicable law. Notwithstanding the foregoing, so long
as any Senior Indebtedness has not been paid in full in cash, Maxtor shall have
no right to accelerate amounts due hereunder.
8. COSTS OF ENFORCEMENT. In the event any action is taken to enforce
the rights of Maxtor under this Note, the party prevailing in that action shall
be entitled, in addition to such other relief as may be granted, to all
reasonable costs and expenses, including reasonable attorneys' fees, incurred in
such action.
9. ASSIGNMENT. By accepting this Note Maxtor agrees that Maxtor may not
assign any interest in this Note to any person other than Hyundai Electronics
America ("Hyundai") or any of its Affiliates (which Affiliate shall be an
Affiliate with respect to which Hyundai owns at least 51% of the economic
interests and at least 51% of the voting interests, and which shall not have
been created in anticipation of such assignment (a "Permitted Affiliate"));
provided, that in connection with any assignment of this Note, (a) Maxtor must
concurrently assign its interest in the Guaranties, the Related Senior
Subordinated Notes and any guaranties by the Guarantors of the Related Senior
Subordinated Note (the "Related Documents"), (b) such Permitted Affiliate shall
deliver to Company and the Bank Credit Facility Agent a written acknowledgment
of its agreement to be bound by the terms of the Subordination Agreement, and
(c) the documents pursuant to which such assignment is made must provide that if
the assignee ceases to be a Permitted Affiliate of Hyundai, then either such
assignment shall automatically be rescinded, or this Note and the Related
Documents shall be assigned to another Permitted Affiliate of Hyundai prior to
or concurrently with the effectiveness of the transactions pursuant to which the
assignee ceases to be a Permitted Affiliate of Hyundai. Any purported assignment
in contravention of the provisions of this Section 9 shall be null and void.
Notwithstanding anything herein to the contrary, in no event shall any person
other than Maxtor, Hyundai or any Permitted Affiliate of Hyundai hold any right
or interest in this Note.
10. MISCELLANEOUS. The rights and obligations under this Note shall be
binding upon and inure to the benefit of Company and Maxtor and their respective
successors and permitted assigns. Company hereby waives presentment, demand,
protest or notice of any kind in connection with this Note. This Note is issued
in connection with that certain Redemption Agreement dated as of May 16, 1996
among Company, Maxtor and certain other parties thereto (the "Redemption
Agreement"). This Note shall be construed in accordance with and governed by the
laws of the State of California (without regard to its conflict of laws
principles). Company hereby submits to the jurisdiction of any State or Federal
court sitting in the State of California.
-6-
<PAGE> 7
11. OFFSETS. Company may, without prior notice to Maxtor (but only with
the prior written consent of the Bank Credit Facility Agent), offset amounts the
due under this Note against amounts then due from Maxtor to Company, any
Borrower or any other guarantor in respect of Maxtor's indemnification
obligations under that certain Recapitalization Agreement dated as of May 16,
1996 (the "Recapitalization Agreement"), the Redemption Agreement, the
agreements entered into in connection with the Recapitalization Agreement and
Redemption Agreement, and any other agreement to which Maxtor and Company, any
Borrower or any other guarantor are parties. In addition, Company may, without
prior notice to Maxtor but only with the prior written consent of the Bank
Credit Facility Agent, offset amounts due under this Note against amounts then
due from Maxtor to Prudential Equity Investors, Inc. and Oak Investment Partners
("Investors") in respect of Maxtor's indemnification obligations under the
Redemption Agreement and Recapitalization Agreement, but only to the extent such
indemnification rights have been assigned by Investors to Company. For purposes
of this Section 11, amounts shall not be deemed to be "due" from Maxtor in
respect of its indemnification obligations until such time as any applicable
dispute resolution procedures set forth in the relevant agreement have been
fully satisfied.
12. CERTAIN DEFINITIONS. As used in this Note:
"Affiliate" means any person which, directly or indirectly, controls,
is controlled by or is under common control with another person; provided
that for purposes of this Note, "control," "controlled by" and "common
control" shall mean the possession, directly or indirectly, of the power to
vote 51% or more of the securities having ordinary voting power of the
election of directors of such person.
"Available IPO Proceeds" means the net cash proceeds to Company of the
IPO, after deducting (x) underwriting discounts, commissions and other
expenses, and (y) an amount equal to $10,000,000 or such greater or lesser
amount as is applied to reduce the outstanding Indebtedness under the Bank
Credit Facility in accordance with the terms thereof (provided that if such
amount is in excess $10,000,000, then such excess shall have been made as a
result of Company's negotiations with the holders of the Indebtedness under
the Bank Credit Facility following a potential or actual default under the
Bank Credit Facility, or shall have been necessary, in the reasonable
opinion of Company, to allow Company or any of its subsidiaries to continue
the availability of or to obtain financing under the Bank Credit Facility).
"Available Offering Proceeds" means the net cash proceeds to Company
of the Secondary Offering , after deducting (x) underwriting discounts,
commissions and other expenses, (y) such amounts are necessary, in the
reasonable opinion of Company, to satisfy the capital needs of Company and
its subsidiaries, and (z) such amount, if any, as is applied to reduce the
outstanding Indebtedness under the Bank Credit Facility in accordance with
the terms thereof.
"Bank Credit Facility" means the 1996 Credit Agreement, and all
amendments, modifications, renewals, extensions and increases thereof, and
all refundings, refinancings and replacements thereof, in whole or in part.
-7-
<PAGE> 8
"Bank Credit Facility Agent" means Chemical Bank or such other
person as shall be designated as "Administrative Agent" or "Collateral
Agent" in respect of the Bank Credit Facility from time to time, or if no
Agent shall have been so designated, then the holder or holders of the
Indebtedness represented by the Bank Credit Facility.
"Bank Facility Interest Rate" means, as of any date of determination,
the rate of interest, including the applicable spread, that would be
applicable to six month "Eurodollar Loan" (as defined in the 1996 Credit
Agreement) under the 1996 Credit Agreement made on such date (or, in the
event the 1996 Credit Agreement is not in effect on such date, on the last
day that the 1996 Credit Agreement was in effect, as determined by Company
in good faith) plus one and one half percent (1.5%).
"Borrower" means Company and any other person designated as a
"Borrower" under Senior Indebtedness.
"Change in Ownership" means, with respect to any person, any sale,
transfer or issuance or series of sales, transfers and/or issuances of
voting capital stock of such person which results in any other person or
any group of persons (as the term "group" is used under the Securities
Exchange Act of 1934), other than other holders of the capital stock of
such person as of the date hereof, owning more than fifty percent (50%) of
the voting capital stock outstanding at the time of such sales, transfers
or issuances.
"Fundamental Change" means, with respect to any person, (a) any sale
or transfer of all or substantially all of the assets of such person and
its subsidiaries on a consolidated basis in any transaction or series of
transactions (other than sales in the ordinary course of business) and (b)
any merger or consolidation to which such person is a party, except for a
merger in which such person is the surviving corporation (provided that a
merger or other transaction conducted for the sole purpose of changing a
person's domicile shall not be considered a Fundamental Change).
"Guarantors" means each of IMS Delaware, IMS Holdco, IMS Cayman, and
IMS Hong Kong, and any other person that guarantees the obligations of any
Borrower in respect of Senior Indebtedness except that IMS PRC shall be a
"Guarantor" only to the extent permitted under the law of the Peoples
Republic of China (or any province or other local government body located
in the Peoples Republic of China or any political subdivision thereof)
after giving effect to any guarantee by, or other obligations of, IMS PRC
in respect of the Senior Indebtedness..
"Indebtedness" means, with respect to any person, and without
duplication, (i) all indebtedness and other obligations (contingent or
otherwise) of such person for borrowed money (other than trade payables
incurred in the ordinary course of business (whether or not the same are
past due)); (ii) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in
connection with the acquisitions of property, assets or businesses; (iii)
reimbursement obligations and other liabilities (contingent or otherwise)
of such person with respect to letters of credit or bankers acceptances;
(iv) all obligations or liabilities (continent or otherwise) in respect of
leases of such person that are
-8-
<PAGE> 9
required, in conformity with generally accepted accounting principles, to
be accounted for as capital leases; (v) all obligations of such person
(contingent or otherwise) with respect to foreign exchange contracts,
currency exchange agreements, interest rate swaps, collars, caps or other
protection agreements; (vi) all direct or indirect guaranties or similar
agreements by such person in respect of obligations of another person that
would constitute "Indebtedness" hereunder; (vii) indebtedness of the types
described in clauses (i) through (vi) secured by a mortgage, pledge, lien
or other encumbrance existing on property that is owned or held by such
person, regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such person, and (viii) all amendments,
modifications, renewals, extensions, increases, refundings, refinancings
and replacements of any of the foregoing.
"Net Cash Proceeds" means, with respect to a Fundamental Change or
Change in Ownership with respect to any subsidiary of Company the net cash
proceeds attributable to the assets or capital stock of such subsidiary
(measured either by book value determined in accordance with generally
accepted accounting principles consistently applied or by fair market value
determined in the reasonable good faith of the board of directors of such
person).
"Related Senior Subordinated Notes" means, collectively, the Senior
Subordinated Note, dated of even date herewith, in the original principal
amount of $16,300,000 made by IMS Hong Kong, and the Senior Subordinated
Promissory Note, in the original principal amount of $2,000,000 made by IMS
Thailand, each made payable to the order of Maxtor.
"Reorganization Proceedings" means any voluntary or involuntary
liquidation or dissolution of, or any bankruptcy, reorganization,
insolvency, receivership, assignment for the benefit of creditors or
similar proceeding relating to, Company, any other Borrower or any
Guarantor.
"Senior Indebtedness" means, without duplication, the principal of,
premium, if any, and interest (including all interest accruing subsequent
to the commencement of any Reorganization Proceedings, whether or not a
claim for post-petition interest is allowable as a claim in any such
Reorganization Proceeding) and fees, costs, expenses and other amounts
accrued or due in connection with (i) all Indebtedness of Company, any
other Borrower and any Guarantor in respect of the Bank Credit Facility or
Interest Rate Protection Agreements referred to therein; (ii) all other
Indebtedness of Company, any other Borrower or any Guarantor with respect
to which the instrument creating or evidencing the same or the assumption
or guarantee thereof (or related documents to which Company, any other
Borrower or any Guarantor is a party) expressly provides that the same is
"Senior Indebtedness" for purposes of this Note; and (iii) all amendments,
renewals, extensions, increases, refundings and refinancings of the
Indebtedness described in clause (i); provided that (w) the aggregate
Indebtedness referred to in clause (i) shall not exceed $50,000,000; (x)
the aggregate Indebtedness and contingent obligations referred to in clause
(ii) shall not constitute Senior Indebtedness to the extent including the
same would cause the aggregate principal amount plus commitments
outstanding under Senior Indebtedness, including the Bank Credit Facility,
to exceed $50,000,000; (y) the instrument creating or evidencing Senior
Indebtedness other than the Bank Credit Facility may not contain any
-9-
<PAGE> 10
limitations on the payment of the Indebtedness under this Note or the
Related Senior Subordinated Notes that are more restrictive than those
provided for in the Bank Credit Facility, and (z) the instrument creating
or evidencing Senior Indebtedness other than the Bank Credit Facility may
contain limitations on the ability of the holders of such other Senior
Indebtedness to exercise any of the rights otherwise given to holders of
Senior Indebtedness under the Subordination Agreement. Notwithstanding
anything to the contrary herein, Senior Indebtedness shall not include (a)
any Indebtedness of Company, any other Borrower or any Guarantor to any of
its Affiliates, or (b) any Indebtedness in respect of those certain
$12,500,000 Junior Subordinated Promissory Notes to be made by Company, in
the aggregate original principal amount of $12,500,000 (the "Subordinated
Notes").
"Thailand Net Cash Proceeds" means, with respect to a Fundamental
Change or Change in Ownership with respect to IMS Thailand, the net cash
proceeds therefrom received by IMS Thailand, or if such net cash proceeds
were received by a subsidiary of Company of which IMS Thailand is a direct
or indirect subsidiary, then the net cash proceeds attributable to the
assets or capital stock of IMS Thailand, as the case may be (measured
either by book value determined in accordance with generally accepted
accounting principles consistently applied or by fair market value
determined in the reasonable good faith of the board of directors of such
person).
"1996 Credit Agreement" means that certain Credit Agreement to be
entered into by and among IMS Thailand, IMS Delaware, IMS Holdco, Company,
IMS Hong Kong, IMS PRC, the lenders parties thereto and Chemical Bank as
administrative agent and collateral agent for such lenders, as amended or
modified from time to time.
[The remainder of page has been intentionally left blank.]
-10-
<PAGE> 11
IN WITNESS WHEREOF, this Note has been executed by a duly authorized
officer of Company as of the date first above written.
INTERNATIONAL MANUFACTURING
SERVICES, INC.
By_______________________________
Title_____________________________
Address:
-11-
<PAGE> 12
SCHEDULE A
TO SENIOR SECURED PROMISSORY NOTE
ALLOCATION OF
AVAILABLE IPO PROCEEDS
<TABLE>
<CAPTION>
AVAILABLE IPO
PROCEEDS (PRIOR
TO PAYMENT OF
BANK CREDIT PAYABLE TO BANK
FACILITY)* CREDIT FACILITY** PAYABLE TO MAXTOR PAYABLE TO IMS
---------------- ----------------- ----------------- --------------
<S> <C> <C> <C>
$30,000,000 10 12 8
35,000,000 10 15 10
40,000,000 10 19 11
45,000,000 10 20 15
50,000,000 10 20 20
</TABLE>
* In the event the Available Offering Proceeds from the IPO (prior to
payment of the Bank Credit Facility) are (i) less than $30,000,000,
then the Available IPO Proceeds payable to Maxtor and IMS shall be
reduced on a pro rata basis; (ii) greater than $50,000,000, then the
Available IPO Proceeds payable to IMS shall be increased by such excess
amount; (iii) in between two of the amounts set forth above, then the
Available IPO Proceeds payable to Maxtor and IMS shall be interpolated
accordingly (until Maxtor is paid in full).
** In the event the Available IPO Proceeds payable to the Bank Credit
Facility are greater than or less than $10,000,000, then the Available
IPO Proceeds payable to Maxtor and IMS shall be decreased or increased,
as applicable, on a pro rata basis (until Maxtor is paid in full).
<PAGE> 1
EXHIBIT 10.12
THE INDEBTEDNESS EVIDENCED BY
THIS SENIOR SUBORDINATED PROMISSORY NOTE
IS, OR WILL BE, SUBORDINATED TO THE PAYMENT OF
CERTAIN OTHER INDEBTEDNESS OF THE MAKER HEREOF
ON THE TERMS AND CONDITIONS SET FORTH IN
A SUBORDINATION AGREEMENT DESCRIBED BELOW
SENIOR SUBORDINATED PROMISSORY NOTE
(HONG KONG)
U.S.$16,300,000 June 10, 1996
MAXTOR (HONG KONG) LIMITED, a corporation organized under the laws of
Hong Kong ("Company"), for value received, hereby promises to pay to the order
of MAXTOR CORPORATION, a Delaware corporation ("Maxtor" which term shall include
any successor or permitted assign thereof), at 2190 Miller Drive, Longmont,
Colorado 80501, or such other address of Maxtor in the United States of America
as Maxtor may specify from time to time, the principal sum of Sixteen Million
Three Hundred Thousand United States Dollars (U.S.$16,300,000) on the date or
dates set forth below, and together with interest thereon calculated from the
date hereof at the rate or rates set forth below.
1. PAYMENT OF INTEREST. Interest on the unpaid principal amount of this
Note shall be payable at the rate of seven and forty-three one hundredths
percent (7.43%) per annum from the date hereof; provided that on the first
anniversary of the date of this Note, the applicable interest rate shall
thereafter be adjusted to the fixed interest rate equal to the Bank Facility
Interest Rate in effect on such first anniversary date. In no event shall the
interest rate determined in accordance with the forgoing exceed the rate per
annum equal to the Bank Facility Interest Rate in effect on the closing date of
the 1996 Credit Agreement plus 1.00%. Interest shall be computed on the basis of
a 360 day year. In no event shall the interest charged exceed the maximum rate
permitted under applicable law. Interest shall be payable quarterly in arrears,
on the last day of each June, September, December and March commencing June 30,
1996, and on the date the outstanding principal amount of this Note is paid in
full (whether at maturity or otherwise.)
2. PAYMENT OF PRINCIPAL.
(a) SCHEDULED PAYMENTS FROM EXCESS CASH FLOW. The principal
amount of this Note shall be payable in three substantially equal installments
of $5,433,333.33 on each of June 10, 1999, June 10, 2000 and June 10, 2001(each,
an "Amortization Date"), but solely to the extent that the making of such
payments would not result in an event of default under the Bank Credit Facility,
or an event which with notice or lapse of time or both, would be an event of
default under the Bank Credit
<PAGE> 2
Facility. If any scheduled amortization payment or portion thereof cannot be
made because an event of default under the Bank Credit Facility (or an event
which, with notice or lapse of time or both, would be an event of default under
the Bank Credit Facility) would result therefrom, then such payment or portion
thereof shall instead be due on the next scheduled Amortization Date. In any
event, the outstanding principal balance of this Note plus accrued and unpaid
interest in respect thereof shall be due and payable in full on June 13, 2001.
(b) MANDATORY PREPAYMENT FOLLOWING INITIAL PUBLIC OFFERING.
Within five (5) days after the receipt by International Manufacturing Services,
Inc., a Delaware corporation ("IMS") of the Available Offering Proceeds in
connection with the underwritten initial public offering of common stock of IMS
(the "IPO"), Company shall prepay the outstanding principal balance of this Note
plus all accrued and unpaid interest in respect thereof, subject to the
following conditions: (i) the managing underwriters of IMS in connection with
the IPO shall have approved of such prepayment (which approval shall be
evidenced by the use of proceeds presentation in the prospectus for the IPO);
(ii) concurrently with the prepayment of this Note, the outstanding principal
and accrued and unpaid interest in respect of the Related Senior Subordinated
Notes shall be prepaid (with such prepayment allocated among this Note and the
Related Senior Subordinated Notes as IMS shall specify); and (iii) the amount of
the prepayment under this Note, when added to the amount of the prepayment under
the Related Senior Subordinated Notes, shall in no event exceed that portion of
the Available IPO Proceeds determined by reference to Schedule A to this Note.
The Available IPO Proceeds shall be applied to scheduled payments of principal
under this Note in order of their maturity.
(c) MANDATORY PREPAYMENT FOLLOWING SECONDARY OFFERING. Within
five (5) days after the receipt by IMS of the Available Offering Proceeds in
connection with the underwritten secondary offering of common stock of IMS (the
"Secondary Offering"), Company shall prepay all of the outstanding principal
balance of this Note plus all accrued and unpaid interest in respect thereof,
subject to the following conditions: (i) the managing underwriters of IMS in
connection with the Secondary Offering shall have approved of such prepayment
(which approval shall be evidenced by the use of proceeds presentation in the
prospectus for the Secondary Offering); (ii) concurrently with the prepayment of
this Note, outstanding principal and accrued and unpaid interest in respect of
the Related Senior Subordinated Notes shall be prepaid (with such prepayment
allocated among this Note and the Related Senior Subordinated Notes as IMS shall
specify); and (iii) the amount of the prepayment under this Note, when added to
the amount of the prepayment under the Related Senior Subordinated Notes, shall
in no event exceed fifty percent (50%) of the Available Offering Proceeds. The
Available Offering Proceeds shall be applied to scheduled payments of principal
under this Note in order of their maturity.
(d) MANDATORY PREPAYMENT UPON CHANGE IN OWNERSHIP OR SALE OF
ASSETS.
(1) If a Fundamental Change or Change in Ownership has
occurred with respect to IMS, then the outstanding principal amount of this Note
and the Related Senior Subordinated Notes, plus accrued and unpaid interest
thereunder, shall be prepaid in full unless such prepayment would result in an
event of default or an event that with the passage of time or the giving of
notice would become an event of default under the Bank Credit Facility.
-2-
<PAGE> 3
(2) If a Fundamental Change or Change in Ownership has
occurred with respect to Company or any subsidiary of IMS of which Company is a
direct or indirect subsidiary, then the Company Net Cash Proceeds received from
such sale or transfer shall, to the extent not required to be used to repay the
Bank Credit Facility pursuant to the terms thereof, be applied to prepay
scheduled principal amortization payments under this Note and the Related Senior
Subordinated Notes (with such prepayment allocated among this Note and the
Related Senior Subordinated Notes as IMS shall specify), in order of their
maturity unless such prepayment would result in an event of default or an event
that with the passage of time or the giving of notice would become an event of
default under the Bank Credit Facility.
(3) If a Fundamental Change or Change in Ownership has
occurred with respect to IMS International Manufacturing Services (Thailand),
Limited ("IMS Thailand") or any subsidiary of IMS of which IMS Thailand is a
direct or indirect subsidiary, then (a) IMS or one of its subsidiaries shall
commit in writing, within three months after the date of consummation of such
change, to reinvest the Thailand Net Cash Proceeds in businesses comparable,
related or incidental to the business of IMS and its subsidiaries, or (b) if IMS
or any of its subsidiaries shall fail to make such commitment within such three
month period, then, to the extent the Thailand Net Cash Proceeds are not
required to be used to repay the Bank Credit Facility pursuant to the terms
thereof, the Thailand Net Cash Proceeds shall be applied to prepay scheduled
principal amortization payments under this Note and the Related Senior
Subordinated Notes (with such prepayment allocated among this Note and the
Related Senior Subordinated Notes as IMS shall specify), in order of their
maturity unless such prepayment would result in an event of default or an event
that with the passage of time or the giving of notice would become an event of
default under the Bank Credit Facility.
(e) OPTIONAL PREPAYMENTS. Company may prepay all or any
portion of this Note at any time, without penalty or premium, and without prior
notice to Maxtor, unless to do so would violate the provisions of the Bank
Credit Facility.
(f) PAYMENTS IN GENERAL. Payments of principal and interest
shall be made in lawful money of the United States of America. If any payment of
principal or interest on this Note shall become due on a Saturday, Sunday or
legal holiday under the laws of the State of California, such payment shall be
made on the next succeeding business day, and such extension of time shall be
included in computing interest in connection with such payment. Withholding
taxes required by any applicable taxing authorities to be paid in respect of
payments made under this Note shall be paid to such taxing authorities by
Company, without offset against amounts payable to Maxtor, and at Maxtor's
request, Company shall provide Maxtor with copies of official receipts, if any,
issued by such taxing authorities or such other evidence as is reasonably
available to establish that such taxes have been paid. Notwithstanding the
foregoing, Maxtor shall assist Company and take such actions as are reasonably
necessary in order to secure available reductions or eliminations of such
withholding taxes.
3. SUSPENSION OF INTEREST PAYMENTS. Notwithstanding anything herein, in
the event that prior to June 30, 1997, Maxtor shall have breached its "Purchase
Commitment" under and as defined in that certain Manufacturing Services
Agreement dated as of May 16, 1996 between IMS and Maxtor, as amended or
modified from time to time, then Company shall not be obligated to make any
payments
-3-
<PAGE> 4
of interest in respect of this Note which otherwise would have been due on or
before June 30, 1997, so long as such breach remains uncured. Following cure of
any such breach, then scheduled payments of interest shall immediately resume,
provided that the aggregate amount of interest payments that were so suspended
shall be paid by Company to Maxtor in thirteen (13) substantially equal monthly
payments, on the last day of each calendar month, commencing on the first such
date to follow the date of such cure.
4. SUBORDINATION. THE OBLIGATIONS EVIDENCED BY THIS NOTE ARE TO BE, AND
WILL BE, SUBORDINATED TO ALL PRESENT AND FUTURE SENIOR INDEBTEDNESS OF COMPANY
AND CERTAIN OF ITS AFFILIATES, INCLUDING, WITHOUT LIMITATION, THE SENIOR
INDEBTEDNESS UNDER THE BANK CREDIT FACILITY, ON THE TERMS AND CONDITIONS SET
FORTH IN THE SUBORDINATION AGREEMENT, TO BE ENTERED INTO AND AMONG COMPANY, IMS,
IMS THAILAND, IMS BORROWER, INC., A DELAWARE CORPORATION ("IMS DELAWARE"), IMS
HOLDCO, INC., A DELAWARE CORPORATION ("IMS HOLDCO"), IMS INTERNATIONAL
MANUFACTURING SERVICES, LIMITED, A CAYMAN ISLANDS CORPORATION ("IMS CAYMEN"),
DONGGUAN IMS ELECTRONICS COMPANY, LIMITED, A PEOPLE'S REPUBLIC OF CHINA
CORPORATION ("IMS PRC"), MAXTOR AND THE BANK CREDIT FACILITY AGENT (AS AMENDED,
MODIFIED OR REPLACED FROM TIME TO TIME, THE "SUBORDINATION AGREEMENT"), WHICH
SUBORDINATION AGREEMENT IS TO BE MADE FOR THE BENEFIT OF ALL PRESENT AND FUTURE
HOLDERS OF SENIOR INDEBTEDNESS. REFERENCE IS MADE TO THE SUBORDINATION AGREEMENT
FOR THE COMPLETE TERMS AND CONDITIONS OF SUCH SUBORDINATION. MAXTOR AND EACH
HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, AGREES TO THE TERMS AND
CONDITIONS SET FORTH IN THE SUBORDINATION AGREEMENT.
5. GUARANTY. The obligations of Company under this Note are guarantied
by the Guarantors pursuant to the Guaranties, of even date herewith (the
"Guaranties").
6. COVENANTS. So long as any amount remains outstanding under this
Note:
(a) Company shall not grant any security interest in or lien
upon any of its property to secure Indebtedness, other than security interests
and liens (i) existing on the date hereof, and (ii) to secure Senior
Indebtedness.
(b) Within 45 days after the end of each of the first three
fiscal quarters of Company, Company shall deliver to Maxtor a copy of its
Company-prepared balance sheet, income statement and statement of changes in
shareholders equity for such quarter, prepared in accordance with generally
accepted accounting principles consistently applied, subject to year-end
adjustments and the absence of footnotes.
(c) Within 90 days after the end of each fiscal year of
Company, Company shall deliver to Maxtor a copy of its balance sheet, income
statement and statement of changes in shareholders equity for such year,
prepared in accordance with generally accepted accounting principles
consistently applied, certified by independent public accountants selected by
Company.
(d) Upon at least five business days notice to Company, Maxtor
may, during reasonable business hours, inspect the properties of Company.
-4-
<PAGE> 5
(e) Company shall not engage in any business other than the
businesses conducted by IMS or any of its subsidiaries as of the date of this
Note, or other businesses related or incidental thereto.
7. DEFAULT; REMEDIES. Each of the following events shall constitute an
"Event of Default" hereunder:
(a) Company shall fail to make any payment of principal or
interest due hereunder (other than as a result of the provisions of Section 3 or
4 above) and such failure shall have continued uncured for a period of at least
thirty (30) days; or
(b) Company shall fail to perform any covenant or agreement
provided for in this Note, and such failure shall continue uncured for a period
of at least thirty (30) days following written notice from Maxtor; or
(c) Any Reorganization Proceeding (i) shall be commenced by
Company, IMS or any Guarantor or (ii) shall be commenced against Company, IMS or
any Guarantor and the same shall not have been rescinded or stayed within ninety
(90) days; or
(d) Any default shall occur under (i) any agreement or
instrument evidencing the Indebtedness under the Bank Credit Facility, if such
default shall continue after any applicable grace period and if the effect of
such default is to accelerate, or permit the holders of the Indebtedness under
the Bank Credit Facility to accelerate, the maturity of such Indebtedness; or
(ii) any agreement or instrument evidencing Senior Indebtedness other than the
Bank Credit Facility, if (x) such default results from the failure to make a
payment when due, (y) such default shall continue after any applicable grace
period and (z) the effect of such event is to accelerate, or permit the holders
of such Senior Indebtedness to accelerate, the maturity of such Indebtedness; or
(iii) any one or more instruments or agreements evidencing Senior Indebtedness
in an aggregate principal amount of at least $5,000,000, if (x) such default
results from a default other than the failure to make a payment when due, (y)
such default shall continue after any applicable grace period and (z) the effect
of such default is to accelerate, or permit the holders of such Senior
Indebtedness to accelerate, the maturity of such Senior Indebtedness; provided
that upon the waiver or cure any such default, then the Event of Default under
this Note resulting therefrom shall automatically be deemed waived or cured; or
(e) Any default shall occur under the Subordinated Notes, if
such default shall continue after any applicable grace period and if the effect
of such default is to accelerate, or permit the holders of the Indebtedness
under the Subordinated Notes to accelerate, the maturity of such Indebtedness;
provided that upon the waiver or cure any such default in respect of the
Subordinated Notes, then the Event of Default under this Note resulting
therefrom shall automatically be deemed waived or cured; or
(f) Any default shall occur under the Guaranties, if such
default shall continue after any applicable grace period.
-5-
<PAGE> 6
Upon the occurrence and during the continuance of any Event of
Default, then (i) Maxtor shall have the right to declare immediately due and
payable all or any portion of the outstanding principal balance of this Note, in
which case such principal balance and accrued and unpaid interest thereon shall
immediately be due and payable, and (ii) at Maxtor's option upon notice to
Company, the interest rate otherwise applicable to this Note shall be increased
by two percent (2%). Maxtor shall also have such other rights as may be
available to Maxtor under applicable law. Notwithstanding the foregoing, so long
as any Senior Indebtedness has not been paid in full in cash, Maxtor shall have
no right to accelerate amounts due hereunder.
8. COSTS OF ENFORCEMENT. In the event any action is taken to enforce
the rights of Maxtor under this Note, the party prevailing in that action shall
be entitled, in addition to such other relief as may be granted, to all
reasonable costs and expenses, including reasonable attorneys' fees, incurred in
such action.
9. ASSIGNMENT. By accepting this Note Maxtor agrees that Maxtor may not
assign any interest in this Note to any person other than Hyundai Electronics
America ("Hyundai") or any of its Affiliates (which Affiliate shall be an
Affiliate with respect to which Hyundai owns at least 51% of the economic
interests and at least 51% of the voting interests, and which shall not have
been created in anticipation of such assignment (a "Permitted Affiliate"));
provided, that in connection with any assignment of this Note, (a) Maxtor must
concurrently assign its interest in each of the Guaranties, the Related Senior
Subordinated Notes, and the guaranties by the Garantors of the Related Senior
Subordinated Notes (the "Related Documents"), (b) such Permitted Affiliate shall
deliver to Company and the Bank Credit Facility Agent a written acknowledgment
of its agreement to be bound by the terms of the Subordination Agreement, and
(c) the documents pursuant to which such assignment is made must provide that if
the assignee ceases to be a Permitted Affiliate of Hyundai, then either such
assignment shall automatically be rescinded, or this Note and the Related
Documents shall be assigned to another Affiliate of Hyundai prior to or
concurrently with the effectiveness of the transactions pursuant to which the
assignee ceases to be a Permitted Affiliate of Hyundai. Notwithstanding anything
herein to the contrary, in no event shall any person other than Maxtor, Hyundai
or a Permitted Affiliate of Hyundai hold any right or interest in this Note. Any
purported assignment in contravention of the provisions of this Section 9 shall
be null and void.
10. MISCELLANEOUS. The rights and obligations under this Note shall be
binding upon and inure to the benefit of Company and Maxtor and their respective
successors and permitted assigns. Company hereby waives presentment, demand,
protest or notice of any kind in connection with this Note. This Note is issued
in connection with that certain Redemption Agreement dated as of May 16, 1996
among IMS, Maxtor and certain other parties thereto (the "Redemption
Agreement"). This Note shall be construed in accordance with and governed by the
laws of the State of California (without regard to its conflict of laws
principles). Company hereby submits to the jurisdiction of any State or Federal
court sitting in the State of California.
11. OFFSETS. Company may, without prior notice to Maxtor (but only
with the prior written consent of the Bank Credit Facility Agent), offset
amounts the due under this Note against amounts then due from Maxtor to Company,
any Borrower or any other Guarantor in respect of Maxtor's
-6-
<PAGE> 7
indemnification obligations under that certain Recapitalization Agreement dated
May 16, 1996 (the "Recapitalization Agreement"), the Redemption Agreement, the
agreements entered into in connection with the Recapitalization Agreement and
Redemption Agreement, and any other agreement to which Maxtor and Company, any
Borrower or any other Guarantor are parties. In addition, Company may, without
prior notice to Maxtor but only with the prior written consent of the Bank
Credit Facility Agent, offset amounts due under this Note against amounts then
due from Maxtor to Prudential Equity Investors, Inc. and Oak Investment Partners
("Investors") in respect of Maxtor's indemnification obligations under the
Redemption Agreement and Recapitalization Agreement, but only to the extent such
indemnification rights have been assigned by Investors to Company. For purposes
of this Section 11, amounts shall not be deemed to be "due" from Maxtor in
respect of its indemnification obligations until such time as any applicable
dispute resolution procedures set forth in the relevant agreement have been
fully satisfied.
12. CERTAIN DEFINITIONS. As used in this Note:
"Affiliate" means any person which, directly or indirect,
controls, is controlled by or is under common control with another
person; provided that for purposes of this Note, "control," "controlled
by" and "common control" shall mean the possession, directly or
indirectly, of the power to vote 51% or more of the securities having
ordinary voting power of the election of directors of such person.
"Available IPO Proceeds" means the net cash proceeds to IMS of
the IPO, after deducting (x) underwriting discounts, commissions and
other expenses, and (y) an amount equal to $10,000,000 or such greater
or lesser amount as is applied to reduce the outstanding Indebtedness
under the Bank Credit Facility in accordance with the terms thereof
(provided that if such amount is in excess $10,000,000, then such
excess shall have been made as a result of IMS's negotiations with the
holders of the Indebtedness under the Bank Credit Facility following a
potential or actual default under the Bank Credit Facility, or shall
have been necessary, in the reasonable opinion of IMS, to allow IMS or
any of its subsidiaries to continue the availability of or to obtain
financing under the Bank Credit Facility).
"Available Offering Proceeds" means the net cash proceeds to
IMS of the Secondary Offering , after deducting (x) underwriting
discounts, commissions and other expenses, (y) such amounts are
necessary, in the reasonable opinion of IMS, to satisfy the capital
needs of IMS and its subsidiaries, and (z) such amount, if any, as is
applied to reduce the outstanding Indebtedness under the Bank Credit
Facility in accordance with the terms thereof.
"Bank Credit Facility" means the 1996 Credit Agreement, and
all amendments, modifications, renewals, extensions and increases
thereof, and all refundings, refinancings and replacements thereof, in
whole or in part.
"Bank Credit Facility Agent" means Chemical Bank or such other
person as shall be designated as "Administrative Agent" or "Collateral
Agent" in respect of the Bank Credit Facility
-7-
<PAGE> 8
from time to time, or if no Agent shall have been so designated, then
the holder or holders of the Indebtedness represented by the Bank
Credit Facility.
"Bank Facility Interest Rate" means, as of any date of
determination, the rate of interest, including the applicable spread,
that would be applicable to six month "Eurodollar Loan" (as defined in
the 1996 Credit Agreement) under the 1996 Credit Agreement made on such
date (or, in the event the 1996 Credit Agreement is not in effect on
such date, on the last day that the 1996 Credit Agreement was in
effect, as determined by Company in good faith ) plus forty-three one
hundredths percent (0.43%).
"Borrower" means Company and any other person designated as a
"Borrower" under Senior Indebtedness.
"Change in Ownership" means, with respect to any person, any
sale, transfer or issuance or series of sales, transfers and/or
issuances of voting capital stock of such person which results in any
other person or any group of persons (as the term "group" is used under
the Securities Exchange Act of 1934), other than other holders of the
capital stock of such person as of the date hereof, owning more than
fifty percent (50%) of the voting capital stock outstanding at the time
of such sales, transfers or issuances.
"Company Net Cash Proceeds" means, with respect to a
Fundamental Change or Change in Ownership with respect to Company or
any subsidiary of IMS of which Company is a direct or indirect
subsidiary, the net cash proceeds therefrom received by Company, or if
such net cash proceeds were received by a subsidiary of IMS of which
Company is a direct or indirect subsidiary, then the net cash proceeds
attributable to the assets or capital stock of Company, as the case may
be (measured either by book value determined in accordance with
generally accepted accounting principles consistently applied or by
fair market value determined in the reasonable good faith of the board
of directors of such person).
"Fundamental Change" means, with respect to any person, (a)
any sale or transfer of all or substantially all of the assets of such
person and its subsidiaries on a consolidated basis in any transaction
or series of transactions (other than sales in the ordinary course of
business) and (b) any merger or consolidation to which such person is a
party, except for a merger in which such person is the surviving
corporation (provided that a merger or other transaction conducted for
the sole purpose of changing a person's domicile shall not be
considered a Fundamental Change).
"Guarantors" means each of IMS, IMS Delaware, IMS Holdco, IMS
Cayman, and IMS Hong Kong and any other person that guarantees the
obligations of any Borrower in respect of the Senior Indebtedness
except that IMS PRC shall be a "Guarantor" only to the extent permitted
under the law of the Peoples Republic of China (or any province or
other local government body located in the Peoples Republic of China or
any political subdivision thereof) after giving effect to any guarantee
by, or other obligations of, IMS PRC in respect of the Senior
Indebtedness.
-8-
<PAGE> 9
"Indebtedness" means, with respect to any person, and without
duplication, (i) all indebtedness and other obligations (contingent or
otherwise) of such person for borrowed money (other than trade payables
incurred in the ordinary course of business (whether or not the same
are past due)); (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisitions of property, assets or
businesses; (iii) reimbursement obligations and other liabilities
(contingent or otherwise) of such person with respect to letters of
credit or bankers acceptances; (iv) all obligations or liabilities
(continent or otherwise) in respect of leases of such person that are
required, in conformity with generally accepted accounting principles,
to be accounted for as capital leases; (v) all obligations of such
person (contingent or otherwise) with respect to foreign exchange
contracts, currency exchange agreements, interest rate swaps, collars,
caps or other protection agreements; (vi) all direct or indirect
guaranties or similar agreements by such person in respect of
obligations of another person that would constitute "Indebtedness"
hereunder; (vii) indebted-ness of the types described in clauses (i)
through (vi) secured by a mortgage, pledge, lien or other encumbrance
existing on property that is owned or held by such person, regardless
of whether the indebtedness or other obligation secured thereby shall
have been assumed by such person, and (viii) all amendments,
modifications, renewals, extensions, increases, refundings,
refinancings and replacements of any of the foregoing.
"Related Senior Subordinated Notes" means, collectively, the
Senior Subordinated Evidence of Indebtedness, dated of even date
herewith, in the original principal amount of $2,000,000 made by IMS
Thailand, and the Senior Subordinated Promissory Note, dated of even
date herewith, in the original principal amount of $1,700,000 made by
IMS, each made payable to the order of Maxtor.
"Reorganization Proceedings" means any voluntary or
involuntary liquidation or dissolution of, or any bankruptcy,
reorganization, insolvency, receivership, assignment for the benefit of
creditors or similar proceeding relating to, Company, any other
Borrower or any Guarantor.
"Senior Indebtedness" means, without duplication, the
principal of, premium, if any, and interest (including all interest
accruing subsequent to the commencement of any Reorganization
Proceedings, whether or not a claim for post-petition interest is
allowable as a claim in any such Reorganization Proceeding) and fees,
costs, expenses and other amounts accrued or due in connection with (i)
all Indebtedness of Company, any other Borrower and any Guarantor in
respect of the Bank Credit Facility or Interest Rate Protection
Agreements referred to therein; (ii) all other Indebtedness of Company,
any other Borrower or any Guarantor with respect to which the
instrument creating or evidencing the same or the assumption or
guarantee thereof (or related documents to which Company, any other
Borrower or any Guarantor is a party) expressly provides that the same
is "Senior Indebtedness" for purposes of this Note; and (iii) all
amendments, renewals, extensions, increases, refundings and
refinancings of the Indebtedness described in clauses (i) and (ii);
provided that (w) the aggregate Indebtedness referred to in clause (i)
shall not exceed $50,000,000; (x) the aggregate Indebtedness and
contingent obligations referred to in clause (ii) shall not constitute
Senior Indebtedness to the extent
-9-
<PAGE> 10
including the same would cause the aggregate principal amount plus
commitments outstanding under Senior Indebtedness, including the Bank
Credit Facility, to exceed $50,000,000; (y) the instrument creating or
evidencing Senior Indebtedness other than the Bank Credit Facility may
not contain any limitations on the payment of the Indebtedness under
this Note or the Related Senior Subordinated Notes that are more
restrictive than those provided for in the Bank Credit Facility, and
(z) the instrument creating or evidencing Senior Indebtedness other
than the Bank Credit Facility may contain limitations on the ability of
the holders of such other Senior Indebtedness to exercise any of the
rights otherwise given to holders of Senior Indebtedness under the
Subordination Agreement. Notwithstanding anything to the contrary
herein, Senior Indebtedness shall not include (a) any Indebtedness of
Company, any other Borrower or any Guarantor to any of its Affiliates,
or (b) any Indebtedness in respect of those certain $12,500,000 Junior
Subordinated Promissory Notes to be made by IMS in the aggregate
original principal amount of $12,500,000 (the "Subordinated Notes").
"Thailand Net Cash Proceeds" means, with respect to a
Fundamental Change or Change in Ownership with respect to IMS Thailand
or any subsidiary of IMS of which IMS Thailand is a direct or indirect
subsidiary, the net cash proceeds therefrom received by IMS Thailand,
or if such net cash proceeds were received by a subsidiary of IMS of
which IMS Thailand is a direct or indirect subsidiary, then the net
cash proceeds attributable to the assets or capital stock of IMS
Thailand, as the case may be (measured either by book value determined
in accordance with generally accepted accounting principles
consistently applied or by fair market value determined in the
reasonable good faith of the board of directors of such person).
"1996 Credit Agreement" means that certain Credit Agreement to
be entered into by and among IMS, IMS Delaware, IMS Holdco, Company,
IMS Thailand, IMS PRC, the lenders parties thereto and Chemical Bank as
administrative agent and collateral agent for such lenders, as amended
or modified from time to time.
[The remainder of the page has been intentionally left blank.]
-10-
<PAGE> 11
IN WITNESS WHEREOF, this Note has been executed by a duly authorized
officer of Company as of the date first above written.
MAXTOR (HONG KONG) LIMITED
By_______________________________
Title_____________________________
Address:
The Common Seal of Maxtor (Hong Kong) Limited was hereunto affixed in the
presence of SHL Services Limited as Company Secretary.
for and on behalf of
SHL SERVICES LIMITED
By:
--------------------------------
Director
-11-
<PAGE> 12
SCHEDULE A
TO SENIOR SECURED PROMISSORY NOTE
ALLOCATION OF
AVAILABLE IPO PROCEEDS
<TABLE>
<CAPTION>
AVAILABLE IPO
PROCEEDS (PRIOR
TO PAYMENT OF
BANK CREDIT PAYABLE TO BANK
FACILITY)* CREDIT FACILITY** PAYABLE TO MAXTOR PAYABLE TO IMS
--------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
$30,000,000 10 12 8
35,000,000 10 15 10
40,000,000 10 19 11
45,000,000 10 20 15
50,000,000 10 20 20
</TABLE>
* In the event the Available Offering Proceeds from the IPO (prior to
payment of the Bank Credit Facility) are (i) less than $30,000,000,
then the Available IPO Proceeds payable to Maxtor and IMS shall be
reduced on a pro rata basis; (ii) greater than $50,000,000, then the
Available IPO Proceeds payable to IMS shall be increased by such excess
amount; (iii) in between two of the amounts set forth above, then the
Available IPO Proceeds payable to Maxtor and IMS shall be interpolated
accordingly (until Maxtor is paid in full).
** In the event the Available IPO Proceeds payable to the Bank Credit
Facility are greater than or less than $10,000,000, then the Available
IPO Proceeds payable to Maxtor and IMS shall be decreased or increased,
as applicable, on a pro rata basis (until Maxtor is paid in full).
-12-
<PAGE> 1
EXHIBIT 10.13
THE INDEBTEDNESS EVIDENCED BY
THIS SENIOR SUBORDINATED EVIDENCE OF INDEBTEDNESS
IS OR WILL BE SUBORDINATED TO THE PAYMENT OF
CERTAIN OTHER INDEBTEDNESS OF THE MAKER HEREOF
ON THE TERMS AND CONDITIONS SET FORTH IN
A SUBORDINATION AGREEMENT DESCRIBED BELOW
SENIOR SUBORDINATED EVIDENCE OF INDEBTEDNESS
(THAILAND)
U.S.$2,000,000 June 10, 1996
IMS INTERNATIONAL MANUFACTURING SERVICES (THAILAND) LIMITED, a
limited company organized under the laws of Thailand ("Company"), for value
received, hereby promises to pay to the order of MAXTOR CORPORATION, a Delaware
corporation ("Maxtor", which term shall include any successor or permitted
assign thereof), at 2190 Miller Drive, Longmont, Colorado 80501, or such other
address of Maxtor in the United States of America as Maxtor may specify from
time to time, the principal sum of Two Million United States Dollars
(U.S.$2,000,000) on the date or dates set forth below, and together with
interest thereon calculated from the date hereof at the rate or rates set forth
below.
1. PAYMENT OF INTEREST. Interest on the unpaid principal amount of this
Evidence of Indebtedness (this "Agreement") shall be payable at the rate of
three and one half percent (3.5%) per annum from the date hereof; provided that
on the first anniversary of the date of this Agreement, the applicable interest
rate shall thereafter be adjusted to the fixed interest rate equal to the Bank
Facility Interest Rate in effect on such first anniversary date. In no event
shall the interest rate determined in accordance with the forgoing exceed the
rate per annum equal to the Bank Facility Interest Rate in effect on the closing
date of the 1996 Credit Agreement plus one percent (1.0%). Interest shall be
computed on the basis of a 360 day year. In no event shall the interest charged
exceed the maximum rate permitted under applicable law. Interest shall be
payable quarterly in arrears, on the last day of each June, September, December
and March commencing June 30, 1996, and on the date the outstanding principal
amount of this Agreement is paid in full (whether at maturity or otherwise.)
2. PAYMENT OF PRINCIPAL.
(a) SCHEDULED PAYMENTS FROM EXCESS CASH FLOW. The principal
amount of this Agreement shall be payable in three substantially equal
installments of $666,666.66 on each of June 10, 1999, June 10, 2000 and June 10,
2001 (each, an "Amortization Date"), but solely to the extent that the making of
such payments would not result in an event of default under the Bank Credit
Facility, or an
<PAGE> 2
event which with notice or lapse of time or both, would be an event of default
under the Bank Credit Facility. If any scheduled amortization payment or portion
thereof cannot be made because an event of default under the Bank Credit
Facility (or an event which, with notice or lapse of time or both, would be an
event of default under the Bank Credit Facility) would result therefrom, then
such payment or portion thereof shall instead be due on the next scheduled
Amortization Date. In any event, the outstanding principal balance of this
Agreement plus accrued and unpaid interest in respect thereof shall be due and
payable in full on June 10, 2001.
(b) MANDATORY PREPAYMENT FOLLOWING INITIAL PUBLIC OFFERING.
Within five (5) days after the receipt by International Manufacturing Services,
Inc., a Delaware corporation ("IMS") of the Available Offering Proceeds in
connection with the underwritten initial public offering of common stock of IMS
(the "IPO"), Company shall prepay the outstanding principal balance of this
Agreement plus all accrued and unpaid interest in respect thereof, subject to
the following conditions: (i) the managing underwriters of IMS in connection
with the IPO shall have approved of such prepayment (which approval shall be
evidenced by the use of proceeds presentation in the prospectus for the IPO);
(ii) concurrently with the prepayment of this Agreement, the outstanding
principal and accrued and unpaid interest in respect of the Related Senior
Subordinated Notes shall be prepaid (with such prepayment allocated among this
Agreement and the Related Senior Subordinated Notes as IMS shall specify); and
(iii) the amount of the prepayment under this Agreement, when added to the
amount of the prepayment under the Related Senior Subordinated Notes, shall in
no event exceed that portion of the Available IPO Proceeds determined by
reference to Schedule A to this Agreement. The Available IPO Proceeds shall be
applied to scheduled payments of principal under this Agreement in order of
their maturity.
(c) MANDATORY PREPAYMENT FOLLOWING SECONDARY OFFERING. Within
five (5) days after the receipt by IMS of the Available Offering Proceeds in
connection with the underwritten secondary offering of common stock of IMS (the
"Secondary Offering"), Company shall prepay all of the outstanding principal
balance of this Agreement plus all accrued and unpaid interest in respect
thereof, subject to the following conditions: (i) the managing underwriters of
IMS in connection with the Secondary Offering shall have approved of such
prepayment (which approval shall be evidenced by the use of proceeds
presentation in the prospectus for the Secondary Offering); (ii) concurrently
with the prepayment of this Agreement, outstanding principal and accrued and
unpaid interest in respect of the Related Senior Subordinated Notes shall be
prepaid (with such prepayment allocated among this Agreement and the Related
Senior Subordinated Notes as IMS shall specify); and (iii) the amount of the
prepayment under this Agreement, when added to the amount of the prepayment
under the Related Senior Subordinated Notes, shall in no event exceed fifty
percent (50%) of the Available Offering Proceeds. The Available Offering
Proceeds shall be applied to scheduled payments of principal under this
Agreement in order of their maturity.
(d) MANDATORY PREPAYMENT UPON CHANGE IN OWNERSHIP OR SALE OF
ASSETS.
(1) If a Fundamental Change or Change in Ownership has
occurred with respect to IMS, then the outstanding principal amount of this
Agreement and the Related Senior Subordinated Notes, plus accrued and unpaid
interest thereunder, shall be prepaid in full unless such
-2-
<PAGE> 3
prepayment would result in an event of default or an event that with the passage
of time or the giving of notice would become an event of default under the Bank
Credit Facility
(2) If a Fundamental Change or Change in Ownership has
occurred with respect to Maxtor (Hong Kong) Limited ("IMS Hong Kong") or any
subsidiary of IMS of which IMS Hong Kong is a direct or indirect subsidiary,
then the Hong Kong Net Cash Proceeds received from such sale or transfer shall,
to the extent not required to be used to repay the Bank Credit Facility pursuant
to the terms thereof, be applied to prepay scheduled principal amortization
payments under this Agreement and the Related Senior Subordinated Notes (with
such prepayment allocated among this Agreement and the Related Senior
Subordinated Notes as IMS shall specify), in order of their maturity unless such
prepayment would result in an event of default or an event that with the passage
of time or the giving of notice would become an event of default under the Bank
Credit Facility.
(3) If a Fundamental Change or Change in Ownership has
occurred with respect to Company or any subsidiary of IMS of which Company is a
direct or indirect subsidiary, then (a) IMS or one of its subsidiaries shall
commit in writing, within three months after the date of consummation of such
change, to reinvest the Company Net Cash Proceeds in businesses comparable,
related or incidental to the business of IMS and its subsidiaries, or (b) if IMS
or any of its subsidiaries shall fail to make such commitment within such three
month period, then, to the extent the Company Net Cash Proceeds are not required
to be used to repay the Bank Credit Facility pursuant to the terms thereof, the
Company Net Cash Proceeds shall be applied to prepay scheduled principal
amortization payments under this Agreement and the Related Senior Subordinated
Notes (with such prepayment allocated among this Agreement and the Related
Senior Subordinated Notes as IMS shall specify), in order of their maturity
unless such prepayment would result in an event of default or an event that with
the passage of time or the giving of notice would become an event of default
under the Bank Credit Facility.
(e) OPTIONAL PREPAYMENTS. Company may prepay all or any
portion of this Agreement at any time, without penalty or premium, and without
prior notice to Maxtor, unless to do so would violate the provisions of the Bank
Credit Facility.
(f) PAYMENTS IN GENERAL. Payments of principal and interest
shall be made in lawful money of the United States of America. If any payment of
principal or interest on this Agreement shall be come due on a Saturday, Sunday
or legal holiday under the laws of the State of California, such payment shall
be made on the next succeeding business day, and such extension of time shall be
included in computing interest in connection with such payment. Withholding
taxes required by any applicable taxing authorities to be paid in respect of
payments made under this Agreement shall be paid to such taxing authorities by
Company, without offset against amounts payable to Maxtor, and at Maxtor's
request, Company shall provide Maxtor with copies of official receipts, if any,
issued by such taxing authorities or such other evidence as is reasonably
available to establish that such taxes have been paid. Notwithstanding the
foregoing, Maxtor shall assist Company and take such actions as are reasonably
necessary in order to secure available reductions or eliminations of such
withholding taxes.
-3-
<PAGE> 4
3. SUSPENSION OF INTEREST PAYMENTS. Notwithstanding anything herein, in
the event that prior to June 30, 1997, Maxtor shall have breached its "Purchase
Commitment" under and as defined in that certain Manufacturing Services
Agreement dated as of May 16, 1996 between IMS and Maxtor, as amended or
modified from time to time, then Company shall not be obligated to make any
payments of interest in respect of this Agreement which otherwise would have
been due on or before June 30, 1997, so long as such breach remains uncured.
Following cure of any such breach, then scheduled payments of interest shall
immediately resume, provided that the aggregate amount of interest payments that
were so suspended shall be paid by Company to Maxtor in thirteen (13)
substantially equal monthly payments, on the last day of each calendar month,
commencing on the first such date to follow the date of such cure.
4. SUBORDINATION. THE OBLIGATIONS EVIDENCED BY THIS AGREEMENT ARE TO BE
AND WILL BE SUBORDINATED TO ALL PRESENT AND FUTURE SENIOR INDEBTEDNESS OF
COMPANY AND CERTAIN AFFILIATES, INCLUDING, WITHOUT LIMITATION, THE SENIOR
INDEBTEDNESS UNDER THE BANK CREDIT FACILITY, ON THE TERMS AND CONDITIONS SET
FORTH IN THE SUBORDINATION AGREEMENT, TO BE ENTERED INTO AMONG COMPANY, IMS, IMS
HONG KONG, IMS BORROWER, INC., A DELAWARE CORPORATION ("IMS DELAWARE"), IMS
HOLDCO, INC., A DELAWARE CORPORATION ("IMS HOLDCO"), IMS INTERNATIONAL
MANUFACTURING SERVICES, LIMITED, A CAYMAN ISLANDS CORPORATION ("IMS CAYMAN"),
DONGGUAN IMS ELECTRONICS COMPANY, LIMITED, A PEOPLE'S REPUBLIC OF CHINA
CORPORATION ("IMS PRC"), MAXTOR AND THE BANK CREDIT FACILITY AGENT (AS AMENDED,
MODIFIED OR REPLACED FROM TIME TO TIME, THE "SUBORDINATION AGREEMENT"), WHICH
SUBORDINATION AGREEMENT IS TO BE MADE FOR THE BENEFIT OF ALL PRESENT AND FUTURE
HOLDERS OF SENIOR INDEBTEDNESS. REFERENCE IS MADE TO THE SUBORDINATION AGREEMENT
FOR THE COMPLETE TERMS AND CONDITIONS OF SUCH SUBORDINATION. MAXTOR AND EACH
HOLDER OF THIS AGREEMENT, BY ITS ACCEPTANCE HEREOF, AGREES TO THE TERMS AND
CONDITIONS SET FORTH IN THE SUBORDINATION AGREEMENT.
5. GUARANTY. The obligations of Company under this Agreement are guarantied
by the Guarantors pursuant to Guaranties, of even date herewith, executed by
each such Guarantor (the "Guaranties").
6. COVENANTS. So long as any amount remains outstanding under this
Agreement:
(a) Company shall not grant any security interest in or lien
upon any of its property to secure Indebtedness, other than security interests
and liens (i) existing on the date hereof, and (ii) to secure Senior
Indebtedness.
(b) Within 45 days after the end of each of the first three
fiscal quarters of Company, Company shall deliver to Maxtor a copy of its
Company-prepared balance sheet, income statement and statement of changes in
shareholders equity for such quarter, prepared in accordance with generally
accepted accounting principles consistently applied, subject to year-end
adjustments and the absence of footnotes.
(c) Within 90 days after the end of each fiscal year of
Company, Company shall deliver to Maxtor a copy of its balance sheet, income
statement and statement of changes in shareholders
-4-
<PAGE> 5
equity for such year, prepared in accordance with generally accepted accounting
principles consistently applied, certified by independent public accountants
selected by Company.
(d) Upon at least five business days notice to Company, Maxtor
may, during reasonable business hours, inspect the properties of Company.
(e) Company shall not engage in any business other than the
businesses conducted by IMS or any of its subsidiaries as of the date of this
Agreement, or other businesses related or incidental thereto.
7. DEFAULT; REMEDIES. Each of the following events shall constitute an
"Event of Default" hereunder:
(a) Company shall fail to make any payment of principal or
interest due hereunder (other than as a result of the provisions of Section 3 or
4 above) and such failure shall have continued uncured for a period of at least
thirty (30) days; or
(b) Company shall fail to perform any covenant or agreement
provided for in this Agreement, and such failure shall continue uncured for a
period of at least thirty (30) days following written notice from Maxtor; or
(c) Any Reorganization Proceeding (i) shall be commenced by
Company, IMS or any Guarantor or (ii) shall be commenced against Company, IMS or
any Guarantor and the same shall not have been rescinded or stayed within ninety
(90) days; or
(d) Any default shall occur under (i) any agreement or
instrument evidencing the Indebtedness under the Bank Credit Facility, if such
default shall continue after any applicable grace period and if the effect of
such default is to accelerate, or permit the holders of the Indebtedness under
the Bank Credit Facility to accelerate, the maturity of such Indebtedness; or
(ii) any agreement or instrument evidencing Senior Indebtedness other than the
Bank Credit Facility, if (x) such default results from the failure to make a
payment when due, (y) such default shall continue after any applicable grace
period and (z) the effect of such event is to accelerate, or permit the holders
of such Senior Indebtedness to accelerate, the maturity of such Indebtedness; or
(iii) any one or more instruments or agreements evidencing Senior Indebtedness
in an aggregate principal amount of at least $5,000,000, if (x) such default
results from a default other than the failure to make a payment when due, (y)
such default shall continue after any applicable grace period and (z) the effect
of such default is to accelerate, or permit the holders of such Senior
Indebtedness to accelerate, the maturity of such Senior Indebtedness; provided
that upon the waiver or cure any such default, then the Event of Default under
this Agreement resulting therefrom shall automatically be deemed waived or
cured; or
(e) Any default shall occur under the Subordinated Notes, if
such default shall continue after any applicable grace period and if the effect
of such default is to accelerate, or permit the holders of the Indebtedness
under the Subordinated Notes to accelerate, the maturity of such Indebtedness;
provided that upon the waiver or cure any such default in respect of the
Subordinated
-5-
<PAGE> 6
Notes, then the Event of Default under this Agreement resulting therefrom shall
automatically be deemed waived or cured; or
(f) Any default shall occur under any Guaranty, if such
default shall continue after any applicable grace period.
Upon the occurrence and during the continuance of any Event of
Default, then (i) Maxtor shall have the right to declare immediately due and
payable all or any portion of the outstanding principal balance of this
Agreement, in which case such principal balance and accrued and unpaid interest
thereon shall immediately be due and payable, and (ii) at Maxtor's option upon
notice to Company, the interest rate otherwise applicable to this Agreement
shall be increased by two percent (2%). Maxtor shall also have such other rights
as may be available to Maxtor under applicable law. Notwithstanding the
foregoing, so long as any Senior Indebtedness has not been paid in full in cash,
Maxtor shall have no right to accelerate amounts due hereunder.
8. COSTS OF ENFORCEMENT. In the event any action is taken to enforce
the rights of Maxtor under this Agreement, the party prevailing in that action
shall be entitled, in addition to such other relief as may be granted, to all
reasonable costs and expenses, including reasonable attorneys' fees, incurred in
such action.
9. ASSIGNMENT. By accepting this Agreement Maxtor agrees that Maxtor
may not assign any interest in this Agreement to any person other than Hyundai
Electronics America ("Hyundai") or any of its Affiliates (which Affiliate shall
be an Affiliate with respect to which Hyundai owns at least 51% of the economic
interests and at least 51% of the voting interests, and which shall not have
been created in anticipation of such assignment (a "Permitted Affiliate"));
provided, that in connection with any assignment of this Note, (a) Maxtor must
concurrently assign its interest in the Guaranties, the Related Senior
Subordinated Notes and any guaranties by the Guarantors of the Related Senior
Subordinated Note (the "Related Documents"), (b) such Permitted Affiliate shall
deliver to Company and the Bank Credit Facility Agent a written acknowledgment
of its agreement to be bound by the terms of the Subordination Agreement, and
(c) the documents pursuant to which such assignment is made must provide that if
the assignee ceases to be a Permitted Affiliate of Hyundai, then either such
assignment shall automatically be rescinded, or this Agreement and the Related
Documents shall be assigned to another Permitted Affiliate of Hyundai prior to
or concurrently with the effectiveness of the transactions pursuant to which the
assignee ceases to be a Permitted Affiliate of Hyundai. Any purported assignment
in contravention of the provisions of this Section 9 shall be null and void.
Notwithstanding anything herein to the contrary, in no event shall any person
other than Maxtor, Hyundai or any Permitted Affiliate of Hyundai hold any right
or interest in this Note.
10. MISCELLANEOUS. The rights and obligations under this Agreement
shall be binding upon and inure to the benefit of Company and Maxtor and their
respective successors and permitted assigns. Company hereby waives presentment,
demand, protest or notice of any kind in connection with this Agreement. This
Agreement is issued in connection with that certain Redemption Agreement dated
as of May 16, 1996 among IMS, Maxtor and certain other parties thereto (the
"Redemption Agreement"). This Agreement shall be construed in accordance with
and governed by the laws of the State of
-6-
<PAGE> 7
California (without regard to its conflict of laws principles). Company hereby
submits to the jurisdiction of any State or Federal court sitting in the State
of California.
11. OFFSETS. Company may, without prior notice to Maxtor (but only with
the prior written consent of the Bank Credit Facility Agent), offset amounts the
due under this Agreement against amounts then due from Maxtor to Company, any
Borrower or any other guarantor in respect of Maxtor's indemnification
obligations under that certain Recapitalization Agreement dated as of May 16,
1996 (the "Recapitalization Agreement"), the Redemption Agreement, the
agreements entered into in connection with the Recapitalization Agreement and
Redemption Agreement, and any other agreement to which Maxtor and Company, any
Borrower or any other guarantor are parties. In addition, Company may, without
prior notice to Maxtor but only with the prior written consent of the Bank
Credit Facility Agent, offset amounts due under this Agreement against amounts
then due from Maxtor to Prudential Equity Investors, Inc. and Oak Investment
Partners ("Investors") in respect of Maxtor's indemnification obligations under
the Redemption Agreement and Recapitalization Agreement, but only to the extent
such indemnification rights have been assigned by Investors to Company. For
purposes of this Section 11, amounts shall not be deemed to be "due" from Maxtor
in respect of its indemnification obligations until such time as any applicable
dispute resolution procedures set forth in the relevant agreement have been
fully satisfied.
12. CERTAIN DEFINITIONS. As used in this Agreement:
"Affiliate" means any person which, directly or indirect,
controls, is controlled by or is under common control with another
person; provided that for purposes of this Agreement, "control,"
"controlled by" and "common control" shall mean the possession,
directly or indirectly, of the power to vote 51% or more of the
securities having ordinary voting power of the election of directors of
such person.
"Available IPO Proceeds" means the net cash proceeds to IMS of
the IPO, after deducting (x) underwriting discounts, commissions and
other expenses, and (y) an amount equal to $10,000,000 or such greater
or lesser amount as is applied to reduce the outstanding Indebtedness
under the Bank Credit Facility in accordance with the terms thereof
(provided that if such amount is in excess $10,000,000, then such
excess shall have been made as a result of IMS's negotiations with the
holders of the Indebtedness under the Bank Credit Facility following a
potential or actual default under the Bank Credit Facility, or shall
have been necessary, in the reasonable opinion of IMS, to allow IMS or
any of its subsidiaries to continue the availability of or to obtain
financing under the Bank Credit Facility).
"Available Offering Proceeds" means the net cash proceeds to
IMS of the Secondary Offering , after deducting (x) underwriting
discounts, commissions and other expenses, (y) such amounts are
necessary, in the reasonable opinion of IMS, to satisfy the capital
needs of IMS and its subsidiaries, and (z) such amount, if any, as is
applied to reduce the outstanding Indebtedness under the Bank Credit
Facility in accordance with the terms thereof.
-7-
<PAGE> 8
"Bank Credit Facility"means the 1996 Credit Agreement, and all
amendments, modifications, renewals, extensions and increases thereof,
and all refundings, refinancings and replacements thereof, in whole or
in part.
"Bank Credit Facility Agent" means Chemical Bank or such other
person as shall be designated as "Administrative Agent" or "Collateral
Agent" in respect of the Bank Credit Facility from time to time, or if
no Agent shall have been so designated, then the holder or holders of
the Indebtedness represented by the Bank Credit Facility.
"Bank Facility Interest Rate" means, as of any date of
determination, the rate of interest, including the applicable spread,
that would be applicable to six month "Eurodollar Loan" (as defined in
the 1996 Credit Agreement) under the 1996 Credit Agreement made on such
date (or, in the event the 1996 Credit Agreement is not in effect on
such date, on the last day that the 1996 Credit Agreement was in
effect, as determined by Company in good faith ) minus three and one
half percent (3.5%).
"Borrower" means Company and any other person designated as a
"Borrower" under Senior Indebtedness.
"Change in Ownership" means, with respect to any person, any
sale, transfer or issuance or series of sales, transfers and/or
issuances of voting capital stock of such person which results in any
other person or any group of persons (as the term "group" is used under
the Securities Exchange Act of 1934), other than other holders of the
capital stock of such person as of the date hereof, owning more than
fifty percent (50%) of the voting capital stock outstanding at the time
of such sales, transfers or issuances.
"Company Net Cash Proceeds" means, with respect to a
Fundamental Change or Change in Ownership with respect to Company or
any subsidiary of IMS of which Company is a direct or indirect
subsidiary, the net cash proceeds therefrom received by Company, or if
such net cash proceeds were received by a subsidiary of IMS of which
Company is a direct or indirect subsidiary, then the net cash proceeds
attributable to the assets or capital stock of Company, as the case may
be (measured either by book value determined in accordance with
generally accepted accounting principles consistently applied or by
fair market value determined in the reasonable good faith of the board
of directors of such person).
"Fundamental Change" means, with respect to any person, (a)
any sale or transfer of all or substantially all of the assets of such
person and its subsidiaries on a consolidated basis in any transaction
or series of transactions (other than sales in the ordinary course of
business) and (b) any merger or consolidation to which such person is a
party, except for a merger in which such person is the surviving
corporation (provided that a merger or other transaction conducted for
the sole purpose of changing a person's domicile shall not be
considered a Fundamental Change).
"Guarantors" means each of IMS, IMS Delaware, IMS Holdco, IMS
Cayman, and IMS Hong Kong, and any other person that guarantees the
obligations of any Borrower in respect of
-8-
<PAGE> 9
Senior Indebtedness except that IMS PRC shall be a "Guarantor" only to
the extent permitted under the law of the Peoples Republic of China (or
any province or other local government body located in the Peoples
Republic of China or any political subdivision thereof) after giving
effect to any guarantee by, or other obligations of, IMS PRC in respect
of the Senior Indebtedness.
"Hong Kong Net Cash Proceeds" means, with respect to a
Fundamental Change or Change in Ownership with respect to IMS Hong Kong
or any subsidiary of IMS of which IMS Hong Kong is a direct or indirect
subsidiary, the net cash proceeds therefrom received by IMS Hong Kong,
or if such net cash proceeds were received by a subsidiary of IMS of
which IMS Hong is a direct or indirect subsidiary, then the net cash
proceeds attributable to the assets or capital stock of IMS Hong Kong,
as the case may be (measured either by book value determined in
accordance with generally accepted accounting principles consistently
applied or by fair market value determined in the reasonable good faith
of the board of directors of such person).
"Indebtedness" means, with respect to any person, and without
duplication, (i) all indebtedness and other obligations (contingent or
otherwise) of such person for borrowed money (other than trade payables
incurred in the ordinary course of business (whether or not the same
are past due)); (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisitions of property, assets or
businesses; (iii) reimbursement obligations and other liabilities
(contingent or otherwise) of such person with respect to letters of
credit or bankers acceptances; (iv) all obligations or liabilities
(continent or otherwise) in respect of leases of such person that are
required, in conformity with generally accepted accounting principles,
to be accounted for as capital leases; (v) all obligations of such
person (contingent or otherwise) with respect to foreign exchange
contracts, currency exchange agreements, interest rate swaps, collars,
caps or other protection agreements; (vi) all direct or indirect
guaranties or similar agreements by such person in respect of
obligations of another person that would constitute "Indebtedness"
hereunder; (vii) indebtedness of the types described in clauses (i)
through (vi) secured by a mortgage, pledge, lien or other encumbrance
existing on property that is owned or held by such person, regardless
of whether the indebtedness or other obligation secured thereby shall
have been assumed by such person, and (viii) all amendments,
modifications, renewals, extensions, increases, refundings,
refinancings and replacements of any of the foregoing.
"Related Senior Subordinated Notes" means, collectively, the
Senior Subordinated Note, dated of even date herewith, in the original
principal amount of $16,300,000 made by IMS Hong Kong, and the Senior
Subordinated Promissory Note, in the original principal amount of
$1,700,000 made by IMS, each made payable to the order of Maxtor.
"Reorganization Proceedings" means any voluntary or
involuntary liquidation or dissolution of, or any bankruptcy,
reorganization, insolvency, receivership, assignment for the benefit of
creditors or similar proceeding relating to, Company, any other
Borrower or any Guarantor.
-9-
<PAGE> 10
"Senior Indebtedness" means, without duplication, the
principal of, premium, if any, and interest (including all interest
accruing subsequent to the commencement of any Reorganization
Proceedings, whether or not a claim for post-petition interest is
allowable as a claim in any such Reorganization Proceeding) and fees,
costs, expenses and other amounts accrued or due in connection with (i)
all Indebtedness of Company, any other Borrower and any Guarantor in
respect of the Bank Credit Facility or Interest Rate Protection
Agreements referred to therein; (ii) all other Indebtedness of Company,
any other Borrower or any Guarantor with respect to which the
instrument creating or evidencing the same or the assumption or
guarantee thereof (or related documents to which Company, any other
Borrower or any Guarantor is a party) expressly provides that the same
is "Senior Indebtedness" for purposes of this Agreement; and (iii) all
amendments, renewals, extensions, increases, refundings and
refinancings of the Indebtedness described in clause (i); provided that
(w) the aggregate Indebtedness referred to in clause (i) shall not
exceed $50,000,000; (x) the aggregate Indebtedness and contingent
obligations referred to in clause (ii) shall not constitute Senior
Indebtedness to the extent including the same would cause the aggregate
principal amount plus commitments outstanding under Senior
Indebtedness, including the Bank Credit Facility, to exceed
$50,000,000; (y) the instrument creating or evidencing Senior
Indebtedness other than the Bank Credit Facility may not contain any
limitations on the payment of the Indebtedness under this Agreement or
the Related Senior Subordinated Notes that are more restrictive than
those provided for in the Bank Credit Facility, and (z) the instrument
creating or evidencing Senior Indebtedness other than the Bank Credit
Facility may contain limitations on the ability of the holders of such
other Senior Indebtedness to exercise any of the rights otherwise given
to holders of Senior Indebtedness under the Subordination Agreement.
Notwithstanding anything to the contrary herein, Senior Indebtedness
shall not include (a) any Indebtedness of Company, any other Borrower
or any Guarantor to any of its Affiliates, or (b) any Indebtedness in
respect of those certain $12,500,000 Junior Subordinated Promissory
Notes to be made by IMS, in the aggregate original principal amount of
$12,500,000 (the "Subordinated Notes").
"1996 Credit Agreement" means that certain Credit Agreement to
be entered into by and among IMS, IMS Delaware, IMS Holdco, Company,
IMS Hong Kong, IMS PRC, the lenders parties thereto and Chemical Bank
as administrative agent and collateral agent for such lenders, as
amended or modified from time to time.
[The remainder of the page has been intentionally left blank.]
-10-
<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been executed by a duly
authorized officer of Company as of the date first above written.
IMS INTERNATIONAL MANUFACTURING
SERVICES (THAILAND) LIMITED
By_______________________________
Title_____________________________
Address:
By_______________________________
Title_____________________________
Address:
-11-
<PAGE> 12
SCHEDULE A
TO SENIOR SECURED PROMISSORY AGREEMENT
ALLOCATION OF
AVAILABLE IPO PROCEEDS
<TABLE>
<CAPTION>
AVAILABLE IPO
PROCEEDS (PRIOR
TO PAYMENT OF
BANK CREDIT PAYABLE TO BANK
FACILITY)* CREDIT FACILITY** PAYABLE TO MAXTOR PAYABLE TO IMS
---------------- ----------------- ----------------- --------------
<S> <C> <C> <C>
$30,000,000 10 12 8
35,000,000 10 15 10
40,000,000 10 19 11
45,000,000 10 20 15
50,000,000 10 20 20
</TABLE>
* In the event the Available Offering Proceeds from the IPO (prior to
payment of the Bank Credit Facility) are (i) less than $30,000,000,
then the Available IPO Proceeds payable to Maxtor and IMS shall be
reduced on a pro rata basis; (ii) greater than $50,000,000, then the
Available IPO Proceeds payable to IMS shall be increased by such excess
amount; (iii) in between two of the amounts set forth above, then the
Available IPO Proceeds payable to Maxtor and IMS shall be interpolated
accordingly (until Maxtor is paid in full).
** In the event the Available IPO Proceeds payable to the Bank Credit
Facility are greater than or less than $10,000,000, then the Available
IPO Proceeds payable to Maxtor and IMS shall be decreased or increased,
as applicable, on a pro rata basis (until Maxtor is paid in full).
-12-
<PAGE> 1
EXHIBIT 10.14
MANUFACTURING SERVICES AGREEMENT
This Manufacturing Services Agreement ("Agreement") is entered into by
and between Maxtor Corporation, a Delaware corporation, with its principal place
of business at 211 River Oaks Parkway, San Jose, California 95134, U.S.A.
("Maxtor") and International Manufacturing Services, Inc., a Delaware
corporation, with its principal place of business at 211 River Oaks Parkway, San
Jose, California 95134 U.S.A. ("IMS"). This Agreement is effective as of May 16,
1996 ("Effective Date").
RECITALS
WHEREAS, Maxtor wishes to procure certain products and manufacturing
services from IMS;
WHEREAS, IMS is willing to provide such products and services on the
terms and conditions set forth below;
WHEREAS, concurrent with the execution of this Agreement, Maxtor and
IMS will close certain related transactions set forth in that certain
Recapitalization Agreement dated as of May 16, 1996 and that certain Redemption
Agreement and Stockholders Agreement of even date therewith (the "Related
Agreements");
NOW THEREFORE, in consideration of the mutual promises and covenants
set forth herein and in the Related Agreements, the parties agree as follows:
AGREEMENT
1. Product Appendix. IMS will sell and Maxtor will purchase the
products set forth in Exhibit A, as amended from time to time by mutual
agreement ("Products"). For each Product, Maxtor will specify, from time to
time, (i) a bill of materials listing the components of the Product; (ii) which
components are to be procured by IMS and which are to be consigned to IMS by
Maxtor; and (iii) approved vendors from whom IMS must source particular
components. The parties shall agree in writing on any Product-specific tooling
(manufacturing or test) and any other equipment which is required to be acquired
by IMS solely for use in manufacturing or testing such Product, along with the
financial and ownership arrangements for such tooling and equipment. IMS shall
not change any vendor of a Product component or any manufacturing process for
any Product without Maxtor's prior written approval.
2. Orders and Forecasts. Every fiscal month, Maxtor shall issue to
IMS binding purchase orders ("Orders") for Products, covering a thirteen (13)
week period from such issue date and a nonbinding forecast for an additional
subsequent thirteen (13) week period. No Order shall be binding upon IMS unless
accepted by IMS in writing, subject to Section 7.3 ("Sales Commitment"),
provided
<PAGE> 2
that if such written acceptance is not received by Maxtor within five (5)
working days from date of Order issuance, said Order shall be deemed accepted.
3. Purchase Price. Purchase prices under this Agreement are set
forth in Exhibit A as amended from time to time by both parties in writing.
Purchase prices will be FOB IMS' applicable manufacturing facility and do not
include any foreign, federal, state, local or other taxes or duties or charges
of any kind that may be applicable. When IMS has the legal obligation to collect
such taxes, the appropriate amount (excluding taxes based on IMS' net Income)
will be added to Maxtor's invoice and paid by Maxtor unless Maxtor provides IMS
with a valid tax exemption certificate authorized by the appropriate taxing
authority. IMS agrees to keep its prices competitive and shall use reasonable
commercial efforts to achieve ongoing cost reductions and to lower prices
proportionately. The parties shall meet at least once a quarter, and more often
if appropriate in the reasonable judgement of either party, to negotiate price
changes. At such meetings, IMS will disclose to Maxtor all cost elements related
to the Products.
4. Payment Terms. Payment terms shall be net thirty (30) days from
receipt of invoice by Maxtor. All invoices shall be paid in U.S. dollars. If IMS
terminates this Agreement for cause pursuant to Section 14 ("Term and
Termination"), all outstanding invoices will automatically be accelerated and
will become immediately due and payable.
5. Shipping Terms, etc.
5.1 Shipping Terms. All Products shall be packed for shipment in
accordance with reasonable industrial practice and marked for shipment to
Maxtor's designated shipping destination and delivered to Maxtor's carrier agent
FOB IMS' applicable manufacturing facility. IMS will obtain Maxtor's written
approval prior to any change from IMS' present packaging. IMS will mark all
containers with necessary lifting, handling and shipping information and with
Order information, date of shipment and the names of the consignee and
consignor. An itemized packing list will accompany each shipment which shall
include (i) Order information, and (ii) the description, part number, revision
level and quantity of the Products so shipped. RISK OF LOSS SHALL PASS TO MAXTOR
AT IMS' SHIPPING LOCATION UPON DELIVERY TO MAXTOR'S CARRIER AGENT. Maxtor shall
select the carrier. All freight, insurance and other shipping expenses,
including without limitation any special packaging expenses, shall be paid by
Maxtor. Delivery shall not occur until IMS has obtained any export license or
other official authorization necessary for export of the Products. Export
licensing shall be the sole responsibility and at the sole expense of IMS.
5.2 Miscellaneous. Maxtor's Order number must appear on all
invoices, packing lists and bills of lading and shall appear on each package,
container or envelope on each shipment. Either an invoice or delivery order may
be used when making deliveries, with each set containing three (3) copies. A
complete packing list specifying Maxtor's applicable Order number, quantity of
goods shipped and part number shall be enclosed with each shipment. Bills of
lading shall be mailed in triplicate to the destination address shown on the
face of each Order, or to the consignee of the Order, on the day shipment is
made.
-2-
<PAGE> 3
6. Order Cancellation and Rescheduling.
6.1 Rescheduling. Maxtor may gives notice to IMS, either by
facsimile transmission, in other written form, or orally with follow-up written
confirmation, requesting rescheduling of Products for which purchase orders have
been accepted by IMS. IMS shall reply within two (2) working days. The following
rules shall apply based on the number of calendar weeks notice IMS is given
prior to the scheduled shipment date:
Time Prior to Delivery Limits on Rescheduling
-------------------------------------------------------------------
up to [*] [*]
[*] weeks [*]
[*] weeks [*]
[*] weeks [*]
Maxtor's request for new ship date(s) more than ninety (90) days beyond the
original ship date(s) shown on the affected purchase order shall be deemed a
cancellation of the original purchase order governed by Section 7.2. If Maxtor's
reschedule request represents an acceleration or increase, IMS will use its best
efforts to meet the requested delivery dates.
6.2 Cancellation. Any purchases of material by IMS shall be
solely for the account of IMS, except for raw materials detailed in the bills of
materials for the corresponding Products. IMS shall not purchase any materials
to be consigned by Maxtor. Maxtor shall not be responsible for excess and
obsolete inventory which is not covered by a Maxtor Purchase Order or other
written form of authorization from Maxtor. Maxtor shall be responsible for
exposures caused by EOL, rescheduling and engineering changes where IMS has
purchased property under written authorization from Maxtor according to
lead-time and within the cancellation window on the attached Exhibit C. Beyond
that, IMS shall use reasonable commercial efforts to mitigate the costs incurred
by IMS on account of any such cancellation, and any and all resulting liability
of Maxtor. Once formal notification of cancellation has been received, IMS shall
promptly cease all efforts in fulfillment of canceled Orders and shall promptly
cancel orders to suppliers (in consultation with Maxtor where a cancellation
penalty may be incurred). At the option of IMS, Maxtor shall purchase all or any
portion of the materials purchased by IMS consistent with raw material lead
times, and within the cancellation windows in Exhibit C unless Maxtor has
provided written authorization to exceed the cancellation window. Maxtor must
settle all valid claims from IMS regarding surplus inventory within forty-five
(45) days of receipt of IMS' written demand setting for the grounds of the claim
in reasonable detail. The foregoing, together with the remedies set forth in
Section 7.1 ("Purchase Commitment"), shall be IMS' sole and exclusive remedies
for any canceled Orders. The foregoing remedies shall also apply to Products
manufactured by IMS for contractors of Maxtor named on Exhibit D, which Exhibit
may be amended by Maxtor from time to time.
-3-
<PAGE> 4
6.3 Product Mix Changes. It is understood that market conditions
or requirements by Maxtor's customers may require changes in Product mix and it
is anticipated that such changes may occur frequently. IMS, therefore, grants to
Maxtor the right at any time to make changes to the Product mix without penalty
to the extent such changes do not materially alter IMS' raw materials
requirements, as long as such changes are made more than fifteen (15) days prior
to delivery. Maxtor and IMS agree to work together to respond to such changes in
a timely manner.
7. Purchase and Sale Commitments.
7.1 Purchase Commitment. Maxtor agrees to place Orders with IMS,
which Orders IMS shall accept, and Maxtor agrees to accept corresponding
conforming shipments from IMS aggregating as follows:
Period Quarterly Unit Volume
- -----------------------------------------------------------------------------
Initial [*] period following the [*]
Effective Date
Second [*] period following the [*]
Effective Date
Third [*] period following the Effective [*]
Date
IMS' sole and exclusive remedies for Maxtor's failure to place any of the above
orders and/or Maxtor's cancellation of such Orders once placed shall be (i)
suspension during the first year following the Effective Date, until cure of
such failure, of the interest payments not yet paid and due under that certain
Twenty Million Dollar ($20,000,000) Seven Percent (7%) Senior Subordinated Note
issued at the closing of the Acquisition Transaction, provided that such unpaid
interest will be repaid in equal monthly installments during the thirteen (13)
months following cure of such failure, and (ii) if applicable, the remedies set
forth in Section 6.2 ("Cancellation"). All purchases of Products by contractors
of Maxtor named on Exhibit D shall be considered purchases of Products by Maxtor
for purposes of this Section 7 ("Purchase and Sale Commitments").
7.2 Condition of Purchase Obligation. Maxtor's commitment to
purchase the amounts set forth in Section 7.1 ("Purchase Commitment") is
conditioned upon IMS providing Products competitive in both price and quality.
If Maxtor qualifies, pursuant to the qualification criteria set forth in Exhibit
E, which criteria may be amended from time to time by Maxtor at its sole
discretion, one or more alternate suppliers of Products whose price or quality
is more favorable to Maxtor than IMS' price or quality and who are capable of
meeting Maxtor's quality and volume (in whole or in part) requirements, Maxtor
shall so notify IMS in writing. [*] Maxtor's purchase commitments set forth in
Section 7.1 ("Purchase Commitment") shall be reduced to the extent of Products
as to which IMS is not price or quality competitive.
-4-
<PAGE> 5
7.3 Sales Commitment. IMS agrees to accept Orders placed by
Maxtor and to manufacture and sell such Products to Maxtor in the amounts
specified in Section 7.1 ("Purchase Commitment") above. IMS acknowledges that
due to the primary source nature of the Products, it is important that IMS
maintain the ability to increase its manufacturing capacity upon Maxtor's
reasonable request. IMS shall provide for reasonable contingency plans,
including but not limited to double shifts and triple shifts of personnel, so as
to expeditiously increase IMS' manufacturing capacity to meet Maxtor's customer
demand. [*] IMS will be responsible for processing sufficient Product starts,
procuring sufficient inventory (except those components to be procured by Maxtor
pursuant to Section 9 ("Product Materials")) and taking all other actions to
provide Maxtor with the quantity of Product set forth in accepted Orders.
8. Inspection and Acceptance.
8.1 Testing. IMS will ensure that each Product meets Maxtor
specifications and is tested prior to shipment in accordance with quality and
reliability testing methods and procedures for such Product as specified by
Maxtor from time to time. IMS will provide to Maxtor only those Products
conforming to the applicable test requirements unless IMS has obtained prior
written approval from Maxtor for any deviation from such requirements.
8.2 Acceptance. Maxtor shall inspect each shipment and return
all non-conforming units to IMS with a return authorization number obtained from
IMS with shipping cost to be borne by IMS. All returned Products must be
accompanied by a written notice describing with reasonable particularity any
defects rendering the Products non-conforming. IMS shall, at its expense,
replace within ten (10) business days of return all non-conforming Products or
refund the purchase price therefor. In addition to any such replacement and
refund, IMS shall promptly reimburse Maxtor for reasonable costs, expenses and
fees incurred by Maxtor as a result of non-conforming Products. Within ten (10)
business days of IMS' receipt of any non-conforming Product, IMS will perform
failure analysis and provide Maxtor with a failure analysis report and a
corrective action plan detailing the actions IMS shall take to avoid or minimize
similar defects in the future.
9. Consignment. Maxtor may consign to IMS certain component parts,
equipment and/or other materials (the "Materials") for use in assembling and
testing Products. IMS agrees to (1) receive shipments of Materials ordered by
Maxtor and designated for delivery to IMS, (2) perform incoming inspection and
testing of Materials as reasonably required by Maxtor (any such Maxtor-required
and Maxtor-unique testing to be at Maxtor's expense), (3) store and insure such
Materials until needed, (4) use such Materials solely for the benefit of Maxtor,
and (5) provide inventory and stocking reports to Maxtor. IMS shall provide such
services with respect to Materials stored by IMS for up to one hundred twenty
(120) days at no charge. The parties shall negotiate in good faith on
reimbursement to IMS for IMS' actual incremental costs incurred in connection
with storage of Material in excess of one hundred twenty (120) days. IMS shall
be responsible and liable for all Materials consigned by Maxtor to IMS, unless
IMS provides Maxtor within forty-eight (48) hours of arrival of any consigned
Materials with written notice and an accompanying receipt showing a discrepancy
between the amount and/or type of Materials actually received by IMS and the
amount and/or type consigned by Maxtor, as shown on
-5-
<PAGE> 6
applicable shipping documents. Notwithstanding IMS' management and storage of
the consigned Materials, Maxtor will retain all rights, title and interest to
such Materials. IMS agrees that all Maxtor consigned Materials are the property
of Maxtor and shall not mortgage, pledge, assign or borrow against such
Materials or otherwise create or attempt to create a security interest in the
Materials. IMS will post signs, make public filings, and take such other steps
reasonably calculated to notify third parties concerning Maxtor's ownership of
such Materials. IMS agrees to maintain fire and extended insurance, including
all risk and earthquake coverage, on the building containing and contents of the
Materials in an amount agreed upon by the parties. IMS shall name Maxtor as an
additional assured with respect to the contents of the Materials and shall, if
required by Maxtor, furnish certificates or adequate proof of the foregoing
insurance. IMS will be liable to Maxtor for damages for loss of, or injury to,
the consigned Materials caused by IMS' failure to exercise such care in regard
to the Materials as a reasonably careful person would exercise under like
circumstances. IMS agrees to accept responsibility for the actual cash value of
any Materials while such Materials are in IMS' custody. In the event of any
canceled Orders involving Materials, IMS shall ship such Materials to Maxtor (at
Maxtor's expense). [*] IMS requests that consigned components are received by
IMS at least five (5) business days prior to the scheduled Product shipment date
and in sufficient quantities to allow for normal component attrition.
10. Limited Warranty. IMS warrants that the Products sold to Maxtor
shall conform to the corresponding written product specification provided by
Maxtor to IMS and current at the time of Maxtor's Order ("Specification") [*]
for a period of twelve (12) months from the date of receipt by Maxtor. The
materials portion of this warranty shall not apply to the extent of defects in
the Product directly attributable to the failure of any Materials consigned or
supplied to IMS by Maxtor. All claims for breach of warranty with respect to any
unit of the Products must be received by IMS no later than fifteen (15) days
after the expiration of the warranty period. The warranty does not extend to any
Products (i) which have been subjected to misuse, neglect, excessive
deterioration or erosion, abuse, accident, improper installation, extreme
electrical or physical stress, or any other use by Maxtor in violation of or
contrary to IMS' instructions; (ii) which have been repaired or altered in any
manner by anyone other than IMS or persons expressly authorized by IMS; or (iii)
which are defective as a result of causes external to the Product. IMS' sole and
exclusive obligation with respect to defective Products returned under warranty
shall be, at IMS' option, repair or replacement thereof or refund of the
purchase price. THE EXPRESS WARRANTY AND WARRANTY REMEDIES PROVIDED IN THIS
SECTION ARE MAXTOR'S SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF THE WARRANTIES IN
THIS SECTION. IMS MAKES, AND HAS MADE, NO OTHER WARRANTIES TO MAXTOR, AND IMS
HEREBY EXPRESSLY DISCLAIMS ANY AND ALL OTHER WARRANTIES, WRITTEN OR ORAL,
EXPRESS, IMPLIED, OR STATUTORY, IN ANY MANNER OR FORM WHATSOEVER, INCLUDING, BUT
NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR
PURPOSE OR NONINFRINGEMENT OF THIRD PARTY RIGHTS (EXCEPT AS EXPRESSLY PROVIDED
IN SECTION 17 ("INDEMNIFICATION")). Maxtor shall pay IMS such amounts as are
mutually agreed from time to time for (i) testing of returned units in "no
problem found" situations (i.e., where Product units returned to IMS conform to
the above warranty) and (ii) network of returned units where the failure
-6-
<PAGE> 7
of the units to conform to the above warranty is not due to any breach of
warranty by IMS (e.g., situations where the Product unit has been abused or
damaged by persons other than IMS).
11. Epidemic Failure. In the event of an epidemic failure of a
Product, the parties shall immediately work together to identify the nature of
the failure and to determine whether the failure results from certain components
of the Product or manufacture of the Product. For purposes of this Section,
"epidemic failure" shall mean a group of failures occurring within a thirty (30)
day period of a same or similar nature where the failure rate for such thirty
(30) day period is ten percent (10%) or more above the failure rate for the
particular Product over the term of this Agreement prior to such event. Maxtor
and IMS shall agree on an equitable allocation of the cost of resolving the
problem vis-a-vis Maxtor's customers and in regard to the relevant component(s)
vendors which shall depend on whether the primary source of the problem is
Maxtor's procurement of Materials for the Products or IMS' procurement of
components for or manufacture of the Product. Maxtor and IMS shall cooperate in
good faith to identify the most cost-effective solution to the problem.
12. Limitation of Liability. EXCEPT AS SET FORTH IN SECTION 17.2
("INDEMNIFICATION BY IMS") AND SECTION 17.3 ("INFRINGEMENT INDEMNIFICATION BY
MAXTOR") AND EXCEPT FOR BREACH OF THE OBLIGATIONS SET FORTH IN SECTION 18.1
("CONFIDENTIAL INFORMATION"), EITHER PARTY'S MAXIMUM LIABILITY ARISING OUT OR
RELATING TO THIS AGREEMENT SHALL BE LIMITED TO THE TOTAL PAYMENTS MADE BY MAXTOR
TO IMS HEREUNDER. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR
ANY OTHER PERSON OR ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, INDIRECT,
EXEMPLARY OR PUNITIVE DAMAGES, HOWEVER CAUSED, WHETHER FOR BREACH OF CONTRACT,
NEGLIGENCE OR OTHERWISE (INCLUDING, WITHOUT LIMITATION, DAMAGES BASED ON LOSS OF
PROFITS OR BUSINESS OPPORTUNITY), AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION SHALL APPLY NOTWITHSTANDING
ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN.
13. Engineering or Process Changes.
13.1 Definition. The term "Engineering Change(s)" shall mean
those mechanical, electrical, piece part or subassembly design or Specification
changes, made to the Products or to any manufacturing, assembly or testing
method, procedure or process ("Process"), or, which, if made, could affect the
schedule, performance, reliability, availability, serviceability, appearance,
dimensions, tolerances, safety or costs, such determination to be made solely by
Maxtor.
13.2 IMS Change(s). IMS will notify Maxtor of any Engineering
Change proposed to be made by IMS to the Products or Process, and will supply a
written description of the expected effect of the Engineering Change on the
Products, including its effect on price, performance, reliability and
serviceability. Maxtor may elect to evaluate the prototype, parts and/or designs
specified as part of the proposed change and IMS shall provide the prototype,
parts and/or design to Maxtor at no charge
-7-
<PAGE> 8
for such evaluation. Maxtor agrees to use commercially reasonable efforts to
respond, within five (5) working days after receipt of IMS' request for
non-critical changes and within twenty-four (24) hours for critical changes, as
to whether or not Maxtor will negotiate with IMS as to a transition plan and
time frame for implementing such Engineering Changes. IMS will not change or
modify the Products or Process by implementation of such Engineering Change
without Maxtor's prior written approval. Maxtor, in its reasonable discretion,
may reject any and all IMS requested changes.
13.3 Maxtor Change(s). Maxtor may request, in writing and in a
manner similar to IMS' request as set forth in Section 13.2 ("IMS Change(s)"),
that IMS incorporate any non-critical Engineering Change into the Products, and
IMS will provide to Maxtor its written response within five (5) working days
after receipt of Maxtor's request. For critical Engineering Changes, as
determined by Maxtor, IMS will respond within twenty-four (24) hours of Maxtor's
written request. IMS' response will state the cost savings or increase, and
labor, inventory and scrap material impact, if any, expected to be created by
the Engineering Change, and the effect on the schedule, performance,
reliability, availability, safety, serviceability, appearance, dimensions,
tolerances, and composition of bills of material of the Products. If Maxtor
requests IMS to incorporate an Engineering Change into the Products, the
applicable Specifications will. be amended as required subject to mutual
agreement on reimbursement to IMS for its extra costs (including labor,
manufacturing supplies and inventory) incurred as a result of the Engineering
Change. IMS will not unreasonably refuse to incorporate Maxtor's Engineering
Changes into the Products.
14. Term and Termination. The term of this Agreement shall begin on
the Effective Date and continue for three years thereafter unless earlier
terminated as provided herein. Either party may terminate this Agreement for
default by the other party of any material obligation, unless the defaulting
party cures such material breach within thirty (30) days after receipt of
written notice from the non-defaulting party. In the event this Agreement is
terminated by IMS upon Maxtor's default, Maxtor shall be responsible for payment
or cancellation charges for any issued and accepted Orders as provided in
Section 6 ("Order Cancellation and Rescheduling"). In the event this Agreement
is terminated by Maxtor for IMS' default, IMS shall be responsible for payment
of any and all costs and expenses associated with Maxtor's transfer of Orders to
another supplier, including without limitation the incremental cost to procure
substitute goods in accordance with Section 2712 of the Uniform Commercial Code.
15. Maxtor Equipment. IMS shall be responsible for diligence and care
in the use, routine calibration and repair, maintenance and protection of any
Maxtor furnished equipment, including without limitation any Product-specific
tooling and equipment, and shall be liable for repairs or replacement due to
normal failure or wear and tear, and maintenance costs, provided, that HDAs
shall be supplied, maintained, repaired and replenished by Maxtor.
16. [*]
-8-
<PAGE> 9
17. Indemnification.
17.1 Indemnification by Maxtor for Products. Maxtor shall defend,
indemnify and hold IMS, its successors and assigns, harmless from and against
all actions, claims, liabilities, losses and expenses (including reasonable
attorneys' fees) arising out of or relating to Maxtor's gross negligence or
intentional misconduct in its distribution, sale or use of any Product. Such
indemnification obligation will be conditioned upon IMS (i) giving Maxtor prompt
notification in writing as to any such action; (ii)
tendering full control of the defense of such action to Maxtor; and (iii)
providing Maxtor with full information and assistance (at Maxtor's expense) for
such defense. IMS may participate in any such defense with counsel of its
choosing at its expense. Maxtor will not be responsible for any settlement or
compromise made without its consent.
17.2 [*]
17.3 Infringement Indemnification by Maxtor. Maxtor shall defend,
indemnify and hold IMS, its successors and assigns, harmless from and against
all actions, claims, liabilities, losses and expenses (including reasonable
attorneys' fees) arising out of or relating to any claim of infringement or
misappropriation by a Product developed from designs provided by Maxtor for such
development, of any patent, copyright, trade secret, or any other intellectual
property right of any third party to the extent such infringement or
misappropriation arises out of use of such Maxtor designs. Such indemnification
obligation will be conditioned upon IMS (i) giving Maxtor prompt notification in
writing as to any such action; (ii) tendering full control of the defense of
such action to Maxtor; and (iii) providing Maxtor with full information and
assistance (at Maxtor's expense) for such defense. IMS may participate in any
such defense with counsel of its choosing at its expense. Maxtor will not be
responsible for any settlement or compromise made without its consent.
18. Confidentiality; Intellectual Property Rights.
18.1 Confidential Information. Each party (the "Disclosing
Party", as applicable) agrees during the term of this Agreement and thereafter
to take all steps reasonably necessary to hold the Confidential Information of
the other party (the "Receiving Party", as applicable) in trust and confidence.
"Confidential Information" includes, but is not limited to, technical and
business information relating to the Disclosing Party's inventions or products,
research and development, production, manufacturing and engineering processes,
costs, profit or margin information, employee skills and salaries, finances,
customers, marketing, and production and future business plans, and any third
party's proprietary or confidential information disclosed to the Receiving Party
in the course of providing services to the Disclosing Party. Notwithstanding the
other provisions of this Agreement, nothing received by the Receiving Party will
be considered to be the Disclosing Party's Confidential Information if (1) it
has been published or is otherwise readily available to the public other than by
a breach of this Agreement; (2) it has been rightfully received by the Receiving
Party from a third party without confidential limitations; (3) it has been
independently developed for the Receiving Party by personnel or agents having no
access to the Disclosing Party's Confidential Information; or (4) it was known
to the Receiving Party prior to its first receipt from the Disclosing Party. The
Receiving Party shall use the
-9-
<PAGE> 10
Disclosing Party's Confidential Information only for the purposes of providing
and receiving Products and services to and from the Disclosing Party as set
forth herein, unless otherwise mutually agreed in writing. The Receiving Party
may disclose the Disclosing Party's Confidential Information to affiliates and
to third persons, including contractors, solely for the purposes of this
Agreement or as otherwise allowed herein (e.g., Section 18.4 ("License of IMS
Rights")), including consultation regarding the purchase or provision of
Products and services, but only under the terms of a written confidentiality
agreement with such third person containing confidentiality and use terms
substantially similar to those imposed herein upon a Receiving Party. The
foregoing shall not affect Maxtor's rights under Section 18.4 ("License of IMS
Rights"), except that Maxtor shall require third persons who receive such
Section 18.4 IMS Intellectual Property which is IMS Confidential Information, to
execute such written confidentiality agreement.
18.2 No Conflict of Interest. Each party agrees during the term
of this Agreement not to accept work, enter into a contract or accept an
obligation inconsistent or incompatible with such party's obligations under this
Agreement or the scope of services rendered for the other party hereunder. Each
party warrants that to the best of its knowledge, there is no other existing
contract or duty on such party's part inconsistent with this Agreement. The
parties agree that the foregoing obligations shall not be construed in any
manner to supersede or conflict with the terms and conditions of Section 7.2
("Condition of Purchase Obligation") above.
18.3 Ownership of Proprietary Rights. Nothing in this Agreement
shall convey to either party any proprietary or intellectual property rights,
including without limitation, copyrights, trademarks, trade secrets, patents,
moral rights, contract rights and licensing rights (the "Intellectual Property
Rights") belonging to the other party, or be deemed to license either party to
use any such Intellectual Property Rights of the other party, except for the
express limited purposes set forth herein.
18.4 [*]
18.5 Joint Work Product. The term "Joint Work Product" means any
new or useful art, discovery, improvement or invention whether or not
patentable, and all related know-how, designs, mask works, trademarks, formulae,
processes, manufacturing techniques, trade secrets, ideas, artwork, software or
other copyrightable or patentable works, where the conception or reduction to
practice thereof occurs subsequent to the Effective Date and one or more
personnel of both Maxtor and IMS contribute materially to such conception or
reduction to practice. Maxtor and IMS shall jointly own the Joint Work Product,
with each owning an undivided one-half interest, and each shall be free to
commercially exploit Joint Work Product far its own account and nonexclusively
license Joint Work Product to third parties without any obligation to account
for profits to the other joint owner.
18.6 Return of Maxtor Property. The term "Maxtor Work Product"
means any new or useful art, discovery, improvement or invention whether or not
patentable, and all related know-how, designs, mask works, trademarks, formulae,
processes, manufacturing techniques, trade secrets, ideas, artwork, software or
other copyrightable or patentable works developed by Maxtor without the material
-10-
<PAGE> 11
contribution of IMS or otherwise acquired or licensed by Maxtor. Except as set
forth in a separate written licensing agreement:
(a) IMS shall have no right to use any Maxtor Work
Product provided by Maxtor to IMS, or learned by IMS from Maxtor, except to
perform services for Maxtor as contemplated by this Agreement.
(b) Upon termination of this Agreement for any reason
or in any manner, or at any earlier time upon Maxtor's request, IMS agrees to
promptly deliver all Maxtor property, including but not limited to all tangible
embodiments of the Maxtor Work Product, and all copies of Maxtor property in
IMS' possession to Maxtor, or promptly destroy all such Maxtor property and
promptly certify in writing to its destruction.
19. Miscellaneous Provisions.
19.1 Entire Agreement. This Agreement constitutes the entire
agreement between the parties regarding the subject matter hereof and supersedes
all prior agreements and understandings between the parties relating thereto.
This Agreement may not be modified except by a writing signed by an authorized
representative of both parties.
19.2 Independent Contractor. The relationship of the parties
established by this Agreement is that of independent contractors, and nothing
contained herein shall be constructed to constitute either party as the agent of
the other party or as partners, joint ventures, co-owners or otherwise as
participants in a joint or common undertaking.
19.3 Advertising. No advertising by either party shall display or
contain any trademarks or references to the other party without the other
party's prior written approval.
19.4 Assignment and Subcontracting. This Agreement may not be
assigned by either party without the advance written consent of the other party,
which shall not be unreasonably withheld. Notwithstanding the foregoing, either
party may assign this Agreement to any affiliate or subsidiary or pursuant to a
merger, sale of all or substantially all of its assets, or other corporate
reorganization. IMS shall not subcontract any of its rights or obligations
hereunder to any third party without Maxtor's prior written approval, which
shall not be unreasonably withheld.
19.5 Force Majeure. Except for Maxtor's payment obligations,
neither party shall be liable to the other party arising out of delays or
failures to perform under the Agreement to the extent that any such delays or
failures result from any cause beyond the reasonable control of the party
affected by a force majeure event; provided, that the party affected by any such
cause shall promptly inform the other of all relevant information. If any such
force majeure event extends beyond ninety (90) days, either party shall have the
right to terminate this Agreement upon written notice to the other party.
-11-
<PAGE> 12
19.6 Governing Law. This Agreement shall be governed by the laws
of the State of California, without reference to conflict of laws principles.
The United Nations Convention on Contracts for the International Sale of Goods
is specifically excluded from application to this Agreement.
19.7 Venue. All disputes arising under this Agreement shall be
brought in the Superior Court of the State of California in Santa Clara County
or the Federal District Court of San Jose, California, as permitted by law. The
Superior Court of Santa Clara County and the Federal District Court of San Jose
shall each have exclusive jurisdiction over disputes under this Agreement. IMS
consents to the personal jurisdiction of the above courts.
19.8 English Language. This Agreement is executed in the English
language only, and any translations hereof are of no force and effect.
19.9 Invalidity. If any provisions or portion thereof of this
Agreement is held to be unenforceable or invalid, the remaining provisions and
portions thereof shall nevertheless be given full force and effect.
19.10 No Waiver. No failure to delay on the part of either party
in exercising any right or remedy hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any such right or remedy preclude
any other or further exercise thereof or of any other right or remedy. No
provision of this Agreement may be waived except in a writing signed by the
party granting such waiver.
19.11 No Licenses Created. Nothing contained in this Agreement
shall be construed as conferring any license, right to use or other right with
respect to information, trademark or tradenames of either party.
19.12 Counterparts. This Agreement may be executed in
counterparts, all of which taken together shall constitute one single agreement
between the parties.
19.13 Limitation of Action. No action, regardless of form,
arising out of this Agreement, may be brought by either party more than one year
after the cause of action has arisen, or in the case of nonpayment, one year
from the date the last payment was due.
19.14 Survival. Sections 10, 11, 12, 15, 17, 18 and 19 shall
survive any expiration or termination of this Agreement.
19.15 Construction. This Agreement has been negotiated by the
parties and their respective counsel. This Agreement will be fairly interpreted
in accordance with its terms and without any strict construction in favor of or
against any party. Any ambiguity will not be interpreted against the drafting
party.
-12-
<PAGE> 13
IN WITNESS WHEREOF, Maxtor and IMS have caused this Manufacturing
Services Agreement to be executed by their respective officers, duly authorized.
MAXTOR: IMS:
Maxtor Corporation International Manufacturing Services, Inc.
By: ___________________________ By: ______________________________________
Name: _________________________ Name: ____________________________________
Title: ________________________ Title: ___________________________________
-13-
<PAGE> 14
EXHIBIT A
PRODUCTS AND PRICES
Maxtor and IMS have agreed that in calendar 1996, Maxtor will give IMS
first right of refusal to manufacture units up to 1.924 million each quarter.
The forgoing does not constitute a purchase order.
<TABLE>
<CAPTION>
CQ2 96 CQ3 96 CQ4 96 CQ1 96
BOM NO. DESCRIPTION PRICE PRICE PRICE PRICE
------- ----------- ----- ----- ----- -----
US$ US$ US$ US$
<S> <C> <C> <C> <C> <C>
[*] [*] [*] [*] [*] [*]
</TABLE>
REWORK*
1" REWORK (NORMAL)
1" REWORK (FIELD)
2.5 REWORK
MXT REWORK
* Rework charges above are for full rework completed by IMS. Partial rework
charges will be negotiated in good faith between the parties.
Note:
1. The price for CQ296 is confirmed while the price for the rest of three
quarters is for reference only.
2. The selling price for 2.5" is full turnkey and sales is from IMS to HSD.
<PAGE> 15
EXHIBIT A
(Continued)
CONSIGNED PARTS LIST
<TABLE>
<CAPTION>
PART NO. DESCRIPTION
- --------------- ----------------------------------------------------
<S> <C>
[*] [*]
</TABLE>
-2-
<PAGE> 16
EXHIBIT B
THIS EXHIBIT IS INTENTIONALLY OMITTED
<PAGE> 17
EXHIBIT C
CANCELLATION WINDOWS
<TABLE>
<CAPTION>
CANCELLATION
COMMODITY (NOT-TO-EXCEED)
---------------- ---------------
<S> <C>
ASICx* [*] Days
Memory * [*] Days
Osc. Custom [*] Days
Transistors [*] Days
Diodes [*] Days
Caps (Tant.) [*] Days
Resistor [*] Days
PCB [*] Days
Ferrite [*] Days
Connector/Socket [*] Days
Cap Cer [*] Days
Inductor [*] Days
</TABLE>
* Per supplier cancellation window plus [*] worth of raw and WIP in IMS.
- -----------------------
<PAGE> 18
[*] Confidential Treatment Requested
<PAGE> 19
EXHIBIT D
Hyundai Storage Division
<PAGE> 20
APPENDIX E
<TABLE>
<CAPTION>
# CRITERIA MAX. POINT WEIGHT AGE MAX. WEIGHT
<S> <C> <C> <C>
1. Quality 5 X2 10
2. Total Cost 5 X2 10
3. Capacity 5 X2 10
4. Time To Market 5 X2 10
5. Joint Profit Program 5 X1 5
6. Delivery Performance 5 X1 5
7. Technology Leadership 5 X1 5
8. Finance 5 X1 5
9. History/Flexibility 5 X1 5
10. Fit for Application 5 X1 5
</TABLE>
The Maximum Total Weighted Score is 70 and Minimum is 35.
We can assign the following grading:
<TABLE>
<CAPTION>
WEIGHT SCORE GRADING
- ----------------------- --------------------------
<S> <C>
35-49 Pass/Average
50-59 Good
60-70 Very Good/Excellent
</TABLE>
<PAGE> 1
EXHIBIT 10.15
IMS INTERNATIONAL MANUFACTURING SERVICES, INC.
TERMS AND CONDITIONS
1. Orders and Forecasts:
Customer shall issue to IMS binding purchase orders ("Orders") for Products
covering a twelve (12) week period and a nonbinding forecast for an additional
fourteen (14) week period each month. No Order shall be binding upon IMS unless
accepted by IMS in writing, if such written acceptance is not received by
Customer within five (5) working days from date of order issuance, said Order
shall be deemed accepted. IMS shall use reasonable efforts to deliver each order
by the requested delivery date; provided that the Order allows for a reasonable
lead time. Customer may change or reschedule any order by written or oral
request subject to IMS' approval.
2. Purchase Price:
Purchase prices under this Agreement shall be established by mutual agreement
and adjusted from time to time as agreed to by both parties. Purchase prices do
not include any foreign, federal, state, local or other taxes or charges of any
kind that may be applicable. When IMS has the legal obligation to collect such
taxes, the appropriate amount will be added to Customer's invoice and paid by
Customer unless Customer provides IMS with a valid tax exemption certificate
authorized by the appropriate taxing authority.
3. Payment Terms:
Payment terms shall be net thirty (30) days from the date of invoice. All
invoices shall be paid in U.S. dollars. Invoices shall not be subject to any
offset for claims of Customer, IMS reserves the right to require additional
security in the form of an irrevocable letter of credit or similar financial
arrangement. All overdue amounts shall bear interest at the lesser of One and
One Half Percent (1-1/2%) per month or the maximum rate permitted by law.
Customer shall pay all of IMS' costs and expenses (including reasonable
attorneys' fee) incurred in enforcing IMS' rights. If any payment is not made
when due, or if IMS terminates this Agreement for cause, all outstanding
invoices will automatically be accelerated and will become immediately due and
payable.
4. Shipping Terms:
All Products shall be packed for shipment in standard shipping cartons, or in
cartons supplied or designed by Customer, and marked for shipment to Customer's
designated shipping destination and delivered to Customer's carrier agent F.O.B.
EX-FACTORY. RISK OF LOSS SHALL PASS TO CUSTOMER AT IMS' SHIPPING LOCATION UPON
DELIVERY TO CUSTOMER'S CARRIER AGENT. IMS shall select the carrier, unless
instructed in writing by Customer. All freight, insurance and other shipping
expenses, including without limitation any special packaging expenses, shall be
paid by Customer.
<PAGE> 2
5. Order Cancellation Charges:
If Customer cancels any Order less than thirty (30) days prior to the scheduled
delivery date, Customer shall pay a cancellation charge equal to 100% of the
purchase price for such canceled order. If Customer cancels any Order more than
thirty (30) days prior to the scheduled delivery date, Customer shall pay to IMS
a cancellation charge equal to all of IMS' expenses incurred in preparation for
or during manufacture of the canceled Products for Customer (including, without
limitation, expenses incurred in canceling or returning materials, plus
reasonable materials handling expenses). In addition, at the option of IMS,
unless materials were consigned by Customer, Customer shall purchase all or any
portion of the materials, tooling, test equipment or fixtures purchased by IMS
consistent with raw material lead times and Customer forecast for the
manufacture of the Products canceled by Customer. Customer shall pay as the
purchase price for such materials the price that IMS paid to its vendors, plus
reasonable material handling and related expenses.
6. Inspection and Acceptance:
Customer shall inspect each shipment and return all non-conforming units to IMS
with a return authorization number obtained from IMS at Customer's expense
within thirty (30) days after Customer's receipt of such Products. All returned
Products must be accompanied by a written notice describing with particularity
any defects rendering the Products non-conforming. IMS shall replace all
non-conforming Products or refund the purchase price therefor within a
reasonable period. All Products not returned to IMS within thirty (30) days as
provided herein shall be deemed to have been accepted by Customer. CUSTOMER'S
SOLE AND EXCLUSIVE REMEDY FOR SHIPMENT OF NON-CONFORMING PRODUCTS SHALL BE AS
SET FORTH ABOVE.
7. Limited Warranty:
IMS warrants that the Products sold to Customer shall be free from defects in
materials and workmanship for a period of ninety (90) days from the date of
shipment to Customer.
The materials portion of the warranty shall not apply to (i) any materials
consigned or supplied to IMS by Customer or (ii) any components that were
specified by Customer or purchased from vendors specified by Customer.
All claims for breach of warranty with respect to any unit of the Products must
be received by IMS no later than 15 days after the expiration of the warranty
period and subject to IMS verification as to whether the Products are defective
by reason of design, material or workmanship.
This warranty does not extend to any Products (i) which have been subjected to
misuse, neglect, excessive deterioration or erosion, abuse, accident, improper
installation, extreme electrical or physical stress, or any use in violation of
or contrary to IMS' instructions, or (ii) which have been repaired or altered in
any manner by anyone other than IMS or persons expressly authorized by IMS; or
(iii) which are defective as a result of causes external to the Product. IMS'
sole and exclusive
-2-
<PAGE> 3
obligation with respect to defective Products returned under warranty shall be
at IMS' option, repair or replacement thereof or refund of the purchase price.
THE EXPRESS WARRANTY AND WARRANTY REMEDIES PROVIDED THIS SECTION ARE CUSTOMER'S
SOLE AND EXCLUSIVE REMEDIES. IMS MAKES, AND HAS MADE, NO OTHER WARRANTIES TO
CUSTOMER, AND IMS HEREBY EXPRESSLY DISCLAIMS ANY AND ALL WRITTEN OR ORAL,
EXPRESS, IMPLIED, OR STATUTORY, IN ANY MANNER OR FORM WHATSOEVER, INCLUDING, BUT
NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY FITNESS FOR ANY PARTICULAR
PURPOSE OR AGAINST INFRINGEMENT.
8. Limitation of Liability:
IMS' MAXIMUM LIABILITY ARISING OUT OR RELATING TO THIS AGREEMENT SHALL BE
LIMITED TO THE PURCHASE PRICE OF THE PRODUCT UNITS FOR WHICH THE CLAIM IS MADE.
IN NO EVENT SHALL IMS BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS BY
ANYONE. IN NO EVENT SHALL IMS BE LIABLE TO CUSTOMER OR ANY OTHER PERSON OR
ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY OR
PUNITIVE DAMAGES, HOWEVER CAUSED, WHETHER FOR BREACH OF CONTRACT, NEGLIGENCE OR
OTHERWISE, (INCLUDING, WITHOUT LIMITATION, DAMAGES BASED ON LOSS OF PROFITS OR
BUSINESS OPPORTUNITY) AND WHETHER OR NOT IMS HAS BEEN ADVISED OF THE POSSIBILITY
OR SUCH DAMAGES. THIS LIMITATION SHALL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN.
9. Engineering Changes:
Customer may make written request for an engineering change to the Product. IMS
shall use reasonable efforts to make requested engineering changes and will
advise Customer in writing of the terms and conditions under which it will make
the requested engineering change, including any cost savings or increase, and
its effect on production schedules. IMS shall be compensated for cost associated
with any obsolete and/or excess materials as a result of any changes pertaining
to product design, component engineering, delivery schedules and any other
changes as requested by Customer. IMS may not change or modify the Product
without Customer's prior written consent.
10. Term and Termination:
The Term shall begin on the Effective Date and continue until terminated. Either
party may terminate this Agreement for convenience upon sixty (60) days' advance
written notice. Either party may terminate this Agreement for default by the
other party of any material obligation, unless the defaulting party cure such
breach within thirty (30) days after receipt of written notice from the
non-defaulting party. In the event this Agreement is terminated by Customer for
convenience or by IMS
-3-
<PAGE> 4
upon Customer's default, Customer shall be responsible for payment or
cancellation charges for any pending Orders as provided in Section 5.
11. Customer Furnished Equipment:
IMS shall be responsible for reasonable diligence and care in the use and
protection of any Customer furnished equipment, but shall not be liable for
repairs or replacement due to normal failure or wear and tear or maintenance
costs unless agreed to in writing by IMS.
12. Miscellaneous Provisions:
(a) Entire Agreement: This Agreement constitutes the entire agreement
between the parties regarding the subject matter hereof and supersedes all prior
agreements and understandings between the parties relating thereto. This
Agreement may not be modified except by a writing signed by an authorized
representative of both parties.
(b) Indemnification by Customer: Customer shall defend, indemnify and
hold IMS, its successors and assigns, harmless from and against all actions,
claims, liabilities, losses and expenses (including attorneys' fees) arising out
of or relating to the distribution, sale or use of any Product, whether any such
claim is based upon infringement of intellectual property rights, product
liability or any other legal theory.
(c) Independent Contractor: The relationship of the parties established
by this Agreement is that of independent contractors, and nothing contained
herein shall be constructed to constitute either party as the agent of the other
party or as partners, joint ventures, co-owners or otherwise as participants in
a joint or common undertaking.
(d) Advertising: No advertising by either party shall display or
contain any trademarks or references to the other party without the other
party's prior written approval.
(e) Assignment: This Agreement may not be assigned by either party
without the advance written consent of the other party, which shall not be
unreasonably withheld; provided, that IMS shall have the right, without the
prior consent of Customer, to assign its rights, duties and responsibilities
under this Agreement to any affiliate or subsidiary of IMS.
(f) Force Majeure: Except Customer's payment obligations, neither party
shall be liable to the other party arising out of delays or failures to perform
under the Agreement to the extent that any such delays or failures result from
any cause beyond the reasonable control of the party affected by a force majeure
event. If any such force majeure event extends beyond ninety (90) days, either
party shall have the right to terminate this Agreement upon written notice to
the other party.
(g) Governing Law: This Agreement shall be governed by the laws of the
State of California, without reference to conflict of laws principles.
-4-
<PAGE> 5
(h) Invalidity: If any provision or portion thereof of this Agreement
is held to be unenforceable or invalid, the remaining provisions and portions
thereof shall nevertheless given full force and effect.
(i) No Waiver: No failure or delay on the part of either party in
exercising any right or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right or remedy preclude any
other or further exercise thereof or of any other right or remedy. No provision
of this Agreement may be waived except in a writing signed by the party granting
such waiver.
(j) No Licenses Created: Nothing contained in this Agreement shall be
construed as conferring any license, right to use or other right with respect to
any patents, patent applications, trade secrets, confidential or proprietary
information, trademark or trade names of either party.
(k) Counterparts: This Agreement may be executed in counterparts, all
of which taken together shall constitute one single agreement between the
parties.
(l) Limitation of Action: No action, regardless of form, arising out of
this Agreement, may be brought by either party more than one year after the
cause of action has arisen, or in the case of nonpayment, one year from the date
the last payment was due.
(m) Construction: This Agreement has been negotiated by the parities
and their respective counsel. This Agreement will be fairly interpreted in
accordance with its terms and without any strict construction in favor of or
against any party. Any ambiguity will not be interpreted against the drafting
party.
-5-
<PAGE> 6
MANUFACTURING PURCHASE
AGREEMENT
between
IMS International Manufacturing Services, Inc.
("IMS")
and
("[BAY NETWORKS CENTILLION BUSINESS UNIT]")
IMS shall manufacture and sell to [BAY NETWORKS CENTILLION BUSINESS UNIT], and
[BAY NETWORKS CENTILLION BUSINESS UNIT] shall purchase from IMS, such products
as specified in [BAY NETWORKS CENTILLION BUSINESS UNIT] purchase orders that are
accepted by IMS ("Products"), pursuant to the terms and conditions set forth in
this Agreement.
IMS and Customer acknowledge that they have read and fully understand this
Agreement and hereby agree to its terms.
IMS International Manufacturing Customer
Services, Inc.
By:_____________________________________ By:________________________________
Title:__________________________________ Title:_____________________________
Address: 211 River Oaks Parkway Address:___________________________
San Jose, CA 95134
Telephone: 408-432-1298 Telephone: _________________
Facsimile: 408-432-4337 Facsimile: _________________
Effective Date:_________________________ Effective Date:____________________
-6-
<PAGE> 1
EXHIBIT 10.16
No. OTO810.1 The Industrial Estate Authority of Thailand
618 Nikhom Makkasan Road, Bangkok, 10400
Re: Land use within the Laem Chabang Industrial Estate
To: The Board of Directors, IMS International Manufacturing Services
(Thailand), Ltd.
Enc.: 1. Certificate of Permission to Use Land for
Industrial Purposes, user ID no. NCh 6/2538-0,
certificate no. 71/2538, issued March 8, 1995
2. Standard Factory Lease Agreement, no. 9/2538-NCh,
issued March 8, 1995
Seeing as a Standard Factory Lease Agreement has been signed on March 8,
1995.
The Industrial Estate Authority of Thailand has sent this Certificate of
Permission to Use Land for Industrial Purposes, Standard Factory Lease
Agreement, and other announcements and orders relevant to the conduct of affairs
in the Industrial Estate, in order to be kept as evidence, and for future use.
In this matter, the Industrial Estate Authority of Thailand wishes to
inform that the construction of buildings and the carrying out of industrial
activities within the Industrial Estate should be conducted according to the
laws governing factories, the laws governing buildings, the laws governing urban
planning, and the laws governing the Industrial Estate Authority of Thailand.
However, this agreement represents the lawful authority and responsibilities of
the Director, or the individual acting on the authority of the Director. If you
have any questions regarding this matter, please contact directly the Permits
Division, rights and Use Section, the Industrial Estate Authority of Thailand,
Makkasan Road, Ratchathewi District, Bangkok, or contact the office of the Laem
Chabang Industrial Estate.
This matter is presented for your information.
Respectfully,
[signed]
Mr. Thanya Hanphol
Under Director General (Business Affairs),
acting in stead of [illegible] the Industrial Estate
Authority of Thailand
Rights and Use Section
Permits Division
Tel: 253-0561, ext. 402
Fax: 253-4086
<PAGE> 2
Page 4
Form GNO 02
Certificate of Permission to Use Land for Industrial Purposes
District Industry for Export Industrial Estate: Laem Chabang
User No. NCh.6/2538-0.
No. 71/2538
The Industrial Estate Authority of Thailand, by the power vested in it by
the Royal Edict regarding Industrial Estates, Year 19[illegible], gives
permission to
IMS International Manufacturing Services (Thailand), Ltd.,
registered as a limited partnership, registration no. 65/2538,
on January 5, 1995, with an office at 719 Sii Phraya Road, Bang Rak Subdistrict,
Bang Rak District, Bangkok,
to use land for the following activities: the manufacture of electronic items in
factory type 72,
in the district Industry for Export Industrial Estate: Laem
Chabang,
Land and Building Plan: Standard Factory plan 17/3 Area: 1,500 square meters,
with the following stipulations:
1. Must operate according to Standard Factory Lease Agreement no. 9.2538-NCh,
issued on March 8, 1995
2. Those who use land for industrial purposes within the Industry for Export
district must produce for export in accordance with the regulations
pertaining to standards, methods, and stipulations as announced by the
Industrial Estate Authority of Thailand.
Issued March 8, 1995
Signed: [illegible]
[illegible]
<PAGE> 3
Page 5
Translator's note: Each page of this agreement is signed (illegibly) and sealed
by International Manufacturing Services (Thailand), Ltd.
Agreement No. 9/2538-NCh.
Standard Factory Lease Agreement
This agreement is made at the Industrial Estate Authority of Thailand, 616
Makkasan Road, Makkasan Subdistrict, Ratchathewi District, Bangkok, on March 8,
1995, between the Industrial Estate Authority of Thailand in the person of Mr.
Thanya Hanphol, Under Director General (Business Affairs), acting on the
authority of the Director General of the Industrial Estate Authority of
Thailand, hereinafter called the "Lessor," and IMS International Manufacturing
Services (Thailand), Ltd, in the persons of Mr. Quek Neo Kia and Mr. Phichai
Duangthaweesap, individuals with the authority to act in legal stead of IMS
International Manufacturing Services (Thailand), Ltd., which was incorporated at
the Office of Corporate Registration, Bangkok, Registration No. 65/2538, on
March 9, 1995, with an office at 719 Sii Phraya Road, Bang Rak Subdistrict, Bang
Rak District, Bangkok, hereinafter known as the "lessee." Both parties agree to
enter into an agreement as follows:
1. The lessor agrees to give to lease, and the lessee agrees to lease, a
Standard Factory No. 17/3 in the Laem Chabang Industrial Estate, which factory
has an area of 1,500 square meters, as per the plan which is attached to this
agreement and held to be a part of this agreement. Furthermore, the lessor
agrees to provide utilities for the production of electronic items. This lease
has a term of 15 years, beginning on March 6, 1995 and continuing until March 5,
2010.
2. The lessee must pay lease fees to the lessor on a monthly basis in the
amount of 96,000 baht (ninety six thousand baht even), as well as pay a
utilities fee according to the rates and standards as announced by the
Industrial Estate Authority.
3. The lessee has paid to the lessor, on the date of this agreement, the
following:
(1) A payment of 192,000 baht (one hundred ninety two thousand
baht even) to the lessor as a deposit against any loss or damages which may
occur to the leased property, or to the lessor. In the event that the lessee is
in debt to the lessor in any amount the lessee agrees to allow the lessor to
deduct this amount from the deposit. In the event of loss or damage in excess of
the amount of the deposit, the lessee must pay the entire difference to the
lessor.
(2) A payment of 176,516.13 baht (one hundred seventy six
thousand, five hundred sixteen baht and thirteen satang) as lease fee from March
6, 1995 to April 30, 1995.
(3) A payment of 1,700 baht (one thousand seven hundred baht even)
as utilities fee from March 6, 1995 to April 30, 1995.
<PAGE> 4
Page 6
With respect to the lease and utilities fees for following months, the
lessee agrees to pay one month in advance, by the 5th day of each month, at the
office of the lessor, on government working days and during government working
hours. In the event that the lessee is one month behind in payments of lease or
utilities fees, the lessor has the right to terminate the agreement immediately.
In the event that the lessee pays the lease or utilities fees more tardy
than established in Point 3, Section 2, the lessee agrees to allow the lessor to
fine the lessee at the rate of 1.5 percent of the outstanding lease or utilities
fees per month, until the lessee has paid the lease or utilities fees in full.
The parties to this agreement agree that, in the event that the lessor
wishes to change the location at which the lease or utilities fees are to be
paid, the lessor is allowed to do so by announcing such intentions to the lessee
in writing.
4. The lessee agrees that the lessor will not be held responsible for any
loss or damages which result to the property of the lessee within the factory,
the car garage, or the grounds of the leased factory.
5. The lessee must use the leased factory only for the production of
electronic items. The lessee cannot use the facilities for any other activities
except the production of electronic items, and no activities are to be conducted
which are in violation of the law, or constitute a disturbance of the peace, or
violate the ethics of the populace, nor for any action which is noisy to the
extent of constituting an annoyance to the neighbors.
6. The lessee must not use, or allow others to use, the leased factory as a
place to post bills or advertisements, except in the event that written
permission has been received from the lessor in advance.
7. The lessee agrees to pay the lessor for any and all loss and damages
incurred by the lessee, or the lessee's employees, representatives, or other
staff, or a person who enters [illegible], regardless of the circumstances.
8. The lessee must maintain the condition of the leased factory-for
example, take care that the lessee's own property is not in less than its
original condition. In the event that any item is not in good condition, or is
damaged in any way, the lessee must arrange for the immediate repair and
restoration of that item to its original condition, with the lessee bearing sole
responsibility for any expenses incurred, except in the event that such poor
condition or damage arises from normal use.
In the event that the lessee does not carry out the repair as per the first
part, the lessor makes it known [illegible] that the lessor has the right to
arrange for such repairs while holding the lessee responsible for any and all
expenses.
9. In every instance of repair or alteration, or the addition of anything
to the leased factory, the lessee must receive the approval of the lessor in
writing. After such
<PAGE> 5
Page 7
approval has been obtained, the repair, alteration, or addition to the factory
must be conducted only according to the permission granted by the lessor, and
must be carried out in compliance with the law.
That which is repaired, altered, or added, including any materials or other
items which are brought into the leased factory, immediately become the property
of the lessor, except in the event that the item which is repaired, altered, or
added, when it is removed, will not cause any loss or damage to the leased
property. The lessor agrees to allow the lessee to remove these items when the
lease agreement has ceased for whatever reason. The lessee is not allowed to
collect any costs of loss or damages, removal fees, or moving expenses from the
lessor.
10. The lessee must allow the lessor, the lessor's representative, or the
lessor's authorized employee to enter and examine the leased factory at times
and intervals as appropriate.
11. The lessee will not allow others who have no connection to the lessee's
work to use the leased factory, except in the event that the lessor has granted
written permission in advance.
12. The lessee will clean the leased factory daily and not allow it to
remain in a dirty or odoriferous condition, nor use it to store materials or
flammable or illegal items, nor do anything which is risky, frightening, or
dangerous to property or to nearby individuals.
13. The Lessee must pay factory and land taxes, local use taxes, customs
duties, fees, and other monies which the government, governmental agency, or
local agency collects, for the life of this agreement.
14. With the exception of an electric kettle or water pot, the lessee must
not under any circumstances cook or prepare food in the leased factory.
15. The lessee must insure the leased factory against disaster according to
the stipulations of, and in the amount determined by, the lessor's insurer in
writing. Such insurance must be held for the duration of this agreement, with
the lessee being responsible for the insurance expenses and the lessor being
named as the beneficiary according to the Department of Insurance regulations.
The lessor must take out such insurance and inform the Department of
Insurance, to further inform the lessor, within 45 days, counting from the date
that the agreement was signed.
16. The lessor agrees to allow the lessee to take out any insurance on the
lessee's own property which is within the vicinity of the leased factory.
However, the lessee cannot insure in excess of the dollar amount, or the value
of the property, which has been insured against disaster, and the lessee must
inform the lessor in writing before each instance of taking out insurance.
<PAGE> 6
Page 8
17. In the event of fire or other disaster in the leased factory, the
lessor and lessee agree to allow termination of the agreement, except in the
event that the lessor agrees in writing to allow the lessor [sic] to maintain
the right to continue to use the factory according to the agreement, Point 1.
18. If it appears after the fact that the information provided by the
lessee to the representative of the lessor in the lease request, or the
information which the lessee filled out in lease request form, is false, the
lessor has the right to immediately terminate the agreement.
19. In the event that the lessee behaves in a manner which goes against any
point of the agreement, the lessor has the right to terminate the agreement
immediately, and has the right to sue the lessee for full damages.
20. When the term of the lease has expired as noted in Point 1, or in the
event that the lease agreement is terminated for any reason whatsoever, the
lessee must remove the property and personnel from the leased factory, and
return the leased factory to the lessor in good condition within 15 days,
counting from the day that the lease agreement expired according to Point 1, or
the day that the lease agreement was terminated, and may not request any moving
expenses, nor any costs of loss or damages, from the lessor.
21. In the event that the lessee does not behave according to Point 19, the
lessee agrees to allow the lessor to impose a daily fine in the amount of 10,000
baht (ten thousand baht even) per day, until the lessee has completed every
requirement in compliance with the agreement.
22. When the lease agreement is terminated for any reason whatsoever, the
lessee agrees to allow the lessor or the lessor's representative to immediately
enter, take possession of, and lock up the leased factory, or do any other thing
in order that the lessee or the lessee's personnel cannot use or enter the
leased factory.
23. In the event that the lessee leases the factory until the expiration of
the agreement while behaving in accordance with the stipulations of the
agreement in every way, or the lease agreement is terminated for other reasons
and the lessee has returned the leased factory to the lessor without any loss or
damages, and the lessor has received possession of the leased factory,
[illegible], the lessee will not owe any future lease fees to the lessor
according to the agreement, Point 3(1).
24. When the lessor has made any announcement, or an announcement of the
termination of the lease agreement, in writing to the lessee at the lessee's
address as specified in this agreement, or at the leased facility, or has posted
a notice in an easily viewed location at the leased facility, it will be held
that the lessee has received that announcement.
25. The receipt of lease and/or utilities fees after the expiration of the
lease
<PAGE> 7
Page 9
period according to Point 1, or after the announcement of the termination of the
lease agreement, will be held to constitute a portion of the costs of damages
that the lessee agrees to pay to the lessor, and not as a sign of intent to
allow continued lease.
This agreement has been prepared in two identical copies. Both parties to
the agreement have read and understood the information contained in all points
of the agreement, and have affixed their signatures and seals (if any) herein in
the presence of a witness, and each have received a copy for safekeeping.
Signed [signed] Lessor
Mr. Thanya Hanphol
Under Director General (Business Affairs),
acting on the authority of the Director General
of the Industrial Estate Authority of Thailand
Signed [signed] Lessee
Mr. Quek Neo Kia
Committee Member
Signed [signed] Lessee
Mr. Phichai Duangthaweesap
Committee Member
Signed [signed] Witness
Mr. Chanwut Sujaritwongsanonta
Signed [signed] Witness
Mr. Prajit Liawchavalit
<PAGE> 8
Page 10
Translator's note: Passport page, Thai portion only.
[signed]
[illegible]
IMS International Manufacturing Services (Thailand), Ltd.
<PAGE> 9
Page 11
Translator's note: This page has been signed (illegibly) and sealed by
International Manufacturing Services (Thailand), Ltd.
National Identification Card No. 1006 04476 48 4 Code No. 01114667
Name: Mr. Phichai
Duangthaweesap
Date of Birth: August 23, 1960
[illegible]2536 [illegible]2542
[illegible]
[illegible]
[illegible]
Department of Administration, Ministry of the Interior
[signed]
<PAGE> 10
Page 12
This document certifies only the A true and complete certification
information which the company must contain the number [illegible]
has provided in order to [illegible] and seal and signature of the
the law. The veracity of this registrar.
information should not be
assumed.
No. CH 2679 Office of Corporate Registration
Bangkok
Certificate
This is to certify that the named company has registered as a limited
corporation according to the Civil and Commercial Code.
Registration No. 65/2538 Date: January 9, 1995 The following information
appears in the registration documents on the date of issuance of this
certificate:
1. Name of company: IMS International Manufacturing Services (Thailand), Ltd.
2. The board of the company comprises 6 members, as follows:
(1) Mrs. Metaya Warngtay (2) Mr. Robert Jillet Mailman
(3) Mr. Jean Biad Jee-ong (4) Mr. John Larry Smart
(5) Mr. Quek Neo Kia (6) Mr. Phichai Duangthaweesap
[signed]
[illegible]
IMS International Manufacturing Services (Thailand), Ltd.
3. The total number of, or the names of the board members who can [illegible]
the company are as follows:
"Mr. Robert Jillet Mailman has affixed his signature and the seal of the
company, or Mr. Quek Neo Kia has affixed his signature together with that of Mr.
Phichai Duangthaweesap, and affixed the seal of the company."
4. The registration fee has been fixed in the amount of two hundred eighty four
million baht.
5. The headquarters office is located at 719 Sii Phraya Road, Bang Rak
Subdistrict, Bang Rak District, Bangkok.
6. The company has 7 objectives, as appear in the copy of the documents attached
to
<PAGE> 11
Page 13
this certificate, which documents carry the signature of the registrar who
certified the documents and the seal of the Office of Corporate Registration.
Note: This company, at the time of its initial registration, was named "ISM
International Manufacturing Services, Ltd." It registered a change of name to
"IMS International Manufacturing Services (Thailand), Ltd." on February 7, 1995.
[seal]
February 7, 1995
Registrar
<PAGE> 12
Page 14
Translator's note: This document has been signed (illegibly) and sealed by
International Manufacturing Services (Thailand), Ltd.
Registration No. 65/2538 Form TK. 0401
Department of Commercial Registration
Certificate of Corporate Registration
This certificate is issued in order to show that
IMS International Manufacturing Services (Thailand), Ltd.
has registered as a corporation according to the Civil and Commercial Code
at the Company Registration Office, Bangkok
On January [illegible], 199[illegible]
Issued this 7th Day of February, 19[illegible]
[seal]
Registrar
Note: The original name as "IMS International Manufacturing Services, Ltd."
<PAGE> 13
Page 15
Translator's note: On this and the following chart, only those columns which
contain information have been translated. Both documents have been signed
(illegibly) and sealed by International Manufacturing Services (Thailand), Ltd.
<TABLE>
<S> <C> <C> <C> <C> <C>
Name of corporation: IMS International Manufacturing Services, Ltd.
Shareholders' meeting held: January [illegible], 1995
Shareholders: Thai 661 Price/share: 100
Alien 339
TOTAL 1,000
No. Name/Address Citizenship Occupation # Shares Price/ Registered
Held Share as share-
holder
13. Mr. Ruangyot Nasar Thai Attorney 1 100 1-5-95
173/7 Soi Wat Mai
Phiramthawee
Isaraphab Road
Wat Tha Phra Subdistrict
Bangkok Yai District
Bangkok
</TABLE>
I certify that this is an accurate report, in accordance with the
[illegible] registration of stockholders.
(Signed) Board Member
[signed]
[illegible]
IMS International Manufacturing Services, Limited
<PAGE> 14
Page 16
<TABLE>
<S> <C> <C> <C> <C> <C>
Name of corporation: IMS International Manufacturing Services, Ltd.
Shareholders' meeting held: January [illegible], 1995
Shareholders: Thai 661 Price/share: 100
Alien 339
TOTAL 1,000
No. Name/Address Citizenship Occupation # Shares Price/ Registered
Held Share as shareholder
8. Mr. Walter T. Omarat American Business- 1 100 1-5-95
12493 Green Meadow Ln. person
Saratoga, CA, 9307 [sic]
USA
9. Mr. Robert Mailman American Business- 1 100 1-5-95
14616 Golf Link Drive person
Los Gatos, CA 95030
USA
10. Mr. I.B. Jee-ong South Business- 1 100 1-5-95
20634 Nancy Court Korean person
Cupertino, CA 95014
USA
11. Mr. Nathan Kaway American Business- 1 100 1-5-95
4969 Borderland Court person
San Jose, CA, 93111
USA
12. Mr. J. Larry Smart American Business- 1 100 1-5-95
21245 Comer Drive person
Sarasota, CA, 95070
USA
13. Mr. [illegible] H. Stevens American Business- 1 100 1-5-95
30411 Multer Canyon Dr. person
Boulder, CO, 80302
USA
14. IMS International [illegible] Commerce 333 100 1-5-95
Manufacturing Services,
Limited
211 River Oaks Parkway
San Jose, CA, USA
</TABLE>
<PAGE> 15
Page 17
I certify that this is an accurate report, in accordance with the
[illegible] registration of stockholders.
[signed]
[illegible]
International Manufacturing Services, Ltd.
<PAGE> 16
Page 18
[Thai portion only]
Standard Factory Layout Plan Laem Chabang Industrial Park
Layout Plan for inclusion with Standard Factory Rental Agreement
Agreement No. 9/2538-NO
Issued: March 8, 1995
IMS International Manufacturing Services (Thailand), Ltd.
Standard Factory No. 17/3
Area: 1,500 square meters
<PAGE> 1
EXHIBIT 10.17
Page 3
No. OTO810.1 The Industrial Estate Authority of Thailand
618 Nikhom Makkasan Road, Bangkok, 10400
Re: Land use within the Laem Chabang Industrial Estate
To: The Board of Directors, IMS International Manufacturing Services (Thailand),
Ltd.
Enc.: 1. Certificate of Permission to Use Land for Industrial Purposes, user
ID no. NCh __________, certificate no. ___________, issued November 1,
1996.
2. Standard Factory Lease Agreement, no. __________-NCh, issued November
1, 1996.
Seeing as a Standard Factory Lease Agreement has been signed on November 1,
1996.
The Industrial Estate Authority of Thailand has sent this Certificate of
Permission to Use Land for Industrial Purposes, Standard Factory Lease
Agreement, and other announcements and orders relevant to the conduct of affairs
in the Industrial Estate, in order to be kept as evidence, and for future use.
In this matter, the Industrial Estate Authority of Thailand wishes to inform
that the construction of buildings and the carrying out of industrial activities
within the Industrial Estate should be conducted according to the laws governing
factories, the laws governing buildings, the laws governing urban planning, and
the laws governing the Industrial Estate Authority of Thailand. However, this
agreement represents the lawful authority and responsibilities of the Director,
or the individual acting on the authority of the Director. If you have any
questions regarding this matter, please contact directly the Permits Division,
rights and Use Section, the Industrial Estate Authority of Thailand, Makkasan
Road, Ratchathewi District, Bangkok, or contact the office of the Laem Chabang
Industrial Estate.
This matter is presented for your information.
Respectfully,
[signed]
Mr. Thanya Hanphol
Under Director General (Business
Affairs), acting in stead of [illegible]
the Industrial Estate Authority of
Thailand
Rights and Use Section
Permits Division
Tel: 253-0561, ext. 402
Fax: 253-4086
<PAGE> 2
Page 4
Form GNO 02
Certificate of Permission to Use Land for Industrial Purposes
District Industry for Export Industrial Estate: Laem Chabang
User No. NCh. __________
No. __________
The Industrial Estate Authority of Thailand, by the power vested in it by
the Royal Edict regarding Industrial Estates, Year 19[illegible], gives
permission to
IMS International Manufacturing Services (Thailand), Ltd.,
registered as a limited partnership, registration no. 65/2538, on November 1,
1996, with an office at 719 Sii Phraya Road, Bang Rak Subdistrict, Bang Rak
District, Bangkok, to use land for the following activities: the manufacture of
electronic items in factory type 72, in the district Industry for Export
Industrial Estate: Laem Chabang,
Land and Building Plan: Standard Factory plan 17/3 Area: 2.5 rai, with the
following stipulations:
1. Must operate according to Standard Factory Lease Agreement no.
__________-NCh, issued on November 1, 1996.
2. Those who use land for industrial purposes within the Industry for Export
district must produce for export in accordance with the regulations
pertaining to standards, methods, and stipulations as announced by the
Industrial Estate Authority of Thailand.
Issued November 1, 1996
Signed: [illegible]
[illegible]
<PAGE> 3
Page 5
Translator's note: Each page of this agreement is signed (illegibly) and sealed
by International Manufacturing Services (Thailand), Ltd.
Agreement No. __________-NCh.
Standard Factory Lease Agreement
This agreement is made at the Industrial Estate Authority of Thailand, 616
Makkasan Road, Makkasan Subdistrict, Ratchathewi District, Bangkok, on November
1, 1996, between the Industrial Estate Authority of Thailand in the person of
Mr. Thanya Hanphol, Under Director General (Business Affairs), acting on the
authority of the Director General of the Industrial Estate Authority of
Thailand, hereinafter called the "Lessor," and IMS International Manufacturing
Services (Thailand), Ltd, in the persons of Mr. Quek Neo Kia and Mr. Phichai
Duangthaweesap, individuals with the authority to act in legal stead of IMS
International Manufacturing Services (Thailand), Ltd., which was incorporated at
the Office of Corporate Registration, Bangkok, Registration No. 65/2538, on
March 9, 1995, with an office at 719 Sii Phraya Road, Bang Rak Subdistrict, Bang
Rak District, Bangkok, hereinafter known as the "lessee." Both parties agree to
enter into an agreement as follows:
1. The lessor agrees to give to lease, and the lessee agrees to lease, a
Standard Factory No. 17/3 in the Laem Chabang Industrial Estate, which factory
has an area of 1,500 square meters, as per the plan which is attached to this
agreement and held to be a part of this agreement. Furthermore, the lessor
agrees to provide utilities for the production of electronic items. This lease
has a term of 18 months, beginning on November 1, 1996 and continuing until
April 3, 1998.
2. The lessee must pay lease fees to the lessor on a monthly basis in the
amount of 300,000 baht (three hundred thousand baht even), as well as pay a
utilities fee according to the rates and standards as announced by the
Industrial Estate Authority.
3. The lessee has paid to the lessor, on the date of this agreement, the
following:
(1) A payment of 600,000 baht (six hundred thousand baht even) to the
lessor as a deposit against any loss or damages which may occur to the leased
property, or to the lessor. In the event that the lessee is in debt to the
lessor in any amount the lessee agrees to allow the lessor to deduct this amount
from the deposit. In the event of loss or damage in excess of the amount of the
deposit, the lessee must pay the entire difference to the lessor.
(2) A payment of 327,844 baht (three hundred twenty seven thousand,
eight hundred forty four baht) as lease fee.
(3) A payment of __________ baht (_____________ baht even) as utilities
fee from __________, 1996 to __________, 1998.
<PAGE> 4
Page 6
With respect to the lease and utilities fees for following months, the
lessee agrees to pay one month in advance, by the 5th day of each month, at the
office of the lessor, on government working days and during government working
hours. In the event that the lessee is one month behind in payments of lease or
utilities fees, the lessor has the right to terminate the agreement immediately.
In the event that the lessee pays the lease or utilities fees more tardy
than established in Point 3, Section 2, the lessee agrees to allow the lessor to
fine the lessee at the rate of 1.5 percent of the outstanding lease or utilities
fees per month, until the lessee has paid the lease or utilities fees in full.
The parties to this agreement agree that, in the event that the lessor
wishes to change the location at which the lease or utilities fees are to be
paid, the lessor is allowed to do so by announcing such intentions to the lessee
in writing.
4. The lessee agrees that the lessor will not be held responsible for any
loss or damages which result to the property of the lessee within the factory,
the car garage, or the grounds of the leased factory.
5. The lessee must use the leased factory only for the production of
electronic items. The lessee cannot use the facilities for any other activities
except the production of electronic items, and no activities are to be conducted
which are in violation of the law, or constitute a disturbance of the peace, or
violate the ethics of the populace, nor for any action which is noisy to the
extent of constituting an annoyance to the neighbors.
6. The lessee must not use, or allow others to use, the leased factory as a
place to post bills or advertisements, except in the event that written
permission has been received from the lessor in advance.
7. The lessee agrees to pay the lessor for any and all loss and damages
incurred by the lessee, or the lessee's employees, representatives, or other
staff, or a person who enters [illegible], regardless of the circumstances.
8. The lessee must maintain the condition of the leased factory-for
example, take care that the lessee's own property is not in less than its
original condition. In the event that any item is not in good condition, or is
damaged in any way, the lessee must arrange for the immediate repair and
restoration of that item to its original condition, with the lessee bearing sole
responsibility for any expenses incurred, except in the event that such poor
condition or damage arises from normal use.
In the event that the lessee does not carry out the repair as per the first
part, the lessor makes it known [illegible] that the lessor has the right to
arrange for such repairs while holding the lessee responsible for any and all
expenses.
9. In every instance of repair or alteration, or the addition of anything
to the leased factory, the lessee must receive the approval of the lessor in
writing. After such
<PAGE> 5
Page 7
approval has been obtained, the repair, alteration, or addition to the factory
must be conducted only according to the permission granted by the lessor, and
must be carried out in compliance with the law.
That which is repaired, altered, or added, including any materials or other
items which are brought into the leased factory, immediately become the property
of the lessor, except in the event that the item which is repaired, altered, or
added, when it is removed, will not cause any loss or damage to the leased
property. The lessor agrees to allow the lessee to remove these items when the
lease agreement has ceased for whatever reason. The lessee is not allowed to
collect any costs of loss or damages, removal fees, or moving expenses from the
lessor.
10. The lessee must allow the lessor, the lessor's representative, or the
lessor's authorized employee to enter and examine the leased factory at times
and intervals as appropriate.
11. The lessee will not allow others who have no connection to the lessee's
work to use the leased factory, except in the event that the lessor has granted
written permission in advance.
12. The lessee will clean the leased factory daily and not allow it to
remain in a dirty or odoriferous condition, nor use it to store materials or
flammable or illegal items, nor do anything which is risky, frightening, or
dangerous to property or to nearby individuals.
13. The Lessee must pay factory and land taxes, local use taxes, customs
duties, fees, and other monies which the government, governmental agency, or
local agency collects, for the life of this agreement.
14. With the exception of an electric kettle or water pot, the lessee must
not under any circumstances cook or prepare food in the leased factory.
15. The lessee must insure the leased factory against disaster according to
the stipulations of, and in the amount determined by, the lessor's insurer in
writing. Such insurance must be held for the duration of this agreement, with
the lessee being responsible for the insurance expenses and the lessor being
named as the beneficiary according to the Department of Insurance regulations.
The lessor must take out such insurance and inform the Department of
Insurance, to further inform the lessor, within 45 days, counting from the date
that the agreement was signed.
16. The lessor agrees to allow the lessee to take out any insurance on the
lessee's own property which is within the vicinity of the leased factory.
However, the lessee cannot insure in excess of the dollar amount, or the value
of the property, which has been insured against disaster, and the lessee must
inform the lessor in writing before each instance of taking out insurance.
<PAGE> 6
Page 8
17. In the event of fire or other disaster in the leased factory, the lessor
and lessee agree to allow termination of the agreement, except in the event that
the lessor agrees in writing to allow the lessor [sic] to maintain the right to
continue to use the factory according to the agreement, Point 1.
18. If it appears after the fact that the information provided by the lessee
to the representative of the lessor in the lease request, or the information
which the lessee filled out in lease request form, is false, the lessor has the
right to immediately terminate the agreement.
19. In the event that the lessee behaves in a manner which goes against any
point of the agreement, the lessor has the right to terminate the agreement
immediately, and has the right to sue the lessee for full damages.
20. When the term of the lease has expired as noted in Point 1, or in the
event that the lease agreement is terminated for any reason whatsoever, the
lessee must remove the property and personnel from the leased factory, and
return the leased factory to the lessor in good condition within 15 days,
counting from the day that the lease agreement expired according to Point 1, or
the day that the lease agreement was terminated, and may not request any moving
expenses, nor any costs of loss or damages, from the lessor.
21. In the event that the lessee does not behave according to Point 19, the
lessee agrees to allow the lessor to impose a daily fine in the amount of 10,000
baht (ten thousand baht even) per day, until the lessee has completed every
requirement in compliance with the agreement.
22. When the lease agreement is terminated for any reason whatsoever, the
lessee agrees to allow the lessor or the lessor's representative to immediately
enter, take possession of, and lock up the leased factory, or do any other thing
in order that the lessee or the lessee's personnel cannot use or enter the
leased factory.
23. In the event that the lessee leases the factory until the expiration of
the agreement while behaving in accordance with the stipulations of the
agreement in every way, or the lease agreement is terminated for other reasons
and the lessee has returned the leased factory to the lessor without any loss or
damages, and the lessor has received possession of the leased factory,
[illegible], the lessee will not owe any future lease fees to the lessor
according to the agreement, Point 3(1).
24. When the lessor has made any announcement, or an announcement of the
termination of the lease agreement, in writing to the lessee at the lessee's
address as specified in this agreement, or at the leased facility, or has posted
a notice in an easily viewed location at the leased facility, it will be held
that the lessee has received that announcement.
25. The receipt of lease and/or utilities fees after the expiration of the
lease
<PAGE> 7
Page 9
period according to Point 1, or after the announcement of the termination of the
lease agreement, will be held to constitute a portion of the costs of damages
that the lessee agrees to pay to the lessor, and not as a sign of intent to
allow continued lease.
This agreement has been prepared in two identical copies. Both parties to
the agreement have read and understood the information contained in all points
of the agreement, and have affixed their signatures and seals (if any) herein in
the presence of a witness, and each have received a copy for safekeeping.
Signed [signed] Lessor
Mr. Thanya Hanphol
Under Director General (Business
Affairs), acting on the authority of the
Director General of the Industrial Estate
Authority of Thailand
Signed [signed] Lessee
Mr. Quek Neo Kia
Committee Member
Signed [signed] Lessee
Mr. Phichai Duangthaweesap
Committee Member
Signed [signed] Witness
Mr. Chanwut Sujaritwongsanonta
Signed [signed] Witness
Mr. Prajit Liawchavalit
<PAGE> 8
Page 10
Translator's note: Passport page, Thai portion only.
[signed]
[illegible]
IMS International Manufacturing Services (Thailand), Ltd.
<PAGE> 9
Page 11
Translator's note: This page has been signed (illegibly) and sealed by
International Manufacturing Services (Thailand), Ltd.
National Identification Card No. 1006 04476 48 4 Code No. 01114667
Name: Mr. Phichai
Duangthaweesap
Date of Birth: August 23, 1960
[illegible]2536 [illegible]2542
[illegible]
[illegible]
[illegible]
Department of Administration, Ministry of
the Interior
[signed]
<PAGE> 10
Page 12
This document certifies only the A true and complete certification
information which the company must contain the number [illegible]
has provided in order to [illegible] and seal and signature of the
the law. The veracity of this registrar.
information should not be
assumed.
No. CH 2679 Office of Corporate Registration
Bangkok
Certificate
This is to certify that the named company has registered as a limited
corporation according to the Civil and Commercial Code.
Registration No. 65/2538 Date: January 9, 1995 The following information
appears in the registration documents on the date of issuance of this
certificate:
1. Name of company: IMS International Manufacturing Services (Thailand), Ltd.
2. The board of the company comprises 6 members, as follows:
(1) Mrs. Metaya Warngtay (2) Mr. Robert Jillet Mailman
(3) Mr. Jean Biad Jee-ong (4) Mr. John Larry Smart
(5) Mr. Quek Neo Kia (6) Mr. Phichai Duangthaweesap
[signed]
[illegible]
IMS International Manufacturing Services (Thailand), Ltd.
3. The total number of, or the names of the board members who can [illegible]
the company are as follows:
"Mr. Robert Jillet Mailman has affixed his signature and the seal of the
company, or Mr. Quek Neo Kia has affixed his signature together with that of Mr.
Phichai Duangthaweesap, and affixed the seal of the company."
4. The registration fee has been fixed in the amount of two hundred eighty four
million baht.
5. The headquarters office is located at 719 Sii Phraya Road, Bang Rak
Subdistrict, Bang Rak District, Bangkok.
6. The company has 7 objectives, as appear in the copy of the documents
attached to
<PAGE> 11
Page 13
this certificate, which documents carry the signature of the registrar who
certified the documents and the seal of the Office of Corporate Registration.
Note: This company, at the time of its initial registration, was named "ISM
International Manufacturing Services, Ltd." It registered a change of name to
"IMS International Manufacturing Services (Thailand), Ltd." on February 7, 1995.
[seal]
February 7, 1995
Registrar
<PAGE> 12
Page 14
Translator's note: This document has been signed (illegibly) and sealed by
International Manufacturing Services (Thailand), Ltd.
Registration No. 65/2538 Form TK. 0401
Department of Commercial Registration
Certificate of Corporate Registration
This certificate is issued in order to show that
IMS International Manufacturing Services (Thailand), Ltd.
has registered as a corporation according to the Civil and Commercial Code
at the Company Registration Office, Bangkok
On January [illegible], 199[illegible]
Issued this 7th Day of February, 19[illegible]
[seal]
Registrar
Note: The original name as "IMS International Manufacturing Services, Ltd."
<PAGE> 13
Page 15
Translator's note: On this and the following chart, only those columns which
contain information have been translated. Both documents have been signed
(illegibly) and sealed by International Manufacturing Services (Thailand), Ltd.
Name of corporation: IMS International Manufacturing Services, Ltd.
Shareholders' meeting held: January [illegible], 1995
Shareholders: Thai 661 Price/share: 100
Alien 339
TOTAL 1,000
<TABLE>
<CAPTION>
No. Name/Address Citizenship Occupation # Shares Price/ Registered
Held Share as share-
holder
<S> <C> <C> <C> <C> <C>
13. Mr. Ruangyot Nasar Thai Attorney 1 100 1-5-95
173/7 Soi Wat Mai
Phiramthawee
Isaraphab Road
Wat Tha Phra Subdistrict
Bangkok Yai District
Bangkok
</TABLE>
Page 3 of 3 I certify that this is an accurate report, in accordance with
the [illegible] registration of stockholders.
(Signed) Board Member
[signed]
[illegible]
IMS International Manufacturing Services, Limited
<PAGE> 14
Page 16
Name of corporation: IMS International Manufacturing Services, Ltd.
Shareholders' meeting held: January [illegible], 1995
Shareholders: Thai 661 Price/share: 100
Alien 339
TOTAL 1,000
<TABLE>
<CAPTION>
No. Name/Address Citizenship Occupation # Shares Price/ Registered
Held Share as share-
holder
<S> <C> <C> <C> <C> <C> <C>
8. Mr. Walter T. Omarat American Business- 1 100 1-5-95
12493 Green Meadow Ln. person
Saratoga, CA, 9307 [sic]
USA
9. Mr. Robert Mailman American Business- 1 100 1-5-95
14616 Golf Link Drive person
Los Gatos, CA 95030
USA
10. Mr. I.B. Jee-ong South Business- 1 100 1-5-95
20634 Nancy Court Korean person
Cupertino, CA 95014
USA
11. Mr. Nathan Kaway American Business- 1 100 1-5-95
4969 Borderland Court person
San Jose, CA, 93111
USA
12. Mr. J. Larry Smart American Business- 1 100 1-5-95
21245 Comer Drive person
Sarasota, CA, 95070
USA
13. Mr. [illegible] H. Stevens American Business- 1 100 1-5-95
30411 Multer Canyon Dr. person
Boulder, CO, 80302
USA
14. IMS International [illegible] Commerce 333 100 1-5-95
Manufacturing Services,
Limited
211 River Oaks Parkway
San Jose, CA, USA
</TABLE>
<PAGE> 15
Page 17
Page 3 of 3 I certify that this is an accurate report, in accordance with
the [illegible] registration of stockholders.
[signed]
[illegible]
International Manufacturing Services, Ltd.
<PAGE> 16
Page 18
[Thai portion only]
Standard Factory Layout Plan Laem Chabang Industrial Park
Layout Plan for inclusion with Standard Factory Rental Agreement
Agreement No. 9/2538-NO
Issued: March 8, 1995
IMS International Manufacturing Services (Thailand), Ltd.
Standard Factory No. 17/3
Area: 1,500 square meters
<PAGE> 1
EXHIBIT 10.19
Dated the 9th day of July 1996
BARINET COMPANY LIMITED
and
IMS INTERNATIONAL MANUFACTURING
SERVICES (H.K.) LIMITED
*********************************************
LEASE
of
ALL THOSE Third Floor and Flat Roof appertenant thereto,
Fourth Floor, Fifth Floor, Portion of Roof and Eight Car
Parking Spaces on Ground Floor of Asia Trade Centre,
19 Sze Shan Street, Yau Tong Bay, Kowloon.
*********************************************
REGISTERED in the Land Registry by
Memorial No.
on
REGISTERED in the Land Registry
by Memorial No. 7104804 p. Land Registrar.
on 11 June 1997
for Land Registrar
DESMOND WONG & CO.
SOLICITORS
Room 1206, 12th Floor
ASIA STANDARD TOWER
59-65 QUEEN'S ROAD CENTRAL
HONG KONG
Tel : 2522 6330
Fax : 2869 6173
Ref : DW/CN/538/96
<PAGE> 2
THIS LEASE made the 9th day of July one thousand nine hundred and ninety-six
B E T W E E N
(1) BARINET COMPANY LIMITED whose registered office is situate at 30th Floor,
Asia Orient Tower, Town Place, No. 33 Lockhart Road, Wanchai, Hong Kong
(hereinafter called the Landlord"); and
(2) IMS INTERNATIONAL MANUFACTURING SERVICES (H.K.) LIMITED (formerly known as
MAXTOR (HONG KONG) LIMITED) whose registered office is situated at 5th
Floor, Asia Trade Centre, 19 Sze Shan Street, Yau Tong Bay, Kowloon, Hong
Kong (hereinafter called "the Tenant"),
WHEREBY IT IS AGREED as follows:-
l. In consideration of the rents and the Tenant's covenants hereinafter
reserved and contained the Landlord HEREBY DEMISES to the Tenant ALL THOSE
premises more particularly described in the First Schedule hereto
(hereinafter called "the Premises") TO HOLD the same onto the Tenant for
the term specified in the Second Schedule hereto (hereinafter called "the
term") determinable as hereinafter provided YIELDING AND PAYING therefor
the rent set out in the Third Schedule hereto (hereinafter called "the
Rent"),
2. THE TENANT HEREBY COVENANTS WITH THE LANDLORD as follows:-
Outgoings
(1)
(a) To pay the Rent reserved hereby and any increase therein
in Hong Kong currency in the manner stipulated in the Third
schedule hereto and by autopay if demanded without any deduction
therefrom;
<PAGE> 3
(b) To pay rates charged on the Premises as assessed by the
Government.
(c) To pay and discharge all deposits and charges in respect of gas,
water, electricity and telephones as may be shown by the separate
meter or meters installed in the Premises or by accounts rendered
to the Tenant;
(d) To produce to the Landlord within a reasonable time on written
demand made by the Landlord receipts for rates gas water
telephone electricity charges paid by the Tenant;
(e) To pay to the Landlord (without prejudice to any other right or
remedy of the Landlord hereunder) on demand interest at the rate
of 4% per annum over the rate of 4% per annum over the rate from
time to time quoted by The Hongkong and Shanghai Banking
Corporation Limited as its prime or best lending rate for Hong
Kong Dollars in Hong Kong such interest to be calculated on a
daily basis in respect of any payment not paid on the due date
from the date upon which such payment ought to have been paid to
the actual date at payment. Landlord's Expenses (2) To pay on
written demand made by the Landlord all reasonable costs and
expenses (including without limitation thereof Solicitors' costs,
Surveyors', Architects, and Engineers' fee and bailiffs' costs)
properly incurred by the Landlord :(a) incidental to the
preparation and service of any notice under Section 58 of the
Conveyancing and Property ordinance or incurred in or in
contemplation of
-2-
<PAGE> 4
proceedings hereunder or thereunder save and except in
circumstances where forfeiture is avoided otherwise than by
relief granted by the court;
(b) resulting from all applications by the Tenant for any consent or
approval of the Landlord required by this Lease whether or not
the application is granted together with any stamp duties on any
licences and duplicates in connection therewith.
Compliance with Ordinances
(3) To obey and comply with and to indemnify the Landlord against the
breach of all ordinances, regulations, by-laws, rules and requirements
of any Governmental or other competent authority relating to the use
and occupation of the Premises and without prejudice to the generality
of the foregoing to obtain any licence approval or permit required by
any Governmental or other competent authority in connection with the
Tenant's use or occupation of the Premises prior to the commencement
of the Tenant's business and to maintain the same in force during the
currency of this tenancy and to indemnify the Landlord against the
consequences of a breach of this provision.
Repair
(4) Save and except as provided by Clause 3(3) below at all times during
the Term to keep the interior of the Premises and every part thereof
including without prejudice to the generality of the foregoing the
interior of the walls ceilings and floors, the windows, internal and
external window frames and doors thereof and the Landlord's fixtures
fittings and installations in the Premises in good and tenantable
repair and
-3-
<PAGE> 5
condition (fair wear and tear damage caused by structural latent or
inherent defects excepted) and in whole or in part to renew the same
as necessary and to paint the exterior of the Premises as and when the
Tenant considers reasonable and if the Tenant is the tenant of any
roof of the Building to carry out routine maintenance to such roof but
not major or structural repairs or repairs caused by inherent or
latent defects.
Repair of Electrical Installations
(5) At all times during the term to repair or replace any electrical
installation or wiring installed by the Tenant if the same becomes
dangerous or unsafe or if so reasonably required by the Landlord or by
the relevant utility company and in so doing the Tenant shall use only
a contractor approved by the Landlord in writing for the purpose (such
approval not to be unreasonably withheld or delayed). The Tenant shall
have the right to increase the electrical loading at the Premises and
for this purpose will have the right to build an additional
transformer room in the Premises subject to compliance with all
regulations and requirements of the relevant utility company in
connection therewith for this purpose the Tenant will use only a
contractor approved by the Landlord as aforesaid. The Tenant shall
permit the Landlord or its agent to test the Tenant's wiring in the
Premises at any time upon request being made. The Tenant shall
indemnify the Landlord and hold it harmless against any cost claim
damage or proceedings resulting from or attributable to any
malfunction or disrepair of the electrical installation or apparatus
installed by the Tenant in the Premises.
-4-
<PAGE> 6
Drains and Sewage
(6) Not to allow to pass into the sewers drains or watercourses serving
the Building any noxious or deleterious effluent or other substance
which may cause an obstruction in or injury the said sewers drains or
watercourses and in the event of such obstruction or injury if
required by the Landlord at the Tenant's cost forthwith to remove such
obstruction and to make good all damage to the satisfaction of the
Landlord and if the Tenant shall refuse to remove such obstruction and
make good any damage, the Landlord shall have the right to perform the
matters aforesaid and claim all costs, expenses and damages properly
incurred or sustained by the Landlord from the Tenant.
Landlord's Access
(7)
(a) To permit the Landlord and its agents upon prior appointment
(except in case of emergency) with all necessary workmen
materials and appliances at all reasonable times during normal
business hours (or at any time in case of emergency) to enter
upon and examine the condition of the Premises and thereupon the
Landlord may serve upon the Tenant a notice in writing specifying
any defect decay redecoration or want or reparation which is the
responsibility of the Tenant hereunder to be remedied and require
the Tenant promptly after service of such notice commence and
thereafter proceed diligently with the execution of which repairs
and redecoration then to permit the Landlord with all necessary
workmen materials and appliances to enter
-5-
<PAGE> 7
upon the Premises and execute such repairs and redecoration and
the cost thereof (which expression shall include without
limitation all necessary and reasonable legal costs and
Surveyors' fees and other reasonable expenditure whatsoever
attendant thereon) shall be paid by the Tenant to the Landlord on
demand and be recoverable as a debt;
(b) To permit the Landlord upon prior appointment (save that no such
notice shall be required in the case of any emergency) and its
agents and other persons authorized by them with all necessary
workmen materials and appliances at all reasonable time during
normal business hours (or at any time in case of emergency) to
enter upon the Premises to execute repairs on any part of the
Building or the fixtures fittings or appliances therein which is
the responsibility of the Landlord hereunder and for the purpose
of executing the same to erect scaffolding or to place ladders
upon the Premises or any part thereof causing as little
inconvenience and physical damage as practicable and all such
damage thereby occasioned to the Premises being made good by the
Landlord.
Restriction on Alterations
(8)
(a) Not without the prior written consent of the Landlord (such
consent not to be unreasonably withheld or delayed) and the
approval of all relevant Governmental authorities if necessary to
build or erected any building on the Premises or on any part
thereof and not without such consent as aforesaid to
-6-
<PAGE> 8
make or to permit or suffer to be made any addition or alteration
to the Premises or to any part thereof or to any fixtures and
fittings therein of any nature whatsoever whether structural or
non-structural and at the request of the Landlord forthwith to
demolish and remove any building addition or alteration built
erected or made in breach of the foregoing covenant and to
restore the Premises and the fixtures and fittings thereof to
their previous condition to the satisfaction of the Landlord;
(b) Not without the prior written consent of the Landlord (such
consent not to be unreasonably withheld or delayed) and the
approval of all relevant Government authorities if necessary to
alter or permit or suffer to be altered any main electricity
cable gas or water pipe or drain or heating apparatus not cut
maim or injure or permit or suffer to be cut maimed or injured
any of the walls or floors of the Premises or any part of the
main structure of the Building or other structural members
thereof nor attach anything to any structural wall of the
Premises;
(c) If notwithstanding the foregoing terms and provisions the
Landlord shall at its sole discretion decide to permit the Tenant
to make any addition or alteration to the Premises or the
fixtures and fittings and the Tenant shall carry out such works
then at the expiration or sooner determination of the term the
Tenant will if required by the Landlord at the Tenant's own cost
reinstate and make good to the satisfaction of the Landlord the
Premises and the fixtures and fittings and restore the same as if
such addition or alteration (or such of them
-7-
<PAGE> 9
as may be specified by the Landlord) had not been made and to pay
the reasonable expenses properly incurred by the Landlord
incidental to the superintendence of such reinstatement and
making good as well as for all reasonable costs expenses and
losses incurred by the Landlord due to the failure of the Tenant
to comply with this provision.
Alienation
(9) Not to assign underlet mortgage charge or part with possession of or
transfer the Premises or any part thereof or any interest therein nor
permit or suffer any arrangement or transaction whereby any person who
is not a party to this Lease obtains the use or possession of the
Premises or any part thereof regardless of whether any rental or other
consideration is given provided that the Tenant shall have the right
with the consent of the Landlord (such consent not to be unreasonably
withheld or delayed) to license or part with possession of the
Premises or part thereof to its associated companies or subsidiary
companies or to sublet the whole or any part or parts of the Premises
provided further that if the rent actually received from any sub-
tenant in respect of the Premises or any part thereof exceeds the rent
payable by the Tenant in respect of that part the Tenant shall pay to
the Landlord the amount of such excess less all costs and expenses
incurred by the Tenant in connection with the subletting or in
connection with enforcing the terms of any sub-tenancy agreement
against any sub-tenant.
-8-
<PAGE> 10
Notice
(10) As soon as practicable on receipt of notice (whether by advertisement
or otherwise) to give full particulars to the Landlord of any
permission notice order claim or proposal for a notice order or claim
made given or issued by Government affecting the Premises and if so
issued by Government affecting the Premises and if so required by the
Landlord to produce such permission notice order claim or proposal for
a notice order or claim to the Landlord.
Use of the Premises
(11)
(a) Not to use or permit or suffer to be used the Premises or any
part thereof for any illegal or immoral purpose or for any
dangerous noxious noisy or offensive trade business or purpose
whatsoever;
(b) To use the Premises for such purposes as set out in the
Occupation Permit relating to the Premises and in the Crown Grant
document under which the Premises are held fro the Crown provided
that the Tenant shall have the right, with the consent of the
Landlord (such consent not to be unreasonably withheld) to apply
to the relevant government authorities for permission to change
the use or uses of the Premises and the Tenant shall pay all
costs and expenses incidental to such application and to carry
out and perform all conditions imposed by the relevant government
authorities on the grant of such change of user of the Premises
or parts thereof;
-9-
<PAGE> 11
(c) To obtain and renew all necessary consents required by law
relating to the use of the Premises and not to breach the terms
of such consents and to fully indemnify the Landlord for any
failure of the Tenant to use the Premises for the permitted
purposes and/or the breach by the Tenant of any terms of the
Crown Grant and/or Occupation Permit and/or waiver or other
modification letter(s) relating to the Premises.
Access
(12) Not to do any act or thing whereby any entrance or exit of the
Building or any of the common parts thereof which the Tenant is
authorized to use may be impeded or hindered in any way whatsoever.
Floor Loading
(13) Not to do or bring or permit to be done or brought in or upon the
Premises anything which may put on the Premises any weight stress or
strain in excess to that which the same are designed to bear.
Nuisance
(14) Not to do or permit to suffer anything in or upon the premises or
any part thereof or on any Property over which the Tenant exercises
rights which may be or become a nuisance or annoyance to the Landlord
or the tenants owners or occupiers of other premises in the Building.
-10-
<PAGE> 12
Landlord's Insurance
(15)
(a) Not to do or allow to be alone anything whereby any insurance for
the time being effected in respect of the Premises or the
Building (including without prejudice to the generality of the
foregoing insurance against loss of rent in respect of the
Premises) or any part thereof may, be rendered void or voidable
or be in anyway affected nor do or allow to be done anything
whereby any additional premium may become payable for any
insurance in respect of the Premises or the Building and to
comply with all reasonable recommendations of the insurers as to
fire precautions relating to the Premises and to repay to the
Landlord on demand all reasonable sums paid by the Landlord by
way of increased premium or premia and all reasonable expenses
incurred by the Landlord in and about any renewal of such policy
or policies arising from or rendered necessary by a breach of
this sub-clause;
(b) In the event of the Premises or any part thereof being destroyed
or damaged to give notice in writing thereof to the Landlord
forthwith on the happening of such event.
Storage
(16) Not to bring keep store or suffer to be brought, kept or stored in or
upon the Premises or any part thereof any petrol or petroleum products
or any other dangerous explosive or inflammable substances whatsoever
without the appropriate consents from the relevant authorities
provided that the Tenant shall be entitled to store such products or
-11-
<PAGE> 13
substances in such quantities as are permitted by the relevant
authorities and subject to any conditions imposed by the relevant
authorities (if any).
Signs and Placards
(17) Not to erect name signs at the entrance to or on the exterior of the
Premises or on the roof of the Building nor to affix place or exhibit
or permit or suffer to be affixed placed or exhibited to or upon the
exterior of the Premises or to or through any windows thereof or to
any part of the Building without all necessary consents from the
Government.
Landlord's signs
(18) To permit the Landlord at any time during the last three (3) months of
the term to affix and retain without interference upon any part of the
Premises a notice for reletting the Premises provided that the sign
does not interfere with the Tenant's own sign or its business and to
allow the Landlord during the last three (3) months of the term to
show the Premises to prospective purchasers or tenants upon prior
appointment with the Tenant and causing as little inconvenience as
possible to the Tenant.
Delivery-up
(19) At the determination of the term at the Landlord's indiscretion either
to remove all fixtures and fittings installed by and on behalf of the
Tenant in the Premises and to make good all damage caused by their
removal and to yield up the same or (provided the Landlord agreed such
agreement not to be unreasonably withheld or delayed) to yield up the
Premises with all fixtures and fittings which have been affixed to the
-12-
<PAGE> 14
Premises by or on behalf of the Tenant and which have become part of
the Premises with vacant possession and in accordance with the
agreements terms and provisions of this Lease.
Crown Lease
(20) Not to breach the terms of the Crown Lease relating to the Building
and to indemnify the Landlord against any breach of the term of this
Clause.
3. LANDLORD'S AGREEMENTS
The Landlord HEREBY AGREES with the Tenant as follows:
Quiet Enjoyment
(1) That the Tenant paying the Rent hereby reserved and performing and
observing the several covenants on the part of the Tenant herein
contained shall and may peaceably and quietly hold and enjoy the
Premises during the term without any interruption by the Landlord or
any person rightfully claiming through under or in trust for the
Landlord.
Crown Rent and Property Tax
(2) To pay the Crown Rent and Property Tax in respect of the Premises.
Maintenance
(3) To put and keep the exterior of the Building the roof (save and except
as referred to in Clause 2(4)), foundations, main structure and main
drains pipes cables and services pipes cables and services thereof and
the lifts the air-conditioning system the common parts and common
services and facilities thereof in good and substantial repair and
-13-
<PAGE> 15
condition and maintain the same save and except where any damage is
caused by the act or neglect of the Tenant unless the same is covered
by the Landlord's insurance Provided that in the event that the
Landlord sells a portion of the Building and enters into a Deed of
Mutual Covenant under which the exterior root foundations and main
structure of the Building and main drains pipes cables and services
thereof and the common parts and common services and facilities
thereof are maintained and repaired than the Landlord's obligations in
relation to the repair of any of the items referred to in this Clause
then the Landlord's liability hereunder shall be reduced accordingly.
(4) In the event that the Landlord shall take up management of the
Building in accordance with Clause 4 (10) hereof.
(a) To provide put in repair and maintain adequate means of access to
and egress from the Premises (to the satisfaction of the Tenant)
with or without appliances and workman together with the use of
such passenger and cargo lifts, escalators, driveways, ramps,
entrances, loading and unloading bays, staircases, landings and
corridors, lift lobbies and common parts and facilitates in the
Building as may be necessary for the Tenant's business in and use
and enjoyment of the Premises.
(b) The Landlord agrees to ensure that the tenants licensees or
occupiers of other part(s) of the Building will not interfere
with or hinder the rights of the Tenant hereunder or the carrying
out of the Tenant's business in the Premises or the enjoyment
and/or use of the Premises under this Agreement and the Landlord
agrees to take such action as may be necessary against such other
tenants
-14-
<PAGE> 16
licensees or occupiers and to incorporate such duties conditions
and obligations in the tenancy agreements or licenses to be
entered into with other tenants licensees or occupiers so as to
ensure the Tenant will continue to enjoy the use of the Premises
and the rights and protection provided by this Agreement.
(c) To provide such management services for the Building as are
consistent with the running of an industrial building of similar
quality in the vicinity including, but without limitation to the
foregoing, the repair and maintenance of all the access ways,
driveways, ramps, the common parts, common services and
facilities of the building and the disposal of refuse and rubbish
from the Building.
(d) To maintain adequate ventilation and lighting for the common
parts and areas of the Building.
(e) To provide a caretaker throughout the day and night and to lock
up the Building in accordance with the House Rules prevailing in
force from time to time of the Building. During such times as the
Building is being locked up as aforesaid, persons or vehicles
entering into or leaving the Building would have to identify
themselves to the caretaker.
(f) To allow the Tenant the right to continue to maintain and/or to
erect a sign and the Tenant's logo on the external walls of the
Building (as currently affixed) and occupying an area of 10 feet
by 35 feet and a slat on the notice
-15-
<PAGE> 17
board/company directory/board to display its name on the main
lift lobby of the Building and on the lift lobbies of each floor
of the Premises.
4. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED as follows:
Re-entry
(1) Subject to Section 58 of the Conveyancing and Property Ordinance, if
the Rent hereby reserved or any part thereof shall at any time be
unpaid after the due date thereof (wither formally demanded or not) or
if any of the agreements or obligations on the part of the Tenant
herein contained shall not be performed and observed or if the Tenant
(being an individual) or being individuals any one of them) shall
become bankrupt or if the Tenant (being a company) shall enter into
liquidation whether compulsory or voluntary (save for the purpose of
amalgamation or reconstruction of a solvent company) or if a receiver
shall be appointed of the Tenant's undertaking or if the Tenant shall
enter into an agreement or make any arrangement with creditors for
liquidation of the debts of the Tenant by composition or otherwise or
suffer any distress or process of execution to be levied on the goods
of the Tenant then and in any such case it shall be lawful for the
Landlord at any time thereafter to re-enter upon the Premises or any
part thereof in the name of the whole and thereupon the term shall
absolutely determine but without prejudice to any right of action of
the Landlord in respect of any antecedent breach of any of the
agreements on the part of the Tenant herein contained. All costs and
expenses of and incidental to any demand for rent or any other sum
payable under these presents or actions or distraint for the recovery
of
-16-
<PAGE> 18
the same shall be paid by the Tenant on a full indemnity basis and
shall be recoverable from the Tenant.
Cesser of Rent
(2) In the event of the Premises or any part thereof being damaged or
destroyed by any cause or made inaccessible save and except the act
neglect or default of the Tenant so as to be unfit for occupation or
use or inaccessible then the Rent reserved hereby and other charges
payable hereunder or a fair proportion thereof according to the nature
and extent of the damage sustained shall cease to be payable by the
Tenant from the date of such damage or destruction until the Premises
are restored fit for occupation and use and accessible PROVIDED that
there shall be no cesser of Rent if any insurance policy affected by
the Landlord shall have been rendered void or voidable in whole or in
part by the act or default of the Tenant or any person deriving title
under the Tenant or if the moneys payable under any such policy in
respect of loss of rent shall not be paid to the Landlord by virtue of
the act or default of the Tenant and PROVIDED that the Landlord shall
be under no obligation to reinstate the Premises or any part so
damaged or destroyed but if the Premises have not been reinstated
within two months of the date of occurrence of such damage or
destruction rendering them unfit for occupation or use or inaccessible
the Tenant shall have the right to terminate the term on giving
written notice to the Landlord.
-17-
<PAGE> 19
Deposit
(3)
(a) The Tenant shall deposit with the Landlord the sum and further
sums (if any) specified in the Fourth Schedule hereto
(hereinafter called "the deposit") to secure the due observance
and performance by the Tenant of the agreements, stipulations and
conditions herein contained and on the Tenant's part to be
observed and performed. The deposit shall be retained by the
Landlord for its own use and benefit throughout the Term free of
any interest to the Tenant with power for the Landlord, without
prejudice to any right or remedy hereunder, to deduct therefrom
the Rent and other charges payable hereunder which is in arrear
or any loss or damage sustained by the Landlord and properly
payable by the Tenant as a result of any breach or non-observance
or non-performance by the Tenant of any of the agreements,
stipulations or conditions herein contained. In the event of any
deduction being made by the Landlord from the deposit in
accordance herewith, the Tenant shall on demand by the Landlord
forthwith further deposit the amount so deducted. In the event of
any deduction(s) so made by the Landlord, the Landlord shall
provide in writing an itemized account of all such deductions
made from the deposit within 10 business days after each such
deduction.
(b) Subject as aforesaid, the deposit or a proportionate part thereof
as the case may be shall be refunded to the Tenant by the
landlord without interest within fourteen (14) days after the
expiration or sooner determination of the term and
-18-
<PAGE> 20
the delivery of vacant possession to the Landlord or within
fourteen (14) days of the settlement of the last outstanding
claim by the landlord against the Tenant in respect of any
breach, non-observance or non-performance of any of the
agreements, stipulations or conditions herein contained and on
the part of the Tenant to be observed and performed, which ever
is the later.
(c) Without prejudice to sub-clause (a) of this Clause, the Tenant
shall not be entitled to apply and/or direct the landlord to
apply the deposit towards the payment of any money due and
payable by the Tenant to the landlord hereunder.
(d) Notwithstanding the foregoing, if the Landlord shall go into
liquidation (whether voluntary or compulsory) or if a receiver
shall be appointed over the whole or any part of the Premises
then the Tenant shall forthwith be entitled to the return of the
said deposit in full (subject to such lawful deductions which by
that time shall have been lawfully made by the Landlord
therefrom) and/or shall be entitled to apply the said deposit in
full against any demand or claim for rent (or other sums payable
hereunder by the Tenant) made by the Landlord or any such
liquidator or receiver.
Non-liability of Landlord
(4) Except as provided herein and so far as permitted by law the Landlord
shall not be liable for any loss damage or inconvenience suffered or
incurred by the Tenant or occupier of the Premises or any of its or
their respective servants employees licensees invitees or visitors or
by any other person or persons by reason or in consequence of
-19-
<PAGE> 21
any act neglect default or omission of any tenant or occupier of any
other premises in the Building.
Waiver
(5) The acceptance of Rent by the landlord shall not be deemed to operate
as a waiver by the landlord of any right to proceed against the Tenant
in respect of any breach non-observance or non-performance of the
convenants or obligations on the part of the Tenant herein contained.
Premium
(6) The Tenant acknowledges that no fine premium key money or
consideration other than that details of which are contained in this
Lease has been paid by the Tenant to the Landlord for the grant of
this Lease.
Rent to be paid in advance
(7) For the purpose of the landlord and Tenant (Consolidation) Ordinance
the Rent reserved hereby re in arrears if not paid in advance as
herein provided.
Verbal warranties
(8) This Lease sets out the full agreement reached between the parties and
no other representations have been made or warranties given relating
to the landlord or the Tenant or the Building or the Premises and if
any such representation or warranty has been given or implied the same
is hereby waived unless the same has been made in writing and signed
on behalf of the landlord or the Tenant.
-20-
<PAGE> 22
Notices
(9) Any notice in writing to be served hereunder shall if to be served on
the Tenant be sufficiently served if addressed to the Tenant and sent
by prepaid post to or delivery by messenger at the Tenant's registered
office and if to be served on the landlord be sufficiently served if
addressed to the landlord and sent by prepaid post to or delivered by
messenger at the office of the landlord given above or at the
landlord's registered office. A notice sent by post shall be deemed to
be given when in due course of post it would be delivered at the
address to which it is sent. A notice delivered by messenger shall be
deemed to be given upon delivery.
(10) The Tenant shall itself be responsible for management of the Building
at their own costs (latent inherent and structural defects expected)
until the Landlord shall have agreed to enter into lease(s) tenancies
licenses and/or agreements with other tenant(s) lessees licensees or
other persons to occupy use or share any other part(s) of the Building
not hereby demised to the Tenant whereupon the Landlord is required to
give to the Tenant not less than one month prior notice in writing to
take over management of the whole Building with effect from the date
of such occupation use or sharing of the Building or any part thereof.
The management fees payable by the Tenant for management services to
be rendered by the Landlord or the Manager appointed by it shall
initially be in the sum of appointed by it shall initially be in the
sum of HK$57,245.00 per month during the period commencing the date
when the landlord takeover management of the Building as aforesaid to
31st December 1997 which shall be payable in advance on the first day
of each calendar month and is
-21-
<PAGE> 23
subject to annual increment by the Landlord or the Manager by giving
to the Tenant one month prior written notice provided that such
increase shall be accompanied by a memorandum setting out the reasons
for the increase and provided that such fees or charges shall not be
increased more than once in each calendar year.
(11) the Tenant hereby covenants not to do any act or thing whereby the
staircase giving access to and egress from the portion of the Roof of
the Building not demised to the Tenant (which staircase is shown
colored pink on the roof plan annexed hereto) shall be obstructed or
hindered in any way whatsoever.
(12) Notwithstanding anything herein contained to the contrary at any time
after 1st January 1998 the Tenant shall be entitled to terminate this
Lease by (i) giving to the Landlord not less than six months' notice
in writing or paying six months' rent in lieu of notice and (ii)
paying to the Landlord by way of liquidated damages a lump sum
equivalent to the then prevailing one month rent whereupon this Lease
will cease and determine at the expiration of the said notice but
without prejudice to the rights or claims of either party against the
other in respect of any antecedent breaches.
5. Costs
Each party shall pay its own costs of and incidental to the
preparation and completion of this Lease but the stamp duty and
registration fees on this Lease and its duplicate shall be borne by
the parties hereto in equal shares.
-22-
<PAGE> 24
6. Interpretation
(a) In this Lease if the context permits or requires words importing the
singular number shall include the plural number and words importing
the masculine feminine or neuter gender shall include the other or
others of them;
(b) the headings contained in this Lease are for convenience only and
shall not be referred to in the construction or interpretations of
this Lease;
(c) where there are two or more persons included in the expressions "the
Tenant" or "the Landlord" then all convenants by the obligations of
the Tenant or the Landlord as the case may be shall be deemed to be
made and given by such persons jointly and severally;
(d) references to any ordinance herein contained shall be deemed to refer
to any modification or reenactment thereof for the time being in
force.
AS WITNESS the hands of the parties hereto the day and year first above
written.
-23-
<PAGE> 25
FIRST SCHEDULE
The Premises
ALL THOSE Third Floor and Flat Roof appurtenant thereto, Fourth Floor, Fifth
Floor, portion of Roof and eight Car Parking Spaces on Ground Floor of Asia
Trade Centre, 19 Sze Shan Street, Yau Tong Bay, Kowloon which are more
particularly shown and coloured yellow on the Ground Floor Plan, Third Floor
Plan, Fourth Floor Plan, Fifth Floor Plan and Roof Plan attached hereto.
SECOND SCHEDULE
The term
Two years commencing from 1st January 1997 to 31st December 1998 with an option
to renew for a further term of two years which option is more particularly
described below:
Option To Renew
(i) The Tenant shall be entitled to an option to renew this Agreement for
another term of two (2) years from the expiry date of the term
(hereinafter called "the renewal period").
(ii) The above option
(a) shall be subject to there being no outstanding breaches by the Tenant
of the terms, stipulations, obligations and conditions contained in
this Lease during the term; and
(b) shall be exercised by notice in writing served on the landlord not
less than three (3) months and not more than six (6) months prior to
the date on which the term is due to expire.
(iii) The renewal period shall be held under the same terms and conditions as
are contained in this Agreement save and except for (a) the provisions of
this Clause and (b) the rent payable for
-24-
<PAGE> 26
the renewal period ("the revised rent") which shall be determined in
accordance with subClause (iv) below.
(iv) The revised rent shall be agreed by the landlord and Tenant not earlier
than 60 days and not later than 30 days before the expiry of the term but
in the event that they fail so to do then either party shall, in default
of agreement in the meantime either upon the amount of the revised rent or
upon the appointment of an independent Surveyor to determine the revised
rent, be entitled to request the President for the time being of the Hong
Kong Institute of Surveyors to appoint an independent Surveyor to
determine the same as an expert and not as an arbitrator and his decision
shall be final and finding on the parties hereto. The fees payable to such
independent Surveyor in respect of, and the other costs (if any) involved
in, any determination made in pursuance of this Clause shall be borne by
the parties in equal shares.
(v) The revised rent shall be the prevailing market rent per month at which
the Premises might reasonably be expected to be let without a premium on
the open market by a willing landlord to a willing tenant it being assumed
that the Premises are to be let with vacant possession on the same terms
as this Agreement (save this Clause) and in the same state of repair and
condition as the Premises are then in at the said expiry date for a term
of two years commencing on the said expiry date.
(vi) If at the said expiry date the amount of the revised rent shall not for
any reason have been determined in accordance with the provisions of this
Clause then the Tenant shall continue to pay on account thereof the same
monthly rent as was last payable under the term created by this Agreement
but so that the revised rent in respect of the period between the said
expiry
-25-
<PAGE> 27
date and the date of determination of the revised rent shall become due
and payable as soon as it is so determined and the Tenant or the Landlord
shall after notification of the revised rent so determined forthwith pay
to the Landlord or the Tenant (as the case may be) any excess or
shortfall (if any) of the revised rent over or below the rent already
paid by the Tenant in respect of the said period.
(vii) The Landlord and the Tenant shall cause a memorandum containing details
of the further term and the revised rent determined pursuant to this
Clause to be endorsed on this Agreement and the counterpart thereof. The
stamp duty payable on such endorsement shall be borne by both parties in
equal shares and each party shall pay its own legal costs in relation to
the preparation, completion and execution of such endorsement.
(viii) Notwithstanding any of the foregoing, if the revised rent as determined
by the Surveyor is higher than that anticipated by the Tenant, the Tenant
may within one month of receipt of the notification of the amount of the
revised rent, give not less then 30 days written notice to the landlord
to the effect that the Tenant will deliver up vacant possession of the
Premises to the Landlord and this Lease (as may be extended) will
therefore be terminated on the date of delivery of vacant possession as
stated in the Tenant's notice as aforesaid.
THIRD SCHEDULE
The Rent
HONG KONG DOLLARS FIVE HUNDRED AND NINETY-SEVEN THOUSAND FIVE HUNDRED AND SIXTY
ONLY (HK$597,560.00) per month payable in advance on the first day of each
month.
-26-
<PAGE> 28
FOURTH SCHEDULE
Rental Deposit
HONG KONG DOLLARS ONE MILLION ONE HUNDRED AND NINETY-FIVE THOUSAND ONE HUNDRED
TWENTY ONLY (HK$1,195,120.00) being two months' rental for the term.
SIGNED BY )
)
)
- --------------------------------------- )
for and on behalf of the Landlord )
whose signature(s) is/are verified by: )
SIGNED BY )
)
)
- --------------------------------------- )
for and on behalf of the Tenant )
)
in the presence of: )
-27-
<PAGE> 29
EXHIBIT 10.12
MANUFACTURING SERVICES AGREEMENT
This Manufacturing Services Agreement ("Agreement") is entered into by
and between Maxtor Corporation, a Delaware corporation, with its principal place
of business at 211 River Oaks Parkway, San Jose, California 95134, U.S.A.
("Maxtor") and International Manufacturing Services, Inc., a Delaware
corporation, with its principal place of business at 211 River Oaks Parkway, San
Jose, California 95134 U.S.A. ("IMS"). This Agreement is effective as of May 16,
1996 ("Effective Date").
RECITALS
WHEREAS, Maxtor wishes to procure certain products and manufacturing
services from IMS;
WHEREAS, IMS is willing to provide such products and services on the
terms and conditions set forth below;
WHEREAS, concurrent with the execution of this Agreement, Maxtor and IMS
will close certain related transactions set forth in that certain
Recapitalization Agreement dated as of May 16, 1996 and that certain Redemption
Agreement and Stockholders Agreement of even date therewith (the "Related
Agreements");
NOW THEREFORE, in consideration of the mutual promises and covenants set
forth herein and in the Related Agreements, the parties agree as follows:
AGREEMENT
1. Product Appendix. IMS will sell and Maxtor will purchase the products
set forth in Exhibit A, as amended from time to time by mutual agreement
("Products"). For each Product, Maxtor will specify, from time to time, (i) a
bill of materials listing the components of the Product; (ii) which components
are to be procured by IMS and which are to be consigned to IMS by Maxtor; and
(iii) approved vendors from whom IMS must source particular components. The
parties shall agree in writing on any Product-specific tooling (manufacturing or
test) and any other equipment which is required to be acquired by IMS solely for
use in manufacturing or testing such Product, along with the financial and
ownership arrangements for such tooling and equipment. IMS shall not change any
vendor of a Product component or any manufacturing process for any Product
without Maxtor's prior written approval.
2. Orders and Forecasts. Every fiscal month, Maxtor shall issue to IMS
binding purchase orders ("Orders") for Products, covering a thirteen (13) week
period from such issue date and a nonbinding forecast for an additional
subsequent thirteen (13) week period. No Order shall be binding upon IMS unless
accepted by IMS in writing, subject to Section 7.3 ("Sales Commitment"),
provided
<PAGE> 30
that if such written acceptance is not received by Maxtor within five (5)
working days from date of Order issuance, said Order shall be deemed accepted.
3. Purchase Price. Purchase prices under this Agreement are set forth in
Exhibit A as amended from time to time by both parties in writing. Purchase
prices will be FOB IMS' applicable manufacturing facility and do not include any
foreign, federal, state, local or other taxes or duties or charges of any kind
that may be applicable. When IMS has the legal obligation to collect such taxes,
the appropriate amount (excluding taxes based on IMS' net Income) will be added
to Maxtor's invoice and paid by Maxtor unless Maxtor provides IMS with a valid
tax exemption certificate authorized by the appropriate taxing authority. IMS
agrees to keep its prices competitive and shall use reasonable commercial
efforts to achieve ongoing cost reductions and to lower prices proportionately.
The parties shall meet at least once a quarter, and more often if appropriate in
the reasonable judgement of either party, to negotiate price changes. At such
meetings, IMS will disclose to Maxtor all cost elements related to the Products.
4. Payment Terms. Payment terms shall be net thirty (30) days from
receipt of invoice by Maxtor. All invoices shall be paid in U.S. dollars. If IMS
terminates this Agreement for cause pursuant to Section 14 ("Term and
Termination"), all outstanding invoices will automatically be accelerated and
will become immediately due and payable.
5. Shipping Terms, etc.
5.1 Shipping Terms. All Products shall be packed for shipment in
accordance with reasonable industrial practice and marked for shipment to
Maxtor's designated shipping destination and delivered to Maxtor's carrier agent
FOB IMS' applicable manufacturing facility. IMS will obtain Maxtor's written
approval prior to any change from IMS' present packaging. IMS will mark all
containers with necessary lifting, handling and shipping information and with
Order information, date of shipment and the names of the consignee and
consignor. An itemized packing list will accompany each shipment which shall
include (i) Order information, and (ii) the description, part number, revision
level and quantity of the Products so shipped. RISK OF LOSS SHALL PASS TO MAXTOR
AT IMS' SHIPPING LOCATION UPON DELIVERY TO MAXTOR'S CARRIER AGENT. Maxtor shall
select the carrier. All freight, insurance and other shipping expenses,
including without limitation any special packaging expenses, shall be paid by
Maxtor. Delivery shall not occur until IMS has obtained any export license or
other official authorization necessary for export of the Products. Export
licensing shall be the sole responsibility and at the sole expense of IMS.
5.2 Miscellaneous. Maxtor's Order number must appear on all invoices,
packing lists and bills of lading and shall appear on each package, container or
envelope on each shipment. Either an invoice or delivery order may be used when
making deliveries, with each set containing three (3) copies. A complete packing
list specifying Maxtor's applicable Order number, quantity of goods shipped and
part number shall be enclosed with each shipment. Bills of lading shall be
mailed in triplicate to the destination address shown on the face of each Order,
or to the consignee of the Order, on the day shipment is made.
-2-
<PAGE> 31
6. Order Cancellation and Rescheduling.
6.1 Rescheduling. Maxtor may gives notice to IMS, either by facsimile
transmission, in other written form, or orally with follow-up written
confirmation, requesting rescheduling of Products for which purchase orders have
been accepted by IMS. IMS shall reply within two (2) working days. The following
rules shall apply based on the number of calendar weeks notice IMS is given
prior to the scheduled shipment date:
Time Prior to Delivery Limits on Rescheduling
- --------------------------------------------------------------------------------
up to [*] [*]
[*] weeks [*]
[*] weeks [*]
[*] weeks [*]
Maxtor's request for new ship date(s) more than ninety (90) days beyond the
original ship date(s) shown on the affected purchase order shall be deemed a
cancellation of the original purchase order governed by Section 7.2. If Maxtor's
reschedule request represents an acceleration or increase, IMS will use its best
efforts to meet the requested delivery dates.
6.2 Cancellation. Any purchases of material by IMS shall be solely for
the account of IMS, except for raw materials detailed in the bills of materials
for the corresponding Products. IMS shall not purchase any materials to be
consigned by Maxtor. Maxtor shall not be responsible for excess and obsolete
inventory which is not covered by a Maxtor Purchase Order or other written form
of authorization from Maxtor. Maxtor shall be responsible for exposures caused
by EOL, rescheduling and engineering changes where IMS has purchased property
under written authorization from Maxtor according to lead-time and within the
cancellation window on the attached Exhibit C. Beyond that, IMS shall use
reasonable commercial efforts to mitigate the costs incurred by IMS on account
of any such cancellation, and any and all resulting liability of Maxtor. Once
formal notification of cancellation has been received, IMS shall promptly cease
all efforts in fulfillment of canceled Orders and shall promptly cancel orders
to suppliers (in consultation with Maxtor where a cancellation penalty may be
incurred). At the option of IMS, Maxtor shall purchase all or any portion of the
materials purchased by IMS consistent with raw material lead times, and within
the cancellation windows in Exhibit C unless Maxtor has provided written
authorization to exceed the cancellation window. Maxtor must settle all valid
claims from IMS regarding surplus inventory within forty-five (45) days of
receipt of IMS' written demand setting for the grounds of the claim in
reasonable detail. The foregoing, together with the remedies set forth in
Section 7.1 ("Purchase Commitment"), shall be IMS' sole and exclusive remedies
for any canceled Orders. The foregoing remedies shall also apply to Products
manufactured by IMS for contractors of Maxtor named on Exhibit D, which Exhibit
may be amended by Maxtor from time to time.
-3-
<PAGE> 32
6.3 Product Mix Changes. It is understood that market conditions or
requirements by Maxtor's customers may require changes in Product mix and it
is anticipated that such changes may occur frequently. IMS, therefore, grants to
Maxtor the right at any time to make changes to the Product mix without penalty
to the extent such changes do not materially alter IMS' raw materials
requirements, as long as such changes are made more than fifteen (15) days prior
to delivery. Maxtor and IMS agree to work together to respond to such changes in
a timely manner.
7. Purchase and Sale Commitments.
7.1 Purchase Commitment. Maxtor agrees to place Orders with IMS,
which Orders IMS shall accept, and Maxtor agrees to accept corresponding
conforming shipments from IMS aggregating as follows:
Period Quarterly Unit Volume
- --------------------------------------------------------------------------------
Initial [*] period following the [*]
Effective Date
Second [*] period following the [*]
Effective Date
Third [*] period following the Effective [*]
Date
IMS' sole and exclusive remedies for Maxtor's failure to place any of the above
orders and/or Maxtor's cancellation of such Orders once placed shall be (i)
suspension during the first year following the Effective Date, until cure of
such failure, of the interest payments not yet paid and due under that certain
Twenty Million Dollar ($20,000,000) Seven Percent (7%) Senior Subordinated Note
issued at the closing of the Acquisition Transaction, provided that such unpaid
interest will be repaid in equal monthly installments during the thirteen (13)
months following cure of such failure, and (ii) if applicable, the remedies set
forth in Section 6.2 ("Cancellation"). All purchases of Products by contractors
of Maxtor named on Exhibit D shall be considered purchases of Products by Maxtor
for purposes of this Section 7 ("Purchase and Sale Commitments").
7.2 Condition of Purchase Obligation. Maxtor's commitment to purchase
the amounts set forth in Section 7.1 ("Purchase Commitment") is conditioned upon
IMS providing Products competitive in both price and quality. If Maxtor
qualifies, pursuant to the qualification criteria set forth in Exhibit E, which
criteria may be amended from time to time by Maxtor at its sole discretion, one
or more alternate suppliers of Products whose price or quality is more favorable
to Maxtor than IMS' price or quality and who are capable of meeting Maxtor's
quality and volume (in whole or in part) requirements, Maxtor shall so notify
IMS in writing. [*] Maxtor's purchase commitments set forth in Section 7.1
("Purchase Commitment") shall be reduced to the extent of Products as to which
IMS is not price or quality competitive.
-4-
<PAGE> 33
7.3 Sales Commitment. IMS agrees to accept Orders placed by Maxtor and
to manufacture and sell such Products to Maxtor in the amounts specified in
Section 7.1 ("Purchase Commitment") above. IMS acknowledges that due to the
primary source nature of the Products, it is important that IMS maintain the
ability to increase its manufacturing capacity upon Maxtor's reasonable request.
IMS shall provide for reasonable contingency plans, including but not limited to
double shifts and triple shifts of personnel, so as to expeditiously increase
IMS' manufacturing capacity to meet Maxtor's customer demand. [*] IMS will be
responsible for processing sufficient Product starts, procuring sufficient
inventory (except those components to be procured by Maxtor pursuant to Section
9 ("Product Materials")) and taking all other actions to provide Maxtor with the
quantity of Product set forth in accepted Orders.
8. Inspection and Acceptance.
8.1 Testing. IMS will ensure that each Product meets Maxtor
specifications and is tested prior to shipment in accordance with quality and
reliability testing methods and procedures for such Product as specified by
Maxtor from time to time. IMS will provide to Maxtor only those Products
conforming to the applicable test requirements unless IMS has obtained prior
written approval from Maxtor for any deviation from such requirements.
8.2 Acceptance. Maxtor shall inspect each shipment and return all
non-conforming units to IMS with a return authorization number obtained from IMS
with shipping cost to be borne by IMS. All returned Products must be accompanied
by a written notice describing with reasonable particularity any defects
rendering the Products non-conforming. IMS shall, at its expense, replace within
ten (10) business days of return all non-conforming Products or refund the
purchase price therefor. In addition to any such replacement and refund, IMS
shall promptly reimburse Maxtor for reasonable costs, expenses and fees incurred
by Maxtor as a result of non-conforming Products. Within ten (10) business days
of IMS' receipt of any non-conforming Product, IMS will perform failure analysis
and provide Maxtor with a failure analysis report and a corrective action plan
detailing the actions IMS shall take to avoid or minimize similar defects in the
future.
9. Consignment. Maxtor may consign to IMS certain component parts,
equipment and/or other materials (the "Materials") for use in assembling and
testing Products. IMS agrees to (1) receive shipments of Materials ordered by
Maxtor and designated for delivery to IMS, (2) perform incoming inspection and
testing of Materials as reasonably required by Maxtor (any such Maxtor-required
and Maxtor-unique testing to be at Maxtor's expense), (3) store and insure such
Materials until needed, (4) use such Materials solely for the benefit of Maxtor,
and (5) provide inventory and stocking reports to Maxtor. IMS shall provide such
services with respect to Materials stored by IMS for up to one hundred twenty
(120) days at no charge. The parties shall negotiate in good faith on
reimbursement to IMS for IMS' actual incremental costs incurred in connection
with storage of Material in excess of one hundred twenty (120) days. IMS shall
be responsible and liable for all Materials consigned by Maxtor to IMS, unless
IMS provides Maxtor within forty-eight (48) hours of arrival of any consigned
Materials with written notice and an accompanying receipt showing a discrepancy
between the amount and/or type of Materials actually received by IMS and the
amount and/or type consigned by Maxtor, as shown on applicable shipping
documents. Notwithstanding IMS' management and storage of the consigned
-5-
<PAGE> 34
Materials, Maxtor will retain all rights, title and interest to such Materials.
IMS agrees that all Maxtor consigned Materials are the property of Maxtor and
shall not mortgage, pledge, assign or borrow against such Materials or otherwise
create or attempt to create a security interest in the Materials. IMS will post
signs, make public filings, and take such other steps reasonably calculated to
notify third parties concerning Maxtor's ownership of such Materials. IMS agrees
to maintain fire and extended insurance, including all risk and earthquake
coverage, on the building containing and contents of the Materials in an amount
agreed upon by the parties. IMS shall name Maxtor as an additional assured with
respect to the contents of the Materials and shall, if required by Maxtor,
furnish certificates or adequate proof of the foregoing insurance. IMS will be
liable to Maxtor for damages for loss of, or injury to, the consigned Materials
caused by IMS' failure to exercise such care in regard to the Materials as a
reasonably careful person would exercise under like circumstances. IMS agrees to
accept responsibility for the actual cash value of any Materials while such
Materials are in IMS' custody. In the event of any canceled Orders involving
Materials, IMS shall ship such Materials to Maxtor (at Maxtor's expense). [*]
IMS requests that consigned components are received by IMS at least five (5)
business days prior to the scheduled Product shipment date and in sufficient
quantities to allow for normal component attrition.
10. Limited Warranty. IMS warrants that the Products sold to Maxtor shall
conform to the corresponding written product specification provided by Maxtor to
IMS and current at the time of Maxtor's Order ("Specification") [*] for a period
of twelve (12) months from the date of receipt by Maxtor. The materials portion
of this warranty shall not apply to the extent of defects in the Product
directly attributable to the failure of any Materials consigned or supplied to
IMS by Maxtor. All claims for breach of warranty with respect to any unit of the
Products must be received by IMS no later than fifteen (15) days after the
expiration of the warranty period. The warranty does not extend to any Products
(i) which have been subjected to misuse, neglect, excessive deterioration or
erosion, abuse, accident, improper installation, extreme electrical or physical
stress, or any other use by Maxtor in violation of or contrary to IMS'
instructions; (ii) which have been repaired or altered in any manner by anyone
other than IMS or persons expressly authorized by IMS; or (iii) which are
defective as a result of causes external to the Product. IMS' sole and exclusive
obligation with respect to defective Products returned under warranty shall be,
at IMS' option, repair or replacement thereof or refund of the purchase price.
THE EXPRESS WARRANTY AND WARRANTY REMEDIES PROVIDED IN THIS SECTION ARE MAXTOR'S
SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF THE WARRANTIES IN THIS SECTION. IMS
MAKES, AND HAS MADE, NO OTHER WARRANTIES TO MAXTOR, AND IMS HEREBY EXPRESSLY
DISCLAIMS ANY AND ALL OTHER WARRANTIES, WRITTEN OR ORAL, EXPRESS, IMPLIED, OR
STATUTORY, IN ANY MANNER OR FORM WHATSOEVER, INCLUDING, BUT NOT LIMITED TO ANY
WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE OR
NONINFRINGEMENT OF THIRD PARTY RIGHTS (EXCEPT AS EXPRESSLY PROVIDED IN SECTION
17 ("INDEMNIFICATION")). Maxtor shall pay IMS such amounts as are mutually
agreed from time to time for (i) testing of returned units in "no problem found"
situations (i.e., where Product units returned to IMS conform to the above
warranty) and (ii) network of returned units where the failure of the units to
conform to the above warranty is not due to any breach of warranty by IMS (e.g.,
situations where the Product unit has been abused or damaged by persons other
than IMS).
-6-
<PAGE> 35
11. Epidemic Failure. In the event of an epidemic failure of a Product,
the parties shall immediately work together to identify the nature of the
failure and to determine whether the failure results from certain components of
the Product or manufacture of the Product. For purposes of this Section,
"epidemic failure" shall mean a group of failures occurring within a thirty (30)
day period of a same or similar nature where the failure rate for such thirty
(30) day period is ten percent (10%) or more above the failure rate for the
particular Product over the term of this Agreement prior to such event. Maxtor
and IMS shall agree on an equitable allocation of the cost of resolving the
problem vis-a-vis Maxtor's customers and in regard to the relevant component(s)
vendors which shall depend on whether the primary source of the problem is
Maxtor's procurement of Materials for the Products or IMS' procurement of
components for or manufacture of the Product. Maxtor and IMS shall cooperate in
good faith to identify the most cost-effective solution to the problem.
12. Limitation of Liability. EXCEPT AS SET FORTH IN SECTION 17.2
("INDEMNIFICATION BY IMS") AND SECTION 17.3 ("INFRINGEMENT INDEMNIFICATION BY
MAXTOR") AND EXCEPT FOR BREACH OF THE OBLIGATIONS SET FORTH IN SECTION 18.1
("CONFIDENTIAL INFORMATION"), EITHER PARTY'S MAXIMUM LIABILITY ARISING OUT OR
RELATING TO THIS AGREEMENT SHALL BE LIMITED TO THE TOTAL PAYMENTS MADE BY MAXTOR
TO IMS HEREUNDER. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR
ANY OTHER PERSON OR ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, INDIRECT,
EXEMPLARY OR PUNITIVE DAMAGES, HOWEVER CAUSED, WHETHER FOR BREACH OF CONTRACT,
NEGLIGENCE OR OTHERWISE (INCLUDING, WITHOUT LIMITATION, DAMAGES BASED ON LOSS OF
PROFITS OR BUSINESS OPPORTUNITY), AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION SHALL APPLY NOTWITHSTANDING
ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN.
13. Engineering or Process Changes.
13.1 Definition. The term "Engineering Change(s)" shall mean those
mechanical, electrical, piece part or subassembly design or Specification
changes, made to the Products or to any manufacturing, assembly or testing
method, procedure or process ("Process"), or, which, if made, could affect the
schedule, performance, reliability, availability, serviceability, appearance,
dimensions, tolerances, safety or costs, such determination to be made solely by
Maxtor.
13.2 IMS Change(s). IMS will notify Maxtor of any Engineering Change
proposed to be made by IMS to the Products or Process, and will supply a written
description of the expected effect of the Engineering Change on the Products,
including its effect on price, performance, reliability and serviceability.
Maxtor may elect to evaluate the prototype, parts and/or designs specified as
part of the proposed change and IMS shall provide the prototype, parts and/or
design to Maxtor at no charge for such evaluation. Maxtor agrees to use
commercially reasonable efforts to respond, within five (5) working days after
receipt of IMS' request for non-critical changes and within twenty-four (24)
hours for critical changes, as to whether or not Maxtor will negotiate with IMS
as to a transition plan and time frame for implementing such Engineering
Changes. IMS will not change or modify the Products or
-7-
<PAGE> 36
Process by implementation of such Engineering Change without Maxtor's prior
written approval. Maxtor, in its reasonable discretion, may reject any and all
IMS requested changes.
13.3 Maxtor Change(s). Maxtor may request, in writing and in a manner
similar to IMS' request as set forth in Section 13.2 ("IMS Change(s)"), that IMS
incorporate any non-critical Engineering Change into the Products, and IMS will
provide to Maxtor its written response within five (5) working days after
receipt of Maxtor's request. For critical Engineering Changes, as determined by
Maxtor, IMS will respond within twenty-four (24) hours of Maxtor's written
request. IMS' response will state the cost savings or increase, and labor,
inventory and scrap material impact, if any, expected to be created by the
Engineering Change, and the effect on the schedule, performance, reliability,
availability, safety, serviceability, appearance, dimensions, tolerances, and
composition of bills of material of the Products. If Maxtor requests IMS to
incorporate an Engineering Change into the Products, the applicable
Specifications will. be amended as required subject to mutual agreement on
reimbursement to IMS for its extra costs (including labor, manufacturing
supplies and inventory) incurred as a result of the Engineering Change. IMS will
not unreasonably refuse to incorporate Maxtor's Engineering Changes into the
Products.
14. Term and Termination. The term of this Agreement shall begin on the
Effective Date and continue for three years thereafter unless earlier terminated
as provided herein. Either party may terminate this Agreement for default by the
other party of any material obligation, unless the defaulting party cures such
material breach within thirty (30) days after receipt of written notice from the
non-defaulting party. In the event this Agreement is terminated by IMS upon
Maxtor's default, Maxtor shall be responsible for payment or cancellation
charges for any issued and accepted Orders as provided in Section 6 ("Order
Cancellation and Rescheduling"). In the event this Agreement is terminated by
Maxtor for IMS' default, IMS shall be responsible for payment of any and all
costs and expenses associated with Maxtor's transfer of Orders to another
supplier, including without limitation the incremental cost to procure
substitute goods in accordance with Section 2712 of the Uniform Commercial Code.
15. Maxtor Equipment. IMS shall be responsible for diligence and care in
the use, routine calibration and repair, maintenance and protection of any
Maxtor furnished equipment, including without limitation any Product-specific
tooling and equipment, and shall be liable for repairs or replacement due to
normal failure or wear and tear, and maintenance costs, provided, that HDAs
shall be supplied, maintained, repaired and replenished by Maxtor.
16. [*]
17. Indemnification.
17.1 Indemnification by Maxtor for Products. Maxtor shall defend,
indemnify and hold IMS, its successors and assigns, harmless from and against
all actions, claims, liabilities, losses and expenses (including reasonable
attorneys' fees) arising out of or relating to Maxtor's gross negligence or
intentional misconduct in its distribution, sale or use of any Product. Such
indemnification obligation will be conditioned upon IMS (i) giving Maxtor prompt
notification in writing as to any such action; (ii)
-8-
<PAGE> 37
tendering full control of the defense of such action to Maxtor; and (iii)
providing Maxtor with full information and assistance (at Maxtor's expense) for
such defense. IMS may participate in any such defense with counsel of its
choosing at its expense. Maxtor will not be responsible for any settlement or
compromise made without its consent.
17.2 [*]
17.3 Infringement Indemnification by Maxtor. Maxtor shall defend,
indemnify and hold IMS, its successors and assigns, harmless from and against
all actions, claims, liabilities, losses and expenses (including reasonable
attorneys' fees) arising out of or relating to any claim of infringement or
misappropriation by a Product developed from designs provided by Maxtor for such
development, of any patent, copyright, trade secret, or any other intellectual
property right of any third party to the extent such infringement or
misappropriation arises out of use of such Maxtor designs. Such indemnification
obligation will be conditioned upon IMS (i) giving Maxtor prompt notification in
writing as to any such action; (ii) tendering full control of the defense of
such action to Maxtor; and (iii) providing Maxtor with full information and
assistance (at Maxtor's expense) for such defense. IMS may participate in any
such defense with counsel of its choosing at its expense. Maxtor will not be
responsible for any settlement or compromise made without its consent.
18. Confidentiality; Intellectual Property Rights.
18.1 Confidential Information. Each party (the "Disclosing Party", as
applicable) agrees during the term of this Agreement and thereafter to take all
steps reasonably necessary to hold the Confidential Information of the other
party (the "Receiving Party", as applicable) in trust and confidence.
"Confidential Information" includes, but is not limited to, technical and
business information relating to the Disclosing Party's inventions or products,
research and development, production, manufacturing and engineering processes,
costs, profit or margin information, employee skills and salaries, finances,
customers, marketing, and production and future business plans, and any third
party's proprietary or confidential information disclosed to the Receiving Party
in the course of providing services to the Disclosing Party. Notwithstanding the
other provisions of this Agreement, nothing received by the Receiving Party will
be considered to be the Disclosing Party's Confidential Information if (1) it
has been published or is otherwise readily available to the public other than by
a breach of this Agreement; (2) it has been rightfully received by the Receiving
Party from a third party without confidential limitations; (3) it has been
independently developed for the Receiving Party by personnel or agents having no
access to the Disclosing Party's Confidential Information; or (4) it was known
to the Receiving Party prior to its first receipt from the Disclosing Party. The
Receiving Party shall use the Disclosing Party's Confidential Information only
for the purposes of providing and receiving Products and services to and from
the Disclosing Party as set forth herein, unless otherwise mutually agreed in
writing. The Receiving Party may disclose the Disclosing Party's Confidential
Information to affiliates and to third persons, including contractors, solely
for the purposes of this Agreement or as otherwise allowed herein (e.g., Section
18.4 ("License of IMS Rights")), including consultation regarding the purchase
or provision of Products and services, but only under the terms of a written
confidentiality agreement with such third person containing confidentiality and
use terms substantially similar to those imposed herein upon a Receiving Party.
The foregoing shall not affect Maxtor's rights under
-9-
<PAGE> 38
Section 18.4 ("License of IMS Rights"), except that Maxtor shall require third
persons who receive such Section 18.4 IMS Intellectual Property which is IMS
Confidential Information, to execute such written confidentiality agreement.
18.2 No Conflict of Interest. Each party agrees during the term of
this Agreement not to accept work, enter into a contract or accept an obligation
inconsistent or incompatible with such party's obligations under this Agreement
or the scope of services rendered for the other party hereunder. Each party
warrants that to the best of its knowledge, there is no other existing contract
or duty on such party's part inconsistent with this Agreement. The parties agree
that the foregoing obligations shall not be construed in any manner to supersede
or conflict with the terms and conditions of Section 7.2 ("Condition of Purchase
Obligation") above.
18.3 Ownership of Proprietary Rights. Nothing in this Agreement shall
convey to either party any proprietary or intellectual property rights,
including without limitation, copyrights, trademarks, trade secrets, patents,
moral rights, contract rights and licensing rights (the "Intellectual Property
Rights") belonging to the other party, or be deemed to license either party to
use any such Intellectual Property Rights of the other party, except for the
express limited purposes set forth herein.
18.4 [*]
18.5 Joint Work Product. The term "Joint Work Product" means any new
or useful art, discovery, improvement or invention whether or not patentable,
and all related know-how, designs, mask works, trademarks, formulae, processes,
manufacturing techniques, trade secrets, ideas, artwork, software or other
copyrightable or patentable works, where the conception or reduction to practice
thereof occurs subsequent to the Effective Date and one or more personnel of
both Maxtor and IMS contribute materially to such conception or reduction to
practice. Maxtor and IMS shall jointly own the Joint Work Product, with each
owning an undivided one-half interest, and each shall be free to commercially
exploit Joint Work Product far its own account and nonexclusively license Joint
Work Product to third parties without any obligation to account for profits to
the other joint owner.
18.6 Return of Maxtor Property. The term "Maxtor Work Product" means
any new or useful art, discovery, improvement or invention whether or not
patentable, and all related know-how, designs, mask works, trademarks, formulae,
processes, manufacturing techniques, trade secrets, ideas, artwork, software or
other copyrightable or patentable works developed by Maxtor without the material
contribution of IMS or otherwise acquired or licensed by Maxtor. Except as set
forth in a separate written licensing agreement:
(a) IMS shall have no right to use any Maxtor Work Product
provided by Maxtor to IMS, or learned by IMS from Maxtor, except to perform
services for Maxtor as contemplated by this Agreement.
(b) Upon termination of this Agreement for any reason or in any
manner, or at any earlier time upon Maxtor's request, IMS agrees to promptly
deliver all Maxtor property, including but not limited to all tangible
embodiments of the Maxtor Work Product, and all copies of Maxtor
-10-
<PAGE> 39
property in IMS' possession to Maxtor, or promptly destroy all such Maxtor
property and promptly certify in writing to its destruction.
19. Miscellaneous Provisions.
19.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties regarding the subject matter hereof and supersedes all prior
agreements and understandings between the parties relating thereto. This
Agreement may not be modified except by a writing signed by an authorized
representative of both parties.
19.2 Independent Contractor. The relationship of the parties
established by this Agreement is that of independent contractors, and nothing
contained herein shall be constructed to constitute either party as the agent of
the other party or as partners, joint ventures, co-owners or otherwise as
participants in a joint or common undertaking.
19.3 Advertising. No advertising by either party shall display or
contain any trademarks or references to the other party without the other
party's prior written approval.
19.4 Assignment and Subcontracting. This Agreement may not be assigned
by either party without the advance written consent of the other party, which
shall not be unreasonably withheld. Notwithstanding the foregoing, either party
may assign this Agreement to any affiliate or subsidiary or pursuant to a
merger, sale of all or substantially all of its assets, or other corporate
reorganization. IMS shall not subcontract any of its rights or obligations
hereunder to any third party without Maxtor's prior written approval, which
shall not be unreasonably withheld.
19.5 Force Majeure. Except for Maxtor's payment obligations, neither
party shall be liable to the other party arising out of delays or failures to
perform under the Agreement to the extent that any such delays or failures
result from any cause beyond the reasonable control of the party affected by a
force majeure event; provided, that the party affected by any such cause shall
promptly inform the other of all relevant information. If any such force majeure
event extends beyond ninety (90) days, either party shall have the right to
terminate this Agreement upon written notice to the other party.
19.6 Governing Law. This Agreement shall be governed by the laws of
the State of California, without reference to conflict of laws principles. The
United Nations Convention on Contracts for the International Sale of Goods is
specifically excluded from application to this Agreement.
19.7 Venue. All disputes arising under this Agreement shall be brought
in the Superior Court of the State of California in Santa Clara County or the
Federal District Court of San Jose, California, as permitted by law. The
Superior Court of Santa Clara County and the Federal District Court of San Jose
shall each have exclusive jurisdiction over disputes under this Agreement. IMS
consents to the personal jurisdiction of the above courts.
19.8 English Language. This Agreement is executed in the English
language only, and any translations hereof are of no force and effect.
-11-
<PAGE> 40
19.9 Invalidity. If any provisions or portion thereof of this
Agreement is held to be unenforceable or invalid, the remaining provisions and
portions thereof shall nevertheless be given full force and effect.
19.10 No Waiver. No failure to delay on the part of either party in
exercising any right or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right or remedy preclude any
other or further exercise thereof or of any other right or remedy. No provision
of this Agreement may be waived except in a writing signed by the party granting
such waiver.
19.11 No Licenses Created. Nothing contained in this Agreement shall
be construed as conferring any license, right to use or other right with respect
to information, trademark or tradenames of either party.
19.12 Counterparts. This Agreement may be executed in counterparts,
all of which taken together shall constitute one single agreement between the
parties.
19.13 Limitation of Action. No action, regardless of form, arising out
of this Agreement, may be brought by either party more than one year after the
cause of action has arisen, or in the case of nonpayment, one year from the date
the last payment was due.
19.14 Survival. Sections 10, 11, 12, 15, 17, 18 and 19 shall survive
any expiration or termination of this Agreement.
19.15 Construction. This Agreement has been negotiated by the parties
and their respective counsel. This Agreement will be fairly interpreted in
accordance with its terms and without any strict construction in favor of or
against any party. Any ambiguity will not be interpreted against the drafting
party.
IN WITNESS WHEREOF, Maxtor and IMS have caused this Manufacturing Services
Agreement to be executed by their respective officers, duly authorized.
<TABLE>
<CAPTION>
<S> <C>
MAXTOR: IMS:
Maxtor Corporation International Manufacturing Services, Inc.
By: By:
-------------------------------- ----------------------------------
Name: Name:
------------------------------ -------------------------------
Title: Title:
----------------------------- -------------------------------
</TABLE>
-12-
<PAGE> 41
EXHIBIT A
PRODUCTS AND PRICES
Maxtor and IMS have agreed that in calendar 1996, Maxtor will give IMS
first right of refusal to manufacture units up to 1.924 million each quarter.
The forgoing does not constitute a purchase order.
<TABLE>
<CAPTION>
CQ2 96 CQ3 96 CQ4 96 CQ1 96
BOM NO. DESCRIPTION PRICE PRICE PRICE PRICE
- ----------- ----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
US$ US$ US$ US$
[*] [*]
[*] [*] [*] [*]
</TABLE>
REWORK*
1" REWORK (NORMAL)
1" REWORK (FIELD)
2.5 REWORK
MXT REWORK
* Rework charges above are for full rework completed by IMS. Partial rework
charges will be negotiated in good faith between the parties.
Note:
1. The price for CQ296 is confirmed while the price for the rest of three
quarters is for reference only.
2. The selling price for 2.5" is full turnkey and sales is from IMS to HSD.
<PAGE> 42
EXHIBIT A
(Continued)
CONSIGNED PARTS LIST
PART NO. DESCRIPTION
- ----------------- -------------------------------------------------------
[*] [*]
-2-
<PAGE> 43
EXHIBIT B
THIS EXHIBIT IS INTENTIONALLY OMITTED
<PAGE> 44
EXHIBIT C
CANCELLATION WINDOWS
CANCELLATION
COMMODITY (NOT-TO-EXCEED)
- ----------------------- --------------------------
ASICx* [*] Days
Memory * [*] Days
Osc. Custom [*] Days
Transistors [*] Days
Diodes [*] Days
Caps (Tant.) [*] Days
Resistor [*] Days
PCB [*] Days
Ferrite [*] Days
Connector/Socket [*] Days
Cap Cer [*] Days
Inductor [*] Days
* Per supplier cancellation window plus [*] worth of raw and WIP in IMS.
- -------------------------
[*] Confidential Treatment Requested
<PAGE> 45
EXHIBIT D
Hyundai Storage Division
<PAGE> 46
APPENDIX E
# CRITERIA MAX. POINT WEIGHT AGE MAX. WEIGHT
1. Quality 5 X2 10
2. Total Cost 5 X2 10
3. Capacity 5 X2 10
4. Time To Market 5 X2 10
5. Joint Profit Program 5 X1 5
6. Delivery Performance 5 X1 5
7. Technology Leadership 5 X1 5
8. Finance 5 X1 5
9. History/Flexibility 5 X1 5
10. Fit for Application 5 X1 5
The Maximum Total Weighted Score is 70 and Minimum is 35.
We can assign the following grading:
WEIGHT SCORE GRADING
- ------------------------- ------------------------------
35-49 Pass/Average
50-59 Good
60-70 Very Good/Excellent
<PAGE> 1
EXHIBIT 10.20
IMS CONFIDENTIAL
October 14, 1994
Mr. Robert Behlman
14616 Golf Links Drive
Los Gatos, CA 95030
Dear Mr. Behlman:
We are pleased to offer you the position of President and Chief Executive
Officer of International Manufacturing Services Inc. (the "Company"), reporting
to the Board of Directors. You will also be elected to the Company's Board of
Directors. Your employment shall be contingent upon and subject to the following
terms and conditions:
Base Compensation
Your annual salary will be U.S. $190,000 less regular payroll deductions,
payable in increments in accordance with the Company's salary payment practices
in effect from time to time. You will also be eligible to participate in the
Company's Management Incentive Plan ("MIP"), which has yet to be finalized but
will be patterned after Maxtor Corporation's Management Incentive Plan. Your
annual target under the MIP will be fifty percent (50%) of base earnings upon
achievement of specified objectives.
You will also be eligible to participate in any employee benefit plans
maintained from time to time by the Company during your employment, subject in
each case to the general applicable terms and conditions of the plan or program
in question. The Company will maintain employee benefit plans for its employees
as its Board of Directors elect.
Management Equity Participation Plan
You will be entitled to participate in the Company's Management Equity
Participation Plan ("Plan") which the Company plans to establish as outlined in
Attachment A to this letter.
Nondisclosure of Confidential Information
As a condition of employment with the Company, it will be necessary for you to
complete, sign and return with this offer of employment, the attached Employee
Agreement Regarding Confidentiality and Inventions.
<PAGE> 2
Other Conditions
It is understood that you will not have an employment contract, and either you
or the Company can terminate the employment relationship with or without cause
at any time. At the end of your initial six-month probationary period, you will
receive a written performance review.
We are looking forward to having you as a team member and are confident that you
will make significant contributions to the Company's future.
Please sign below to signify your acceptance of this position and the conditions
described above and return the enclosed copy of this letter to Sandy Taylor by
Friday, October 21, 1994.
Sincerely,
J. Larry Smart
President and CEO
Maxtor Corporation
ACCEPTED:_________________ DATED___________________, 1994
EXPECTED START DATE: ___________________, 1994
<PAGE> 1
Exhibit 10.21
CREDIT AGREEMENT dated as of June 13, 1996,
among INTERNATIONAL MANUFACTURING SERVICES, INC., a
Delaware corporation ("IMS"), IMS BORROWER, INC., a
Delaware corporation (the "U.S. Borrower"), IMS
HOLDCO, INC., a Delaware corporation ("IMS Foreign
Holdings"), MAXTOR (HONG KONG) LIMITED, a company
organized under the laws of Hong Kong (the "HK
Borrower"), IMS INTERNATIONAL MANUFACTURING SERVICES
(THAILAND) LIMITED, a limited company organized under
the laws of Thailand (the "Thai Borrower"), and
DONGGUAN IMS ELECTRONICS LTD., a company organized
under the laws of the People's Republic of China
("IMS PRC"), IMS INTERNATIONAL MANUFACTURING
SERVICES, LIMITED, an exempted company incorporated
in the Cayman Islands ("IMS Cayman"), the Lenders (as
defined in Article I), and CHEMICAL BANK, a New York
banking corporation, as fronting bank (in such
capacity, the "Fronting Bank"), as administrative
agent (in such capacity, the "Administrative Agent")
and as collateral agent (in such capacity, the
"Collateral Agent") for the Lenders.
The Borrowers (such term and each other capitalized term used
but not otherwise defined herein having the meaning assigned thereto in Article
I) have requested the Lenders to extend credit in the form of Loans at any time
and from time to time prior to the Maturity Date, in an aggregate principal
amount at any time outstanding not in excess of the difference between
$32,000,000 (as such amount may be reduced from time to time in accordance with
the terms hereof) and the L/C Exposure at such time. The Borrowers have
requested the Fronting Bank to issue letters of credit in an aggregate face
amount at any time outstanding not in excess of $5,000,000 to support payment
obligations incurred in the ordinary course of business by the Borrowers.
The proceeds of up to $7,000,000 of the Loans will be used on
the Closing Date to provide funds to repay certain existing Indebtedness of the
Borrowers, to make certain other payments in connection with the
Recapitalization and for working capital. Except as provided in the immediately
preceding sentence, the proceeds of the Loans and letters of credit in an
aggregate face amount at any time outstanding not in excess of $5,000,000 will
be used solely for working capital and other general corporate purposes.
The Lenders are willing to extend such credit to the Borrowers
and the Fronting Bank is willing to issue letters of credit for the accounts of
the Borrowers on the terms and subject to the conditions set forth herein.
Accordingly, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Revolving Loan bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Account" shall mean any right to payment for goods sold or
leased or for services rendered, whether or not earned by performance.
"Account Debtor" shall mean, with respect to any Account, the
obligor with respect to such Account.
<PAGE> 2
2
"Adjusted LIBO Rate" shall mean, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of
(a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves.
"Administrative Agent Fees" shall have the meaning assigned to
such term in Section 2.05(b).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit A.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person specified.
"Aggregate Credit Exposure" shall mean the aggregate amount of
the Lenders' Credit Exposures.
"Alternate Base Rate" shall mean for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. If for any reason the Administrative Agent shall have determined
(which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both
for any reason, including the inability of the Administrative Agent to obtain
sufficient quotations in accordance with the terms of the definition thereof,
the Alternate Base Rate shall be determined without regard to clause (b) or (c),
or both, of the preceding sentence, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
The term "Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Administrative Agent as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective on the date such change is publicly announced as being
effective. The term "Base CD Rate" shall mean the sum of (a) the product of (i)
the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
Assessment Rate. The term "Federal Funds Effective Rate" shall mean, for any
day, the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day that is a Business Day,
the average of the quotations for the day for such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Applicable Obligor" shall have the meaning assigned to such
term in Section 2.22.
"Applicable Percentage" of any Lender at any time shall mean
the percentage of the Total Revolving Credit Commitment represented by such
Lender's Revolving Credit Commitment. In the event the Revolving Credit
Commitments shall have expired or been terminated, the Applicable Percentages
shall be determined on the basis of the Revolving Credit Commitments most
recently in effect, but giving effect to assignments pursuant to Section 9.04.
<PAGE> 3
3
"Assessment Rate" shall mean for any date the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated
by the Administrative Agent as the then current net annual assessment rate that
will be employed in determining amounts payable by the Administrative Agent to
the Federal Deposit Insurance Corporation (or any successor thereto) for
insurance by such Corporation (or such successor) of time deposits made in
dollars at the Administrative Agent's domestic offices.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted by the
Administrative Agent, in the form of Exhibit B or such other form as shall be
approved by the Administrative Agent.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States of America.
"Borrowers" shall mean, collectively, the Domestic Borrowers
and the Foreign Borrowers.
"Borrowing" shall mean any Revolving Credit Borrowing, Thai
Facility Borrowing, Thai Offered Rate Borrowing or HK Offered Rate Borrowing.
"Borrowing Request" shall mean a request by any Borrower in
accordance with the terms of Section 2.03 and substantially in the form of
Exhibit C.
"Business Day" shall mean any day other than a Saturday,
Sunday or day on which banks in New York City are authorized or required by law
to close; provided, however, that (i) when used in connection with a Eurodollar
Loan, the term "Business Day" shall also exclude any day which is not a London
Business Day and (ii) when used in connection with a Foreign Borrower, the term
"Business Day" shall exclude any day on which banks in Hong Kong and the
jurisdiction in which such Foreign Borrower is organized are not open for
general banking business. A "London Business Day" shall mean any day on which
banks are open for dealings in dollar deposits in the London interbank market.
"Capital Expenditures" shall mean, for any person in respect
of any period, the sum of (a) the aggregate of all expenditures incurred by such
person during such period that, in accordance with GAAP, are or should be
included in "additions to property, plant or equipment" or similar items
reflected in the statement of cash flows of such person and (b) to the extent
not covered by clause (a) above, the aggregate of all expenditures incurred by
such person during such period to acquire by purchase or otherwise the business,
property or fixed assets of, or stock or other evidence of beneficial ownership
of, any other person; provided, however, that Capital Expenditures shall not
include (i) expenditures of proceeds of insurance settlements in respect of
lost, destroyed or damaged assets, equipment or other property to the extent
such expenditures are made to replace or repair such lost, destroyed or damaged
assets, equipment or other property within 12 months of such destruction or
damage or (ii) acquisitions of property in connection with Permitted Sale and
Lease-Back Transactions.
"Capital Lease Obligations" of any person shall mean the
obligations of such person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
<PAGE> 4
4
"Capital Stock" of any person shall mean any and all shares,
interests, share capital, rights to subscribe for or purchase, warrants,
options, participation or other equivalents of or interests in (however
designated) equity of such person, including any preferred stock, any limited or
general partnership interest and any limited liability company membership
interest, but excluding any debt securities convertible into or exchangeable for
such equity.
"Certificate of Incorporation" shall mean the Amended and
Restated Certificate of Incorporation of IMS, in substantially the form
heretofore delivered to the Administrative Agent and the Lenders, with no
changes therefrom or amendments thereto adverse to IMS or the Lenders, as
amended from time to time in accordance with Section 6.09.
A "Change in Control" shall be deemed to have occurred if:
(a) the Prudential Investor, the Oak Investors, the Management
Investors holding common stock of IMS or options to acquire such stock
on the Closing Date or the Continuing Shareholder (collectively, the
"Designated Persons") or any combination of Designated Persons, shall
cease to own and control, beneficially and of record, shares in the
aggregate representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding Capital Stock of IMS;
(b) a majority of the seats (excluding vacant seats) on the
board of directors of IMS shall at any time after the Closing Date have
been occupied by persons who were neither (i) nominated by any one or
more Designated Persons or by a majority of the board of directors of
IMS, nor (ii) appointed by directors so nominated;
(c) a change in control with respect to IMS or any Subsidiary
(or similar event, however denominated) shall occur under or in any
instrument or agreement in respect of or evidencing Indebtedness in a
principal amount in excess of $2,000,000 to which IMS or any Subsidiary
is party if the effect thereof is to cause, or to permit the holder or
holders of such Indebtedness or a trustee on its or their behalf (with
or without the serving of notice, the lapse of time or both) to cause,
such Indebtedness to become due prior to its stated maturity;
(d) any person or group other than the Designated Persons
shall otherwise directly or indirectly Control IMS;
(e)(i) IMS shall not own and control, of record and
beneficially, 100% of each class of outstanding Capital Stock, and
securities convertible into or exchangeable for Capital Stock, of the
U.S. Borrower free and clear of all Liens (other than any Lien under
the Security Documents); (ii) the U.S. Borrower shall not own and
control, of record and beneficially, 100% of each class of outstanding
Capital Stock, and securities convertible into or exchangeable for
Capital Stock, of IMS Foreign Holdings free and clear of all Liens
(other than any Lien under the Security Documents); or (iii) IMS
Foreign Holdings shall not own and control, directly or indirectly, of
record and beneficially, 100% of each class of outstanding Capital
Stock, and warrants to purchase and rights to subscribe for, and
securities convertible into or exchangeable for, Capital Stock, of each
Foreign Subsidiary; or (iv) 100% of each class of outstanding Capital
Stock, and warrants to purchase and rights to subscribe for, and
securities convertible into or exchangeable for, Capital Stock, of any
Domestic Subsidiary shall not be owned and controlled, of record and
beneficially, free and clear of all Liens (other than any Lien under
the Security Documents), by another Domestic Subsidiary
<PAGE> 5
5
or, solely in the case of the U.S. Borrower, by IMS; in each case
subject to directors' or similar qualifying shares required by
applicable law; or
(f) the Prudential Investor and the Oak Investors shall cease
to own and control, of record and beneficially, (i) shares in the
aggregate representing more than 75% of the shares of Preferred Stock
originally issued to the Prudential Investor and the Oak Investors and
(ii) Subordinated Notes in an aggregate principal amount in excess of
75% of the aggregate principal amount of Subordinated Notes originally
issued to the Prudential Investor and the Oak Investors.
"Change in Law" shall mean (a) the adoption of any law, rule
or regulation after the date of this Agreement, (b) any change in any law, rule
or regulation or in the interpretation or application thereof after the date of
this Agreement or (c) compliance by any Lender or the Fronting Bank with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Closing Date" shall mean the date of the first Credit Event.
"Code" shall mean the United States Internal Revenue Code of
1986, as amended from time to time.
"Collateral" shall mean all the "Collateral" as defined in any
Security Document and shall also include the Mortgaged Properties.
"Commitment Fee" shall have the meaning assigned to such term
in Section 2.05(a).
"Confidential Information Memorandum" shall mean the
Confidential Information Memorandum of IMS dated May 1996.
"Consolidated Cash Interest Expense" shall mean, with respect
to IMS and the Subsidiaries on a consolidated basis for any period, Consolidated
Interest Expense for such period less the sum of pay-in- kind or accreted
Consolidated Interest Expense not involving any payment of cash.
"Consolidated Current Assets" shall mean, with respect to IMS
and the Subsidiaries on a consolidated basis at any date of determination, all
assets (other than cash and Permitted Investments or other cash equivalents)
that would, in accordance with GAAP, be classified on a consolidated balance
sheet of IMS and the Subsidiaries as current assets at such date of
determination.
"Consolidated Current Liabilities" shall mean, with respect to
IMS and the Subsidiaries on a consolidated basis at any date of determination,
all liabilities that would, in accordance with GAAP, be classified on a
consolidated balance sheet of IMS and the Subsidiaries as current liabilities at
such date of determination, other than (a) the current portion of long-term
Indebtedness, (b) accruals of Consolidated Interest Expense (excluding
Consolidated Interest Expense that is due and unpaid) and (c) Loans classified
as current.
"Consolidated Interest Expense" shall mean, with respect to
IMS and the Subsidiaries on a consolidated basis for any period, interest and
fees accrued, accreted or paid by IMS and the Subsidiaries during such period in
respect of the Indebtedness of IMS and the Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
<PAGE> 6
6
"Consolidated Tangible Assets" shall mean at any time, the
aggregate amount of assets (less applicable reserves and other properly
deductible items) of IMS and the Subsidiaries, on a consolidated basis, adjusted
for inventories on the basis of cost or current market value, whichever is
lower, and deducting therefrom all goodwill, trade names, patents and other like
intangibles, computed in accordance with GAAP.
"Consolidated Working Capital" shall mean, with respect to IMS
and the Subsidiaries on a consolidated basis at any date of determination,
Consolidated Current Assets at such date of determination minus Consolidated
Current Liabilities at such date of determination.
"Contingent Payment Notes" shall mean the $20,000,000
aggregate principal amount of Senior Subordinated Notes of IMS and the HK
Borrower and the Senior Subordinated Evidences of Indebtedness of the Thai
Borrower payable to the order of the Continuing Shareholder, in each case in
substantially the form heretofore delivered to the Administrative Agent and the
Lenders, with no changes therefrom or amendments thereto adverse to IMS, the
Subsidiaries or the Lenders, as amended from time to time in accordance with
Section 6.09.
"Contingent Payment Notes Guarantees" shall mean the
Guaranties dated as of the date hereof made by IMS and the Subsidiary Guarantors
in favor of the Continuing Shareholder in respect of the obligations of the HK
Borrower and the Thai Borrower under the Contingent Payment Notes and by the
Domestic Guarantors (other than IMS) in favor of the Continuing Shareholder in
respect of the obligations of IMS under the Contingent Payment Notes, in each
case in substantially the form heretofore delivered to the Administrative Agent
and the Lenders, with no changes therefrom or amendments thereto adverse to IMS,
the Subsidiaries or the Lenders, as amended from time to time in accordance with
Section 6.09.
"Continuing Shareholder" shall mean Maxtor Corp., a Delaware
corporation.
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Credit Event" shall have the meaning assigned to such term in
Section 4.01.
"Credit Exposure" shall mean, with respect to any Lender at
any time, the aggregate principal amount at such time of all outstanding
Revolving Loans of such Lender to all the Borrowers, plus the aggregate amount
at such time of such Lender's (w) L/C Exposure, (x) Thai Facility Exposure, (y)
Thai Offered Rate Facility Exposure and (z) HK Offered Rate Facility Exposure.
"Customer Account Equipment" shall mean customer-unique
equipment which is purchased by any Subsidiary with the intention of selling
such equipment to a specific customer of such Subsidiary within 180 days after
such purchase, and which is in fact sold to such customer within 180 days after
such purchase, all in the ordinary course of business of such Subsidiary.
"Debt Service" shall mean, with respect to IMS and the
Subsidiaries on a consolidated basis for any period, the sum of (a) Consolidated
Cash Interest Expense of IMS and the Subsidiaries for such period plus (b)
scheduled principal amortization of Total Debt (other than the Contingent
Payment Notes) for such period.
<PAGE> 7
7
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"Designated Excess Cash Flow Amount" shall have the meaning
assigned to such term in Section 2.09(e).
"Designated Persons" shall have the meaning assigned to such
term in the definition of Change of Control.
"dollars" or "$" shall mean lawful money of the United States
of America.
"Domestic ABR Borrowing" shall mean any Domestic Borrowing
that is an ABR Borrowing.
"Domestic Borrowers" shall mean, collectively, the U.S.
Borrower and any Permitted Additional Borrower that is not a Foreign Subsidiary.
"Domestic Borrowing" shall mean (i) any Borrowing made by a
Domestic Borrower and (ii) any Revolving Credit Borrowing made by the HK
Borrower that is not a Foreign Revolving Borrowing.
"Domestic Guarantors" shall mean, collectively, IMS and each
other Guarantor that is not a Foreign Subsidiary.
"Domestic Subsidiary" shall mean any Subsidiary incorporated
or organized under the laws of the United States of America, any State thereof
or the District of Columbia.
"EBITDA" shall mean, with respect to IMS and the Subsidiaries
on a consolidated basis for any period, the net income of IMS and the
Subsidiaries on a consolidated basis for such period plus, to the extent
deducted in computing such consolidated net income, without duplication, the sum
of (a) income tax expense, (b) interest expense, (c) depreciation and
amortization expense, (d) any extraordinary or non-recurring losses and (e)
other noncash items reducing such consolidated net income, minus, to the extent
added in computing such consolidated net income, without duplication, the sum of
(i) interest income, (ii) any extraordinary or non-recurring gains and (iii)
other noncash items increasing such consolidated net income, determined on a
consolidated basis in accordance with GAAP.
"environment" shall mean ambient air, surface water and
groundwater (including potable water, navigable water and wetlands), the land
surface or subsurface strata, the workplace or as otherwise defined in any
Environmental Law.
"Environmental Claim" shall mean any written accusation,
allegation, notice of violation, claim, demand, order, directive, cost recovery
action or other cause of action by, or on behalf of, any Governmental Authority
or any person for damages, injunctive or equitable relief, personal injury
(including sickness, disease or death), Remedial Action costs, tangible or
intangible property damage, natural resource damages, nuisance, pollution, any
adverse effect on the environment caused by any Hazardous Material, or for
fines, penalties or restrictions, resulting from or based upon (a) the
existence, or the continuation of the existence, of a Release, (b) exposure to
any Hazardous Material, (c) the presence, use, handling, transportation,
storage, treatment or disposal of any Hazardous Material or (d) the violation or
alleged violation of any Environmental Law or Environmental Permit.
<PAGE> 8
8
"Environmental Law" shall mean any and all applicable present
and future treaties, laws, rules, regulations, codes, ordinances, orders,
decrees, directives, judgments, injunctions, notices or binding agreements
issued, promulgated or entered into by any Governmental Authority, relating in
any way to the environment, preservation or reclamation of natural resources,
the management, Release or threatened Release of any Hazardous Material or to
health and safety matters, including, but not limited to the Enhancement and
Conservation of National Environmental Quality Act, Hazardous Substances Act,
Factories Act, Public Health Act, Air Pollution Control Ordinance, Air Pollution
Control Amendment Ordinance, Factories & Industrial Undertakings Ordinance,
Ozone Layer Protection Ordinance, Waste Disposal Ordinance, Water Pollution
Control Ordinance and any similar or implementing foreign, provincial, district,
regional, state or local law, and all amendments to, or regulations promulgated
under, any of the foregoing.
"Environmental Permit" shall mean any permit, approval,
authorization, certificate, license, variance, filing or permission required by
or from any Governmental Authority pursuant to any Environmental Law.
"Equity Net Proceeds" shall mean the cash proceeds from the
issuance or sale by IMS or any Subsidiary (other than the issuance or sale to
IMS or any wholly owned Subsidiary) of any equity security (or any option,
warrant or right to subscribe for or security convertible into or exchangeable
for any equity security) of IMS or any Subsidiary (other than sales of Capital
Stock of IMS to directors, officers, consultants or employees of IMS or the
Subsidiaries in connection with permitted employee compensation and incentive
arrangements), net of all taxes applicable to and customary fees, commissions,
costs and other expenses incurred in connection with such issuance or sale.
"Equity Net Proceeds Reduction" shall have the meaning
assigned to such term in Section 2.09.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that, together with any Domestic Borrower, is treated as a
single employer under Section 414(b) or (c) of the Code, or solely for purposes
of Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" shall mean (a) any "reportable event", as
defined in Section 4043 of ERISA or the regulations issued thereunder, with
respect to a Plan; (b) the adoption of any amendment to a Plan that would
require the provision of security pursuant to Section 401(a)(29) of the Code or
Section 307 of ERISA; (c) the existence with respect to any Plan of an
"accumulated funding deficiency" (as defined in Section 412 of the Code or
Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section
412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of
the minimum funding standard with respect to any Plan; (e) the incurrence of any
liability under Title IV of ERISA with respect to the termination of any Plan or
the withdrawal or partial withdrawal of any Domestic Borrower or any of its
ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt by any
Domestic Borrower or any ERISA Affiliate from the PBGC or a plan administrator
of any notice relating to the intention to terminate any Plan or Plans or to
appoint a trustee to administer any Plan; (g) the receipt by any Domestic
Borrower or any ERISA Affiliate of any notice concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of
<PAGE> 9
9
Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect
to which any Domestic Borrower or any of its subsidiaries is a "disqualified
person" (within the meaning of Section 4975 of the Code) or with respect to
which any Domestic Borrower or any such subsidiary could otherwise be liable;
(i) any other event or condition with respect to a Plan or Multiemployer Plan
that could reasonably be expected to result in material liability of any
Domestic Borrower; and (j) any Foreign Benefit Event.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a
rate determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.
"Event of Default" shall have the meaning assigned to such
term in Article VII.
"Excess Cash Flow" shall mean, with respect to IMS and the
Subsidiaries on a consolidated basis for any fiscal year (or for the period
commencing on June 30, 1996 and ending on the last Saturday in March, 1997),
EBITDA of IMS and the Subsidiaries on a consolidated basis for such fiscal year
or period minus, without duplication, (a) Debt Service of IMS and the
Subsidiaries on a consolidated basis for such fiscal year or period, (b) Capital
Expenditures by IMS and the Subsidiaries on a consolidated basis during such
fiscal year or period that are paid in cash, (c) all taxes paid in cash by IMS
and the Subsidiaries on a consolidated basis during such fiscal year or period,
(d) an amount equal to any increase in Consolidated Working Capital of IMS and
the Subsidiaries during such fiscal year or period, (e) cash dividends paid by
IMS on the Preferred Stock during such fiscal year or period in an aggregate
amount not in excess of $1,000,000, (f) cash expenditures made by IMS and the
Subsidiaries on a consolidated basis in respect of Interest Rate Protection
Agreements during such fiscal year or period, to the extent not reflected in the
computation of EBITDA, (g) amounts paid in cash by IMS and the Subsidiaries on a
consolidated basis during such fiscal year or period on account of items that
were accounted for as noncash reductions of consolidated net income of IMS and
the Subsidiaries in the current or a prior period, (h) any extraordinary or
non-recurring loss paid in cash by IMS and the Subsidiaries on a consolidated
basis during such fiscal year or period and (i) to the extent added in
determining EBITDA, all items that did not result from a cash payment to IMS and
the Subsidiaries on a consolidated basis during such fiscal year or period plus,
without duplication, (i) an amount equal to any decrease in Consolidated Working
Capital of IMS and the Subsidiaries during such fiscal year or period, (ii) all
proceeds received during such fiscal year or period from Capital Lease
Obligations, purchase money Indebtedness and any other Indebtedness to the
extent used to finance any Capital Expenditure (other than Indebtedness under
this Agreement to the extent there is no corresponding deduction to Excess Cash
Flow above in respect of the use of such Borrowings for such fiscal year or
period or any prior period), (iii) all amounts referred to in clause (b) above
to the extent funded with the proceeds of the issuance of Capital Stock of IMS
after the Closing Date or any amount that would have constituted Equity Net
Proceeds if not so spent, in each case to the extent there is a corresponding
deduction to Excess Cash Flow above for such fiscal year or period or any prior
period, (iv) cash payments received in respect of Interest Rate Protection
Agreements during such fiscal year or period to the extent not included in
EBITDA, (v) any extraordinary or non-recurring gain realized in cash during such
fiscal year or period (except to the extent such gain is subject to Section
2.09(d)(iii)), (vi) to the extent subtracted in the computation of EBITDA,
interest income and (vii) to the extent subtracted in determining EBITDA, all
items that did not result from a cash payment by IMS and the Subsidiaries on a
consolidated basis during such fiscal year or period.
"Excess Cash Flow Reduction" shall have the meaning assigned
to such term in Section 2.09(d).
<PAGE> 10
10
"Excess EBITDA" shall have the meaning assigned to such term
in Section 6.10.
"Excluded Taxes" shall mean, with respect to the
Administrative Agent, any Lender, the Fronting Bank or any other recipient of
any payment to be made by or on account of any obligation of any Borrower
hereunder, (a) income or franchise Taxes imposed on (or measured by) its net
income by the jurisdiction under the laws of which it is organized, or the
jurisdiction in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits or similar Tax imposed by the Relevant Jurisdiction and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by a Borrower
under Section 2.19(b)), any withholding Tax imposed on amounts payable to such
Foreign Lender under this Agreement because of its failure or inability to
comply with Section 2.18(e) or otherwise, unless (and to the extent that) (i)
such withholding Tax liability arises or is increased by reason of a Change in
Law occurring after such Foreign Lender becomes a Lender under this Agreement or
(ii) such Foreign Lender's assignor (if any) was entitled, at the time of
assignment, to receive additional amounts from the applicable Borrower with
respect to such withholding Tax liability pursuant to Section 2.18(a).
"Fee Letter" shall mean the Fee Letter dated April 17, 1996,
among the Prudential Investor, the Oak Investors, Chemical Bank and Chemical
Securities Asia Limited.
"Fees" shall mean the Commitment Fees, the Administrative
Agent's Fees, the LC Participation Fees, the Thai Facility Participation Fees,
the Thai Offered Rate Facility Participation Fees, the HK Offered Rate Facility
Participation Fees and the Fronting Bank Fees.
"Financial Officer" of any person shall mean the chief
financial officer, principal accounting officer, Treasurer or Controller of such
person.
"Foreign Benefit Event" shall mean (a) with respect to any
Foreign Pension Plan, (i) the existence of unfunded liabilities in excess of the
amount permitted under any applicable law, or in excess of the amount that would
be permitted absent a waiver from a Governmental Authority, (ii) the failure to
make the required contributions or payments, under any applicable law, on or
before the due date for such contributions or payments, (iii) the receipt of a
notice from a Governmental Authority relating to the intention to terminate any
such Foreign Pension Plan or to appoint a trustee to administer any such Foreign
Pension Plan, or to the insolvency of any such Foreign Pension Plan and (iv) the
incurrence of any liability of the Borrowers under applicable law on account of
the complete or partial termination of such Foreign Pension Plan or the complete
or partial withdrawal of any participating employer therein and (b) with respect
to any Foreign Plan, (i) the occurrence of any transaction that is prohibited
under any applicable law and could result in the incurrence of any liability by
the Borrowers, or the imposition on the Borrowers of any fine, excise tax or
penalty resulting from any noncompliance with any applicable law and (ii) any
other event or condition that could reasonably be expected to result in
liability of any of the Borrowers.
"Foreign Borrowers" shall mean, collectively, the HK Borrower
and the Thai Borrower and any Permitted Additional Borrower that is a Foreign
Subsidiary.
"Foreign Guarantors" shall mean, collectively, all Guarantors
that are Foreign Subsidiaries.
"Foreign Lender", with respect to any Loan, shall mean any
Lender making such Loan that is organized under the laws of a jurisdiction other
than the Relevant Jurisdiction.
<PAGE> 11
11
"Foreign Pension Plan" shall mean any benefit plan which under
applicable law is required to be funded through a trust or other funding vehicle
other than a trust or funding vehicle maintained exclusively by a Governmental
Authority.
"Foreign Plan" shall mean any plan or arrangement established
or maintained outside the United States for the benefit of present or former
employees of any of the Subsidiaries.
"Foreign Pledge Agreements" shall mean the following
agreements: (i) the Debenture in the form of Exhibit E-2 between the HK Borrower
and the Collateral Agent for the benefit of the Secured Parties; (ii) the Pledge
Agreement substantially in the form of Exhibit E-3 between IMS Cayman and the
Collateral Agent for the benefit of the Secured Parties and (iii) any Pledge
Agreement entered into pursuant to Section 5.11 by a Foreign Subsidiary formed
or acquired by IMS or any Subsidiary after the date hereof and the Collateral
Agent for the benefit of the Secured Parties, which shall be substantially in
the form of Exhibit E-1 with such changes as shall in the judgment of the
Collateral Agent be necessary or advisable under applicable law.
"Foreign Revolving Borrowing" shall mean any Revolving Credit
Borrowing made by a Foreign Borrower the funds comprising which are disbursed to
an account located outside the United States.
"Foreign Security Agreements" shall mean the following
agreements: (i) the Thailand Security Agreement, (ii) the Debenture
substantially in the form of Exhibit E-2 between the HK Borrower and the
Collateral Agent for the benefit of the Secured Parties, (iii) the Security
Agreement substantially in the form of Exhibit F-3 between IMS Cayman and the
Collateral Agent for the benefit of the Secured Parties and (v) any Security
Agreement entered into pursuant to Section 5.11 by a Foreign Subsidiary formed
or acquired by IMS or any Subsidiary after the date hereof and the Collateral
Agent for the benefit of the Secured Parties, which shall be substantially in
the form of Exhibit F-1 with such changes as shall in the judgment of the
Collateral Agent be necessary or advisable under applicable law.
"Foreign Subsidiary" shall mean any Subsidiary that is not a
Domestic Subsidiary.
"Fronting Bank Fees" shall have the meaning assigned to such
term in Section 2.05(c).
"GAAP" shall mean generally accepted accounting principles in
the United States applied on a consistent basis.
"GECC Loan" shall mean certain Indebtedness outstanding as of
the date hereof of the HK Borrower to General Electric Credit Corporation in a
principal amount equal to approximately $425,000.
"Governmental Authority" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantee" of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase or lease property, securities
or services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working
<PAGE> 12
12
capital, equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay such
Indebtedness; provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreements" shall mean the Parent Guarantee
Agreement and the Subsidiary Guarantee Agreement.
"Guarantors" shall mean IMS and each Subsidiary that has
entered into the Subsidiary Guarantee Agreement.
"Hazardous Materials" shall mean all explosive or radioactive
substances or wastes, hazardous or toxic substances or wastes, pollutants,
solid, liquid or gaseous wastes, including petroleum or petroleum distillates,
asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or
PCB-containing materials or equipment, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"HK Facility Lender" shall mean Chemical Bank. The HK Facility
Lender shall be a Lender.
"HK Offered Rate" shall mean with respect to any HK Offered
Rate Loan for any Interest Period, the rate per annum at which deposits in
dollars approximately equal in principal amount to such HK Offered Rate Loan and
for a maturity comparable to such Interest Period are offered by the HK Facility
Lender to prime banks in Hong Kong on the first day of such Interest Period.
"HK Offered Rate Borrowing" shall mean one or a group of HK
Offered Rate Loans made on a single date and as to which a single Interest
Period is in effect.
"HK Offered Rate Facility Commitment" shall mean the
commitment of the HK Facility Lender to make HK Facility Loans pursuant to
Section 2.01(d).
"HK Offered Rate Facility Exposure" shall mean at any time the
aggregate principal amount of all outstanding HK Offered Rate Loans at such
time. The HK Offered Rate Facility Exposure of any Lender at any time shall mean
its Applicable Percentage of the aggregate HK Offered Rate Facility Exposure at
such time.
"HK Offered Rate Facility Participations Event" shall have the
meaning assigned to such term in Section 2.01(d).
"HK Offered Rate Loan Payment Date" shall have the meaning
assigned to such term in Section 2.01(d)(vi).
"HK Offered Rate Loans" shall mean the HK Offered Rate Loans
made by the HK Facility Lender to the HK Borrower pursuant to Section 2.01(d).
"IMS PRC Borrower Date" shall have the meaning assigned to
such term in Section 6.15.
"IMS PRC Guarantee Issuance Date" shall have the meaning
assigned to such term in Section 5.11.
<PAGE> 13
13
"IMS PRC Security Grant Date" shall have the meaning assigned
to such term in Section 5.11.
"IMS Reorganization" shall mean the reorganization of IMS and
its subsidiaries as a result of which the organizational structure of IMS and
its subsidiaries will be as set forth on Schedule 4.02(n).
"Indebtedness" of any person shall mean, without duplication,
(a) all obligations of such person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such person evidenced
by bonds, debentures, notes or similar instruments, (c) all obligations of such
person upon which interest charges are customarily paid, (d) all obligations of
such person under conditional sale or other title retention agreements relating
to property or assets purchased by such person, (e) all obligations of such
person issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable), (f) all Indebtedness of others secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been assumed, (g)
all Guarantees by such person of Indebtedness of others, (h) all Capital Lease
Obligations of such person, (i) all payments that such person would have to make
in the event of an early termination, on the date Indebtedness of such person is
being determined, in respect of outstanding interest rate protection agreements,
foreign currency exchange agreements or other interest or exchange rate hedging
arrangements and (j) all obligations of such person as an account party in
respect of letters of credit and bankers' acceptances. The Indebtedness of any
person shall include the Indebtedness of any partnership in which such person is
a general partner.
"Indemnified Taxes" shall mean Taxes other than Excluded
Taxes.
"Indemnity, Subrogation and Contribution Agreement" shall mean
the Indemnity, Subrogation and Contribution Agreement, substantially in the form
of Exhibit D, among the Subsidiary Guarantors and the Collateral Agent.
"Interest Coverage Ratio" shall have the meaning assigned to
such term in Section 6.11.
"Interest Payment Date" shall mean, with respect to any Loan,
the last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration, each day that would have been an
Interest Payment Date had successive Interest Periods of three months' duration
been applicable to such Borrowing, and, in addition, the date of any prepayment
of such Borrowing or conversion of such Borrowing to a Borrowing of a different
Type.
"Interest Period" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing or on the last
day of the immediately preceding Interest Period in effect for such Borrowing
and ending on the numerically corresponding day (or, if there is no numerically
corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6
months thereafter, as the applicable Borrower may elect and (b) as to any ABR
Borrowing, Thai Offered Rate Borrowing or HK Offered Rate Borrowing, the period
commencing on the date of such Borrowing or on the last day of the immediately
preceding Interest Period in effect for such Borrowing and ending on the
earliest of (i) the next succeeding March 31, June 30, September 30 or December
31, (ii) the Maturity Date and (iii) in the case of an ABR Borrowing, the date
such Borrowing is converted to a Borrowing of a different Type in accordance
with Section 2.10 or repaid or prepaid in accordance with Section 2.11, and in
the case of an Offered Rate Borrowing, on the
<PAGE> 14
14
day such Borrowing is repaid or converted into a Eurodollar Borrowing in
accordance with Section 2.01; provided, however, that if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of a Eurodollar
Borrowing only, such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first day
of an Interest Period to but excluding the last day of such Interest Period.
"Interest Rate Protection Agreement" shall mean any interest
rate cap agreement or other agreement or arrangement satisfactory to the
Administrative Agent entered into by any Borrower designed to protect such
Borrower against fluctuations in interest rates.
"Investors" shall mean the Management Investors (as at the
time of determination), the Prudential Investor and the Oak Investors.
"L/C Commitment" shall mean the commitment of the Fronting
Bank to issue Letters of Credit pursuant to Section 2.20.
"L/C Disbursement" shall mean a payment or disbursement made
by the Fronting Bank pursuant to a Letter of Credit.
"L/C Exposure" shall mean at any time the sum of (a) the
aggregate undrawn amount of all outstanding Letters of Credit at such time plus
(b) the aggregate principal amount of all L/C Disbursements that have not yet
been reimbursed at such time. The L/C Exposure of any Lender at any time shall
mean its Applicable Percentage of the aggregate L/C Exposure at such time.
"L/C Participation Fee" shall have the meaning assigned to
such term in Section 2.05(c).
"Lenders" shall mean (a) the financial institutions listed on
Schedule 2.01 (other than any such financial institution that has ceased to be a
party hereto pursuant to an Assignment and Acceptance) and (b) any financial
institution that has become a party hereto pursuant to an Assignment and
Acceptance.
"Letter of Credit" shall mean any letter of credit issued
pursuant to Section 2.20.
"Leverage Ratio" shall have the meaning assigned to such term
in Section 6.13.
"LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum equal to the
arithmetic average of the rates that appear on the Reuters Screen LIBO Page as
of 11:00 a.m., London time, two London Business Days prior to the commencement
of such Interest Period, for a maturity comparable to such Interest Period or,
in the event no such rates appear on the Reuters Screen LIBO Page, the rate at
which deposits in dollars approximately equal in principal amount to such
Borrowing and for a maturity comparable to such Interest Period are offered to
the principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two London Business Days prior to the commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest
in or on such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having
<PAGE> 15
15
substantially the same economic effect as any of the foregoing) relating to such
asset and (c) in the case of securities, any purchase option, call or similar
right of a third party with respect to such securities.
"Loan Documents" shall mean this Agreement, the Letters of
Credit, the Guarantee Agreements, the Security Documents and the Indemnity,
Subrogation and Contribution Agreement.
"Loan Parties" shall mean the Borrowers and the Guarantors.
"Loans" shall mean the Revolving Loans, the Thai Facility
Loans, the Thai Offered Rate Loans and the HK Offered Rate Loans. Each Revolving
Loan shall be a Eurodollar Loan or an ABR Loan.
"Management Investors" shall mean at any time the officers and
directors of IMS and the Subsidiaries holding voting stock of IMS at such time.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse
effect on the business, assets, operations or financial condition of IMS and the
Subsidiaries taken as a whole, (b) material impairment of the ability of IMS or
any other Loan Party to perform its obligations under any Loan Document to which
it is or will be a party or (c) material impairment of the rights of or benefits
available to the Lenders under any Loan Document.
"Maturity Date" shall mean the fifth anniversary of the
Closing Date.
"Mortgaged Properties" shall mean the material owned real
properties and leasehold and subleasehold interests of the Loan Parties.
"Mortgages" shall mean the mortgages, deeds of trust,
leasehold mortgages, assignments of leases and rents, modifications and other
security documents delivered pursuant to Section 5.11.
"Multiemployer Plan" shall mean a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Non-Equity Net Proceeds" shall mean (a) 100% of the cash
proceeds actually received by IMS or any Subsidiary (including cash proceeds
subsequently received in respect of noncash consideration initially received and
including all insurance settlements and condemnation awards in any fiscal year
of IMS but only as and when received), net of selling expenses (including
reasonable broker's fees or commissions, transfer and similar taxes and IMS's
good faith estimate of income tax liabilities incurred in connection with the
receipt of such cash proceeds) from any loss, damage, destruction or
condemnation of, or any sale, transfer or other disposition (other than (i) the
sale of Customer Account Equipment and inventory in the ordinary course, (ii)
sales of property in connection with Permitted Sale and Lease-Back Transactions
and (iii) sales, transfers or other dispositions effected as part of a Permitted
Intercompany Transfer) to any person in any transaction or related series of
transactions of any asset or assets of IMS or any Subsidiary, provided that if
IMS shall deliver a certificate of a Responsible Officer to the Administrative
Agent promptly following receipt of any such proceeds setting forth the
intention of IMS or the applicable Subsidiary to use any portion of such
proceeds to purchase assets useful in the business of IMS or the applicable
Subsidiary within 12 months of such receipt, such portion of such proceeds shall
not constitute Non-Equity Net Proceeds except to the extent not so used within
such 12-month period ("Reinvested Proceeds"); and
<PAGE> 16
16
provided further that if the proceeds realized from any such sale, transfer or
disposition transaction is less than $25,000 (a "De Minimis Sale"), then, so
long as such proceeds are used to purchase assets useful in the business of IMS
or the applicable Subsidiary within 12 months of receipt thereof, such proceeds
shall be deemed (regardless of the failure of IMS or such Subsidiary to deliver
a certificate as set forth above with respect to such De Minimis Sale) to
constitute Reinvested Proceeds unless the aggregate amount of all De Minimis
Sales (including such De Minimis Sale) in the fiscal year in which such De
Minimis Sale occurs exceeds $1,000,000; and (b) 100% of the cash proceeds from
the incurrence, issuance or sale by IMS or any Subsidiary of any Indebtedness of
IMS or any Subsidiary (other than Indebtedness permitted under Section 6.01,
other than by virtue of any waiver or amendment entered into to permit such
Indebtedness), net of all taxes applicable to and customary fees, commissions,
costs and other expenses incurred in connection with such issuance or sale.
"Non-Equity Net Proceeds Reduction" shall have the meaning
assigned to such term in Section 2.09(d).
"Oak Investor Parties" shall mean the Oak Investors and the
persons listed on Schedule 1.01(a).
"Oak Investors" shall mean, collectively, Oak Investment
Partners VI, L.P., a California limited partnership, and Oak VI Affiliates Fund,
L.P., a California limited partnership.
"Obligations" shall mean, without duplication, (a) the
obligations of the Borrowers (i) to pay the principal of and premium, if any,
and interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) to make each payment required to be made by the Borrowers under
this Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) to pay and satisfy when due all
other monetary obligations, including fees, costs, expenses and indemnities,
whether primary, secondary, direct, contingent, fixed or otherwise (including
monetary obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Borrowers to the Secured Parties under
this Agreement and the other Loan Documents and (b) the obligations of the Loan
Parties to pay and perform when and as due all the covenants, agreements,
obligations and liabilities of the Loan Parties under or pursuant to this
Agreement and the other Loan Documents and under each Interest Rate Protection
Agreement entered into with any counterparty that was a Lender at the time such
Interest Rate Protection Agreement was entered into.
"Offered Rate Borrowings" shall mean Thai Offered Rate
Borrowings and HK Offered Rate Borrowings.
"Offered Rate Loans" shall mean Thai Offered Rate Loans and HK
Offered Rate Loans.
"Other Taxes" shall mean any and all present or future stamp
or documentary taxes or any other excise or property Taxes, charges or similar
levies arising from any payment made hereunder or from the execution or delivery
of, or otherwise with respect to, this Agreement.
<PAGE> 17
17
"Parent Guarantee Agreement" shall mean the Parent Guarantee
Agreement, substantially in the form of Exhibit D-1, made by IMS in favor of the
Collateral Agent for the benefit of the Secured Parties.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
"Perfection Certificate" shall mean a Perfection Certificate
substantially in the form of Annex 1 to the Security Agreement.
"Permitted Additional Borrower" shall mean any wholly owned
Subsidiary that was formed or acquired pursuant to a Permitted Business
Acquisition and which, pursuant to Section 2.21, has undertaken all the
liabilities and obligations of a Borrower under this Agreement.
"Permitted Business Acquisition" shall mean any acquisition of
all the shares (excluding directors' or similar qualifying shares required by
applicable law) of Capital Stock (and warrants or rights to subscribe for and
securities convertible into or exchangeable for Capital Stock) (including the
formation of a new Subsidiary), or of all or substantially all the assets of, a
person or division or line of business of a person if immediately after giving
effect thereto: (a) no Default or Event of Default shall have occurred and be
continuing or would result therefrom, (b) all transactions related thereto shall
be consummated in accordance with applicable laws, (c) all the Capital Stock
(and all warrants or rights to subscribe for and securities convertible into or
exchangeable for Capital Stock) of any acquired or newly formed person (i) that
is a Domestic Subsidiary shall be owned directly by a wholly owned Domestic
Subsidiary and (ii) that is a Foreign Subsidiary shall be owned directly by IMS
Foreign Holdings, and all actions required to be taken with respect to any such
Domestic Subsidiary or Foreign Subsidiary under Section 5.11 (including with
respect to such party entering into a Security Agreement and a Guarantee
Agreement with the Collateral Agent for the benefit of the Secured Parties)
shall have been taken or shall have been provided for, and the Required Lenders
and the Collateral Agent shall be reasonably satisfied with all matters
pertaining to compliance with such Section 5.11 and with the guarantee and
collateral arrangements with respect to such person (and with an opinion of
counsel reasonably acceptable to the Collateral Agent relating to any such
person and such arrangements) and the Collateral Agent shall have delivered
written notice to IMS confirming such satisfaction, (d) any acquired assets
shall be used in, and any acquired or newly formed person shall be engaged in
the business currently conducted by, IMS and the Subsidiaries and business
activities reasonably related or incidental thereto, and (e)(i) IMS and the
Subsidiaries shall be in compliance, on a pro forma basis after giving effect to
such acquisition or formation, with the covenants contained in Sections 6.11,
6.12, 6.13, and 6.14 (A) recomputed as at the last day of the most recently
ended fiscal quarter of IMS as if such acquisition had occurred on the first day
of the relevant period for testing such compliance and (B) computed for each
relevant period during the remaining term of this Agreement (based, in the case
of such projected compliance for future periods, upon reasonable assumptions as
to costs to be incurred and revenues to be realized from such acquisition or
formation), and IMS shall have delivered to the Administrative Agent a
certificate of a Responsible Officer to such effect, together with all relevant
financial information for such Subsidiary or assets and calculations
demonstrating such compliance, and (ii) any acquired or newly formed Subsidiary
shall not be liable for any Indebtedness except for Indebtedness permitted by
Section 6.01.
"Permitted Intercompany Transfer" shall mean any transfer, by
means of issuance and incurrence of Indebtedness, investment, purchase and sale
or otherwise, of any asset from IMS or any Subsidiary to any wholly owned
Guarantor or to IMS PRC if, after giving effect to such transfer:
(a) the aggregate obligations of each Subsidiary shall be in
an amount, and shall involve payments, that can reasonably be supported
by such Subsidiary taking into account the actual and
<PAGE> 18
18
reasonably expected cash flows of such Subsidiary, the value of the
assets of such Subsidiary included in the Collateral and the
Indebtedness and obligations of such Subsidiary;
(b) Consolidated Tangible Assets representing not less than
90% of the total Consolidated Tangible Assets of IMS and the
Subsidiaries shall be owned by the Borrowers; and
(c) all rights of IMS and the Subsidiaries in contracts
representing not less than 90% of the consolidated projected
contractual revenues of IMS and the Subsidiaries under contracts for
the production of goods that are in effect at the time of determination
shall be held by the Borrowers.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America),
in each case maturing within one year from the date of acquisition
thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, a rating of A1 from Standard & Poor's Ratings Service or
P1 from Moody's Investors Service, Inc.;
(c) investments in certificates of deposit, banker's
acceptances, time deposits and other deposits maturing within one year
from the date of acquisition thereof issued or guaranteed by or placed
with, and money market deposit accounts issued or offered by, any
domestic office of any commercial bank that has a combined capital and
surplus and undivided profits of not less than $250,000,000 or a rating
of A1 from Standard and Poor's Ratings Service or P1 from Moody's
Investors Service, Inc.;
(d) readily marketable direct obligations of any State of the
United States of America or any political subdivision of any such State
having, at such date of acquisition, a rating of at least AA by S&P and
Aa2 by Moody's, in each case maturing within one year after the date of
acquisition thereof; and
(e) other investment instruments approved in writing by the
Required Lenders and offered by financial institutions which have a
combined capital and surplus and undivided profits of not less than
$250,000,000.
"Permitted Sale and Lease-Back Transaction" shall have the
meaning assigned to such term in Section 6.03.
"person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other
than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 307 of ERISA, and in respect of which IMS or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreements" shall mean the U.S. Pledge Agreement and
the Foreign Pledge Agreements.
<PAGE> 19
19
"Preferred Stock" shall mean the Series A 10% Preferred Stock
of IMS and the Series B 10% Preferred Stock of IMS, with an aggregate initial
liquidation preference of $10,000,000, to be issued to the Prudential Investor
and the Oak Investors on the Closing Date pursuant to the Recapitalization
Agreement.
"Production Agreement" shall mean the Manufacturing Services
Agreement to be dated as of or prior to the Closing Date to be entered into by
the Continuing Shareholder and IMS, in substantially the form heretofore
delivered to the Administrative Agent and the Lenders, with no changes therefrom
or amendments thereto (other than those that would not constitute, and could not
reasonably be expected to result in, a Material Adverse Effect), as amended from
time to time in accordance with Section 6.09.
"Proposed Permitted Additional Borrower" shall have the
meaning assigned to such term in Section 2.21.
"Prudential Investor" shall mean Prudential Private Equity
Investors III, L.P., a Delaware limited partnership.
"Prudential Investor Parties" shall mean the Prudential
Investor and the persons listed on Schedule 1.01(b).
"Purchase Commitment Default" shall mean any breach by the
Continuing Shareholder of its Purchase Commitment (as defined in the Production
Agreement).
"Recapitalization" shall mean the consummation of the
following transactions: (a) the purchase by the Investors and the other Oak
Investor Parties and Prudential Investor Parties of common stock of IMS that on
a fully diluted basis and after giving effect to the other transactions referred
to in this definition (including the issuance of the Warrants) will represent
78.5% of the issued and outstanding common stock of IMS, (b) the receipt by the
Continuing Shareholder of cash payments in an aggregate amount not in excess of
$26,000,000 consisting of approximately $10,000,000 from the redemption of
common stock of IMS held by the Continuing Shareholder, approximately
$15,000,000 from the repayment of notes by certain Subsidiaries to the
Continuing Shareholder and not more than $1,000,000 from the repayment by IMS to
the Continuing Shareholder of capital advances made by the Continuing
Shareholder to IMS between January 1, 1996 and the Closing Date, (c) the
issuance by IMS, the HK Borrower and the Thai Borrower to the Continuing
Shareholder of the Contingent Payment Notes in an aggregate principal amount of
$20,000,000, (d) the issuance by IMS to the Continuing Shareholder of the
Warrants, (e) the issuance by IMS of the Subordinated Notes in an aggregate
principal amount of $12,500,000 and the Preferred Stock with an aggregate
initial liquidation preference of $10,000,000, in each case as set forth on
Schedule 1.01(c), (f) the issuance by IMS to the Management Investors of certain
stock options, with the result that, upon such issuance and after giving effect
to the other transactions referred to in this definition (including the issuance
of the Warrants), the common stock of IMS will be held on a fully diluted basis
as set forth on Schedule 1.01(c), (g) the execution and delivery by the
Continuing Shareholder and IMS of the Production Agreement, (h) the consummation
of the IMS Reorganization and (i) the execution and delivery of, and the
consummation of the other transactions contemplated by, the Recapitalization
Agreement and the Redemption Agreement.
"Recapitalization Agreement" shall mean the Recapitalization
Agreement among IMS, the Continuing Shareholder and the Investors in
substantially the form heretofore delivered to the Administrative Agent and the
Lenders, with no changes therefrom or amendments thereto adverse to IMS or the
Lenders, as amended from time to time in accordance with Section 6.09.
"Redemption Agreement" shall mean the Redemption Agreement
between IMS and the Continuing Shareholder in substantially the form heretofore
delivered to the Administrative Agent and the
<PAGE> 20
20
Lenders, with no changes therefrom or amendments thereto adverse to IMS or the
Lenders, as amended from time to time in accordance with Section 6.09.
"Register" shall have the meaning given such term in Section
9.04(d).
"Regulation G" shall mean Regulation G of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Related Claims" shall mean, in respect of any Borrower, all
obligations of such Borrower in respect of any Loans and L/C Disbursements.
"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, depositing, dispersing, emanating or migrating of any Hazardous
Material in, into, onto or through the environment.
"Relevant Jurisdiction" shall mean (i) in the case of any Loan
to any Domestic Borrower, the United States of America, and (ii) in the case of
any Loan to any Foreign Borrower, the jurisdiction imposing (or having the power
to impose) withholding Tax on payments by such Foreign Borrower under this
Agreement.
"Remedial Action" shall mean all actions required by any
Governmental Authority or voluntarily undertaken to: (a) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in the environment; (b)
prevent the Release or threat of Release, or minimize the further Release of any
Hazardous Material so it does not migrate or endanger or threaten to endanger
public health, welfare or the environment; or (c) perform studies and
investigations in connection with, or as a precondition to, (a) or (b) above.
"Required Lenders" shall mean, at any time, Lenders having
Revolving Loans, L/C Exposure, Thai Facility Exposure, Thai Offered Rate
Facility Exposure, HK Offered Rate Facility Exposure and unused Revolving Credit
Commitments representing at least 66-2/3% of the sum of all Revolving Loans
outstanding, L/C Exposure, Thai Facility Exposure, Thai Offered Rate Facility
Exposure, HK Offered Rate Facility Exposure and unused Revolving Credit
Commitments at such time.
"Responsible Officer" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Revolving Credit Borrowing" shall mean a group of Revolving
Loans of a single Type made by the Lenders to a single Borrower on a single date
and as to which a single Interest Period is in effect.
"Revolving Credit Commitment" shall mean, with respect to each
Lender, the commitment of such Lender to make Revolving Loans hereunder as set
forth in Schedule 2.01, or in the Assignment and Acceptance pursuant to which
such Lender assumed its Revolving Credit Commitment, as applicable, as the same
may be (a) reduced from time to time pursuant to Section 2.09 or pursuant to
Section 2.19 and (b)
<PAGE> 21
21
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04.
"Revolving Loan Borrowers" shall mean the U.S. Borrower, the
HK Borrower and any Permitted Additional Borrower.
"Revolving Loans" shall mean the Revolving Loans made by the
Lenders to the Revolving Loan Borrowers pursuant to Section 2.02(a).
"Sale and Lease-Back Transaction" shall have the meaning
assigned to such term in Section 6.03.
"Secured Party" shall mean each person designated as a
"Secured Party" in any Security Document.
"Security Agreements" shall mean the U.S. Security Agreement
and the Foreign Security Agreements.
"Security Documents" shall mean the Mortgages, the Security
Agreements, the Pledge Agreements and each of the security agreements, mortgages
and other instruments and documents executed and delivered pursuant to any of
the foregoing or pursuant to Section 5.11.
"Statutory Reserves" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board (a) with respect to the Base CD Rate, for
new negotiable nonpersonal time deposits in dollars of over $100,000 with
maturities approximately equal to three months, and (b) with respect to the
Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in Regulation D of
the Board). Such reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Subordinated Notes" shall mean up to $12,500,000 aggregate
principal amount of Junior Subordinated Notes of IMS issued pursuant to the
Recapitalization Agreement in substantially the form heretofore delivered to the
Administrative Agent and the Lenders, with no changes therefrom or amendments
thereto adverse to IMS or the Lenders, as amended from time to time in
accordance with Section 6.09.
"subsidiary" shall mean, with respect to any person (herein
referred to as the "parent"), any corporation, partnership, association or other
business entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or more than 50% of the general partnership interests are, at the time any
determination is being made, owned, controlled or held, or (b) that is, at the
time any determination is made, otherwise Controlled, by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent.
"Subsidiary" shall mean any subsidiary of IMS.
"Subsidiary Guarantee Agreement" shall mean the Guarantee
Agreement substantially in the form of Exhibit D-2 by the U.S. Borrower, IMS
Foreign Holdings, the Thai Borrower, the HK Borrower and IMS Cayman in favor of
the Collateral Agent for the benefit of the Secured Parties.
<PAGE> 22
22
"Suspended Contingent Payment Note Interest" shall have the
meaning assigned to such term in Section 2.22.
"Target EBITDA" shall mean (w) with respect to the fiscal year
of IMS ended on the last Saturday of March, 1998, $25,400,000, (x) with respect
to the fiscal year of IMS ended on the last Saturday of March, 1999, $32,900,000
and (y) with respect to each fiscal year of IMS thereafter, $41,100,000.
"Taxes" shall mean any and all present or future taxes,
levies, imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
"Thai Facilities Lender" shall mean Chemical Bank. The Thai
Facilities Lender shall be a Lender.
"Thai Facility Borrowing" shall mean one or a group of Thai
Facility Loans of a single Type made by the Thai Facilities Lender to the Thai
Borrower on a single date and as to which a single Interest Period is in effect.
"Thai Facility Commitment" shall mean the commitment of the
Thai Facilities Lender to make Thai Facility Loans pursuant to Section 2.01(b).
"Thai Facility Exposure" shall mean at any time the aggregate
principal amount of all outstanding Thai Facility Loans at such time. The Thai
Facility Exposure of any Lender at any time shall mean its Applicable Percentage
of the aggregate Thai Facility Exposure at such time.
"Thai Facility Loans" shall mean the loans made by the Thai
Facilities Lender to the Thai Borrower pursuant to Section 2.01(b).
"Thai Facility Participations Event" shall have the meaning
assigned to such term in Section 2.01(b).
"Thailand Security Agreement" shall mean the Security
Agreement substantially in the form of Exhibit F-2 between the Thai Borrower and
the Collateral Agent for the benefit of the Secured Parties.
"Thai Offered Rate" shall mean with respect to any Thai
Offered Rate Loan for any Interest Period, the rate per annum at which deposits
in dollars approximately equal in principal amount to such Thai Offered Rate
Loan and for a maturity comparable to such Interest Period are offered by the
Thai Facilities Lender to prime banks in Thailand on the first day of such
Interest Period.
"Thai Offered Rate Borrowing" shall mean one or a group of
Thai Offered Rate Loans made on a single date and as to which a single Interest
Period is in effect.
"Thai Offered Rate Facility Commitment" shall mean the
commitment of the Thai Facilities Lender to make Thai Facility Loans pursuant to
Section 2.01(c).
"Thai Offered Rate Facility Exposure" shall mean at any time
the aggregate principal amount of all outstanding Thai Offered Rate Loans at
such time. The Thai Offered Rate Facility Exposure of any Lender at any time
shall mean its Applicable Percentage of the aggregate Thai Offered Rate Facility
Exposure at such time.
"Thai Offered Rate Facility Participations Event" shall have
the meaning assigned to such term in Section 2.01(c).
<PAGE> 23
23
"Thai Offered Rate Loan Payment Date" shall have the meaning
assigned to such term in Section 2.01(c)(vi).
"Thai Offered Rate Loans" shall mean the Thai Offered Rate
Loans made by the Thai Facilities Lender to the Thai Borrower pursuant to
Section 2.01(c).
"Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board through the public information telephone
line of the Federal Reserve Bank of New York (which rate will, under the current
practices of the Board, be published in Federal Reserve Statistical Release
H.15(519) during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day shall not be a Business Day, on the
next preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing selected
by it.
"Total Debt" shall mean, with respect to IMS and the
Subsidiaries on a consolidated basis at any time, all Indebtedness (other than
Indebtedness described in clause (i) of the definition of "Indebtedness") of IMS
and the Subsidiaries at such time, determined on a consolidated basis in
accordance with GAAP.
"Total Revolving Credit Commitment" shall mean, at any time,
the aggregate amount of the Revolving Credit Commitments in effect at such time.
"Transactions" shall have the meaning assigned to such term in
Section 3.02.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, the term "Rate"
shall include the Adjusted LIBO Rate, the Alternate Base Rate, the Thai Offered
Rate and the HK Offered Rate.
"U.S. Pledge Agreement" shall mean the Pledge Agreement,
substantially in the form of Exhibit E-1, among IMS, the U.S. Borrower, IMS
Foreign Holdings and the Collateral Agent for the benefit of the Secured
Parties.
"U.S. Security Agreement" shall mean the Security Agreement,
substantially in the form of Exhibit F-1, among IMS, the U.S. Borrower, IMS
Foreign Holdings and the Collateral Agent for the benefit of the Secured
Parties.
"Warrants" shall mean warrants to purchase common stock of IMS
having an exercise price equal to the price per share (on a fully diluted basis)
that results in a valuation of the equity of IMS on the Closing Date at
$100,000,000, issued pursuant to the Recapitalization Agreement and in
substantially the form heretofore delivered to the Administrative Agent and the
Lenders.
"wholly owned Domestic Guarantor" shall mean any wholly owned
Guarantor that is a Domestic Subsidiary.
"wholly owned Foreign Guarantor" shall mean any wholly owned
Guarantor that is a Foreign Subsidiary.
<PAGE> 24
24
"wholly owned Guarantor" shall mean any Guarantor that is a
wholly owned Subsidiary.
"wholly owned subsidiary" of any person shall mean a
subsidiary of such person of which securities (except for directors' qualifying
shares) or other ownership interests representing 100% of the equity or 100% of
the ordinary voting power or 100% of the general partnership interests are, at
the time any determination is being made, owned, controlled or held by such
person or one or more wholly owned subsidiaries of such person or by such person
and one or more wholly owned subsidiaries of such person.
"wholly owned Subsidiary" shall mean any wholly owned
subsidiary of IMS.
"Withdrawal Liability" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, (a) any reference in this Agreement to any Loan
Document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time and (b) all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that if IMS notifies the Administrative Agent
that IMS wishes to amend any covenant in Article VI or any related definition to
eliminate the effect of any change in GAAP occurring after the date of this
Agreement on the operation of such covenant (or if the Administrative Agent
notifies IMS that the Required Lenders wish to amend Article VI or any related
definition for such purpose), then compliance with such covenant shall be
determined on the basis of GAAP in effect immediately before the relevant change
in GAAP became effective, until either such notice is withdrawn or such covenant
is amended in a manner satisfactory to IMS and the Required Lenders.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. (a) Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Lender agrees, severally and not jointly, to make Revolving Loans to each
Revolving Loan Borrower in dollars, at any time and from time to time on or
after the date hereof, and until the earlier of the Maturity Date and the
termination of the Revolving Credit Commitment of such Lender in accordance with
the terms hereof, in an aggregate principal amount at any time outstanding for
all Revolving Loan Borrowers that will not result in such Lender's Credit
Exposure exceeding such Lender's Revolving Credit Commitment.
(b) (i) Subject to the terms and conditions and relying upon
the representations and warranties herein set forth, and subject to the
limitations set forth below with respect to the maximum amount of Thai Facility
Loans permitted to be outstanding from time to time, the Thai Facilities Lender
agrees to make Thai Facility Loans to the Thai Borrower in dollars at any time
and from time to time on or after the date hereof and until the earlier of the
Maturity Date and the termination of the Thai Facility Commitment in accordance
with the terms hereof, in an aggregate principal amount at any time outstanding
that will not result in any Lender's Credit Exposure exceeding such Lender's
Revolving Credit Commitment. Thai Facility Loans may be made notwithstanding the
fact that such Thai Facility Loans, when aggregated with the Thai Facilities
Lender's outstanding Revolving Loans, L/C Exposure, Thai Offered Rate Facility
<PAGE> 25
25
Exposure, HK Offered Rate Facility Exposure and Thai Facility Exposure, may
exceed the Thai Facilities Lender's Applicable Percentage of the aggregate
Credit Exposures.
(ii) Upon the occurrence of (x) any Event of Default resulting
from a default in the payment of any principal of or interest on any Thai
Facility Loan, (y) any Event of Default resulting from a default under
subparagraph (h) or (i) of Article VII hereof or (z) any action taken pursuant
to clause (ii) of such Article VII (any such occurrence, a "Thai Facility
Participations Event"), then the Thai Facilities Lender may at any time, on one
Business Day's notice, require each Lender, including the Thai Facilities
Lender, and each Lender hereby agrees, subject to the provisions of this Section
2.01(b), to purchase a participation in the Thai Facility Loans in an amount
equal to such Lender's Applicable Percentage of the principal of and interest
accrued but unpaid on the outstanding Thai Facility Loans. In the event any
Lender fails to make available to the Thai Facilities Lender the amount of such
Lender's participation, the Thai Facilities Lender shall be entitled to recover
such amount on demand from such Lender together with interest at the customary
rate set by the Thai Facilities Lender for correction of errors among banks in
Bangkok, Thailand for one Business Day and thereafter a rate equal to the
Adjusted LIBO Rate plus 2.25%.
(iii) Each Lender acknowledges and agrees that its obligation
to acquire participations in respect of Thai Facility Loans in accordance with
this Section 2.01(b) is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including (A) any setoff, counterclaim, recoupment,
defense or other right which such Lender may have against the Thai Facilities
Lender, the Thai Borrower or any other person for any reason whatsoever; (B) the
occurrence or continuance of an Event of Default or a Default or the termination
of the Revolving Credit Commitments or the Thai Facility Commitments; (C) any
adverse change in the condition (financial or otherwise) of IMS or any of the
Subsidiaries; (D) any breach of this Agreement by IMS, any Borrower or any
Lender; or (E) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing.
(iv) A copy of each notice given by the Thai Facilities Lender
pursuant to this Section 2.01(b) shall be promptly delivered by the Thai
Facilities Lender to the Administrative Agent and the Thai Borrower.
(v) Notwithstanding anything herein to the contrary, the Thai
Facilities Lender shall not make any Thai Facility Loan at any time the Thai
Facilities Lender is aware that the conditions to the making of such Thai
Facility Loan set forth in Section 4.01 have not been satisfied unless such
conditions shall have been waived in accordance with this Agreement.
(c) (i) Subject to the terms and conditions and relying upon
the representations and warranties herein set forth, and subject to the
limitations set forth below with respect to the maximum amount of Thai Offered
Rate Loans permitted to be outstanding from time to time, the Thai Facilities
Lender agrees to make Thai Offered Rate Loans to the Thai Borrower in dollars at
any time and from time to time on or after the date hereof and until the earlier
of the Maturity Date and the termination of the Thai Offered Rate Facility
Commitment in accordance with the terms hereof, in an aggregate principal amount
at any time outstanding (A) not in excess of $2,000,000 and (B) that will not
result in any Lender's Credit Exposure exceeding such Lender's Revolving Credit
Commitment. Thai Offered Rate Loans may be made notwithstanding the fact that
such Thai Offered Rate Loans, when aggregated with the Thai Facilities Lender's
outstanding Revolving Loans, Thai Facility Loans, L/C Exposure, HK Offered Rate
Facility Exposure and Thai Offered Rate Facility Exposure, may exceed the Thai
Facilities Lender's Applicable Percentage of the aggregate Credit Exposures.
(ii) Upon the occurrence of (x) any Event of Default resulting
from a default in the payment of any principal of or interest on any Thai
Offered Rate Loan, (y) any Event of Default resulting from a default under
subparagraph (h) or (i) of Article VII hereof or (z) any action taken pursuant
to clause (ii) of
<PAGE> 26
26
such Article VII (any such occurrence, a "Thai Offered Rate Facility
Participations Event"), then the Thai Facilities Lender may at any time, on one
Business Day's notice, require each Lender, including the Thai Facilities
Lender, and each Lender hereby agrees, subject to the provisions of this Section
2.01(c), to purchase a participation in the Thai Offered Rate Loans in an amount
equal to such Lender's Applicable Percentage of the principal of and interest
accrued but unpaid on the outstanding Thai Offered Rate Loans. In the event any
Lender fails to make available to the Thai Facilities Lender the amount of such
Lender's participation, the Thai Facilities Lender shall be entitled to recover
such amount on demand from such Lender together with interest (A) at the
customary rate set by the Thai Facilities Lender for correction of errors among
banks in Bangkok, Thailand for one Business Day, (B) at a rate equal to the Thai
Offered Rate plus 2.25% for two Business Days thereafter and (C) thereafter at a
rate equal to the Adjusted LIBO Rate plus 2.25%, provided that on the third
Business Day following the delivery of such notice each Thai Offered Rate
Borrowing shall be converted into a Eurodollar Borrowing with an applicable
Interest Period of one month.
(iii) Each Lender acknowledges and agrees that its obligation
to acquire participations in respect of Thai Offered Rate Loans in accordance
with this Section 2.01(c) is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including (A) any setoff, counterclaim,
recoupment, defense or other right which such Lender may have against the Thai
Facilities Lender, the Thai Borrower or any other person for any reason
whatsoever; (B) the occurrence or continuance of an Event of Default or a
Default or the termination of the Revolving Credit Commitments or the Thai
Offered Rate Facility Commitments; (C) any adverse change in the condition
(financial or otherwise) of IMS or any of the Subsidiaries; (D) any breach of
this Agreement by IMS, any Borrower or any Lender; or (E) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
(iv) A copy of each notice given by the Thai Facilities Lender
pursuant to this Section 2.01(c) shall be promptly delivered by the Thai
Facilities Lender to the Administrative Agent and the Thai Borrower.
(v) Notwithstanding anything herein to the contrary, the Thai
Facilities Lender shall not make any Thai Offered Rate Loan at any time the Thai
Facilities Lender is aware that the conditions to the making of such Thai
Offered Rate Loan set forth in Section 4.01 have not been satisfied unless such
conditions shall have been waived in accordance with this Agreement.
(vi) The Thai Borrower shall give the Thai Facilities Lender
telephonic, written or telecopy notice (in the case of telephonic notice, such
notice to be promptly confirmed in writing or by telecopy) not later than 10:00
a.m., Bangkok time, on the day of a proposed Thai Offered Rate Borrowing. Such
notice shall be delivered on a Business Day, shall be irrevocable, shall refer
to this Agreement and shall specify the requested date (which shall be a
Business Day) and the amount of such Thai Offered Rate Loan and the account of
the Thai Borrower maintained by the Thai Facilities Lender to which such
Borrowing is to be credited and the day (which shall be on or prior to the
Maturity Date) on which the Thai Borrower will repay such Thai Offered Rate Loan
(with respect to such Thai Offered Rate Loan, the "Thai Offered Rate Loan
Payment Date"). The Thai Facilities Lender shall give the Administrative Agent,
which shall in turn give to each Lender, prompt written or telecopy advice of
any notice received from the Thai Borrower pursuant to this paragraph.
(d) (i) Subject to the terms and conditions and relying upon
the representations and warranties herein set forth, and subject to the
limitations set forth below with respect to the maximum amount of HK Offered
Rate Loans permitted to be outstanding from time to time, the HK Facility Lender
agrees to make HK Offered Rate Loans to the HK Borrower in dollars at any time
and from time to time on or after the date hereof and until the earlier of the
Maturity Date and the termination of the HK Offered Rate Facility Commitment in
accordance with the terms hereof, in an aggregate principal amount at any time
<PAGE> 27
27
outstanding (A) not in excess of $2,000,000 and (B) that will not result in any
Lender's Credit Exposure exceeding such Lender's Revolving Credit Commitment. HK
Offered Rate Loans may be made notwithstanding the fact that such HK Offered
Rate Loans, when aggregated with the HK Facility Lender's outstanding Revolving
Loans, L/C Exposure, Thai Offered Rate Facility Exposure and HK Offered Rate
Facility Exposure, may exceed the HK Facility Lender's Applicable Percentage of
the aggregate Credit Exposures.
(ii) Upon the occurrence of (x) any Event of Default resulting
from a default in the payment of any principal of or interest on any HK Offered
Rate Loan, (y) any Event of Default resulting from a default under subparagraph
(h) or (i) of Article VII hereof or (z) any action taken pursuant to clause (ii)
of such Article VII (any such occurrence, a "HK Offered Rate Facility
Participations Event"), then the HK Facility Lender may at any time, on one
Business Day's notice, require each Lender, including the HK Facility Lender,
and each Lender hereby agrees, subject to the provisions of this Section
2.01(d), to purchase a participation in the HK Offered Rate Loans in an amount
equal to such Lender's Applicable Percentage of the principal of and interest
accrued but unpaid on the outstanding HK Offered Rate Loans. In the event any
Lender fails to make available to the HK Facility Lender the amount of such
Lender's participation, the HK Facility Lender shall be entitled to recover such
amount on demand from such Lender together with interest (A) at the customary
rate set by the HK Facility Lender for correction of errors among banks in Hong
Kong for one Business Day, (B) at a rate equal to the HK Offered Rate plus 2.25%
for two Business Days thereafter and (C) thereafter at a rate equal to the
Adjusted LIBO Rate plus 2.25%, provided that on the third Business Day following
the delivery of such notice each HK Offered Rate Borrowing shall be converted
into a Eurodollar Borrowing with an applicable Interest Period of one month.
(iii) Each Lender acknowledges and agrees that its obligation
to acquire participations in respect of HK Offered Rate Loans in accordance with
this Section 2.01(d) is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including (A) any setoff, counterclaim, recoupment,
defense or other right which such Lender may have against the HK Facility
Lender, the HK Borrower or any other person for any reason whatsoever; (B) the
occurrence or continuance of an Event of Default or a Default or the termination
of the Revolving Credit Commitments or the HK Offered Rate Facility Commitments;
(C) any adverse change in the condition (financial or otherwise) of IMS or any
of the Subsidiaries; (D) any breach of this Agreement by IMS, any Subsidiary or
any Lender; or (E) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
(iv) A copy of each notice given by the HK Facility Lender
pursuant to this Section 2.01(d) shall be promptly delivered by the HK Facility
Lender to the Administrative Agent and the HK Borrower.
(v) Notwithstanding anything herein to the contrary, the HK
Facility Lender shall not make any HK Offered Rate Loan at any time the HK
Facility Lender is aware that the conditions to the making of such HK Offered
Rate Loan set forth in Section 4.01 have not been satisfied unless such
conditions shall have been waived in accordance with this Agreement.
(vi) The HK Borrower shall give the HK Facility Lender
telephonic, written or telecopy notice (in the case of telephonic notice, such
notice to be promptly confirmed in writing or by telecopy) not later than 10:00
a.m., Hong Kong time, on the day of a proposed HK Offered Rate Borrowing. Such
notice shall be delivered on a Business Day, shall be irrevocable, shall refer
to this Agreement and shall specify the requested date (which shall be a
Business Day) and the amount of such HK Offered Rate Loan and the account of the
HK Borrower maintained by the HK Facility Lender to which such Borrowing is to
be credited and the day (which shall be on or prior to the Maturity Date) on
which the HK Borrower will repay such HK Offered Rate Loan (with respect to such
HK Offered Rate Loan, the "HK Offered Rate Loan Payment Date"). The HK Facility
Lender shall give the Administrative Agent, which shall in turn give to each
<PAGE> 28
28
Lender, prompt written or telecopy advice of any notice received from the HK
Borrower pursuant to this paragraph.
(e) Within the limits set forth in paragraphs (a), (b), (c)
and (d) above, the Borrowers may borrow, pay or prepay and reborrow Revolving
Loans, and the Thai Borrower may borrow, pay or prepay and reborrow Thai
Facility Loans and borrow, pay and reborrow Thai Offered Rate Facility Loans and
the HK Borrower may borrow, pay and reborrow HK Offered Rate Loans, in each case
on or after the Closing Date and prior to the Maturity Date, subject to the
terms, conditions and limitations set forth herein.
SECTION 2.02. Loans. (a) Each Revolving Loan shall be made as
part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in
accordance with their respective Revolving Credit Commitments; provided,
however, that the failure of any Lender to make any Loan shall not in itself
relieve any other Lender of its obligation to lend hereunder (it being
understood, however, that no Lender shall be responsible for the failure of any
other Lender to make any Loan required to be made by such other Lender). Except
for Offered Rate Loans (which may, subject to Sections 2.01(c)(i) and
2.01(d)(i), be in any aggregate principal amount requested by the applicable
Borrower) and Loans deemed made pursuant to Section 2.02(f), the Loans
comprising any Borrowing shall be in an aggregate principal amount that is (i)
(A) in the case of the HK Borrower, an integral multiple of $1,000,000 and in
the case of any other Borrower, an integral multiple of $500,000 and (B) in the
case of HK Borrower, not less than $1,000,000 and in the case of any other
Borrower not less then $500,000, or (ii) equal to the remaining available
balance of the applicable Revolving Credit Commitments.
(b) Subject to Sections 2.08 and 2.13, (i) each Domestic
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the
applicable Borrower may request pursuant to Section 2.03 and (ii) each Foreign
Revolving Borrowing other than Offered Rate Borrowings shall be comprised
entirely of Eurodollar Loans. Each Lender may at its option make any Eurodollar
Loan by causing any domestic or foreign branch or Affiliate of such Lender to
make such Eurodollar Loan; provided that any exercise of such option shall not
affect the obligation of such Borrower to repay such Loan in accordance with the
terms of this Agreement. Borrowings of more than one Type may be outstanding at
the same time; provided, however, that no Borrower shall be entitled to request
any Borrowing that, if made, would result in more than (i) five Eurodollar
Borrowings outstanding hereunder to such Borrower at any time or (ii) 12
Eurodollar Borrowings outstanding hereunder to all the Borrowers at any time.
For purposes of the foregoing, Borrowings having different Interest Periods,
regardless of whether they commence on the same date, shall be considered
separate Borrowings.
(c) Except with respect to Revolving Loans deemed made
pursuant to Section 2.02(f), each Lender shall make each Revolving Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to such account as the Administrative Agent may
designate (i) in the case of Loans comprising Domestic Borrowings, in New York
City not later than 11:00 a.m., New York City time, or (ii) in the case of Loans
comprising Foreign Revolving Borrowings, in Hong Kong not later than 10:30 a.m.,
New York City time; and the Administrative Agent shall (A) by 12:00 (noon) New
York City time, in the case of Domestic Borrowings, and (B) by 11:30 a.m. New
York City time, in the case of Foreign Revolving Borrowings, credit the amounts
so received to an account in the name of the applicable Borrower maintained with
the Administrative Agent and designated by such Borrower in the applicable
Borrowing Request or, if a Borrowing shall not occur on such date because any
condition precedent herein specified shall not have been met, return the amounts
so received to the respective Lenders. The Thai Facilities Lender shall by 11:30
a.m. New York City time credit any Thai Facility Loan, and by 12:00 (noon)
Bangkok time credit any Thai Offered Rate Loan, in either case to be made to the
Thai Borrower in accordance with Section 2.01(b) or 2.01(c), as applicable, to
an account in the name of the Thai Borrower maintained by the Thai Facilities
Lender and designated by the Thai Borrower in the case of a Thai Facility
Borrowing, in the applicable Borrowing Request, and in the case of a Thai
Offered Rate Loan, in the Thai Borrower's request
<PAGE> 29
29
for such Thai Offered Rate Loan. The HK Facility Lender shall by 12:00 (noon)
Hong Kong time credit any HK Offered Rate Loan to be made to the HK Borrower in
accordance with Section 2.01(d) to an account in the name of the HK Borrower
maintained by the HK Facility Lender and designated by the HK Borrower in its
request for such HK Offered Rate Loan.
(d) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any Revolving Credit Borrowing that such
Lender will not make available to the Administrative Agent such Lender's portion
of such Revolving Credit Borrowing, the Administrative Agent may assume that
such Lender has made such portion available to the Administrative Agent on the
date of such Revolving Credit Borrowing in accordance with paragraph (c) above
and the Administrative Agent may, in reliance upon such assumption, make
available to the applicable Borrower on such date a corresponding amount. If the
Administrative Agent shall have so made funds available then, to the extent that
such Lender shall not have made such portion available to the Administrative
Agent, such Lender and such Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
such Borrower until the date such amount is repaid to the Administrative Agent
at (i) in the case of such Borrower, the interest rate applicable at the time to
the Loans comprising such Revolving Credit Borrowing and (ii) in the case of
such Lender, a rate determined by the Administrative Agent to represent its cost
of overnight or short-term funds (which determination shall be conclusive absent
manifest error). If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount shall constitute such Lender's Revolving Loan
as part of such Revolving Credit Borrowing for purposes of this Agreement.
(e) Notwithstanding any other provision of this Agreement, no
Borrower shall be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
(f) If the Fronting Bank shall not have received from any
Borrower the payment required to be made by such Borrower pursuant to Section
2.20(e) within the time specified in such Section, the Fronting Bank will
promptly notify the Administrative Agent of the L/C Disbursement and the
Administrative Agent will promptly notify each Lender of such L/C Disbursement
and its Applicable Percentage thereof. Each Lender shall pay by wire transfer of
immediately available funds to the Administrative Agent not later than 2:00
p.m., New York City time, on such date (or, if such Lender shall have received
such notice later than 12:00 (noon), New York City time, on any day, not later
than 10:00 a.m., New York City time, on the immediately following Business Day),
an amount equal to such Lender's Applicable Percentage of such L/C Disbursement
(it being understood that such amount shall be deemed to constitute an ABR Loan
of such Lender and such payment shall be deemed to have reduced the L/C
Exposure), and the Administrative Agent will promptly pay to the Fronting Bank
amounts so received by it from the Lenders. The Administrative Agent will
promptly pay to the Fronting Bank any amounts received by it from the applicable
Borrower pursuant to Section 2.20(e) prior to the time that any Lender makes any
payment pursuant to this paragraph (f); any such amounts received by the
Administrative Agent thereafter will be promptly remitted by the Administrative
Agent to the Lenders that shall have made such payments and to the Fronting
Bank, as their interests may appear. If any Lender shall not have made its
Applicable Percentage of such L/C Disbursement available to the Administrative
Agent as provided above, such Lender and such Borrower severally agree to pay
interest on such amount, for each day from and including the date such amount is
required to be paid in accordance with this paragraph to but excluding the date
such amount is paid, to the Administrative Agent for the account of the Fronting
Bank at (i) in the case of such Borrower, a rate per annum equal to the interest
rate applicable to Loans pursuant to Section 2.06(a), and (ii) in the case of
such Lender, for the first such day, the Federal Fund Effective Rate, and for
each day thereafter, the Alternate Base Rate.
<PAGE> 30
30
SECTION 2.03. Borrowing Procedure. In order to request a
Borrowing (other than an Offered Rate Borrowing or a deemed Borrowing pursuant
to Section 2.02(f), as to which this Section 2.03 shall not apply), the
applicable Borrower shall hand deliver or telecopy to the Administrative Agent a
duly completed Borrowing Request (a) in the case of a Domestic Eurodollar
Borrowing, at its offices in New York City not later than 1:00 p.m., New York
City time, three Business Days before the proposed Borrowing, (b) in the case of
a Foreign Revolving Borrowing, at its offices in Hong Kong and New York City not
later than 11:00 a.m., Hong Kong time, three Business Days before the proposed
Borrowing and (c) in the case of an ABR Borrowing, at its offices in New York
City not later than 12:30 p.m. New York City time one Business Day before the
proposed Borrowing. Each Borrowing Request shall be irrevocable, shall be signed
by or on behalf of the applicable Borrower requesting such Borrowing and shall
specify the following information: (i) the Borrower requesting such Borrowing;
(ii) in the case of a Domestic Borrowing, whether the Borrowing then being
requested is to be a Eurodollar Borrowing or an ABR Borrowing; (iii) the date of
such Borrowing (which shall be a Business Day), (iv) whether the Borrowing then
being requested is to be a Domestic Borrowing or a Foreign Revolving Borrowing,
(v) the number and location of the account to which funds are to be disbursed
(which shall be an account that complies with the requirements of Section
2.02(c)); (vi) the amount of such Borrowing; and (vii) if such Borrowing is to
be a Eurodollar Borrowing, the Interest Period with respect thereto; provided,
however, that, notwithstanding any contrary specification in any Borrowing
Request, each requested Borrowing shall comply with the requirements set forth
in Section 2.02. If no election as to the Type of Borrowing is specified in any
such notice in the case of a Domestic Borrowing, then the requested Borrowing
shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar
Borrowing is specified in any such notice, then the applicable Borrower shall be
deemed to have selected an Interest Period of one month's duration. The
Administrative Agent shall promptly advise the Lenders of any notice given
pursuant to this Section 2.03 (and the contents thereof), and of each Lender's
portion of the requested Borrowing. The Thai Borrower shall not be permitted to
request Revolving Credit Borrowings.
SECTION 2.04. Evidence of Debt; Repayment of Loans. (a)(i)
Each Borrower hereby unconditionally promises to pay to the Administrative Agent
(or, in the case of the Thai Borrower, if a Thai Facility Participations Event
has not occurred, to pay to the Thai Facilities Lender) on the Maturity Date for
the account of each Lender (or, in the case of the Thai Borrower, if a Thai
Facility Participations Event has not occurred, for the account of the Thai
Facilities Lender) the then unpaid principal amount of each Revolving Loan and
Thai Facility Loan made to such Borrower.
(ii) With respect to each Thai Offered Rate Loan, the Thai
Borrower hereby unconditionally promises to pay to the Thai Facilities Lender
(or if a Thai Offered Rate Facility Participations Event has occurred, to pay to
the Administrative Agent) on the Thai Offered Rate Loan Payment Date with
respect to such Thai Offered Rate Loan, for the account of the Thai Facilities
Lender (or of each Lender in the event a Thai Offered Rate Facility
Participations Event has occurred), the principal amount of such Thai Offered
Rate Loan.
(iii) With respect to each HK Offered Rate Loan, the HK
Borrower hereby unconditionally promises to pay to the HK Facility Lender (or if
a HK Offered Rate Facility Participations Event has occurred, to pay to the
Administrative Agent) on the HK Offered Rate Loan Payment Date with respect to
such HK Offered Rate Loan, for the account of the HK Facility Lender (or of each
Lender in the event a HK Offered Rate Facility Participations Event has
occurred), the principal amount of such HK Offered Rate Loan.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of each Borrower to
such Lender resulting from each Loan made by such Lender from time to time,
including the amounts of principal and interest payable and paid such Lender
from time to time under this Agreement.
<PAGE> 31
31
(c) The Administrative Agent shall maintain accounts in which
it will record (i) the amount of each Loan made hereunder, the applicable
Borrower with respect thereto, the Type thereof and the Interest Period
applicable thereto, (ii) the amount of any principal or interest due and payable
or to become due and payable from each Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Administrative Agent or the Thai
Facilities Lender or the HK Facility Lender hereunder from any Borrower or any
Guarantor and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) above shall be prima facie evidence of the existence and
amounts of the obligations therein recorded; provided, however, that the failure
of any Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligations of each Borrower to repay
the Loans made to such Borrower in accordance with their terms.
(e) Notwithstanding any other provision of this Agreement, in
the event any Lender shall request and receive a promissory note payable to such
Lender and its registered assigns, the interests represented by such note shall
at all times (including after any assignment of all or part of such interests
pursuant to Section 9.04) be represented by one or more promissory notes payable
to the payee named therein or its registered assigns.
SECTION 2.05. Fees. (a) The Borrowers agree, jointly and
severally, to pay to each Lender, through the Administrative Agent, on the
Closing Date and on the last day of March, June, September and December in each
year and on each date on which the Revolving Credit Commitment of such Lender
shall expire or be terminated as provided herein, a commitment fee (a
"Commitment Fee") of 0.50% per annum on the average daily unused amount of the
Revolving Credit Commitment of such Lender during the preceding quarter (or
other period commencing with the date of acceptance by the Borrowers of the
Revolving Credit Commitment of such Lender or ending with the Maturity Date or
the date on which the Revolving Credit Commitments of such Lender shall expire
or be terminated). All Commitment Fees shall be computed on the basis of the
actual number of days elapsed in a year of 360 days. For the purpose of
calculating any Lender's Commitment Fee, the outstanding Thai Facility Exposure,
Thai Offered Rate Facility Exposure, HK Offered Rate Facility Exposure and L/C
Exposure shall be deemed to be utilization of the Revolving Credit Commitments.
The Commitment Fee due to each Lender commenced to accrue on the date of
acceptance by the Borrowers of the Revolving Credit Commitment of such Lender
and shall cease to accrue on the date on which the Revolving Credit Commitment
of such Lender shall expire or be terminated as provided herein.
(b) The Borrowers agree, jointly and severally, to pay to the
Administrative Agent, for its own account, the administrative fees set forth in
the Fee Letter at the times and in the amounts specified therein (the
"Administrative Agent Fees").
(c) The Borrowers agree to pay (i) to each Lender, through the
Administrative Agent, on the last day of March, June, September and December of
each year and on the date on which the Revolving Credit Commitment of such
Lender shall be terminated as provided herein, a fee (an "L/C Participation
Fee") calculated on such Lender's Applicable Percentage of the average daily
aggregate L/C Exposure (excluding the portion thereof attributable to
unreimbursed L/C Disbursements) during the preceding quarter (or shorter period
commencing with the date hereof or ending with the Maturity Date or the date on
which all Letters of Credit have been canceled or have expired and the Revolving
Credit Commitments of all Lenders shall have been terminated) at the rate of
2.25% per annum and (ii) to the Fronting Bank, on the last day of March, June,
September and December of each year and on the Maturity Date (or such earlier
date upon which all the Revolving Credit Commitments shall be terminated as
provided herein), a fee calculated on the average daily aggregate L/C Exposure
during the preceding quarter (or shorter period commencing with the date hereof
or ending with the Maturity Date or the date on which all Letters of Credit
shall have been canceled
<PAGE> 32
32
or have expired and the Revolving Credit Commitments of all Lenders shall have
been terminated), at the rate of 0.25% per annum, plus, in connection with the
issuance, amendment or transfer of any Letters of Credit or L/C Disbursement,
the Fronting Bank's customary documentary and processing charges (collectively,
the "Fronting Bank Fees"). All L/C Participation Fees and Fronting Bank Fees
shall be computed on the basis of the actual number of days elapsed in a year of
360 days.
(d) The Thai Borrower, IMS and IMS Cayman agree, jointly and
severally, to pay to each Lender, through the Administrative Agent, on the last
day of March, June, September and December of each year and on the date on which
the Thai Facility Commitment shall be terminated as provided herein, a fee (a
"Thai Facility Participation Fee") calculated on such Lender's Applicable
Percentage of the average daily aggregate Thai Facility Loans outstanding during
the preceding quarter (or shorter period commencing with the date hereof or
ending with the Maturity Date) at the rate of 2.25% per annum. All Thai Facility
Participation fees shall be computed on the basis of the actual number of days
elapsed in a year of 360 days.
(e) The Thai Borrower, IMS and IMS Cayman agree, jointly and
severally, to pay to each Lender, through the Administrative Agent, on the last
day of March, June, September and December of each year and on the date on which
the Thai Offered Rate Facility Commitment shall be terminated as provided
herein, a fee (a "Thai Offered Rate Facility Participation Fee") calculated on
such Lender's Applicable Percentage of the average daily aggregate Thai Offered
Rate Loans outstanding during the preceding quarter (or shorter period
commencing with the date hereof or ending with the Maturity Date) at the rate of
2.25% per annum. All Thai Offered Rate Facility Participation Fees shall be
computed on the basis of the actual number of days elapsed in a year of 360
days.
(f) The HK Borrower agrees to pay to each Lender, through the
Administrative Agent, on the last day of March, June, September and December of
each year and on the date on which the HK Offered Rate Facility Commitment shall
be terminated as provided herein, a fee (a "HK Offered Rate Facility
Participation Fee") calculated on such Lender's Applicable Percentage of the
average daily aggregate HK Offered Rate Loans outstanding during the preceding
quarter (or shorter period commencing with the date hereof or ending with the
Maturity Date) at the rate of 2.25% per annum. All HK Offered Rate Facility
Participation Fees shall be computed on the basis of the actual number of days
elapsed in a year of 360 days.
(g) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if and as
appropriate, among the Lenders, except that the Fronting Bank Fees shall be paid
directly to the Fronting Bank. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.06. Interest on Loans. (a) Subject to the provisions
of Section 2.07, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, when the Alternate Base Rate is determined by
reference to the Prime Rate and over a year of 360 days at all other times) at a
rate per annum equal to the Alternate Base Rate plus 1.25%.
(b) Subject to the provisions of Section 2.07, the Loans
comprising each Eurodollar Borrowing shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) at a rate per
annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus (i) 2.25% in the case of Revolving Loans and (ii) .25% in the
case of Thai Facility Loans.
(c) Subject to the provisions of Section 2.07, the Loans
comprising each Offered Rate Borrowing shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 360 days) at a rate
per annum equal to (i) in the case of Thai Offered Rate Loans, the Thai Offered
Rate (or, commencing on the third Business Day after delivery of a notice under
Section 2.01(c)(ii), the Adjusted
<PAGE> 33
33
LIBO Rate for the Interest Period in effect for such Borrowing) plus .25% and
(ii) in the case of HK Offered Rate Loans, the HK Offered Rate (or commencing on
the third Business Day after delivery of a notice under Section 2.01(d)(ii), the
Adjusted LIBO Rate for the Interest Period in effect for such Borrowing) plus
.25%.
(d) Interest on each Loan shall be payable on the Interest
Payment Dates applicable to such Loan except as otherwise provided in this
Agreement. The applicable Alternate Base Rate, Adjusted LIBO Rate, Thai Offered
Rate or HK Offered Rate for each Interest Period or day within an Interest
Period, as the case may be, shall be determined by the Administrative Agent, and
such determination shall be conclusive absent manifest error.
SECTION 2.07. Default Interest. If any Borrower shall default
in the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, by acceleration or otherwise, or under any other Loan
Document, such Borrower shall on demand from time to time pay interest, to the
extent permitted by law, on such defaulted amount to but excluding the date of
actual payment (after as well as before judgment) (a) in the case of overdue
principal, at the rate otherwise applicable to such Loan pursuant to Section
2.06 plus 2.00% per annum and (b) in all other cases, at a rate per annum
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, when determined by reference to the Prime Rate
and over a year of 360 days at all other times) equal to the sum of the
Alternate Base Rate plus 2.00%.
SECTION 2.08. Alternate Rate of Interest. In the event, and on
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurodollar Borrowing the Administrative Agent shall
have determined that dollar deposits in the principal amounts of the Loans
comprising such Borrowing are not generally available in the London interbank
market, or that the rates at which such dollar deposits are being offered will
not adequately and fairly reflect the cost to any Lender of making or
maintaining its Eurodollar Loan during such Interest Period, or that reasonable
means do not exist for ascertaining the Adjusted LIBO Rate, the Administrative
Agent shall, as soon as practicable thereafter, give written or telecopy notice
of such determination to the Borrowers and the Lenders. In the event of any such
determination, until the Administrative Agent shall have advised the Borrowers
and the Lenders that the circumstances giving rise to such notice no longer
exist, (a) any request by any Borrower for a Domestic Eurodollar Borrowing
pursuant to Section 2.03 shall be deemed to be a request for an ABR Borrowing
and (b) any request by any Foreign Borrower for a Foreign Revolving Borrowing
pursuant to Section 2.03 shall be deemed to be a request for a Borrowing bearing
a rate of interest agreed upon by such Borrower and the Lenders as adequately
and fairly reflecting the costs of the Lenders in making or maintaining Loans
during the applicable Interest Period plus 2.25% per annum and, unless such a
rate has been so agreed upon, no Loans shall be made in respect of such request
and all outstanding Foreign Revolving Borrowings shall be prepaid at the
expiration of the Interest Period applicable thereto. Each determination by the
Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a)
The Revolving Credit Commitments, the Thai Facility Commitment, the Thai Offered
Rate Facility Commitment, the HK Offered Rate Facility Commitment and the L/C
Commitment shall automatically terminate on the Maturity Date. Notwithstanding
the foregoing, all the Revolving Credit Commitments, the Thai Facility
Commitment, the Thai Offered Rate Facility Commitment, the HK Offered Rate
Facility Commitment and the L/C Commitment shall automatically terminate at 5:00
p.m., New York City time, on August 15, 1996, if the initial Credit Event shall
not have occurred by such time.
(b) Upon at least three Business Days' prior irrevocable
written or telecopy notice to the Administrative Agent, the Borrowers may at any
time in whole permanently terminate, or from time to time in part permanently
(subject to Section 2.09(e) with respect to Excess Cash Flow Reductions) reduce,
the Revolving Credit Commitments; provided, however, that (i) each partial
reduction of the Revolving Credit
<PAGE> 34
34
Commitments shall be in an integral multiple of $1,000,000 and in a minimum
amount of $5,000,000 and (ii) the Total Revolving Credit Commitment shall not be
reduced to an amount that is less than the Aggregate Credit Exposure at the
time.
(c) Prior to the Maturity Date, the Revolving Credit
Commitments shall be automatically and permanently reduced on the last business
day of each fiscal quarter of IMS, commencing with the fiscal quarter ending on
the last Saturday in June, 1997, by an amount equal to the "Quarterly Reduction"
set forth below opposite the fiscal year in which such fiscal quarter occurs:
<TABLE>
<CAPTION>
Fiscal Year Ending the Quarterly
Last Saturday in March of Reduction
-------------------------- ---------
<S> <C> <C>
1998 $ 250,000
1999 $ 500,000
2000 $ 750,000
2001 $ 1,500,000
2002 $ 5,000,000
</TABLE>
; provided, however, that (i) upon the occurrence of any Excess Cash Flow
Reduction or Equity Net Proceeds Reduction, in each case in accordance with
Section 2.09(d), the Quarterly Reductions shall be automatically and permanently
reduced as follows: (A) first, the Quarterly Reduction scheduled to occur on the
last Saturday in December, 2000, shall be automatically and permanently (subject
to Section 2.09(e) with respect to Excess Cash Flow Reductions) reduced by the
lesser of such Excess Cash Flow Reduction or Equity Net Proceeds Reduction, as
applicable, and $1,000,000 and (B) then, the remaining Quarterly Reductions
scheduled to occur prior to the last Saturday in December, 2000, shall be
reduced by the amount of such Excess Cash Flow Reduction or Equity Net Proceeds
Reduction, as applicable, that was not applied to reduce such Quarterly
Reduction to occur on the last Saturday in December, 2000, in the inverse order
of such remaining Quarterly Reductions scheduled to occur prior to the last
Saturday in December, 2000; (ii) upon the occurrence of any Non-Equity Net
Proceeds Reduction in accordance with Section 2.09(d), the remaining Quarterly
Reductions (including any Quarterly Reductions scheduled to occur on or after
the last Saturday in December, 2000) shall be reduced by the amount of such
Non-Equity Net Proceeds Reduction in the inverse order of all such remaining
Quarterly Reductions; and (iii) upon any reduction of the Revolving Credit
Commitments in accordance with Section 2.09(b), the remaining Quarterly
Reductions (including any Quarterly Reductions scheduled to occur on or after
the last Saturday in December, 2000) shall be reduced by the amount of such
reduction of the Revolving Credit Commitments in accordance with Section 2.09(b)
in the direct order of such remaining Quarterly Reductions.
(d) The Revolving Credit Commitments shall be permanently and
automatically reduced (i) on the date on which the financial statements with
respect to each fiscal year are delivered pursuant to Section 5.04(a), by an
amount equal to 50% of Excess Cash Flow for such fiscal year (each such
reduction, an "Excess Cash Flow Reduction"), provided, that with respect to the
period ended on the last Saturday in March, 1997, Excess Cash Flow shall,
notwithstanding anything to the contrary herein, be determined with respect to
the period beginning on June 30, 1996 and ending on the last Saturday in March,
1997; (ii) on the date which shall be specified in a certificate delivered by
IMS to the Administrative Agent, but in no event later than the fifth Business
Day, following receipt by IMS or any Subsidiary of any Equity Net Proceeds, by
an amount equal to 50% of such Equity Net Proceeds (each such reduction, an
"Equity Net Proceeds Reduction"); and (iii) on the date which shall be specified
in a certificate delivered by IMS to the Administrative Agent, but in no event
later than the fifth Business Day following receipt by IMS or any
<PAGE> 35
35
Subsidiary of any Non-Equity Net Proceeds, by 100% of such Non-Equity Net
Proceeds (each such reduction, a "Non-Equity Net Proceeds Reduction"); provided,
however, that in no event shall the Revolving Credit Commitments be reduced
pursuant to Section 2.09(d)(i) or (ii) if as of the time the applicable Excess
Cash Flow Reduction or Equity Net Proceeds Reduction would otherwise occur (x)
the Quarterly Reduction scheduled to occur on the last Saturday in December,
2000, shall have occurred or such Quarterly Reduction shall have been reduced to
$500,000 or less and (y) all Quarterly Reductions scheduled to occur prior to
the last Saturday in December, 2000, shall have occurred or been reduced to
zero. Not later than the date the financial statements referred to in clause (i)
above are due in respect of each fiscal year, IMS shall calculate the Excess
Cash Flow for such fiscal year and deliver a certificate containing such
calculation to the Administrative Agent.
(e) In the event that in any fiscal year of IMS the Borrowers
shall have reduced the Revolving Credit Commitments pursuant to Section 2.09(b),
IMS may in the certificate containing its calculation of Excess Cash Flow for
such fiscal year delivered pursuant to Section 2.09(d) designate all or a
portion of such reduction for such fiscal year (the "Designated Excess Cash Flow
Amount") to be a part of the Excess Cash Flow Reduction, if any, in respect of
such fiscal year, in which case (i) the effect of the Excess Cash Flow Reduction
in respect of such fiscal year shall be to reduce the Revolving Credit
Commitments by an amount equal to (A) the amount of the Excess Cash Flow
Reduction for such fiscal year minus (B) the Designated Excess Cash Flow Amount,
and (ii) the prior application of the Designated Excess Cash Flow Amount to
reduce the Quarterly Reductions pursuant to Section 2.09(c)(iii) shall be
reversed, and such Designated Excess Cash Flow Amount shall thereupon be
reapplied to reduce the remaining Quarterly Reductions as part of the Excess
Cash Flow Reduction for such fiscal year in accordance with Section 2.09(c)(i);
provided that (x) the aggregate amount of the reduction in the Revolving Credit
Commitments initially made pursuant to Section 2.09(b) for the applicable fiscal
year minus (y) the Designated Excess Cash Flow Amount for such fiscal year shall
be (A) equal to an integral multiple of $1,000,000 and not less than $5,000,000
or (B) equal to zero.
(f) Each reduction in the Revolving Credit Commitments
hereunder shall be made ratably among the Lenders in accordance with their
respective Revolving Credit Commitments. The Borrowers shall pay to the
Administrative Agent for the account of the applicable Lenders, on the date of
each termination or reduction, the Commitment Fees on the amount of the
Revolving Credit Commitments so terminated or reduced accrued to but excluding
the date of such termination or reduction.
SECTION 2.10. Conversion and Continuation of Borrowings. (a)
Each Borrower shall have the right at any time upon prior irrevocable notice to
the Administrative Agent, (i) at its offices in New York City not later than
12:30 p.m., New York City time, one Business Day prior to conversion, to convert
any Domestic Eurodollar Borrowing of such Borrower into an ABR Borrowing, (ii)
at its offices in New York City not later than 1:00 p.m., New York City time,
three Business Days prior to conversion, to convert any ABR Borrowing of such
Borrower into a Domestic Eurodollar Borrowing, (iii) in the case of any Domestic
Borrowing, at its offices in New York City not later than 1:00 p.m., New York
City time, three Business Days prior to continuation, and in the case of any
Foreign Revolving Borrowing, at its offices in New York City and Hong Kong, not
later than 11:30 a.m. Hong Kong time, three Business Days prior to continuation,
to continue any Eurodollar Borrowing of such Borrower as a Eurodollar Borrowing
for an additional Interest Period and (iv) in the case of any Domestic
Borrowing, at its offices in New York City, not later than 1:00 p.m., New York
City time, three Business Days prior to conversion, and in the case of any
Foreign Revolving Borrowing, at its offices in New York City and Hong Kong, not
later than 11:30 a.m.
<PAGE> 36
36
Hong Kong time, three Business Days prior to conversion, to convert the Interest
Period with respect to any Eurodollar Borrowing of such Borrower to another
permissible Interest Period; subject in each case to the following:
(i) each conversion or continuation shall be made pro rata
among the Lenders in accordance with the respective principal amounts
of the Loans comprising the converted or continued Borrowing;
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting
Borrowing shall satisfy the limitations specified in Sections 2.02(a)
and 2.02(b) regarding the principal amount and maximum number of
Borrowings of the relevant Type;
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the
new Loan of such Lender resulting from such conversion and reducing the
Loan (or portion thereof) of such Lender being converted by an
equivalent principal amount; accrued interest on any Eurodollar Loan
(or portion thereof) being converted shall be paid by such Borrower at
the time of conversion;
(iv) if any Eurodollar Borrowing is converted at a time other
than the end of the Interest Period applicable thereto, such Borrower
shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 2.14;
(v) any portion of a Borrowing maturing or required to be
repaid in less than one month may not be converted into or continued as
a Eurodollar Borrowing; and
(vi) any portion of a Eurodollar Borrowing that cannot be
converted into or continued as a Eurodollar Borrowing by reason of the
immediately preceding clause shall be (A) in the case of Domestic
Borrowings, automatically converted at the end of the Interest Period
in effect for such Borrowing into an ABR Borrowing and (b) in the case
of Foreign Revolving Borrowings, prepaid by the applicable Borrower on
the last day of such Interest Period; and
(vii) upon notice to the Borrowers from the Administrative
Agent given at the request of the Required Lenders, after the
occurrence and during the continuance of a Default or Event of Default,
no outstanding Loan may be converted into, or continued as, a
Eurodollar Loan.
Each notice pursuant to this Section 2.10 shall be irrevocable
and shall refer to this Agreement and specify (i) the identity and amount of the
Borrowing that the applicable Borrower requests be converted or continued, (ii)
whether such Borrowing is to be converted to or continued as a Eurodollar
Borrowing or an ABR Borrowing, (iii) if such notice requests a conversion, the
date of such conversion (which shall be a Business Day) and (iv) if such
Borrowing is to be converted to or continued as a Eurodollar Borrowing, the
Interest Period with respect thereto. If no Interest Period is specified in any
such notice with respect to any conversion to or continuation as a Eurodollar
Borrowing, the applicable Borrower shall be deemed to have selected an Interest
Period of one month's duration. The Administrative Agent shall advise the
Lenders of any notice given pursuant to this Section 2.10 and of each Lender's
portion of any converted or continued Borrowing. If the applicable Borrower
shall not have given notice in accordance with this Section 2.10 to continue any
Borrowing into a subsequent Interest Period (and shall not otherwise have given
notice in accordance with this Section 2.10 to convert such Borrowing), such
Borrowing shall, at the end of
<PAGE> 37
37
the Interest Period applicable thereto (unless repaid pursuant to the terms
hereof), automatically be continued (x) in the case of a Domestic Borrower, into
a new Interest Period as an ABR Borrowing and (y) in the case of a Foreign
Borrower, into an Interest Period of 30 days as a Eurodollar Borrowing.
SECTION 2.11. Prepayment. (a) Each Borrower shall have the
right at any time and from time to time to prepay any Borrowing (other than
Offered Rate Borrowings), in whole or in part, upon (x) prior written or
telecopy notice (or telephone notice promptly confirmed by written or telecopy
notice) of at least three Business Days with respect to Eurodollar Borrowings
and one Business Day with respect to ABR Borrowings (i) to the Administrative
Agent at its offices in New York City before 11:00 a.m., New York City time in
the case of any prepayment of a Domestic Borrowing and (ii) to the
Administrative Agent at its offices in Hong Kong before 11:00 a.m. Hong Kong
time in the case of any prepayment of a Foreign Borrowing or a Thai Facilities
Borrowing (and to the Thai Facilities Lender at its offices in Bangkok before
11:00 a.m. Bangkok time in the case of any prepayment of a Thai Facilities
Borrowing); provided, however, that each partial prepayment in accordance with
this Section 2.11(a) shall be in an amount that is (i) in the case of a
prepayment by the HK Borrower, an integral multiple of $1,000,000 and in the
case of a prepayment by any other Borrower, an integral multiple of $500,000 and
(ii) in the case of a prepayment by the HK Borrower, not less than $1,000,000
and in the case of a prepayment by any other Borrower, not less than $500,000.
The Administrative Agent shall promptly advise the Lenders of any notice given
pursuant to this Section 2.11(a) (and the contents thereof). The Borrowers will
not have the right to prepay any Offered Rate Borrowings.
(b) In the event of the termination of all the Revolving
Credit Commitments, each Borrower shall repay or prepay all its outstanding
Borrowings on the date of such termination. In the event of any partial
reduction of the Revolving Credit Commitments, then (i) prior to the effective
date of such reduction, the Administrative Agent shall notify the Borrowers and
the Lenders of the Aggregate Credit Exposure after giving effect thereto and
(ii) if the Aggregate Credit Exposure would exceed the Total Revolving Credit
Commitment after giving effect to such reduction, then the Borrowers shall, on
the date of such reduction, repay Borrowings or prepay Borrowings (other then
Offered Rate Borrowings) in an amount sufficient to eliminate such excess.
(c) Each notice delivered under this Section 2.11 shall
specify the Borrower that will make any prepayment, the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit such Borrower to prepay such Borrowing by the
amount stated therein on the date stated therein. All prepayments under this
Section 2.11 shall be subject to Section 2.14 but otherwise without premium or
penalty. All prepayments under this Section 2.11 shall be accompanied by accrued
interest on the principal amount being prepaid to the date of payment.
SECTION 2.12. Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision of this Agreement, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of or credit extended by any Lender or the Fronting Bank (except any
such reserve requirement which is reflected in the Adjusted LIBO Rate) or shall
impose on such Lender or the Fronting Bank or the London interbank market any
other condition affecting this Agreement or Eurodollar Loans made by such Lender
or any Letter of Credit or participation therein, and the result of any of the
foregoing shall be to increase the cost to such Lender or the Fronting Bank of
making or maintaining any Eurodollar Loan or increase the cost to any Lender of
issuing or maintaining any Letter of Credit or purchasing or maintaining
<PAGE> 38
38
a participation therein or to reduce the amount of any sum received or
receivable by such Lender or the Fronting Bank hereunder (whether of principal,
interest or otherwise) by an amount deemed by such Lender or the Fronting Bank
to be material, then the applicable Borrower will pay to such Lender or the
Fronting Bank, as the case may be, upon demand as provided in paragraph (c)
below such additional amount or amounts as will compensate such Lender or the
Fronting Bank, as the case may be, for such additional costs incurred or
reduction suffered.
(b) If any Lender or the Fronting Bank shall have determined
that the adoption after the date hereof of any law, rule, regulation, agreement
or guideline regarding capital adequacy, or any change after the date hereof in
any such law, rule, regulation, agreement or guideline (whether such law, rule,
regulation, agreement or guideline has been adopted) or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or the Fronting Bank or any Lender's or the
Fronting Bank's holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any Governmental Authority
has or would have the effect of reducing the rate of return on such Lender's or
the Fronting Bank's capital or on the capital of such Lender's or the Fronting
Bank's holding company, if any, as a consequence of this Agreement or the Loans
made or participations in Letters of Credit purchased by such Lender pursuant
hereto or the Letters of Credit issued by the Fronting Bank pursuant hereto to a
level below that which such Lender or the Fronting Bank or such Lender's or the
Fronting Bank's holding company could have achieved but for such applicability,
adoption, change or compliance (taking into consideration such Lender's or the
Fronting Bank's policies and the policies of such Lender's or the Fronting
Bank's holding company with respect to capital adequacy) by an amount deemed by
such Lender or the Fronting Bank to be material, then from time to time IMS
shall pay (or cause the Borrowers to pay) to such Lender or the Fronting Bank,
as the case may be, as provided in paragraph (c) below such additional amount or
amounts as will compensate such Lender or the Fronting Bank or such Lender's or
the Fronting Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Fronting Bank setting
forth the amount or amounts necessary to compensate such Lender or the Fronting
Bank or its holding company, as applicable, as specified in paragraph (a) or (b)
above shall be delivered to IMS and shall be conclusive absent manifest error.
IMS shall (or shall cause the applicable Borrower to) pay such Lender or the
Fronting Bank the amount shown as due on any such certificate delivered by it
within 30 days after its receipt of the same.
(d) Failure or delay on the part of any Lender or the Fronting
Bank to demand compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital shall not constitute a
waiver of such Lender's or the Fronting Bank's right to demand such
compensation. The protection of this Section shall be available to each Lender
and the Fronting Bank regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, agreement, guideline or other
change or condition that shall have occurred or been imposed.
SECTION 2.13. Change in Legality. (a) Notwithstanding any
other provision of this Agreement, if, after the date hereof, any change in any
law or regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, and such
Lender and the applicable Borrower shall not have agreed upon a solution to such
illegality after good faith negotiations occurring prior to the date on which
such change in law is given effect, then, by written notice to IMS and to the
Administrative Agent:
<PAGE> 39
39
(i) such Lender may declare that Eurodollar Loans will not
thereafter (for the duration of such unlawfulness) be made by such
Lender hereunder (or be continued for additional Interest Periods and
ABR Loans will not thereafter (for such duration) be converted into
Eurodollar Loans), whereupon any request for a Eurodollar Borrowing (or
to convert an ABR Borrowing to a Eurodollar Borrowing or to continue a
Eurodollar Borrowing for an additional Interest Period) shall, as to
such Lender only, be deemed a request for an ABR Loan to the U.S.
Borrower (or a request to continue an ABR Loan as such for an
additional Interest Period or to convert a Eurodollar Loan into an ABR
Loan to the U.S. Borrower, as the case may be) or, at the option of the
applicable Borrower exercisable prior to the time on which such Loan is
required to be made, shall be withdrawn, unless such declaration shall
be subsequently withdrawn; and
(ii) in the event the continuance or maintenance of any Eurodollar
Loan by a Lender would result in a violation of applicable law, such
Lender may require that all outstanding Eurodollar Loans made by such
Lender be converted to ABR Loans or prepaid, in which event all such
Eurodollar Loans comprising Domestic Borrowings shall be automatically
converted to ABR Loans and all such Eurodollar Loans comprising Foreign
Revolving Borrowings shall be prepaid by the applicable Borrower, in
each case, as of the effective date of such notice as provided in
paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice to IMS by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by IMS.
SECTION 2.14. Indemnity. The Borrowers agree to indemnify each
Lender against any loss or expense that such Lender may sustain or incur as a
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan prior to the end of the Interest Period in effect therefor,
(ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of
the Interest Period with respect to any Eurodollar Loan, in each case other than
on the last day of the Interest Period in effect therefor, or (iii) any
Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be
made pursuant to a conversion or continuation under Section 2.10) not being made
after notice of such Loan shall have been given by the applicable Borrower
hereunder (any of the events referred to in this clause (a) being called a
"Breakage Event") or (b) any default in the making of any payment or prepayment
required to be made hereunder. In the case of any Breakage Event, (x) such loss
shall be equal to the excess, if any, as reasonably determined by such Lender,
of (i) its cost of obtaining funds for the Eurodollar Loan that is the subject
of such Breakage Event for the period from the date of such Breakage Event to
the last day of the Interest Period in effect (or that would have been in
effect) for such Loan over (ii) the amount of interest likely to be realized by
such Lender in redeploying the funds released or not utilized by reason of such
Breakage Event for such period and (y) such expense shall be equal to such
Lender's actual costs and expenses incurred in connection with, or by reason of,
any event referred to in clause (a). A certificate of any Lender setting forth
any amount or amounts which such Lender is entitled to receive pursuant to this
Section 2.14 shall be delivered to IMS and shall be conclusive absent manifest
<PAGE> 40
40
error. IMS shall (or shall cause the applicable Borrower to) pay to each Lender
that delivers any such certificate the amount shown as due on such certificate
within 10 days after receipt of the same by IMS.
SECTION 2.15. Pro Rata Treatment. Except as required under
Section 2.13, each Borrowing, each payment or prepayment of principal of any
Borrowing, each payment of interest on the Loans, each payment of the Commitment
Fees, L/C Participation Fees, Thai Facility Participation Fees, Thai Offered
Rate Facility Participation Fees and HK Offered Rate Facility Participation
Fees, each reduction of the Revolving Credit Commitments and each conversion of
any Borrowing to or continuation of any Borrowing as a Borrowing of any Type
shall be allocated pro rata among the Lenders in accordance with their
respective applicable Revolving Credit Commitments (or, if such Revolving Credit
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of their outstanding Loans). Each Lender agrees
that in computing such Lender's portion of any Borrowing to be made hereunder,
the Administrative Agent may, in its discretion, round each Lender's percentage
of such Borrowing to the next higher or lower whole dollar amount.
SECTION 2.16. Sharing of Setoffs. Each Lender agrees that if
it shall, through the exercise of a right of banker's lien, setoff or
counterclaim against any Borrower or any other Loan Party, or pursuant to a
secured claim under Section 506 of Title 11 of the United States Code or other
security or interest arising from, or in lieu of, such secured claim, received
by such Lender under any applicable bankruptcy, insolvency or other similar law
or otherwise, or by any other means, obtain payment (voluntary or involuntary)
in respect of any Related Claims with respect to any Borrower as a result of
which the unpaid principal portion of its Related Claims with respect to such
Borrower shall be proportionately less than the unpaid principal portion of the
Related Claims of any other Lender, it shall be deemed simultaneously to have
purchased from such other Lender at face value, and shall promptly pay to such
other Lender the purchase price for, a participation in the Related Claims of
such other Lender, so that the aggregate unpaid principal amount of the Related
Claims and participations in Related Claims held by each Lender shall be in the
same proportion to the aggregate unpaid principal amount of all Related Claims
then outstanding as the principal amount of its Related Claims prior to such
exercise of banker's lien, setoff or counterclaim or other event was to the
principal amount of all Related Claims outstanding prior to such exercise of
banker's lien, setoff or counter claim or other event; provided, however, that
if any such purchase or purchases or adjustments shall be made pursuant to this
Section 2.16 and the payment giving rise thereto shall thereafter be recovered,
such purchase or purchases or adjustments shall be rescinded to the extent of
such recovery and the purchase price or prices or adjustment restored without
interest. The Borrowers and IMS expressly consent to the foregoing arrangements
and agree that any Lender holding a participation in a Related Claim deemed to
have been so purchased may exercise any and all rights of banker's lien, setoff
or counterclaim with respect to any and all moneys owing by the Borrowers and
IMS to such Lender by reason thereof as fully as if such Lender had made a Loan
directly to the applicable Borrower in the amount of such participation.
SECTION 2.17. Payments. (a) Each Borrower and each other Loan
Party shall make each payment (including principal of or interest on any
Borrowing or any L/C Disbursement or any Fees or other amounts) hereunder and
under any other Loan Document in immediately available dollars, without setoff,
defense or counterclaim, as follows:
(i) in the case of (x) payments required to be made by
Domestic Borrowers and (y) other payments in respect of Domestic
Borrowings, not later than 12:00 (noon) New York City time on the date
when such payment is required to be made hereunder to the
Administrative Agent at its offices at 270 Park Avenue, New York, New
York;
<PAGE> 41
41
(ii) in the case of payments required to be made by Foreign
Borrowers (other than (x) payments in respect of Domestic Borrowings
and (y) payments required to be made by the Thai Borrower solely with
respect to principal of and interest on (A) Thai Facility Borrowings if
a Thai Facility Participations Event has not occurred or (B) Thai
Offered Rate Facility Borrowings if a Thai Offered Rate Facility
Participations Event has not occurred), not later than 12:00 (noon)
Hong Kong time on the date when such payment is required to be made
hereunder to the Administrative Agent at its offices at Edinburgh
Tower, 15 Queen's Road, Central, Hong Kong; and
(iii) in the case of payments required to be made by the Thai
Borrower solely with respect to principal of and interest on (A) Thai
Facility Borrowings if a Thai Facility Participations Event has not
occurred or (B) Thai Offered Rate Facility Borrowings if a Thai Offered
Rate Facility Participations Event has not occurred, not later than
12:00 (noon) Bangkok time on the date when such payment is required to
be made hereunder to the Thai Facilities Lender at its offices in
Bangkok, Thailand;
provided, however, that the Fronting Bank Fees shall be paid directly to the
Fronting Bank.
(b) Whenever any payment (including principal of or interest
on any Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day
(except in the case of payment of principal of a Eurodollar Borrowing if the
effect of such extension would be to extend such payment into the next
succeeding month, in which case such payments shall be due on the immediately
preceding Business Day), and such extension of time shall in such case be
included in the computation of interest or Fees, if applicable.
SECTION 2.18. Taxes. (a) Any and all payments by or on account
of any obligation of any Borrower hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided that if any
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Fronting Bank (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) such Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrowers agree to pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.
(c) Each Borrower shall indemnify the Administrative Agent,
each Lender and the Fronting Bank, within ten Business Days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes (including
Indemnified Taxes or Other Taxes imposed or asserted on amounts payable under
this Section) paid by the Administrative Agent, such Lender or the Fronting
Bank, as the case may be, with respect to payments by or on account of any
obligation of any Borrower hereunder and any liability (including penalties,
interest and reasonable expenses; provided, however, that no Borrower shall be
responsible for any increase in any such penalty, interest or expense directly
attributable to the period of time which commences five Business Days after the
Administrative Agent, Lender, or Fronting Bank, as the case may be, receives
notice of such item and which ends on the Business Day on which such party gives
notice of such item to such Borrower) arising therefrom or with respect thereto.
A certificate as to the amount of
<PAGE> 42
42
such payment or liability delivered to a Borrower by a Lender or the Fronting
Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender
or the Fronting Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by any Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the Tax return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax on payments by a Borrower under this Agreement
pursuant to the law of the Relevant Jurisdiction or any treaty to which the
Relevant Jurisdiction is a party shall deliver to such Borrower (with a copy to
the Administrative Agent), at the required time or times, properly completed and
executed forms and other documentation (if any) prescribed by applicable law
that will permit such payments to be made without withholding or at a reduced
rate.
SECTION 2.19. Assignment of Commitments Under Certain
Circumstances; Duty To Mitigate. (a) In the event (i) any Lender or the Fronting
Bank delivers a certificate requesting compensation pursuant to Section 2.12,
(ii) any Lender or the Fronting Bank delivers a notice described in Section 2.13
or (iii) a Borrower is required to pay any additional amount to any Lender or
the Fronting Bank or any Governmental Authority on account of any Lender or the
Fronting Bank pursuant to Section 2.18, such Borrower may, at its sole expense
and effort (including with respect to the processing and recordation fee
referred to in Section 9.04(b)), upon notice to such Lender or the Fronting
Bank, the Thai Facilities Lender, the HK Facility Lender and the Administrative
Agent, require such Lender or the Fronting Bank to transfer and assign, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all of its interests, rights and obligations under this Agreement
to an assignee that shall assume such assigned obligations (which assignee may
be another Lender, if a Lender accepts such assignment); provided that (x) such
assignment shall not conflict with any law, rule or regulation or order of any
court or other Governmental Authority having jurisdiction, (y) such Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Revolving Credit Commitment is being assigned, of the Fronting Bank, the
Thai Facilities Lender and the HK Facility Lender), which consent shall not
unreasonably be withheld, and (z) such Borrower or such assignee shall have paid
to the affected Lender or the Fronting Bank in immediately available funds an
amount equal to the sum of the principal of and interest accrued to the date of
such payment on the outstanding Loans or L/C Disbursements of such Lender or the
Fronting Bank, respectively, plus all Fees and other amounts accrued for the
account of such Lender or the Fronting Bank hereunder (including any amounts
under Section 2.12 and Section 2.14); provided further that, if prior to any
such transfer and assignment the circumstances or event that resulted in such
Lender's or the Fronting Bank's claim for compensation under Section 2.12 or
notice under Section 2.13 or the amounts paid pursuant to Section 2.18, as the
case may be, cease to cause such Lender or the Fronting Bank to suffer increased
costs or reductions in amounts received or receivable or reduction in return on
capital, or cease to have the consequences specified in Section 2.13, or cease
to result in amounts being payable under Section 2.18, as the case may be
(including as a result of any action taken by such Lender or the Fronting Bank
pursuant to paragraph (b) below), or if such Lender or the Fronting Bank shall
waive its right to claim further compensation under Section 2.12 in respect of
such circumstances or event or shall withdraw its notice under Section 2.13 or
shall waive its right to further payments under Section 2.18 in respect of such
circumstances or event, as the case may be, then such Lender or the Fronting
Bank shall not thereafter be required to make any such transfer and assignment
hereunder.
<PAGE> 43
43
(b) If (i) any Lender or the Fronting Bank shall request
compensation under Section 2.12, (ii) any Lender or the Fronting Bank delivers a
notice described in Section 2.13 or (iii) any Borrower is required to pay any
additional amount to any Lender or the Fronting Bank or any Governmental
Authority on account of any Lender or the Fronting Bank, pursuant to Section
2.18, then such Lender or the Fronting Bank shall use reasonable efforts (which
shall not require such Lender or the Fronting Bank to incur an unreimbursed loss
or unreimbursed cost or expense or otherwise take any action inconsistent with
its internal policies or legal or regulatory restrictions or suffer any
disadvantage or burden deemed by it to be significant) (x) to file any
certificate or document reasonably requested in writing by the applicable
Borrower or (y) to assign its rights and delegate and transfer its obligations
hereunder to another of its offices, branches or affiliates, if such filing or
assignment would reduce its claims for compensation under Section 2.12 or enable
it to withdraw its notice pursuant to Section 2.13 or would reduce amounts
payable pursuant to Section 2.18, as the case may be, in the future. IMS hereby
agrees to pay (or to cause the applicable Borrower to pay) all reasonable costs
and expenses incurred by any Lender or the Fronting Bank in connection with any
such filing or assignment, delegation and transfer.
SECTION 2.20. Letters of Credit. (a) General. Any Borrower may
request the issuance of a Letter of Credit for its own account, denominated in
dollars, in a form reasonably acceptable to the Administrative Agent and the
Fronting Bank, at any time and from time to time while the Revolving Credit
Commitments remain in effect. This Section shall not be construed to impose an
obligation upon the Fronting Bank to issue any Letter of Credit that is
inconsistent with the terms and conditions of this Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. In order to request the issuance of a Letter of Credit (or to amend,
renew or extend an existing Letter of Credit), a Borrower shall hand deliver or
telecopy to the Fronting Bank and the Administrative Agent (reasonably in
advance of the requested date of issuance, amendment, renewal or extension) a
notice requesting the issuance of a Letter of Credit, or identifying the Letter
of Credit to be amended, renewed or extended, the date of issuance, amendment,
renewal or extension, the date on which such Letter of Credit is to expire
(which shall comply with paragraph (c) below), the amount of such Letter of
Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare such Letter of Credit. A Letter of
Credit shall be issued, amended, renewed or extended only if, and upon issuance,
amendment, renewal or extension of each Letter of Credit the applicable Borrower
shall be deemed to represent and warrant that, after giving effect to such
issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed
$5,000,000 and (B) the Aggregate Credit Exposure shall not exceed the Total
Revolving Credit Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at the
close of business on the earlier of the date one year after the date of the
issuance of such Letter of Credit and the date that is five Business Days prior
to the Maturity Date, unless such Letter of Credit expires by its terms on an
earlier date.
(d) Participations. By the issuance of a Letter of Credit and
without any further action on the part of the Fronting Bank or the Lenders, the
Fronting Bank hereby grants to each Lender, and each such Lender hereby acquires
from the applicable Fronting Bank, a participation in such Letter of Credit
equal to such Lender's Applicable Percentage from time to time of the aggregate
amount available to be drawn under such Letter of Credit, effective upon the
issuance of such Letter of Credit. In consideration and in furtherance of the
foregoing, each Lender hereby absolutely and unconditionally agrees to pay to
the Administrative Agent, for the account of the Fronting Bank, such Lender's
Applicable Percentage of each L/C Disbursement made by the Fronting Bank and not
reimbursed by the applicable Borrower (or, if
<PAGE> 44
44
applicable, another party pursuant to its obligations under any other Loan
Document) forthwith on the date due as provided in Section 2.02(f). Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including the
occurrence and continuance of a Default or an Event of Default or the
termination of the Revolving Credit Commitments, and that each such payment
shall be made without any offset, abatement, withholding or reduction
whatsoever.
(e) Reimbursement. If the Fronting Bank shall make any L/C
Disbursement in respect of a Letter of Credit, the applicable Borrower shall pay
to the Administrative Agent an amount equal to such L/C Disbursement not later
than one Business Day after such Borrower shall have received notice from the
Fronting Bank that payment of such draft will be made.
(f) Obligations Absolute. The applicable Borrower's
obligations to reimburse L/C Disbursements as provided in paragraph (e) above
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement, under any and all
circumstances whatsoever, and irrespective of:
(i) any lack of validity or enforceability of any Letter of
Credit or any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure
from all or any of the provisions of any Letter of Credit or any Loan
Document;
(iii) the existence of any claim, setoff, defense or other
right that such Borrower, any other party guaranteeing, or otherwise
obligated with, such Borrower or any subsidiary or other Affiliate
thereof or any other person may at any time have against the
beneficiary under any Letter of Credit, the Fronting Bank, the
Administrative Agent or any Lender or any other person, whether in
connection with this Agreement, any other Loan Document or any other
related or unrelated agreement or transaction;
(iv) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(v) payment by the Fronting Bank under a Letter of Credit
against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of
the Fronting Bank, the Lenders, the Administrative Agent or any other
person or any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the provisions of
this Section, constitute a legal or equitable discharge of the
applicable Borrower's obligations hereunder.
Without limiting the generality of the foregoing, it is
expressly understood and agreed that the absolute and unconditional obligation
of the applicable Borrower hereunder to reimburse L/C Disbursements will not be
excused by the gross negligence or wilful misconduct of the Fronting Bank.
However, the foregoing shall not be construed to excuse the Fronting Bank from
liability to the applicable Borrower to the extent of any direct damages (as
opposed to consequential damages, claims in respect of which are hereby waived
by such Borrower to the extent permitted by applicable law) suffered by such
<PAGE> 45
45
Borrower that are caused by the Fronting Bank's gross negligence or wilful
misconduct in determining whether drafts and other documents presented under a
Letter of Credit comply with the terms thereof; it is understood that the
Fronting Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary and, in making any payment under any Letter of
Credit (i) the Fronting Bank's exclusive reliance on the documents presented to
it under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary thereunder equals the
amount of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be insufficient in any respect, if such document on
its face appears to be in order, and whether or not any other statement or any
other document presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever and (ii) any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute wilful misconduct or gross negligence of
the Fronting Bank.
(g) Disbursement Procedures. The Fronting Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Fronting Bank shall as promptly
as possible give telephonic notification, confirmed by telecopy, to the
Administrative Agent and the applicable Borrower of such demand for payment and
whether the Fronting Bank has made or will make an L/C Disbursement thereunder;
provided that any failure to give or delay in giving such notice shall not
relieve such Borrower of its obligation to reimburse the Fronting Bank and the
Lenders with respect to any such L/C Disbursement. The Administrative Agent
shall promptly give each Lender notice thereof.
(h) Interim Interest. If the Fronting Bank shall make any L/C
Disbursement in respect of a Letter of Credit, then, unless the applicable
Borrower shall reimburse such L/C Disbursement in full on the date thereof, the
unpaid amount thereof shall bear interest for the account of the Fronting Bank,
for each day from and including the date of such L/C Disbursement, to but
excluding the earlier of the date of payment by such Borrower or the date on
which interest shall commence to accrue on the ABR Loans resulting from such L/C
Disbursement as provided in Section 2.02(f), at the rate per annum that would
apply to such amount if such amount were an ABR Loan.
(i) Resignation or Removal of the Fronting Bank. The Fronting
Bank may resign at any time by giving 180 days' prior written notice to the
Administrative Agent, the Lenders and IMS, and may be removed at any time by IMS
by notice to the Fronting Bank, the Administrative Agent and the Lenders.
Subject to the next succeeding paragraph, upon the acceptance of any appointment
as the Fronting Bank hereunder by a Lender that shall agree to serve as
successor Fronting Bank, such successor shall succeed to and become vested with
all the interests, rights and obligations of the retiring Fronting Bank and the
retiring Fronting Bank shall be discharged from its obligations to issue
additional Letters of Credit hereunder. At the time such removal or resignation
shall become effective, the Borrowers agree to pay all accrued and unpaid fees
pursuant to Section 2.05(c)(ii). The acceptance of any appointment as the
Fronting Bank hereunder by a successor Lender shall be evidenced by an agreement
entered into by such successor, in a form satisfactory to IMS and the
Administrative Agent, and, from and after the effective date of such agreement,
(i) such successor Lender shall have all the rights and obligations of the
previous Fronting Bank under this Agreement and the other Loan Documents and
(ii) references herein and in the other Loan Documents to the term "Fronting
Bank" shall be deemed to refer to such successor or to any previous Fronting
Bank, or to such successor and all previous Fronting Banks, as the context shall
require. After the resignation or removal of the Fronting Bank hereunder, the
retiring Fronting Bank shall remain a party hereto
<PAGE> 46
46
and shall continue to have all the rights and obligations of the Fronting Bank
under this Agreement and the other Loan Documents with respect to Letters of
Credit issued by it prior to such resignation or removal, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall
occur and be continuing, each Borrower shall, on the Business Day it receives
notice from the Administrative Agent or the Required Lenders thereof and of the
amount to be deposited, deposit in an account with the Collateral Agent, for the
benefit of the Lenders, an amount in cash equal to the portion of the L/C
Exposure attributable to Letters of Credit issued for the account of such
Borrower as of such date. Such deposit shall be held by the Collateral Agent as
collateral for the payment and performance of the Obligations. The Collateral
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account. Other than any interest earned on the
investment of such deposits in Permitted Investments, which investments shall be
made at the option and sole discretion of the Collateral Agent, such deposits
shall not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall automatically be
applied by the Administrative Agent to reimburse the Fronting Bank for L/C
Disbursements for which it has not been reimbursed, and any remaining amounts
either (i) be held for the satisfaction of the reimbursement obligations of the
applicable Borrower for the L/C Exposure at such time or (ii) if the maturity of
the Loans has been accelerated, be applied to satisfy the Obligations. If a
Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, such amount (to the extent not
applied as aforesaid) shall be returned to such Borrower within three Business
Days after all Events of Default have been cured or waived.
SECTION 2.21. Permitted Additional Borrowers. If IMS, IMS
Foreign Holdings and the Borrowers desire that a wholly owned Subsidiary ("a
Proposed Permitted Additional Borrower") become a Permitted Additional Borrower
hereunder, IMS shall deliver a notice to the Administrative Agent containing all
relevant financial and business information reasonably requested by the
Administrative Agent relating to such Proposed Permitted Additional Borrower
(including projections of cash flow based on reasonable assumptions) and
proposed collateral and guarantee arrangements relating to such person becoming
a Permitted Additional Borrower. If the Required Lenders are satisfied with (i)
all financial and business matters relating to the Proposed Permitted Additional
Borrower and its ability to support Borrowings hereunder based on cash flow and
assets included in the Collateral and (ii) all proposed collateral and guarantee
arrangements relating to such Proposed Permitted Additional Borrower and an
opinion of counsel reasonably acceptable to the Required Lenders relating to
such Proposed Permitted Additional Borrower and such arrangements, then the
Administrative Agent shall so inform IMS and the Borrowers in writing and each
of the parties hereto shall thereupon execute and deliver an agreement pursuant
to which such Proposed Permitted Additional Borrower shall assume all the
rights, obligations and liabilities of a Borrower hereunder and all such other
documentation as the Administrative Agent shall require in order to effect the
terms of such assumption and the applicable collateral and guarantee
arrangements, whereupon such Proposed Permitted Additional Borrower shall become
a Permitted Additional Borrower for all purposes hereof. The Lenders shall use
reasonable efforts to make such determination within 30 Business Days after
receipt thereby of the notice and all the information referred to in this
Section 2.21 and all other information relating thereto reasonably requested by
the Lenders.
SECTION 2.22. Suspended Contingent Payment Note Interest. In
the event that a Purchase Commitment Default occurs and any of the obligors
under the Contingent Payment Notes elects not to make any payments of interest
in respect of any Contingent Payment Note which would otherwise have been due
after such Purchase Commitment Default and on or before June 30, 1997
("Suspended Contingent Payment Note Interest"), then such obligor (the
"Applicable Obligor") shall so notify the Administrative Agent and
<PAGE> 47
47
an amount equal to such Suspended Contingent Payment Note Interest shall be
deemed to be Consolidated Cash Interest Expense for the period in which it was
otherwise due under the Contingent Payment Notes but for such Purchase
Commitment Default. The Applicable Obligor shall have the right, if and only if
a Default or Event of Default has not occurred and is not continuing, following
delivery of a certificate of a Responsible Officer of such Applicable Obligor to
the Administrative Agent certifying that the applicable Purchase Commitment
Default has been cured, to make scheduled payments of such Suspended Contingent
Payment Note Interest (which payments shall be deemed not to constitute
Consolidated Cash Interest Expense), provided that if such a certificate has not
been delivered to the Administrative Agent by the first anniversary of the
delivery of the notice referred to above, then an amount equal to the Suspended
Contingent Payment Note Interest shall be deemed to constitute Excess Cash Flow
for the fiscal year in which such first anniversary occurs and shall be applied
in accordance with Section 2.09(d).
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Each of IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC and the
Borrowers represents and warrants to the Administrative Agent, the Collateral
Agent, the Fronting Bank and each of the Lenders that:
SECTION 3.01. Organization; Powers. Each of IMS and the
Subsidiaries (a) is a corporation, partnership or company duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) has all requisite power and authority, and has in effect all
requisite permits, approvals and other authorizations from all applicable
Governmental Authorities, to own its property and assets and to carry on its
business as now conducted and as proposed to be conducted, (c) is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required, except where the failure so to qualify could not
reasonably be expected to result in a Material Adverse Effect, and (d) has the
corporate, partnership or company power and authority to execute, deliver and
perform its obligations under each of the Loan Documents and each other
agreement or instrument contemplated hereby to which it is or will be a party
and, in the case of each Borrower, to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and
performance by each Loan Party of each of the Loan Documents to which it is a
party and the borrowings hereunder, the creation of the Liens provided for in
the Security Documents, the Recapitalization and the other transactions
contemplated hereby and thereby (collectively, the "Transactions") (a) have been
duly authorized by all requisite corporate, partnership or company (as
applicable) action and, if required, stockholder or other equity holder (as
applicable) action and (b) will not (i) violate (A) any provision of law,
statute, rule or regulation, or of the certificate or articles of incorporation
or other constitutive documents or by-laws of IMS, any Borrower or any other
Subsidiary, (B) any order of any Governmental Authority or (C) any provision of
any indenture, certificate of designation or certificate of incorporation
establishing preferred stock or other material agreement or instrument to which
IMS, any Borrower or any other Subsidiary is a party or by which any of them or
any of their property is or may be bound, (ii) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under, or give rise to any right to accelerate or to require the
prepayment, repurchase or redemption of any obligation under any such indenture,
certificate of designation or certificate of incorporation establishing
preferred stock or other material agreement or instrument or (iii) result in the
creation or imposition of any Lien upon or with respect to any property or
assets now owned or hereafter acquired by IMS, any Borrower or any other
Subsidiary (other than any Lien created hereunder or under the Security
Documents).
<PAGE> 48
48
SECTION 3.03. Enforceability. This Agreement has been duly
executed and delivered by each of IMS, IMS Foreign Holdings, IMS PRC, IMS Cayman
and the Borrowers and constitutes, and each other Loan Document when executed
and delivered by each Loan Party which is a party thereto will constitute, a
legal, valid and binding obligation of such Loan Party enforceable against such
Loan Party in accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or
approval of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions, except for
(a) the filing of Uniform Commercial Code financing statements and filings with
the United States Patent and Trademark Office and the United States Copyright
Office and comparable offices in foreign jurisdictions and equivalent filings in
foreign jurisdictions and (b) such as are listed on Schedule 3.04 and have been
made or obtained and are in full force and effect.
SECTION 3.05. Financial Statements. (a) IMS has heretofore
furnished to the Lenders the combined and combining balance sheets and
statements of income and changes in financial conditions of IMS as of and for
the fiscal year ended on the last Saturday in March, 1996 and the combined
balance sheets and statements of income and changes in financial condition of
IMS as of and for the fiscal years ended the last Saturday in March, 1994 and
the last Saturday in March, 1995, respectively, audited by and accompanied by
the opinion of Ernst & Young LLP, independent public accountants. Such financial
statements present fairly the financial condition and results of operations and
cash flows of IMS and the Subsidiaries as of such dates and for such periods.
Such balance sheets and the notes thereto disclosure all material liabilities,
direct or contingent and all long-term leases or unusual forward or long-term
commitments, including all interest rate or foreign currency hedging
transactions, of IMS and the Subsidiaries as of the dates thereof. Such
financial statements were prepared in accordance with GAAP applied on a
consistent basis.
(b) Each Loan Party has heretofore delivered to the Lenders
its unaudited pro forma consolidated balance sheet as of March 30, 1996,
prepared giving effect to the Recapitalization as if it had occurred on such
date. Each of such pro forma balance sheets has been prepared in good faith by
such Loan Party based on the assumptions used to prepare the pro forma financial
information contained in the Confidential Information Memorandum (which
assumptions are believed by such Loan Party on the date hereof and on the
Closing Date to be reasonable), is based on the best information available to
the Loan Parties as of the date of delivery thereof, accurately reflects all
adjustments required to be made to give effect to the Recapitalization and
presents fairly on a pro forma basis the estimated consolidated financial
position of such Loan Party and its consolidated Subsidiaries as of March 30,
1996, assuming that the Recapitalization had actually occurred at March 30,
1996.
SECTION 3.06. No Material Adverse Change. There has been no
material adverse change in the business, assets, operations, prospects,
condition, financial or otherwise, or material agreements of IMS and the
Subsidiaries, taken as a whole, or the U.S. Borrower and its subsidiaries, taken
as a whole, or the HK Borrower and its subsidiaries, taken as a whole, or the
Thai Borrower and its subsidiaries, taken as a whole, in each case since March
30, 1996.
SECTION 3.07. Title to Properties; Possession Under Leases.
(a) Each of IMS and the Subsidiaries has good title to, or valid leasehold
interests in, all its material properties and assets (including all Mortgaged
Property), except for defects incidental to the conduct of its business or the
ownership of such assets, which do not in the aggregate materially detract from
the value of such assets or impair the use thereof or the conduct of its
business. All such material properties and assets are free and clear of Liens,
other than Liens expressly permitted by Section 6.02.
<PAGE> 49
49
(b) Each of IMS and the Subsidiaries has complied with all
obligations under all material leases to which it is a party and all such leases
are in full force and effect. Each of IMS and the Subsidiaries enjoys peaceful
and undisturbed possession under all such material leases.
(c) Neither IMS nor any Subsidiary is obligated under any
right of first refusal, option or other contractual right to sell, assign or
otherwise dispose of any Mortgaged Property or any interest therein.
(d) Except as set forth on Schedule 3.07, each of IMS and the
Subsidiaries owns or possesses, or has a valid license to use, on terms not
materially adverse to it, all patents, trademarks, service marks, trade names,
copyrights, licenses and rights with respect thereto reasonably necessary for
the present conduct of its business as it is presently, and has recently been,
conducted and without any known conflict with the rights of others, and free
from any burdensome restrictions, except where such conflict and restrictions
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
SECTION 3.08. Capitalization; Subsidiaries. The authorized
capital stock or other equity interest, the par value, if any, thereof and the
amount of such authorized capital stock or equity interest issued and
outstanding for each of IMS and the Subsidiaries, and the jurisdiction of
organization of IMS and each Subsidiary, is set forth on Schedule 3.08 as of the
Closing Date (after giving effect to the Recapitalization). All such outstanding
shares of capital stock or other equity interests are fully paid and
nonassessable and, on and after the Closing Date (after giving effect to the
Recapitalization), will be owned beneficially and of record by persons, and in
the amounts, set forth on Schedule 3.08 and, on and after the Closing Date, will
be free and clear of all Liens and encumbrances whatsoever (other than (i) the
Liens created by the Security Documents and (ii) Liens permitted under Section
6.02(d) which rank junior to the Liens created by the Security Documents).
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as
set forth on Schedule 3.09, there are not any actions, suits or proceedings at
law or in equity or by or before any Governmental Authority now pending or, to
the knowledge of IMS or any Subsidiary, threatened against or affecting IMS or
any Subsidiary or any business, property or rights of any such person (i) that
involve any Loan Document or the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect.
(b) None of IMS or any of the Subsidiaries or any of their
respective material properties or assets is in violation of, nor will the
continued operation of their material properties and assets as currently
conducted violate, any law, rule or regulation, or is in default with respect to
any judgment, writ, injunction, decree or order of any Governmental Authority,
where such violation or default could reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.10. Agreements and Other Restrictions. (a) None of
IMS or any of the Subsidiaries is a party to any agreement or instrument or
subject to any corporate or other restriction (other than, with respect to
clause (ii) below, as imposed by applicable law) that (i) has resulted or could
reasonably be expected to result in a Material Adverse Effect or (ii) limits the
ability of any Subsidiary to pay dividends or to make distributions or advances
to the U.S. Borrower or any other Subsidiary (other than this Agreement).
<PAGE> 50
50
(b) None of IMS or any of the Subsidiaries is in default in
any manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, under any certificate of designation for preferred
stock or under any other material agreement or instrument to which it is a party
or by which it or any of its properties or assets are or may be bound, where
such default could reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.11. Federal Reserve Regulations. (a) None of IMS or
any of the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of buying or
carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of
Credit will be used, whether directly or indirectly, and whether immediately,
incidentally or ultimately, to buy or carry Margin Stock or to refinance any
Indebtedness incurred for such purpose, or for any purpose that entails a
violation of, or that is inconsistent with, the provisions of the Regulations of
the Board, including Regulation G, U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding
Company Act. None of IMS or any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrowers will use the
proceeds of the Loans and will request the issuance of Letters of Credit only
for the purposes specified in the preamble to this Agreement.
SECTION 3.14. Taxes. Each of IMS and the Subsidiaries has
filed or caused to be filed all material Federal, state, local and foreign Tax
returns and reports required to have been filed by it and has paid or caused to
be paid all Taxes due and payable by it and all assessments received by it,
except Taxes or assessments that are being or will be contested in good faith by
appropriate proceedings and for which IMS or such Subsidiary, as applicable, has
set aside on its books adequate reserves in accordance with GAAP.
SECTION 3.15. No Material Misstatements. None of (a) the
Confidential Information Memorandum or (b) any other information, report,
financial statement, exhibit or schedule furnished by or on behalf of IMS or any
Loan Party to the Administrative Agent or any Lender in connection with the
negotiation of any Loan Document or included therein or delivered pursuant
thereto contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading; provided that to the extent any such
information, report, financial statement, exhibit or schedule was based upon or
constitutes a forecast or projection, each of IMS and the Subsidiaries
represents only that it acted in good faith and utilized reasonable assumptions
and due care in the preparation of such information, report, financial
statement, exhibit or schedule.
SECTION 3.16. Employee Benefit Plans. (a) As of the Closing
Date, neither IMS nor any Subsidiary nor any ERISA Affiliate thereof maintains
or contributes to any Plan. Each of IMS and the Domestic Subsidiaries and their
ERISA Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in material liability of any Domestic
Borrower
<PAGE> 51
51
or any of its ERISA Affiliates. With respect to any Plan that may after the
Closing Date be maintained or contributed to by IMS or any Subsidiary or any
ERISA Affiliate thereof, the present value of all benefit liabilities under such
Plan (based on those assumptions used to fund such Plan) did not, as of the last
annual valuation date applicable thereto, exceed the fair market value of the
assets of such Plan, and the present value of all benefit liabilities of all
underfunded Plans (based on those assumptions used to fund each such Plan) did
not, as of the last annual valuation dates applicable thereto, exceed the fair
market value of the assets of all such underfunded Plans.
(b) Each Foreign Plan is in compliance in all material
respects with all requirements of law applicable thereto and the respective
requirements of the governing documents for such plan except to the extent such
non-compliance could not reasonably be expected to result in a Material Adverse
Effect. With respect to each Foreign Pension Plan, none of the Borrowers or the
other Subsidiaries or their respective Affiliates or any of their directors,
officers, employees or agents has engaged in a transaction which would subject
any of the Borrowers or the other Subsidiaries, directly or indirectly, to a
material tax or civil penalty which could reasonably be expected to result in a
Material Adverse Effect. With respect to each Foreign Plan, adequate reserves
have been established in the financial statements furnished to the Lenders in
respect of any unfunded liabilities in accordance with applicable law and
prudent business practice or, where required, in accordance with ordinary
accounting practices in the jurisdiction in which such Foreign Plan is
maintained. The aggregate unfunded liabilities, after giving effect to any such
reserves for such liabilities, with respect to such Foreign Plans could not
reasonably be expected to result in a Material Adverse Effect. There are no
material actions, suits or claims (other than routine claims for benefits)
pending or threatened against any of the Borrowers or the other Subsidiaries or
any of their Affiliates with respect to any Foreign Plan which could reasonably
be expected, individually or in the aggregate, to result in a Material Adverse
Effect.
SECTION 3.17. Environmental Matters. Except as set forth in
Schedule 3.17:
(a) To the best knowledge of IMS and the Subsidiaries, the
properties owned, operated or leased by IMS and the Subsidiaries (the
"Properties") do not contain any Hazardous Materials in amounts or
concentrations which (i) constitute, or constituted a violation of, (ii) require
Remedial Action under, or (iii) could give rise to liability under,
Environmental Laws, which violations, Remedial Actions and liabilities, in the
aggregate, could result in a Material Adverse Effect;
(b) The properties and all operations of IMS and the
Subsidiaries are in compliance, and in the last five years (or, with respect to
any such properties which have not been owned, leased or used by IMS, any
Subsidiary or any Affiliate of any thereof for five years, since the first date
on which such property was first acquired, leased or used by IMS, any such
Subsidiary or any such Affiliate) have been in compliance, with all
Environmental Laws, and all necessary Environmental Permits have been obtained
and are in effect, except to the extent that such non-compliance or failure to
obtain any necessary permits, in the aggregate, could not result in a Material
Adverse Effect;
(c) To the best knowledge of IMS and the Subsidiaries,
Hazardous Materials have not been transported, generated, treated, stored,
disposed of or released from, at, on or under any of the Properties in violation
of, or in any manner or to a location that could give rise to liability under,
any Environmental Law, except to the extent that such violation or liabilities,
in the aggregate, could not result in a Material Adverse Effect; and
<PAGE> 52
52
(d) None of IMS or any of the Subsidiaries has received any
notice of an Environmental Claim in connection with the Properties or the
operations of IMS or the Subsidiaries or with regard to any person whose
liabilities for environmental matters IMS or the Subsidiaries has retained or
assumed, in whole or in part, contractually, by operation of law or otherwise,
which, in the aggregate, could result in a Material Adverse Effect, nor do IMS
or the Subsidiaries have reason to believe that any such notice will be received
or is being threatened.
SECTION 3.18. Security Documents. (a) Each of the Pledge
Agreements is effective to create in favor of the Collateral Agent, for the
ratable benefit of the Secured Parties thereunder, a legal, valid and
enforceable security interest in the Collateral (as defined in such Pledge
Agreement) and, when the Pledged Stock (as defined in such Pledge Agreement) is
delivered to the Collateral Agent (or, as applicable in the case of any capital
stock or other equity interest that is uncertificated or in foreign
jurisdictions requiring filings or recordations, applicable registrations,
filings or recordations are made), such Pledge Agreement shall constitute a
fully perfected first priority Lien on, and security interest in, all right,
title and interest of the pledgors thereunder in such Collateral and the
proceeds thereof, in each case prior and superior in right to any other person.
(b) Each of the Security Agreements is effective to create in
favor of the Collateral Agent, for the ratable benefit of the Secured Parties
thereunder, a legal, valid and enforceable security interest in the Collateral
(as defined in such Security Agreement) and, when financing statements or other
appropriate documents in appropriate form are filed in the offices specified on
Schedule 3.18 with respect to each Security Agreement, such Security Agreement
shall constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the grantors thereunder in such Collateral and the
proceeds thereof, in each case prior and superior in right to any other person,
other than with respect to Liens expressly permitted by Section 6.02.
(c) Each of the Mortgages, when executed, will be effective to
create in favor of the Collateral Agent, for the ratable benefit of the Secured
Parties thereunder, a legal, valid and enforceable Lien on all the right, title
and interest of the Loan Party that is party thereto in and to the Mortgaged
Property thereunder and the proceeds thereof, and when such Mortgage is filed in
the office specified on Schedule 3.18 with respect to such Mortgage, such
Mortgage shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of such Loan Party in such Mortgaged Property and
the proceeds thereof, in each case prior and superior in right to any other
person, other than with respect to the rights of persons pursuant to Liens
expressly permitted by Section 6.02.
SECTION 3.19. Location of Real Property and Leased Premises.
(a) As of the Closing Date, IMS and the Subsidiaries do not own in fee any real
property.
(b) Schedule 3.19 lists completely and correctly as of the
Closing Date all real property leased by IMS and the Subsidiaries and the
addresses thereof. As of the Closing Date, IMS and the Subsidiaries have valid
leases in all the real property set forth as being leased by them on Schedule
3.19.
SECTION 3.20. Solvency. (a) Immediately after the consummation
of the Recapitalization and the Credit Events to occur on the Closing Date, (i)
the fair value of the assets of each Loan Party will exceed the debts and
liabilities, subordinated, contingent or otherwise, of such Loan Party; (ii) the
present fair saleable value of the assets of each Loan Party will be greater
than the amount that will be required to pay the probable liability of such Loan
Party on its debts and other liabilities, subordinated, contingent or otherwise,
as such debts and other liabilities become absolute and matured; (iii) each Loan
Party will be able
<PAGE> 53
53
to pay its debts and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured; and (iv) each Loan Party will
not have unreasonably small capital with which to conduct the businesses in
which it is engaged as such businesses are now conducted and are proposed to be
conducted following the Closing Date.
(b) None of IMS or the Subsidiaries intends to, or to permit
any Subsidiary to, and each does not believe that it or any Subsidiary will,
incur debts beyond its ability to pay such debts as they mature, taking into
account the timing of and amounts of cash to be received by it and each
Subsidiary and the timing of the amounts of cash to be payable on or in respect
of its Indebtedness and the Indebtedness of each Subsidiary.
SECTION 3.21. Labor Matters. Except as set forth on Schedule
3.21, there are no strikes or other work stoppages or labor disturbances pending
or threatened against IMS or any Subsidiary.
SECTION 3.22. No Foreign Assets Control Regulation Violation.
None of the Transactions will result in a violation of any of the foreign assets
control regulations of the United States Treasury Department, 31 C.F.R.,
Subtitle B, Chapter V, as amended (including the Foreign Assets Control
Regulations, the Cuban Assets Control Regulations, the Iranian Transactions
Regulations, the Libyan Sanctions Regulations, the Iraqi Sanctions Regulations
and the Unita (Angola) Sanctions Regulations contained in said Chapter V), or
any ruling issued thereunder or any enabling legislation or Presidential
Executive Order granting authority therefor, nor will the proceeds of any Loan
be used in a manner that would violate any thereof.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans and of the
Fronting Bank to issue Letters of Credit hereunder are subject to the
satisfaction of the following conditions:
SECTION 4.01. All Credit Events. On the date of each Borrowing
and on the date of each issuance of a Letter of Credit (each such event being
called a "Credit Event"):
(a) The Administrative Agent shall have received a notice of
such Borrowing as required by Section 2.03 or, in the case of the
issuance of a Letter of Credit, the Fronting Bank and the
Administrative Agent shall have received a notice requesting the
issuance of such Letter of Credit as required by Section 2.20(b).
(b) The representations and warranties set forth in Article
III hereof shall be true and correct in all material respects on and as
of the date of and after giving effect to such Credit Event with the
same effect as though made on and as of such date, except to the extent
such representations and warranties expressly relate to an earlier
date.
(c) IMS and each Subsidiary shall be in compliance with all
the terms and provisions set forth herein and in each other Loan
Document on its part to be observed or performed, and at the time of
and immediately after such Credit Event, no Event of Default or Default
shall have occurred and be continuing.
<PAGE> 54
54
(d) After giving effect to such Credit Event, the aggregate
obligations of the applicable Borrower shall be in an amount, and shall
involve payments, that can reasonably be supported by such Borrower
taking into account the actual and reasonably expected cash flows of
such Borrower, the value of the assets of such Borrower included in the
Collateral and the other Indebtedness and obligations of such Borrower.
Each Credit Event shall be deemed to constitute a representation and warranty by
each Borrower to whom a Loan is made and IMS on the date of such Credit Event as
to the matters specified in paragraphs (b) (except as aforesaid), (c) and (d) of
this Section 4.01.
SECTION 4.02. First Credit Event. On the Closing Date:
(a) The Administrative Agent shall have received, on behalf of
itself, the Lenders and the Fronting Bank, (i) a favorable written
opinion of (A) Wilson Sonsini Goodrich & Rosati, counsel for IMS, IMS
Foreign Holdings and the U.S. Borrower, substantially to the effect set
forth in Exhibit G-1 and (B) each local counsel listed on Schedule
4.02(a), substantially to the effect set forth in Exhibit G-2, G-3,
G-4, or G-5, as applicable, in each case (1) dated the Closing Date,
(2) addressed to the Fronting Bank, the Administrative Agent and the
Lenders, and (3) covering such other matters relating to the Loan
Documents and the Transactions as the Administrative Agent shall
reasonably request, and each of IMS and the Subsidiaries hereby
requests such counsel to deliver such opinions; and (ii) a copy of each
opinion of counsel required to be delivered by or on behalf of any
party to the Recapitalization Agreement or Redemption Agreement
pursuant to or under any such agreement, in form and substance
reasonably acceptable to the Administrative Agent and its counsel, and
accompanied by a letter from such counsel delivering such opinion
expressly granting the Administrative Agents, the Lenders and the
Fronting Bank the right to rely thereon.
(b) The Administrative Agent shall have received in the case
of IMS, IMS Foreign Holdings and the U.S. Borrower each of the items
referred to in clauses (i) (A), (B) and (C) below, and in the case of
each other Loan Party, the analogous documentation with respect to its
jurisdiction of organization (other than with respect to the Thai
Borrower, a certificate as to its good standing): (i) (A) a copy of the
certificate or articles of incorporation, articles of organization or
certificate of formation, as applicable, including all amendments
thereto, of IMS, IMS Foreign Holdings and the U.S. Borrower, certified
as of a recent date by the Secretary of State of the state of its
organization, and a certificate as to the good standing of each of them
as of a recent date, from such Secretary of State; (B) a certificate of
the Secretary or Assistant Secretary of each of them dated the Closing
Date and certifying (1) that attached thereto is a true and complete
copy of its by-laws as in effect on the Closing Date and at all times
since a date prior to the date of the resolutions described in clause
(2) below, (2) that attached thereto is a true and complete copy of
resolutions duly adopted by its Board of Directors authorizing the
execution, delivery and performance of the Loan Documents to which such
person is a party and, in the case of each Borrower, such Borrower's
Borrowings and any issuances of Letters of Credit for the account of
such Borrower hereunder, and that such resolutions have not been
modified, rescinded or amended and are in full force and effect, (3)
that its certificate or articles of incorporation, articles of
organization or certificate of formation or partnership agreement, as
applicable, have not been amended since the date of the last amendment
thereto shown on the certificate of good standing furnished pursuant to
clause (A) above, and (4) as to the incumbency and specimen signature
of each officer executing any Loan Document or any other document
delivered in connection herewith on behalf of such person; and (C) a
certificate of another officer as to the incumbency and specimen
signature of the Secretary or Assistant Secretary
<PAGE> 55
55
executing the certificate pursuant to (B) above; and (ii) such other
documents as the Lenders, the Fronting Bank, Cravath, Swaine & Moore,
counsel for the Administrative Agent, or counsel for the Administrative
Agent in any other jurisdiction may reasonably request.
(c) The Administrative Agent shall have received a
certificate, dated the Closing Date and signed by a Financial Officer
of IMS, IMS Foreign Holdings and each Borrower, confirming compliance
with the conditions precedent set forth in paragraphs (b), (c) and (d)
of Section 4.01.
(d) The Administrative Agent shall have received all Fees and
other amounts due and payable on or prior to the Closing Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by any Loan
Party hereunder or under any other Loan Document.
(e) Each of the Guarantee Agreements and the Indemnity,
Subrogation and Contribution Agreement shall have been duly executed by
the parties thereto and delivered to the Collateral Agent and shall be
in full force and effect.
(f) Each of the Pledge Agreements shall have been duly
executed by the parties thereto and delivered to the Collateral Agent
and shall be in full force and effect, and all the outstanding Capital
Stock of each of IMS and the Subsidiaries shall have been duly and
validly pledged thereunder to the Collateral Agent for the ratable
benefit of the Secured Parties and, in the case of certificated shares
or interests, certificates representing such shares, accompanied by
instruments of transfer and stock powers endorsed in blank, shall be in
the actual possession of the Collateral Agent, and, in the case of
uncertificated shares or interests or foreign jurisdictions requiring
filings or recordations, registration shall have been made in the books
and records of the persons whose shares or interests are being pledged
recording each such pledge and any requisite filings or recordations
shall have been delivered to the Collateral Agent, and any Indebtedness
of IMS or any Subsidiary owed to IMS or any other Subsidiary shall be
evidenced by one or more promissory notes which shall be pledged to the
Collateral Agent for the benefit of the Secured Parties pursuant to the
applicable Pledge Agreement if no material tax disadvantage to IMS or
any Subsidiary shall result therefrom.
(g) Each of the Security Agreements shall have been duly
executed by the Loan Parties party thereto and shall have been
delivered to the Collateral Agent and shall be in full force and effect
on such date and each document (including each Uniform Commercial Code
financing statement and a consent from the Continuing Shareholder as to
the assignment of the Production Agreement, the Recapitalization
Agreement and the Redemption Agreement) required by law or reasonably
requested by the Administrative Agent to be filed, registered or
recorded in order to create in favor of the Collateral Agent for the
benefit of the Secured Parties a valid, legal and perfected
first-priority security interest in and lien on the Collateral
described in such agreements shall have been delivered to the
Collateral Agent.
(h) The Collateral Agent shall have received (i) the results
of a search of tax liens, judgments and the Uniform Commercial Code
filings (or equivalent filings) made with respect to the Domestic
Guarantors in the state in which the chief executive office of each
such person is located, any offices of such persons in which records
have been kept relating to Accounts and the other jurisdictions in
which Uniform Commercial Code filings (or equivalent filings) are to be
made pursuant to the preceding paragraph, together with copies of the
financing statements (or similar documents) disclosed by such search
and (ii) where applicable, the results of equivalent searches
<PAGE> 56
56
made in each other jurisdiction in which a Loan Party is located, in
each case accompanied by evidence satisfactory to the Collateral Agent
that the Liens indicated in any such financing statement (or similar
document) would be permitted under Section 6.02 or have been released.
(i) The Collateral Agent shall have received a Perfection
Certificate dated the Closing Date and duly executed by a Responsible
Officer of each Loan Party.
(j) The EBITDA of IMS and the Subsidiaries on a combined basis
for the fiscal year ended March 30, 1996, shall be not less than
$8,000,000.
(k) The Administrative Agent shall have received a copy of, or
a certificate as to coverage under, the insurance policies required by
Section 5.02 and the applicable provisions of the Security Documents,
each of which shall be endorsed or otherwise amended to include a
"standard" or "New York" lender's loss payable endorsement and to name
the Collateral Agent as additional insured, in form and substance
satisfactory to the Administrative Agent.
(l) All requisite Governmental Authorities and third parties
shall have approved or consented to the Recapitalization and the other
transactions contemplated hereby to the extent required, all applicable
appeal periods shall have expired and there shall be no governmental or
judicial action, actual or threatened, that has or could have a
reasonable likelihood of restraining, preventing or imposing burdensome
conditions on the Recapitalization and the other transactions
contemplated hereby.
(m) The Recapitalization shall have been consummated or shall
be consummated substantially simultaneously with the initial Credit
Event hereunder in accordance with applicable law and the
Recapitalization Agreement, the Redemption Agreement, the Production
Agreement and all other related documentation and on terms reasonably
satisfactory to the Lenders, and the Lenders shall be satisfied that
the aggregate level of Taxes, fees and expenses to be paid by IMS and
the Subsidiaries in connection with the Recapitalization and related
transactions shall not exceed $2,200,000. The conditions to the
Recapitalization set forth in the Recapitalization Agreement and the
Redemption Agreement shall have been satisfied without giving effect to
waivers or amendments not approved by the Lenders.
(n) The Recapitalization shall be satisfactory to the Lenders
in all respects; the organizational structure of IMS and the
Subsidiaries shall be as set forth on Schedule 4.02(n) and there shall
be no holders of capital stock of IMS other than (i) the persons listed
on Schedule 1.01(c), who shall hold the Common Stock of IMS, calculated
on a fully diluted basis, and Preferred Stock, in each case in the
percentages set forth on such Schedule 1.01(c).
(o) After giving effect to the Recapitalization, IMS and the
Subsidiaries shall have outstanding no Indebtedness for borrowed money
or preferred stock other than Indebtedness under the Loan Documents,
the Indebtedness set forth on Schedule 6.01, the Subordinated Notes,
the Preferred Stock and the Contingent Payment Notes; and the amounts,
terms and conditions of all such Indebtedness set forth on Schedule
6.01, the Subordinated Notes, the Preferred Stock and the Contingent
Payment Notes shall be satisfactory in all respects to the Lenders
(including but not limited to identity of the obligors, interest rates,
fees, maturity, amortization, preferences, subordination, covenants,
events of defaults and remedies).
<PAGE> 57
57
(p) The Lenders shall be reasonably satisfied in all respects
with (a) the tax position and the contingent tax and other liabilities
of IMS and the Subsidiaries, (b) the arrangements of IMS and the
Subsidiaries for the repatriation of revenues from foreign operations
to the United States and to the jurisdictions of the Borrowers and in
each case the plans of IMS and the Subsidiaries with respect thereto
and (c) the corporate and capital structure and equity ownership and
control of IMS and the Subsidiaries and with all legal, tax and
accounting matters relating to the Recapitalization, the financing
therefor and all other transactions related to the Recapitalization and
contemplated hereby, including, without limitation, matters relating to
guarantees and security interests under the laws of the jurisdictions
of organization of the Subsidiaries.
(q) The Lenders shall have received (i) the financial
statements referred to in Section 3.05, and (ii) satisfactory pro forma
consolidated and consolidating closing balance sheets of IMS as of
March 30, 1996, together with a certificate of IMS, dated the Closing
Date and signed by the chief financial officer of IMS, to the effect
that such statements fairly present the pro forma financial position of
IMS and the Subsidiaries in accordance with GAAP after giving effect to
the Recapitalization and the related Borrowings hereunder. The Lenders
shall be satisfied that such balance sheets and all aspects of the
transactions in connection with the Recapitalization are consistent in
all material respects with the Confidential Information Memorandum and
the information and projections, and the financial model, contained
therein. The Borrowers shall also have provided to the Lenders the
quarterly plans and forecasts of IMS and the Subsidiaries for fiscal
year 1997 and such other financial information as the Administrative
Agent may reasonably request in connection with the Recapitalization.
(r) The Lenders shall be satisfied with the sufficiency of
amounts available under the Revolving Credit Commitments to meet the
ongoing working capital requirements of IMS and the Subsidiaries after
giving effect to the Recapitalization and the transactions related
thereto and contemplated hereby.
(s) The Lenders shall be reasonably satisfied with the results
of their review of the customers, customer relationships and customer
documentation of IMS and the Subsidiaries.
(t) The Lenders shall have received an examination,
satisfactory in form and substance to the Lenders, of the receivables
and inventory of each of IMS and the Subsidiaries after giving effect
to the Recapitalization and the other transactions contemplated hereby,
and the Administrative Agent shall be satisfied with the billing and
payment arrangements in respect of accounts receivable of IMS and the
Subsidiaries to be in effect after the Recapitalization, including
lock-box and other collection and cash management arrangements, and the
Administrative Agent shall have received an agreement from CoreStates
Bank, N.A., satisfactory in all respects to the Administrative Agent,
with respect to the lockboxes existing on the Closing Date.
ARTICLE V. AFFIRMATIVE COVENANTS
Each of IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC and the
Borrowers covenants and agrees with each Lender that so long as this Agreement
shall remain in effect and until the Revolving Credit Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document shall have been paid
in full and all Letters of Credit have been canceled or have expired and all
amounts drawn thereunder have been reimbursed in full,
<PAGE> 58
58
unless the Required Lenders shall otherwise consent in writing, each of IMS, IMS
Foreign Holdings, IMS Cayman and IMS PRC and the Borrowers will, and will cause
each of the Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence, except as otherwise expressly permitted under
Section 6.05.
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights, licenses,
permits, franchises, authorizations, patents, copyrights, trademarks and trade
names material in the aggregate to the conduct of its business; maintain and
operate such business in substantially the manner in which it is presently
conducted and operated; comply in all material respects with all applicable
laws, rules, regulations and decrees and orders of any Governmental Authority,
whether now in effect or hereafter enacted; and at all times maintain and
preserve all property material to the conduct of such business and keep such
property in good repair, working order and condition (ordinary wear and tear
excepted) and from time to time make, or cause to be made, all needful and
proper repairs, renewals, addi tions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times.
SECTION 5.02. Insurance. Keep its insurable properties
adequately insured at all times by financially sound and reputable insurers;
maintain such other insurance, to such extent and against such risks, including
fire and other risks insured against by extended coverage, as is customary with
companies in the same or similar businesses operating in the same or similar
locations, including public liability insurance against claims for personal
injury or death or property damage occurring upon, in, about or in connection
with the use of any properties owned, occupied or controlled by it; and maintain
such other insurance as may be required by law.
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and
other obligations promptly and in accordance with their terms and pay and
discharge promptly when due all Taxes imposed upon it or upon its income or
profits or in respect of its property, before the same shall become delinquent
or in default, as well as all lawful claims for labor, materials and supplies or
otherwise that, if unpaid, might give rise to a Lien upon such properties or any
part thereof; provided, however, that such payment and discharge shall not be
required with respect to any such Tax or claim so long as the validity or amount
thereof shall be contested in good faith by appropriate proceedings and the
applicable Borrower or other Loan Party shall have set aside on its books
adequate reserves with respect thereto in accordance with GAAP (or in the case
of each Foreign Subsidiary, generally accepted accounting principles of its
jurisdiction of incorporation) and such contest operates to suspend collection
of the contested obligation or Tax, and enforcement of a Lien.
SECTION 5.04. Financial Statements, Reports, etc. In the case
of IMS, furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year, (i) its
consolidated and consolidating balance sheets and related statements of
income and changes in financial condition showing the financial
condition of IMS and the Subsidiaries as of the close of such fiscal
year and the results of its operations and the operations of such
Subsidiaries during such year, all audited by Price Waterhouse LLP or
other independent public accountants of recognized standing reasonably
acceptable to the Required Lenders and accompanied by an opinion of
such accountants (which shall not be qualified in any material respect)
to the effect that such consolidated financial statements
<PAGE> 59
59
fairly present the financial condition and results of operations of IMS
and its consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied and (ii) a comparison of such annual
results to the projections of IMS and the Subsidiaries for such fiscal
year delivered under paragraph (e) below;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, (i) its consolidated and
consolidating balance sheets and related consolidated and consolidating
statement of income and consolidated statement of changes in financial
condition showing the financial condition of IMS and the Subsidiaries
as of the close of such fiscal quarter and the results of its
operations and the operations of such Subsidiaries during such fiscal
quarter and the then elapsed portion of the fiscal year, all certified
by one of its Financial Officers as fairly presenting the financial
condition and results of operations of IMS and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and
(ii) a comparison of such quarterly results to the projections of IMS
and the Subsidiaries for such fiscal quarter delivered under paragraph
(e) below;
(c) concurrently with any delivery of financial statements
under paragraph (a) or (b) above, a certificate of the accounting firm
or Financial Officer opining on or certifying such statements (which
certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal
interpretations) (i) certifying that no Event of Default or Default has
occurred or, if such an Event of Default or Default has occurred,
specifying the nature and extent thereof and any corrective action
taken or proposed to be taken with respect thereto and (ii) setting
forth computations in reasonable detail satisfactory to the
Administrative Agent demonstrating compliance with the covenants
contained in Section 6.10, 6.11, 6.12. 6.13 and 6.14;
(d) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by IMS or any Subsidiary with the Securities and Exchange
Commission, any Governmental Authority succeeding to any or all of the
functions of said Commission or any comparable Governmental Authority
in any other jurisdiction, or with any national securities exchange, or
distributed to its shareholders, as the case may be;
(e) not later than the last day of each fiscal year, (i)
quarterly financial projections of IMS and the Subsidiaries for the
next succeeding fiscal year and each subsequent fiscal year through the
Maturity Date, in form and detail satisfactory to the Administrative
Agent and prepared and presented on a basis consistent with the
projections included in the Confidential Information Memorandum, all
certified by the chief financial officer of IMS to have been prepared
in good faith based on assumptions believed to be reasonable, and (ii)
a copy of the annual budget of IMS and the Subsidiaries for the next
succeeding fiscal year;
(f) promptly after receipt thereof, a copy of any notice
delivered under the Production Agreement, Recapitalization Agreement or
Redemption Agreement that relates to any matter which is material to
the rights or interests of the Administrative Agent, the Lenders or the
Fronting Bank under this Agreement and the other Loan Documents;
(g) promptly after obtaining knowledge thereof, a notice
disclosing any inaccuracy in any representation or warranty or schedule
contained in or attached to the Recapitalization Agreement or the
Redemption Agreement; and
<PAGE> 60
60
(h) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
IMS, any Borrower or any Subsidiary, or compliance with the terms of
any Loan Document, as the Administrative Agent or any Lender may
reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the
Administrative Agent, the Fronting Bank and each Lender prompt written notice of
the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) taken or proposed to
be taken with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against IMS or any Subsidiary or any Affiliate
thereof that could reasonably be expected to result in a Material
Adverse Effect; and
(c) any other development that has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect.
SECTION 5.06. Employee Benefits. Each Borrower shall comply in
all material respects with the applicable provisions of ERISA and all other
applicable laws (including, with respect to any Foreign Plan, all applicable
foreign laws) and furnish to the Agent and each Lender (i) as soon as possible,
and in any event within 30 days after any Responsible Officer of such Borrower
or any ERISA Affiliate either knows or has reason to know that any ERISA Event
has occurred that alone or together with any other ERISA Event would reasonably
be expected to result in liability of such Borrower to the PBGC or other
Governmental Authority in an aggregate amount exceeding $2,000,000, a statement
of a Financial Officer setting forth details as to such ERISA Event and the
action proposed to be taken with respect thereto, together with a copy of the
notice, if any, of such ERISA Event given to the PBGC or other Governmental
Authority, (ii) promptly after receipt thereof, a copy of any notice such
Borrower or any ERISA Affiliate may receive from the PBGC or other Governmental
Authority relating to the intention of the PBGC or other Governmental Authority
to terminate any Plan or Plans (other than a Plan maintained by an ERISA
Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m)
or (o) of Section 414 of the Code), or any Foreign Plan or Foreign Plans, or to
appoint a trustee to administer any Plan or Plans, or any Foreign Plan or
Foreign Plans, (iii) within 10 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Code of a notice of failure to make a required
installment or other payment with respect to a Plan, a statement of a Financial
Officer setting forth details as to such failure and the action proposed to be
taken with respect thereto, together with a copy of such notice given to the
PBGC and (iv) promptly and in any event within 30 days after receipt thereof by
such Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a
copy of each notice received by such Borrower or ERISA Affiliate concerning (A)
the imposition of Withdrawal Liability in excess of $2,000,000 or (B) a
determination that a Multiemployer Plan is, or is expected to be, terminated or
in reorganization, in each case within the meaning of Title IV of ERISA, if such
termination or reorganization would reasonably be expected to result, alone or
with any other such termination or reorganization, in increases in excess of
$2,000,000 in the contributions required to be made to the relevant Plan or
Plans.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Keep proper books of record and account in which full, true and
correct entries in conformity with GAAP (solely, in the case of Foreign
Subsidiaries, to the extent necessary to comply with the terms of this
Agreement) and all requirements of law, and, in the case of each Foreign
Subsidiary, generally accepted accounting principles
<PAGE> 61
61
of its jurisdiction of incorporation, are made of all dealings and transactions
in relation to its business and activities. Each Loan Party will, and will cause
each of its Subsidiaries to, permit any representatives designated by the
Administrative Agent or any Lender to visit and inspect the financial records
and the properties of IMS, any Borrower or any Subsidiary upon reasonable notice
at reasonable times and as often as reasonably requested and to make extracts
from and copies of such financial records, and permit any representatives
designated by the Administrative Agent or any Lender to discuss the affairs,
finances and condition of IMS, any Borrower or any Subsidiary with the officers
thereof and independent accountants therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans
and request the issuance of Letters of Credit only for the purposes set forth in
the preamble to this Agreement.
SECTION 5.09. Compliance with Environmental Laws. Comply, and
cause all lessees and other persons occupying its Properties to comply, in all
material respects with all Environmental Laws and Environmental Permits
applicable to its operations and Properties; obtain and renew all material
Environmental Permits reasonably necessary for its operations and Properties;
and conduct any Remedial Action in accordance with Environmental Laws.
SECTION 5.10. Lockbox and Cash Management Arrangements. As
soon as practicable and in any event within 90 days after the Closing Date,
enter into, and thereafter maintain in effect, lockbox and cash management
arrangements reasonably satisfactory in all respects to the Administrative Agent
and the Collateral Agent.
SECTION 5.11. Further Assurances. Execute any and all further
documents, financing statements, agreements and instruments, and take all
further action (including filing Uniform Commercial Code and other financing
statements, mortgages and deeds of trust) that may be required under applicable
law, or that the Required Lenders, the Administrative Agent or the Collateral
Agent may reasonably request, in order to effectuate the transactions
contemplated by the Loan Documents and in order to grant, preserve, protect and
perfect the validity and first priority of the security interests created or
intended to be created by the Security Documents. IMS, IMS Foreign Holdings, IMS
Cayman, IMS PRC and the Borrowers will, and will cause the other Subsidiaries
to, at their cost and expense, on or promptly (but in any event within 30
Business Days) (x) following the date of acquisition or formation of any new
Subsidiary pursuant to a Permitted Business Acquisition or (y) in the case of
any Subsidiary that has not entered into a Pledge Agreement, following the date
on which such Subsidiary first holds any debt or equity securities, promptly
secure the Obligations by causing the following to occur: (i) promptly upon
creating or acquiring such additional Subsidiary, all of the Capital Stock (and
any securities convertible into or exchangeable for Capital Stock) of such
Subsidiary will be pledged pursuant to the applicable Pledge Agreement, (ii) all
of such other debt or equity securities shall by pledged pursuant to the
applicable Pledge Agreement and if the Subsidiary holding such securities is not
a party to a Pledge Agreement, such Subsidiary shall enter into or become a
party to a Pledge Agreement, and (iii) such Subsidiary will become a party to or
enter into a Security Agreement and enter into the Subsidiary Guarantee
Agreement and the Indemnity, Subrogation and Contribution Agreement as
contemplated under such agreements, and will, if such Subsidiary owns any
Capital Stock (or any securities convertible into or exchangeable for Capital
Stock), become a party to or enter into a Pledge Agreement, and if such
Subsidiary owns any material real property, enter into and deliver to the
Collateral Agent a first mortgage in respect of such property in form reasonably
satisfactory to the Collateral Agent and pay all recording taxes, title
insurance costs, survey costs and other costs in connection with such mortgage.
In addition, from time to time, IMS and the other Loan Parties will, at their
cost and expense, promptly secure the Obligations by pledging or creating, or
causing to be pledged or created,
<PAGE> 62
62
perfected security interests with respect to such of its assets and properties
as the Administrative Agent or the Required Lenders shall designate (it being
understood that it is the intent of the parties that the Obligations shall,
except as expressly contemplated by this Agreement, be secured by substantially
all the assets of each Loan Party (including real and other properties acquired
subsequent to the Closing Date)). Such security interests and Liens will be
created under the Security Documents and other security agreements, mortgages,
deeds of trust and other instruments and documents in form and substance
satisfactory to the Collateral Agent, and each Subsidiary shall deliver or cause
to be delivered to the Lenders all such instruments and documents (including
legal opinions, title insurance policies and lien searches) as the Collateral
Agent shall reasonably request to evidence compliance with this Section. Each
Subsidiary agrees to provide such evidence as the Collateral Agent shall
reasonably request as to the perfection and priority status of each such
security interest and Lien. Notwithstanding any other provision of this Section
5.11, Obligations of Domestic Borrowers and Domestic Guarantors will not (A) be
guaranteed by, or secured by the assets or more than 65% of the capital stock
of, any Foreign Subsidiary the capital stock of which is owned by a Domestic
Subsidiary or (B) guaranteed by, or secured by the assets or the capital stock
of, any Foreign Subsidiary the capital stock of which is owned by a Foreign
Subsidiary.
IMS PRC shall use its best efforts to promptly obtain all
approvals, orders, consents and other authorizations from Governmental
Authorities in the People's Republic of China (and make any filings or
registrations relating thereto) necessary in order for IMS PRC to secure the
Obligations of the Foreign Loan Parties by pledging or creating legal and valid
and perfected security interests (including by way of mortgages, pledges, liens,
assignments or like interests), binding on and enforceable (subject with respect
to enforceability to qualifications reasonably acceptable to the Required
Lenders) as a matter of law against IMS PRC, in substantially all the assets and
properties of IMS PRC (except for such assets and properties in which security
interests, mortgages, pledges, liens, assignments or like interests may not be
created as a matter of law even after obtaining all such approvals, orders,
consents and other authorizations which could be granted by such Governmental
Authorities), and shall thereupon grant such valid and perfected security
interests to the Secured Parties to secure the Obligations of the Foreign Law
Parties (the "IMS PRC Security Grant Event").
IMS PRC shall use its best efforts to promptly obtain all
appraisals, orders, consents and other authorizations from Governmental
Authorities in the People's Republic of China (and make any filings or
registrations relating thereto) necessary in order for IMS PRC to become a party
to the Subsidiary Guarantee Agreement for its obligations thereunder to be
legal, valid and binding on and enforceable as (subject with respect to
enforceability to qualifications reasonably acceptable to the Required Lenders)
a matter of law against IMS PRC, and IMS PRC shall thereupon become a party to
the Subsidiary Guarantee Agreement in the manner set forth therein (the "IMS PRC
Guarantee Issuance Event").
SECTION 5.12. Audits. From time to time upon the request of
the Administrative Agent, permit the Administrative Agent or professionals
retained by the Administrative Agent to conduct evaluations and appraisals of
the assets included in the Collateral, and pay the reasonable fees and expenses
of such professionals in connection with no more than one such evaluation and
appraisal for each fiscal year of IMS.
SECTION 5.13. Fiscal Year; Accounting. Cause its respective
fiscal year to end on the last Saturday in March.
SECTION 5.14. Interest Rate Protection Agreements. At the
request of the Administrative Agent made to any Borrower, such Borrower shall
enter into and thereafter maintain in effect one or more
<PAGE> 63
63
Interest Rate Protection Agreements with any of the Lenders or other financial
institutions the effect of which shall be to limit for a specified period of
time the interest on a percentage of the Loans to such Borrower projected to be
outstanding during such period to a maximum rate, all as are reasonably
specified by the Administrative Agent and as are reasonably acceptable to such
Borrower, taking into account then current market conditions, and deliver
evidence of the execution and delivery thereof to the Administrative Agent.
ARTICLE VI. NEGATIVE COVENANTS
Each of IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC and the
Borrowers covenants and agrees with each Lender that, so long as this Agreement
shall remain in effect and until the Revolving Credit Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document have been paid in full
and all Letters of Credit have been cancelled or have expired and all amounts
drawn thereunder have been reimbursed in full, unless the Required Lenders shall
otherwise consent in writing, neither IMS, IMS Foreign Holdings, IMS Cayman, IMS
PRC nor any Borrower will, nor will they cause or permit any of the Subsidiaries
to:
SECTION 6.01. Indebtedness. Incur, create, assume or permit to
exist any Indebtedness, except:
(a) Indebtedness existing on the date hereof and set forth in
Schedule 6.01;
(b) Indebtedness created hereunder;
(c) in the case of the Guarantors, the guarantees under the
Guarantee Agreements and the guarantees under the Contingent Payment
Note Guarantees; provided that no payment shall be made by IMS or any
Subsidiary on or with respect to the Contingent Payment Note Guarantees
relating to any payment due under the terms of any Contingent Payment
Note at any time that such payment may not be made by the underlying
obligor under such Contingent Payment Note in accordance with the terms
of this Agreement;
(d) Indebtedness under Interest Rate Protection Agreements
entered into in accordance with Section 5.14;
(e) subject to Section 6.15, Indebtedness incurred pursuant to
a Permitted Intercompany Transfer, other than Permitted Intercompany
Transfers outside the ordinary course of business if (i) an Event of
Default or (ii) a Default under paragraph (b) or (c) of Article VII
shall have occurred and be continuing; provided that any such
Indebtedness shall be evidenced by a promissory note which shall be
pledged to the Collateral Agent for the benefit of the Lenders pursuant
to Section 5.11 if no material tax disadvantage to IMS or any
Subsidiary shall result therefrom;
(f) in the case of IMS, the Subordinated Notes in an aggregate
principal amount not in excess of $12,500,000, and in the case of IMS,
the HK Borrower and the Thai Borrower, Contingent Payment Notes in an
aggregate principal amount not in excess of $1,700,000, $16,300,000 and
$2,000,000, respectively, in each case issued on or prior to the
Closing Date;
<PAGE> 64
64
(g) in the case of IMS, Indebtedness in respect of any
Guarantee by IMS of (i) obligations of any Borrower under any contract
entered into by such Borrower in the ordinary course of business
consistent with past practice and (ii) Indebtedness of any Borrower
that is otherwise permitted to exist hereunder;
(h) in the case of Guarantors, Capital Lease Obligations,
mortgage financings and purchase money Indebtedness in an aggregate
principal amount outstanding at any time not in excess of $5,000,000
incurred by any Subsidiary prior to or within 270 days after a Capital
Expenditure in order to finance such Capital Expenditure and secured,
if at all, only by the assets that are the subject of such Capital
Expenditure, and extensions, renewals and refinancings thereof if the
interest rate with respect thereto and other terms thereof are no less
favorable to such Subsidiary than the Indebtedness being refinanced and
the average life to maturity thereof is greater than or equal to that
of the Indebtedness being refinanced; provided, however, that such
refinancing Indebtedness shall not be (i) Indebtedness of an obligor
that was not an obligor with respect to the Indebtedness being
extended, renewed or refinanced, (ii) in a principal amount that
exceeds the Indebtedness being renewed, extended or refinanced or (iii)
incurred, created or assumed if any Default or Event of Default has
occurred and is continuing or would result therefrom;
(i) Indebtedness of a Subsidiary which represents the
assumption by such Subsidiary of Indebtedness of any other Subsidiary
in connection with a merger of such other Subsidiary with or into the
first Subsidiary or the purchase of all or substantially all the assets
of such other Subsidiary by such first Subsidiary, in each case solely
if permitted under Section 6.04;
(j) Indebtedness of the Guarantors in respect of performance
bonds, bid bonds, appeal bonds, surety bonds and similar obligations
and trade-related letters of credit, in each case provided in the
ordinary course of business in an aggregate principal and face amount
at any time that taken together with the amount at such time of
deposits permitted under Section 6.02(g) shall not exceed $2,000,000,
and any extension, renewal or refinancing thereof to the extent not
provided to secure the repayment of other Indebtedness and to the
extent that the amount of refinancing Indebtedness is not greater than
the amount of Indebtedness being refinanced; and
(k) all premiums (if any), interest, fees, expenses,
indemnities, charges and additional or contingent interest on
obligations described clauses (a) through (j) above.
SECTION 6.02. Liens. Create, incur, assume or permit to exist
any Lien on any property or assets (including stock or other securities of any
person, including any Subsidiary) now owned or hereafter acquired by it or on
any income or revenues or rights in respect of any thereof, or assign or
transfer any income, revenues or receivables or rights in respect thereof,
except:
(a) Liens on property or assets of Guarantors existing on the
date hereof and set forth in Schedule 6.02; provided that such Liens
shall secure only those obligations which they secure on the date
hereof and shall not subsequently apply to any other property or assets
of IMS or any Subsidiary;
(b) any Lien created under the Loan Documents;
(c) in the case of Guarantors, any Lien existing on any
property or asset prior to the acquisition thereof by any Subsidiary;
provided that (i) such Lien is not created in contemplation of
<PAGE> 65
65
or in connection with such acquisition or (ii) such Lien does not apply
to any other property or assets of IMS or any Subsidiary;
(d) Liens for Taxes not yet due or which are being contested
in compliance with Section 5.03;
(e) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due and payable or which
are being contested in compliance with Section 5.03;
(f) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation, unemployment
insurance and other social security laws or regulations;
(g) in the case of Guarantors, deposits in an amount at any
time that taken together with the amount at such time of Indebtedness
permitted under Section 6.01(j) shall not exceed $2,000,000 to secure
the performance of bids, trade contracts (other than for Indebtedness),
leases (other than Capital Lease Obligations), statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business;
(h) in the case of Guarantors, Liens consisting of interests
of lessors under capital leases permitted by Section 6.01(h);
(i) zoning restrictions, easements, rights-of-way,
restrictions on use of real property and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and do not materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of IMS or any Subsidiary; and
(j) in the case of Guarantors, purchase money security
interests in real property, improvements thereto or equipment hereafter
acquired (or, in the case of improvements, constructed) by any
Subsidiary; provided that (i) such security interests secure
Indebtedness permitted by Section 6.01, (ii) such security interests
are incurred, and the Indebtedness secured thereby is created, within
90 days after such acquisition (or construction), (iii) the
Indebtedness secured thereby does not exceed 75% of the lesser of the
cost or the fair market value of such real property, improvements or
equipment at the time of such acquisition (or construction) and (iv)
such security interests do not apply to any other property or assets of
IMS or any Subsidiary.
SECTION 6.03. Sale and Lease-Back Transactions. Enter into any
arrangement, directly or indirectly, with any person whereby it shall sell or
transfer any property, real or personal, used or useful in its business, whether
now owned or hereafter acquired, and thereafter rent or lease such property or
other property which it intends to use for substantially the same purpose or
purposes as the property being sold or transferred (a "Sale and Lease-Back
Transaction"), other than any Sale and Lease-Back Transaction (a "Permitted Sale
and Lease-Back Transaction") which involves (i) a purchase by a Subsidiary of an
asset solely for cash consideration on terms not less favorable to such
Subsidiary than would prevail in an arm's- length transaction followed within
three months by (ii)(A) a sale of such asset by such Subsidiary to a person
solely for cash consideration approximately equal to the cash consideration paid
by such Subsidiary for such asset under clause (i) above and (B) the leasing of
such asset by such Subsidiary from such person on terms not less favorable to
such Subsidiary than would prevail in an arm's-length transaction under a lease
that is classified as an operating lease under GAAP.
<PAGE> 66
66
SECTION 6.04. Investments, Loans and Advances. Purchase, hold
or acquire any capital stock, evidences of indebtedness or other securities of,
make or permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other person, except:
(a) Investments (i) by IMS in the capital stock of the U.S.
Borrower existing on the date hereof, (ii) by the U.S. Borrower in the
capital stock of IMS Foreign Holdings existing on the date hereof,
(iii) by IMS Foreign Holdings in the capital stock of the HK Borrower
and IMS Cayman existing on the date hereof, (iv) by the HK Borrower in
the capital stock of IMS PRC existing on the date hereof, (v) by IMS
Cayman in the capital stock of the Thai Borrower existing on the date
hereof, and (vi) made as part of any Permitted Intercompany Transfer;
(b) Permitted Investments and investments that were Permitted
Investments when made;
(c) Interest Rate Protection Agreements entered into in
accordance with Section 5.16;
(d) intercompany loans permitted to be incurred as
Indebtedness under Section 6.01(e);
(e) accounts receivable arising and trade credit granted in
the ordinary course of business and any securities received in
satisfaction or partial satisfaction thereof from any financially
troubled Account Debtor to the extent reasonably determined to be
necessary in order to prevent or limit loss;
(f) investments or acquisitions of assets by a Subsidiary made
as part of a Permitted Business Acquisition, provided that the
aggregate amount of consideration (whether cash or property, as valued
at the time each such investment is made) for all investments and
acquisitions made as part of Permitted Business Acquisitions under this
paragraph (f) and all other acquisitions of assets by the Subsidiaries
(other than Permitted Intercompany Transfers permitted to be made under
Section 6.05(e)) shall not exceed $5,000,000 during the fiscal year;
(g)(i) loans and advances made to employees of IMS or wholly
owned Guarantors in the ordinary course of business not to exceed
$250,000 in the aggregate at any time outstanding and (ii) advances of
payroll payments and expenses to employees in the ordinary course of
business;
(h) prepayments and other credits to suppliers made in the
ordinary course of business consistent with past practice;
(i) investments (other than investments listed in paragraphs
(a) through (h) of this Section), existing on the Closing Date and set
forth on Schedule 6.04.
SECTION 6.05. Mergers, Consolidations, Sales of Assets and
Acquisitions. Merge into or consolidate with any other person, or permit any
other person to merge into or consolidate with it, or sell, transfer, lease or
otherwise dispose of (in one transaction or in a series of transactions) all or
any substantial part of its assets (whether now owned or hereafter acquired) or
any capital stock of or other equity interest in any Subsidiary, or purchase,
lease or otherwise acquire (in one transaction or a series of transactions) all
or any substantial part of the assets of any other person or any assets with an
aggregate fair market value in excess of $100,000, except that:
(a) Any Subsidiary may purchase and sell Customer Account
Equipment and inventory in the ordinary course of business;
<PAGE> 67
67
(b) if at the time thereof and after giving effect thereto no
Event of Default or Default shall have occurred and be continuing, (i)
any Domestic Subsidiary (other than IMS Foreign Holdings or any
Domestic Borrower) may merge with and into any wholly owned Domestic
Guarantor (other than IMS) or wholly owned Domestic Borrower, so long
as the wholly owned Domestic Guarantor or wholly owned Domestic
Borrower is the surviving person, (ii) any Foreign Subsidiary (other
than any Foreign Borrower) may merge with and into any Foreign
Guarantor or Foreign Borrower organized in the same jurisdiction, so
long as the Foreign Guarantor or Foreign Borrower is the surviving
person; provided, in the case of clause (ii), that all of the Capital
Stock (and warrants to purchase or rights to subscribe for, or
securities convertible into or exchangeable for, Capital Stock) of such
surviving person, other than directors' or similar qualifying shares
required by applicable law, after giving effect to the merger, is owned
directly by IMS Foreign Holdings, free and clear of all Liens; and
provided further, in the case of clauses (i) and (ii), that no person
other than a wholly owned Borrower or wholly owned Guarantor receives
any consideration in any such merger;
(c) IMS and the Subsidiaries may make any investment or
acquisition of assets expressly permitted pursuant to Sections 6.04(a)
through (i);
(d) subject to the provisions of any applicable Security
Document, the Subsidiaries may sell, transfer, lease or otherwise
dispose of assets for cash consideration equal to the fair market value
of the assets sold, leased or otherwise disposed of, provided that (i)
the Non-Equity Net Proceeds thereof are applied in accordance with
Section 2.09(d)(iii), (ii) the aggregate consideration received in
respect of all transactions under this clause (d) shall not exceed
$2,000,000 in any fiscal year and (iii) no sale may be made of any
Capital Stock (or any warrant to purchase or right to subscribe for or
security convertible into or exchangeable for Capital Stock) of any
Subsidiary;
(e) subject to Section 6.15, IMS and the Subsidiaries may
effect Permitted Intercompany Transfers, other than Permitted
Intercompany Transfers outside the ordinary course of business if (i)
an Event of Default or (ii) a Default under paragraph (b) or (c) of
Article VII shall have occurred and be continuing; and
(f) the Subsidiaries may engage in Permitted Sale and
Lease-Back Transactions.
SECTION 6.06. Dividends and Distributions; Restrictions on
Ability of Subsidiaries To Pay Dividends. (a) Declare or pay, directly or
indirectly, any dividend or make any other distribution (by reduction of capital
or otherwise), whether in cash, property, securities or a combination thereof,
with respect to any shares of its capital stock or directly or indirectly
redeem, purchase, retire or otherwise acquire for value (or permit any
Subsidiary to purchase or acquire) any shares of any class of its capital stock
or set aside any amount for any such purpose; provided, however, that (i) any
Subsidiary may declare and pay dividends or make other distributions to the U.S.
Borrower or any wholly owned subsidiary of the U.S. Borrower, and (ii) so long
as immediately after giving effect to such payment or distribution no Event of
Default or Default shall have occurred and be continuing and IMS and the
Borrowers shall be in compliance, on a pro forma basis, with the covenants
contained in Sections 6.11, 6.12, 6.13 and 6.14 recomputed as of the last day of
the most recently ended fiscal quarter of IMS as if such payment or distribution
had been made on the first day of each relevant period for testing compliance,
the U.S. Borrower may declare and pay dividends or make other distributions to
IMS (A) in an aggregate amount not in excess of $1,000,000 in any fiscal year,
to be used by IMS to pay dividends on the Preferred Stock (subject to the
subordination provisions applicable thereto), (B) to be used by IMS to fund the
payment by IMS of Tax liabilities, legal, accounting and other professional fees
and expenses, compensation of officers and employees, fees and expenses of
directors of
<PAGE> 68
68
IMS and other administrative expenses, in each case to the extent actually
incurred by IMS and (C) to be used by IMS to make scheduled interest payments
due and payable on the Subordinated Notes and the Contingent Payment Notes
issued by IMS (but in each case subject to the subordination provisions set
forth therein or applicable thereto).
(b) Permit any Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any such Subsidiary to (i) pay any dividends or
make any other distributions on its Capital Stock or any other equity interest
to the U.S. Borrower or any wholly owned subsidiary of the U.S. Borrower or (ii)
make or repay any loans or advances to any wholly owned subsidiary of the U.S.
Borrower.
SECTION 6.07. Transactions with Affiliates. Sell or transfer
any property or assets to, or purchase or acquire any property or assets from,
or otherwise engage in any other transactions with, any of its Affiliates,
except that (a) nothing in this Section 6.07 shall be deemed to restrict
Permitted Intercompany Transfers and (b) so long as no Default or Event of
Default shall have occurred and be continuing, any Subsidiary may engage in any
such transaction in the ordinary course of business at prices and on terms and
conditions not less favorable to such Subsidiary than could be obtained on an
arm's-length basis from unrelated third parties.
SECTION 6.08. Business of IMS and Subsidiaries. Engage at any
time in any business or business activity other than (a) in the case of IMS, the
ownership of all the outstanding capital stock of the U.S. Borrower and
administrative, sales, marketing and customer services performed on behalf of
the Subsidiaries and business activities reasonably related or incidental
thereto (which shall in no event include manufacturing or production activities
if the revenues of IMS and the Subsidiaries on a consolidated basis attributable
to such activities are in excess of $1,000,000), (b) in the case of IMS Foreign
Holdings, the ownership of all the outstanding capital stock of the HK Borrower,
IMS Cayman and any Foreign Subsidiary acquired or formed in connection with a
Permitted Business Acquisition permitted under this Agreement, and business
activities reasonably, related or incidental thereto, (c) in the case of IMS
Cayman, the ownership of all the outstanding capital stock of the Thai Borrower
and business activities reasonably related or incidental thereto and (d) in the
case of each of the U.S. Borrower, the HK Borrower, the Thai Borrower and IMS
PRC, the business currently conducted by it and business activities reasonably
related or incidental thereto.
SECTION 6.09. Other Indebtedness and Agreements. (a) Permit
any waiver, supplement, modification, amendment, termination or release of or
under (i) the Contingent Payment Notes, the Contingent Payment Notes Guarantees
or the Subordinated Notes or any instrument, agreement or document evidencing or
relating to the foregoing, (ii) the Recapitalization Agreement, the Redemption
Agreement or the Production Agreement or any instrument, agreement or document
relating thereto, (iii) the Charter and By-laws of IMS or any Subsidiary as
amended through the date hereof or (iv) the Certificate of Incorporation; in
each case other than waivers, supplements, modifications, amendments,
terminations and releases (other than with respect to the Production Agreement,
those that would not constitute, and could not reasonably be expected to result
in, a Material Adverse Effect ) that do not, individually or in the aggregate,
adversely affect the rights or interests of the Company and the Subsidiaries or
the Lenders.
(b) Directly or indirectly make any distribution or payment,
whether in cash, property, securities or a combination thereof or by exercise of
any offset or other right (other than scheduled payments of principal and
interest as and when due to the extent not prohibited by applicable
subordination provisions), in respect of, or offer to pay or commit to pay, or
directly or indirectly redeem, repurchase, retire or
<PAGE> 69
69
otherwise acquire for consideration (or set apart any sum for the aforesaid
purposes), or prepay or defease, any Indebtedness of IMS or any Subsidiary
(other than Indebtedness under the Loan Documents) prior to the scheduled
maturity date of such Indebtedness (or permit to occur any event that would
require IMS or any Subsidiary to do any of the foregoing) other than the GECC
Loan, which shall be prepaid by IMS within seven Business Days after the Closing
Date; except that (i) the cash proceeds received by IMS from any public offering
of common stock of IMS may be applied to prepay amounts in respect of the
Contingent Payment Notes as and to the extent set forth therein so long as (A)
the Quarterly Reduction scheduled to occur on the last Saturday in December,
2000 shall have occurred or shall have been reduced to $500,000 or less and (B)
each Quarterly Reduction scheduled to occur prior to the last Saturday in
December, 2000 shall have occurred or shall have been reduced to zero, and (ii)
up to an amount equal to 50% of Excess Cash Flow with respect to any fiscal year
of the Company (the amount of which Excess Cash Flow shall have been set forth
in a certificate delivered to the Administrative Agent prior to any application
of any amount in respect of such 50% of Excess Cash Flow pursuant to this
Section) may be applied to make scheduled annual repayments of principal of any
Contingent Payment Note in the immediately following fiscal year of IMS (each of
which annual repayments shall have been scheduled to occur on the third, fourth
and fifth anniversaries of the Closing Date), provided that in no event shall
any amount in respect of such 50% of Excess Cash Flow be applied to any such
scheduled annual repayment of principal of any Contingent Payment Note to repay
amounts in excess of (A) on the third anniversary of the Closing Date, the
amount that would result in more than one-third of the initial principal amount
of such Contingent Payment Note having been prepaid or repaid, and (B) on the
fourth anniversary of the Closing Date, the amount that, taken together with all
prior repayments of such Contingent Payment Note, would result in more than
two-thirds of the initial principal amount of such Contingent Payment Note
having been prepaid or repaid; provided, however, that (x) payments in respect
of the Contingent Payment Notes described in clauses (i) and (ii) above shall be
made only if no Event of Default or Default shall have occurred and be
continuing or would result from such payment and (y) payments in respect of the
Contingent Payment Notes described in clause (ii) above shall be made only if
IMS and the Subsidiaries shall have achieved an Interest Coverage Ratio of not
less than 5.5 to 1 and a Leverage Ratio of not more than 2.0 to 1, in each case
as of the end of and for the most recently ended four-fiscal-quarter period of
IMS; and provided further that any prepayment of Contingent Payment Notes in
accordance with clause (i) above shall be applied to reduce the remaining
scheduled annual contingent repayments under the Contingent Payment Notes as at
the end of and in the direct order of maturity thereof.
(c) Make any payment or prepayment of any Indebtedness of IMS
or any Subsidiary (other than under the Loan Documents) that would violate the
terms of any subordination agreement or provision applicable to such
Indebtedness or permit any prepayment obligation to arise under any such
Indebtedness except as expressly permitted under clauses (i) of Section 6.09(b).
SECTION 6.10. Capital Expenditures. Permit the aggregate
amount of Capital Expenditures made by IMS and the Subsidiaries, taken as a
whole, (i) to exceed $8,000,000 in the period commencing on the Closing Date and
ending on the last Saturday in March, 1997, and (ii) in any subsequent fiscal
year to exceed the amount set forth below opposite such fiscal year.
<PAGE> 70
70
<TABLE>
<CAPTION>
Fiscal Year Capital Expenditures
----------- --------------------
<S> <C>
Fiscal year ended on the last Saturday in March, 1998 $11,000,000
Fiscal year ended on the last Saturday in March, 1999 $12,000,000
Fiscal year ended on the last Saturday in March, 2000 $13,000,000
Each fiscal year thereafter $15,000,000;
</TABLE>
provided, however, that to the extent the aggregate Capital Expenditures made
during the period specified in clause (i) or any subsequent fiscal year are less
than the maximum amount permitted to be made by IMS and the Subsidiaries for
such period or fiscal year (without giving effect to any amount carried forward
from a prior year pursuant to this proviso), up to $2,000,000 of such unused
amount may be carried forward to the next succeeding fiscal year; and provided
further that with respect to each full fiscal year of IMS after the Closing Date
in which EBITDA exceeds the Target EBITDA (such excess, the "Excess EBITDA" for
such fiscal year), the amount specified under Permitted Capital Expenditures for
such fiscal year shall be increased by an amount equal to 50% of such Excess
EBITDA for such fiscal year.
SECTION 6.11. Interest Coverage Ratio. Permit the ratio of (a)
EBITDA to (b) Consolidated Cash Interest Expense (the "Interest Coverage Ratio")
(i) for the fiscal-quarter period ending on the last Saturday in September,
1996, to be less than 3.10 to 1.00, (ii) for the two-fiscal quarter period
ending on the last Saturday in December, 1996, to be less than 3.20 to 1.00,
(iii) for the three-fiscal- quarter period ending on the last Saturday in March,
1997, to be less than 3.40 to 1.00 or (iv) for any four-fiscal-quarter period
ending on a date set forth below, to be less than the ratio set forth opposite
such date below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
The last Saturday in June, 1997 3.50 to 1
The last Saturday in September, 1997 3.75 to 1
The last Saturday in December, 1997 3.75 to 1
The last Saturday in March, 1998 3.75 to 1
The last Saturday in June, 1998 3.94 to 1
The last Saturday in September, 1998 4.13 to 1
The last Saturday in December, 1998 4.31 to 1
The last Saturday in March, 1999 4.50 to 1
The last Saturday in June, 1999 4.75 to 1
The last Saturday in September, 1999 5.00 to 1
The last Saturday in December, 1999 5.25 to 1
</TABLE>
<PAGE> 71
71
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
The last day of each fiscal quarter of IMS 5.50 to 1
thereafter
</TABLE>
SECTION 6.12. Coverage Ratio. Permit the ratio of (a) EBITDA
minus Capital Expenditures of IMS and the Subsidiaries to (b) Consolidated Cash
Interest Expense for any four-fiscal- quarter period ending on a date set forth
below to be less than the ratio set forth opposite such date below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
The last Saturday in June, 1997 1.75 to 1
The last Saturday in September, 1997 1.75 to 1
The last Saturday in December, 1997 2.00 to 1
The last Saturday in March, 1998 2.00 to 1
The last Saturday in June, 1998 2.19 to 1
The last Saturday in September, 1998 2.38 to 1
The last Saturday in December, 1998 2.56 to 1
The last Saturday in March, 1999 2.75 to 1
The last Saturday in June, 1999 3.00 to 1
The last Saturday in September, 1999 3.25 to 1
The last Saturday in December, 1999 3.50 to 1
The last day of each fiscal quarter of IMS
thereafter 3.75 to 1
</TABLE>
SECTION 6.13. Leverage Ratio. Permit the ratio of (a) Total
Debt as of any date set forth below to (b) EBITDA for the four-fiscal-quarter
period ending on such date (the "Leverage Ratio") to be in excess of the ratio
set forth opposite such date below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
The last Saturday in June, 1997 3.50 to 1
The last Saturday in September, 1997 3.25 to 1
The last Saturday in December, 1997 3.25 to 1
The last Saturday in March, 1998 3.00 to 1
The last Saturday in June, 1998 2.88 to 1
The last Saturday in September, 1998 2.75 to 1
The last Saturday in December, 1998 2.63 to 1
</TABLE>
<PAGE> 72
72
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
The last Saturday in March, 1999 2.50 to 1
The last Saturday in June, 1999 2.38 to 1
The last Saturday in September, 1999 2.25 to 1
The last Saturday in December, 1999 2.13 to 1
The last day of each fiscal quarter of IMS
thereafter 2.00 to 1
</TABLE>
SECTION 6.14. Minimum EBITDA. Permit EBITDA (i) for the
fiscal-quarter-period ending on the last Saturday in September, 1996, to be less
than $3,000,000, (ii) for the two-fiscal-quarter- period ending on the last
Saturday in December, 1996, to be less than $7,200,000, (iii) for the
three-fiscal- quarter-period ending on the last Saturday in March, 1997, to be
less than $11,400,000, or (iv) for any four- fiscal-quarter period ending on a
date set forth below, to be less than the amount set forth opposite such date
below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
The last Saturday in June, 1997 $15,500,000
The last Saturday in September, 1997 $17,000,000
The last Saturday in December, 1997 $18,000,000
The last Saturday in March, 1998 $19,000,000
The last Saturday in June, 1998 $20,500,000
The last Saturday in September, 1998 $22,000,000
The last Saturday in December, 1998 $23,500,000
The last Saturday in March, 1999 $25,000,000
The last Saturday in June, 1999 $26,250,000
The last Saturday in September, 1999 $27,500,000
The last Saturday in December, 1999 $28,750,000
The last Saturday in March, 2000 $30,000,000
The last Saturday in June, 2000 $31,260,000
The last Saturday in September, 2000 $32,500,000
The last Saturday in December, 2000 $33,750,000
The last day of each fiscal quarter of IMS
thereafter $35,000,000
</TABLE>
<PAGE> 73
73
SECTION 6.15. IMS PRC. Notwithstanding anything contained
herein to the contrary, until the first day (the "IMS PRC Borrower Date") on
which (i) both the IMS PRC Security Grant Event and the IMS PRC Guarantee
Issuance Event shall have occurred and (ii) the Lenders shall have received an
opinion of counsel reasonably acceptable to the Administrative Agent relating to
IMS PRC and stating that such events shall have occurred (and, if IMS PRC is to
become a Permitted Additional Borrower in accordance with the following
sentence, relating to its obligations with respect thereto), permit IMS PRC to
own or hold assets with an aggregate value determined in accordance with GAAP in
excess of $5,000,000 at any time. IMS PRC shall, if IMS so requests in a notice
delivered to the Administrative Agent, become a Permitted Additional Borrower
hereunder as of the IMS PRC Borrower Date; provided that in such event IMS PRC
shall in no event be permitted to make Borrowings hereunder in excess of the
aggregate amount of Borrowings (after taking into account any other applicable
Indebtedness) permitted by applicable law (which amount shall in the event of
each Borrowing be confirmed by a certificate of a Responsible Officer delivered
to the Administrative Agent together with the applicable Borrowing Request).
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of Default"):
(a) any representation or warranty made or deemed made in or in connection with
any Loan Document or the borrowings or issuances of Letters of Credit hereunder,
or any representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument furnished in
connection with or pursuant to any Loan Document, shall prove to have been false
or misleading in any material respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan or the
reimbursement of any L/C Disbursement when and as the same shall become due and
payable, whether at the due date thereof or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise and such default shall continue
for one Business Day;
(c) default shall be made in the payment of any interest on any Loan or any Fee
or L/C Disbursement or any other amount (other than an amount referred to in (b)
above) due under any Loan Document, when and as the same shall become due and
payable, and such default shall continue unremedied for a period of three
Business Days;
(d) default shall be made in the due observance or performance by IMS, any
Borrower or any other Subsidiary of any covenant, condition or agreement
contained in Section 5.01(a), 5.05 or 5.08 or in Article VI;
(e) default shall be made in the due observance or performance by IMS, any
Borrower or any other Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in (b), (c) or (d)
above) and such default shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent or any Lender to IMS;
(f) IMS, any Borrower or any other Subsidiary shall fail to pay after any
applicable grace period any principal or interest, regardless of amount, due in
respect of any Indebtedness in a principal amount in excess of $2,000,000, when
and as the same shall become due and payable;
<PAGE> 74
74
(g) IMS, any Borrower or any other Subsidiary shall fail to observe or perform
any other term, covenant, condition or agreement contained in any agreement or
instrument evidencing or governing any such Indebtedness, or any other event or
condition shall occur or exist, if the effect of any failure, event or condition
is to cause, or to permit the holder or holders of such Indebtedness or a
trustee on its or their behalf (with or without the giving of notice, the lapse
of time or both) to cause, such Indebtedness to become due or to be redeemed or
repurchased prior to its stated maturity;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of IMS, any Borrower or any
other Subsidiary, or of a substantial part of the property or assets of
IMS, any Borrower or any other Subsidiary, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other
Federal, state or foreign bankruptcy, insolvency, receivership or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for IMS, any Borrower or
any other Subsidiary or for a substantial part of the property or
assets of IMS, any Borrower or any other Subsidiary or (iii) the
winding-up or liquidation of IMS or any Subsidiary; and such proceeding
or petition shall continue undismissed for 60 days or an order or
decree approving or ordering any of the foregoing shall be entered;
(i) IMS, any Borrower or any other Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal, state or foreign bankruptcy,
insolvency, receivership or similar law, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in (g) above,
(iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for IMS, any
Borrower or any other Subsidiary or for a substantial part of the
property or assets of IMS, any Borrower or any other Subsidiary, (iv)
file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for
the benefit of creditors, (vi) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the
foregoing;
(j) one or more judgments for the payment of money in an
aggregate amount in excess of $2,000,000 shall be rendered against IMS,
any Borrower, any other Subsidiary or any combination thereof and the
same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to levy upon assets or
properties of IMS, any Borrower or any other Subsidiary to enforce any
such judgment;
(k) one or more ERISA Events or Foreign Benefit Events shall
have occurred with respect to any Plan or Plans, or any Foreign Plan or
Foreign Plans, that reasonably could be expected to result in liability
of IMS or any Subsidiary to the PBGC or any other Governmental
Authority or to a Plan or Foreign Plan in an aggregate amount exceeding
$2,000,000 and, within 30 days after the reporting of any such ERISA
Event or Foreign Benefit Event to the Administrative Agent or after the
receipt by the Administrative Agent of the statement required pursuant
to Section 5.06, the Administrative Agent shall have notified the IMS
in writing that (i) the Required Lenders have made a determination
that, on the basis of such ERISA Events or Foreign Benefit Events or
the failure to make a required payment, there are reasonable grounds
(A) for the termination of such Plan or Plans, or such Foreign Plan or
Foreign Plans, by the PBGC or other Governmental Authority, (B) for the
<PAGE> 75
75
appointment either by the appropriate United States District Court of a
trustee to administer such Plan or Plans or by an applicable court of
law outside the United States of a trustee to administer such Foreign
Plan or Foreign Plans or (C) for the imposition of a lien in favor of a
Plan or Foreign Plan and (ii) as a result thereof an Event of Default
exists hereunder; or a trustee shall be appointed by a United States
District Court to administer any such Plan or Plans or by an applicable
court of law outside the United States of a trustee to administer such
Foreign Plan or Foreign Plans; or the PBGC or other Governmental
Authority shall institute proceedings to terminate any Plan or Plans or
any Foreign Plan or Foreign Plans;
(l) any security interest purported to be created by any
Security Document shall cease to be, or shall be asserted by any
Borrower or any other Subsidiary not to be, a valid, perfected, first
priority (except as otherwise expressly provided in this Agreement or
such Security Document) security interest in the securities, assets or
properties covered thereby, except (i) to the extent that any such loss
of perfection or priority results from the failure of the Collateral
Agent to maintain possession of certificates representing securities
pledged under a Pledge Agreement or to file applicable UCC continuation
statements, (ii) with respect to mortgages on assets in Thailand
constituting Machinery (as defined in the Thailand Security Agreement),
during the period of seven months (x) after the Closing Date or (y)
with respect to any such asset, after such asset becomes Machinery, in
each case so long as the Thai Borrower is using its best efforts to
cause such Mortgage on such Machinery to be registered in accordance
with the laws of Thailand, (iii) solely with respect to perfection, for
rights under any IEAT Land Lease Agreement (as defined in the Thailand
Security Agreement) during the period commencing on the date hereof and
ending sixty days thereafter and (iv) except to the extent that such
loss is covered by a lender's title insurance policy and the related
insurer promptly after such loss shall have acknowledged in writing
that such loss is covered by such title insurance policy;
(m) any Loan Document shall not be for any reason or shall be
asserted by IMS, any Borrower or any Subsidiary not to be, in full
force and effect and enforceable in all material respects in accordance
with its terms;
(n) there shall have occurred a Change in Control; or
(o) Hyundai Electronics America or Hyundai Electronics
Industries shall cease to own beneficially and control at any time
shares representing at least 51% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the
Continuing Shareholder unless for any fiscal year of IMS commencing
after the Closing Date and ending prior to such time the contribution
to the gross profit of IMS and the Subsidiaries on a consolidated basis
for such fiscal year represented by transactions between the Continuing
Shareholder, on the one hand, and IMS and the Subsidiaries, taken
together, on the other hand, is (x) less than $5,000,000 and (y) less
than 15% of the total gross profit of IMS and the Subsidiaries on a
consolidated basis for such fiscal year.
then, and in every such event (other than an event described in paragraph (h) or
(i) above), and at any time thereafter during the continuance of such event, the
Administrative Agent, at the request of the Required Lenders, shall, by notice
to IMS and the Borrowers, take either or both of the following actions, at the
same or different times: (i) terminate forthwith the Revolving Credit
Commitments and (ii) declare the Loans then outstanding to be forthwith due and
payable in whole or in part, whereupon the principal of the Loans so declared to
be due and payable, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of the Loan Parties accrued hereunder and
under any other Loan Document, shall become
<PAGE> 76
76
forthwith due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Loan
Parties, anything contained herein or in any other Loan Document to the contrary
notwithstanding; and in any event described in paragraph (h) or (i) above, the
Revolving Credit Commitments shall automatically terminate and the principal of
the Loans then outstanding, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Loan Parties accrued
hereunder and under any other Loan Document, shall automatically become due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Loan Parties, anything contained
herein or in any other Loan Document to the contrary notwithstanding.
ARTICLE VIII. THE AGENTS
In order to expedite the transactions contemplated by this
Agreement, Chemical Bank is hereby appointed to act as Administrative Agent and
Collateral Agent on behalf of the Lenders and the Fronting Bank (for purposes of
this Article VIII, the Administrative Agent and the Collateral Agent are
referred to collectively as the "Agents"). Each of the Lenders and each assignee
of any such Lender, hereby irrevocably authorizes the Agents to take such
actions on behalf of such Lender or assignee or the Fronting Bank and to
exercise such powers as are specifically delegated to the Agents by the terms
and provisions hereof and of the other Loan Documents, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the Lenders and the Fronting Bank,
without hereby limiting any implied authority, (a) to receive on behalf of the
Lenders and the Fronting Bank (i) all payments of principal of and interest on
(A) the Revolving Loans, (B) the HK Offered Rate Facility Loans, (C) only after
a Thai Facility Participations Event, the Thai Facility Loans and (D) only after
a Thai Offered Rate Facility Participations Event, the Thai Offered Rate Loans,
(ii) all payments in respect of L/C Disbursements and (iii) all other amounts
due to the Lenders hereunder (other than Thai Facility Loans and Thai Offered
Rate Loans except pursuant to clauses (C) or (D) above), and promptly to
distribute to each Lender or the Fronting Bank its proper share of each payment
so received; (b) to give notice on behalf of each of the Lenders to IMS and the
Borrowers of any Event of Default specified in this Agreement of which the
Administrative Agent has actual knowledge acquired in connection with its agency
hereunder, provided that the Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Event of Default unless the
Administrative Agent has received notice from a Lender or a Loan Party referring
to this Agreement, describing such Event of Default and stating that such notice
is a "notice of an event of default"; and (c) to distribute to each Lender
copies of all notices, financial statements and other materials delivered by any
Borrower or any other Loan Party pursuant to this Agreement or the other Loan
Documents as received by the Administrative Agent. Without limiting the
generality of the foregoing, the Agents are hereby expressly authorized to
execute any and all documents (including releases) with respect to the
Collateral and the rights of the Secured Parties with respect thereto, as
contemplated by and in accordance with the provisions of this Agreement and the
Security Documents.
Neither the Agents nor any of their respective directors,
officers, employees or agents shall be liable as such for any action taken or
omitted by any of them except for its or his own gross negligence or wilful
misconduct, or be responsible for, or be required to ascertain or to make any
inquiry concerning the accuracy or completeness of, any statement, warranty or
representation herein or the contents of any document delivered in connection
herewith, or be required to ascertain or to make any inquiry concerning the
performance or observance by IMS or any Subsidiary of any of the terms,
conditions, covenants or agreements contained in any Loan Document. The Agents
shall not be responsible to the Lenders for the due execution, genuineness,
validity, enforceability or effectiveness of this Agreement or any other Loan
<PAGE> 77
77
Documents, instruments or agreements. The Agents shall in all cases be fully
protected in acting, or refraining from acting, in accordance with written
instructions signed by the Required Lenders and, except as otherwise
specifically provided herein, such instructions and any action or inaction
pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the
absence of knowledge to the contrary, be entitled to rely on any instrument or
document believed by it in good faith to be genuine and correct and to have been
signed or sent by the proper person or persons. Neither the Agents nor any of
their respective directors, officers, employees or agents shall have any
responsibility to IMS or any Subsidiary on account of the failure of or delay in
performance or breach by any Lender or the Fronting Bank of any of its
obligations hereunder or to any Lender or the Fronting Bank on account of the
failure of or delay in performance or breach by any other Lender or the Fronting
Bank or IMS or any Subsidiary of any of their respective obligations hereunder
or under any other Loan Document or in connection herewith or therewith. Each of
the Agents may execute any and all duties hereunder by or through agents or
employees and shall be entitled to rely upon the advice of legal counsel
selected by it with respect to all matters arising hereunder and shall not be
liable for any action taken or suffered in good faith by it in accordance with
the advice of such counsel. In no event any Agent be obligated to take any
action, or omit to take any action, in contravention of any applicable law or
regulation.
The Lenders hereby acknowledge that neither Agent shall be
under any duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent
as provided below, either Agent may resign at any time by notifying the Lenders,
IMS and the Borrowers. Upon any such resignation, the Required Lenders shall
have the right to appoint a successor with the consent of IMS, which shall not
be unreasonably withheld. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Agent gives notice of its resignation, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent which shall be a bank with
an office in New York, New York, having a combined capital and surplus of at
least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any
appointment as Agent hereunder by a successor bank, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Agent and the retiring Agent shall be discharged from its duties and
obligations hereunder. After the Agent's resignation hereunder, the provisions
of this Article and Section 9.05 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.
With respect to the Loans made by it hereunder, each Agent in
its individual capacity and not as Agent shall have the same rights and powers
as any other Lender and may exercise the same as though it were not an Agent,
and the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with IMS, any Borrower or any other
Subsidiary or other Affiliate thereof as if it were not an Agent. Each Agent in
its capacity as Agent shall be deemed not to have received any notice,
information or document except for notices delivered, information contained in
notices delivered or documents under cover of notices delivered to such Agent in
accordance with Section 9.01, irregardless of any receipt of any notice,
information or document by any such Agent other than in its capacity as Agent.
Each Lender agrees (a) to reimburse the Agents, on demand, in
the amount of its pro rata share (based on its Revolving Credit Commitment
hereunder) of any expenses incurred for the benefit of the Lenders by the
Agents, including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, that shall not have been reimbursed
by IMS or the Borrowers and (b) to
<PAGE> 78
78
indemnify and hold harmless each Agent and any of its directors, officers,
employees or agents, on demand, in the amount of such pro rata share, from and
against any and all liabilities, taxes, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by or asserted against it in
its capacity as Agent or any of them in any way relating to or arising out of
this Agreement or any other Loan Document or any action taken or omitted by it
or any of them under this Agreement or any other Loan Document, to the extent
the same shall not have been reimbursed by the Borrowers or any other Loan
Party, provided that no Lender shall be liable to an Agent or any such other
indemnified person for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Agent or any of its directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and
without reliance upon the Agents or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agents or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:
(a) if to IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC or
any Borrower, to it at 211 River Oaks Parkway, San Jose, CA 95134,
Attention of Mr. Robert G. Behlman (Telecopy No. 408 432-4337);
(b) if to the Administrative Agent, to Chemical Bank Agency
Services Corporation, Grand Central Tower, 140 East 45th Street, New
York, New York 10017, Attention of Gloria Javier, (Telecopy No. (212)
622-0136), with a copy to Chase Securities Inc., at 270 Park Avenue,
New York 10017, Attention of Edmond DeForest (Telecopy No. (212)
270-6068); and to Chemical Bank, 44th Floor, Edinburgh Tower, 15
Queen's Road, Central, Hong Kong, Attention of Godfrey Chu, (Telecopy
No. (852) 2845-9062), with a copy to Chemical Securities Asia Limited,
39th Floor, One Exchange Square, Central, Hong Kong, Attention of
Elizabeth C. Chow (Telecopy No. (852) 2523- 7809);
(c) if to a Lender, to it at its address (or telecopy number)
set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this
<PAGE> 79
79
Section 9.01 or in accordance with the latest unrevoked direction from such
party given in accordance with this Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by IMS or any other Loan Party
herein and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the Lenders and the Fronting Bank and
shall survive the making by the Lenders of the Loans and the issuance of Letters
of Credit by the Fronting Bank, regardless of any investigation made by the
Lenders or the Fronting Bank or on their behalf, and shall continue in full
force and effect as long as the principal of or any accrued interest on any Loan
or any Fee or any other amount payable under this Agreement or any other Loan
Document is outstanding and unpaid or any Letter of Credit is outstanding and so
long as the Revolving Credit Commitments have not been terminated. The
provisions of Sections 2.12, 2.14, 2.18 and 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Revolving Credit
Commitments, the expiration of any Letter of Credit, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Administrative Agent,
the Collateral Agent, any Lender or the Fronting Bank.
SECTION 9.03. Binding Effect. This Agreement shall become
effective when it shall have been executed by IMS, IMS Foreign Holdings, IMS
Cayman, IMS PRC and each Borrower and the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted successors and assigns.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of the IMS, IMS Foreign
Holdings, IMS Cayman, IMS PRC, each Borrower, the Administrative Agent, the
Fronting Bank, the Thai Facilities Lender, the HK Facility Lender, the
Collateral Agent or the Lenders that are contained in this Agreement shall bind
and inure to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement (including
all or a portion of its Revolving Credit Commitment and the Loans at the time
owing to it); provided, however, that (i) except in the case of an assignment to
a Lender or an Affiliate of such Lender, (x) the Administrative Agent and IMS
(and, in the case of any assignment of a Revolving Credit Commitment, the
Fronting Bank, the Thai Facilities Lender and the HK Facility Lender) must give
their prior written consent to such assignment (which consent shall not be
unreasonably withheld) and (y) the amount of the Revolving Credit Commitment of
the assigning Lender subject to each such assignment (determined as of the date
the Assignment and Acceptance with respect to such assignment is delivered to
the Administrative Agent) shall not be less than $2,000,000 (or, if less, the
entire remaining amount of such Lender's Revolving Credit Commitment), (ii) the
parties to each such assignment shall execute and deliver to the Administrative
Agent an Assignment and Acceptance, together with a processing and recordation
fee of $3,500 and (iii) the assignee, if it shall not be a Lender, shall deliver
to the Administrative Agent an Administrative Questionnaire. Upon acceptance and
recording pursuant to paragraph (e) of this Section 9.04, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and
<PAGE> 80
80
Acceptance, have the rights and obligations of a Lender under this Agreement and
(B) the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of Sections 2.12, 2.14, 2.18 and 9.05,
as well as to any Fees accrued for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Revolving Credit Commitment, and the outstanding balance of its Loans, in
each case without giving effect to assignments thereof which have not become
effective, are as set forth in such Assignment and Acceptance, (ii) except as
set forth in (i) above, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto, or the financial condition of IMS or any
Subsidiary or the performance or observance by IMS or any Subsidiary of any of
its obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements referred
to in Section 3.05(a) or delivered pursuant to Section 5.04 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (v) such
assignee will independently and without reliance upon the Administrative Agent,
the Collateral Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (vi) such assignee appoints and authorizes the Administrative
Agent and the Collateral Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Administrative
Agent and the Collateral Agent, respectively, by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all the obligations which by
the terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an
agent of the Borrowers, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Revolving
Credit Commitment of, and principal amount of the Loans owing to, each Lender,
and each Borrower to whom each such Loan was made; pursuant to the terms hereof
from time to time (the "Register"). The entries in the Register shall be
conclusive and IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC, any Borrower, the
Administrative Agent, the Fronting Bank, the Collateral Agent and the Lenders
may treat each person whose name is recorded in the Register pursuant to the
terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrowers, the Fronting Bank, the Collateral Agent and any
Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in
<PAGE> 81
81
paragraph (b) above and, if required, the written consent of IMS, the Fronting
Bank and the Administrative Agent to such assignment, the Administrative Agent
shall (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Lenders and the Fronting Bank. No assignment shall be effective unless it has
been recorded in the Register as provided in this paragraph (e).
(f) Each Lender may without the consent of IMS, the Fronting
Bank, the Thai Facilities Lender, the HK Facility Lender or the Administrative
Agent sell participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Revolving Credit Commitment and the Loans owing to it); provided,
however, that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the participating banks or
other entities shall be entitled to the benefit of the cost protection
provisions contained in Sections 2.12, 2.14 and 2.18 to the same extent as if
they were Lenders; provided that no such participating bank or entity shall be
entitled to receive any greater amount pursuant to such Sections than a Lender
would have been entitled to receive in respect of the amount of the
participation sold by such Lender to such participating bank or entity had no
sale occurred, and (iv) IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC, the
Borrowers, the Administrative Agent, the Fronting Bank, the Thai Facilities
Lender, the HK Facility Lender and the Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole right to
enforce the obligations of the Borrowers relating to the Loans or L/C
Disbursements and to approve any amendment, modification or waiver of any
provision of this Agreement (other than amendments, modifications or waivers
decreasing any fees payable hereunder or the amount of principal of or the rate
at which interest is payable on the Loans, extending any scheduled principal
payment date or date fixed for the payment of interest on the Loans or
increasing or extending the Revolving Credit Commitments).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to IMS or any Subsidiary furnished to
such Lender by or on behalf of IMS or any Subsidiary; provided that, prior to
any such disclosure of information designated by IMS or any Subsidiary as
confidential, each such assignee or participant or proposed assignee or
participant shall execute an agreement whereby such assignee or participant
shall agree (subject to customary exceptions) to preserve the confidentiality of
such confidential information on terms no less restrictive than those applicable
to the Lenders pursuant to Section 9.16.
(h) Any Lender may at any time assign all or any portion of
its rights under this Agreement to a Federal Reserve Bank to secure extensions
of credit by such Federal Reserve Bank to such Lender; provided that no such
assignment shall release a Lender from any of its obligations hereunder or
substitute any such Bank for such Lender as a party hereto. In order to
facilitate such an assignment to a Federal Reserve Bank, each Borrower shall, at
the request of the assigning Lender, duly execute and deliver to the assigning
Lender a promissory note or notes evidencing the Loans made to such Borrower by
the assigning Lender hereunder.
(i) Neither IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC nor
any Borrower shall assign or delegate any of its rights or duties hereunder
without the prior written consent of the Administrative Agent, the Fronting Bank
and each Lender, and any attempted assignment without such consent shall be null
and void.
<PAGE> 82
82
(j) In the event that Standard & Poor's Ratings Group and
Moody's Investors Service, Inc. shall, after the date that any Lender becomes a
Lender, downgrade the long-term certificate deposit ratings of such Lender, and
the resulting ratings shall be below BBB+ and Baa1, then each of the Fronting
Bank, the Thai Facilities Lender and the HK Facility shall have the right, but
not the obligation, at its own expense, upon notice to such Lender and the
Administrative Agent, to replace (or to request each Borrower to use its
reasonable efforts to replace) such Lender with an assignee (in accordance with
and subject to the restrictions contained in paragraph (b) above), and such
Lender hereby agrees to transfer and assign without recourse (in accordance with
and subject to the restrictions contained in paragraph (b) above) all its
interests, rights and obligations in respect of its Revolving Credit Commitment
to such assignee; provided, however, that (i) no such assignment shall conflict
with any law, rule and regulation or order of any Governmental Authority and
(ii) the Fronting Bank, the Thai Facilities Lender, the HK Facility Lender or
such assignee, as the case may be, shall pay to such Lender in immediately
available funds on the date of such assignment the principal of and interest
accrued to the date of payment on the Loans made by such Lender hereunder and
all other amounts accrued for such Lender's account or owed to it hereunder.
SECTION 9.05. Expenses; Indemnity. (a) IMS and the Borrowers
agree, jointly and severally, to pay all reasonable out-of-pocket expenses
incurred by the Administrative Agent, the Collateral Agent and the Fronting Bank
in connection with the syndication of the credit facilities provided for herein
and the preparation and administration of this Agreement and the other Loan
Documents or in connection with any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the transactions hereby or thereby
contemplated shall be consummated) or incurred by the Administrative Agent, the
Collateral Agent or any Lender in connection with the enforcement or protection
of its rights in connection with this Agreement and the other Loan Documents or
in connection with the Loans made or Letters of Credit issued hereunder,
including the fees, charges and disbursements of Cravath, Swaine & Moore,
counsel for the Administrative Agent and the Collateral Agent, and, in
connection with any such enforcement or protection, the fees, charges and
disbursements of any other counsel for the Administrative Agent, the Collateral
Agent or any Lender.
(b) IMS and the Borrowers agree, jointly and severally, to
indemnify the Administrative Agent, the Collateral Agent, each Lender and the
Fronting Bank, each Affiliate of any of the foregoing persons and each of their
respective directors, officers, employees and agents (each such person being
called an "Indemnitee") against, and to hold each Indemnitee harmless from, any
and all losses, claims, damages, liabilities and related expenses, including
reasonable counsel fees, charges and disbursements, incurred by or asserted
against any Indemnitee arising out of, in any way connected with, or as a result
of (i) the execution or delivery of this Agreement or any other Loan Document or
any agreement or instrument contemplated thereby, the performance by the parties
thereto of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby, (ii) the use of
the proceeds of the Loans or issuance of Letters of Credit, (iii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, or (iv) any actual or alleged
presence or Release of Hazardous Materials on any property owned or operated by
IMS or any of the Subsidiaries, or any Environmental Claim related in any way to
IMS or the Subsidiaries; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Revolving Credit
<PAGE> 83
83
Commitments, the expiration of any Letter of Credit, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Administrative Agent,
the Collateral Agent, any Lender or the Fronting Bank. All amounts due under
this Section 9.05 shall be payable on written demand therefor.
(d) The Borrowers hereby confirm that by execution hereof they
have assumed all liabilities and obligations of the Prudential Investor and the
Oak Investors for fees, expenses and indemnities contained in the Commitment
Letter and the Fee Letter, and hereby agree to pay and satisfy all such
liabilities and obligations as and when due.
SECTION 9.06. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of IMS or any Borrower against any of and
all the obligations of IMS or any Borrower now or hereafter existing under this
Agreement and other Loan Documents held by such Lender, irrespective of whether
or not such Lender shall have made any demand under this Agreement or such other
Loan Document and although such obligations may be unmatured. The rights of each
Lender under this Section 9.06 are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER
LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT
GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of
the Administrative Agent, the Collateral Agent, any Lender or the Fronting Bank
in exercising any power or right hereunder or under any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Collateral Agent, the Fronting Bank and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or any other Loan Document or consent to any
departure by IMS or any Subsidiary therefrom shall in any event be effective
unless the same shall be permitted by paragraph (b) below, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No notice or demand on IMS or any Borrower in any case shall
entitle the IMS or any Borrower to any other or further notice or demand in
similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC, the
Borrowers, and the Required Lenders; provided, however, that no such agreement
<PAGE> 84
84
shall (i) decrease the principal amount of, or extend the maturity of or any
scheduled principal payment date or date for the payment of any interest on any
Loan or any date for reimbursement of an L/C Disbursement, or waive or excuse
any such payment or any part thereof, or decrease the rate of interest on any
Loan or L/C Disbursement, without the prior written consent of each Lender
affected thereby, (ii) change or extend the Revolving Credit Commitment or
decrease or extend the date for payment of the Commitment Fees of any Lender
without the prior written consent of such Lender, or (iii) amend or modify the
provisions of Section 2.15 or 9.04(i), the provisions of this Section, the
definition of the term "Required Lenders" or release any Guarantor or all or any
substantial part of the Collateral, without the prior written consent of each
Lender; provided further that no such agreement shall amend, modify or otherwise
affect the rights or duties of the Administrative Agent, the Collateral Agent or
the Fronting Bank hereunder or under any other Loan Document without the prior
written consent of the Administrative Agent, the Collateral Agent or the
Fronting Bank.
SECTION 9.09. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan or participation in any L/C Disbursement, together with all fees,
charges and other amounts which are treated as interest on such Loan or
participation in such L/C Disbursement under applicable law (collectively the
"Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may
be contracted for, charged, taken, received or reserved by the Lender holding
such Loan or participation in accordance with applicable law, the rate of
interest payable in respect of such Loan or participation hereunder, together
with all Charges payable in respect thereof, shall be limited to the Maximum
Rate and, to the extent lawful, the interest and Charges that would have been
payable in respect of such Loan or participation but were not payable as a
result of the operation of this Section 9.09 shall be cumulated and the interest
and Charges payable to such Lender in respect of other Loans or participations
or periods shall be increased (but not above the Maximum Rate therefor) until
such cumulated amount, together with interest thereon at the Federal Funds
Effective Rate to the date of repayment, shall have been received by such
Lender.
SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter
and the other Loan Documents constitute the entire contract between the parties
relative to the subject matter hereof. Any other previous agreement among the
parties with respect to the subject matter hereof is superseded by this
Agreement and the other Loan Documents. Nothing in this Agreement or in the
other Loan Documents, expressed or implied, is intended to confer upon any party
other than the parties hereto and thereto any rights, remedies, obligations or
liabilities under or by reason of this Agreement or the other Loan Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREE MENT AND THE OTHER LOAN DOCUMENTS, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 9.11.
SECTION 9.12. Severability. In the event any one or more of
the provisions contained in this Agreement or in any other Loan Document should
be held invalid, illegal or unenforceable in any
<PAGE> 85
85
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby (it being understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the validity of such
provision in any other jurisdiction). The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in Section
9.03. Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 9.14. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent To Service of Process. (a)
Each of IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC and the Borrowers hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Administrative Agent,
the Collateral Agent, the Fronting Bank or any Lender may otherwise have to
bring any action or proceeding relating to this Agreement or the other Loan
Documents against IMS, any Borrower, IMS Foreign Holdings, IMS Cayman, IMS PRC
or their respective properties in the courts of any jurisdiction.
(b) Each of IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC and
the Borrowers hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or the other Loan Documents in any New York
State or Federal court. Each of the parties hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.16. Confidentiality. The Administrative Agent, the
Collateral Agent, the Fronting Bank and each of the Lenders agrees to keep
confidential (and to use its best efforts to cause its respective agents and
representatives to keep confidential) the Information (as defined below) and all
copies thereof, extracts therefrom and analyses or other materials based
thereon, except that the Administrative Agent, the Collateral Agent, the
Fronting Bank or any Lender shall be permitted to disclose Information
<PAGE> 86
86
(a) to such of its respective officers, directors, employees, agents, affiliates
and representatives as need to know such Information, (b) to the extent
requested by any regulatory authority, (c) to the extent otherwise required by
applicable laws and regulations or by any subpoena or similar legal process, (d)
in connection with any suit, action or proceeding relating to the enforcement of
its rights hereunder or under the other Loan Documents or (e) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section 9.16 or (ii) becomes available to the Administrative Agent, the
Fronting Bank, any Lender or the Collateral Agent on a nonconfidential basis
from a source other than IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC or a
Borrower. For the purposes of this Section, "Information" shall mean all
financial statements, certificates, reports, agreements and information
(including all analyses, compilations and studies prepared by the Administrative
Agent, the Collateral Agent, the Fronting Bank or any Lender based on any of the
foregoing) that are received from IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC
or a Borrower and related to IMS, IMS Foreign Holdings, IMS Cayman, IMS PRC or a
Borrower, any shareholder of IMS or any employee, customer or supplier of IMS,
IMS Foreign Holdings, IMS Cayman, IMS PRC or a Borrower, other than any of the
foregoing that were available to the Administrative Agent, the Collateral Agent,
the Fronting Bank or any Lender on a nonconfidential basis prior to its
disclosure thereto by IMS, IMS Foreign Holdings or a Borrower, and which are in
the case of Information provided after the date hereof, clearly identified at
the time of delivery as confidential. The provisions of this Section 9.16 shall
remain operative and in full force and effect regardless of the expiration and
term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
INTERNATIONAL MANUFACTURING
SERVICES, INC.,
by
-------------------------
Name:
Title:
IMS BORROWER, INC.,
by
-------------------------
Name:
Title:
<PAGE> 87
87
IMS HOLDCO, INC.,
by
-------------------------
Name:
Title:
MAXTOR (HONG KONG) LIMITED,
by
-------------------------
Name:
Title:
IMS INTERNATIONAL MANUFACTURING
SERVICES (THAILAND) LIMITED,
by
-------------------------
Name:
Title:
DONGGUAN IMS ELECTRONICS LTD.,
by
-------------------------
Name:
Title:
IMS INTERNATIONAL MANUFACTURING
SERVICES, LIMITED.,
by
-------------------------
Name:
Title:
<PAGE> 88
88
CHEMICAL BANK, individually and as
Administrative Agent, Collateral Agent
and Fronting Bank,
by
-------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 11.01
INTERNATIONAL MANUFACTURING SERVICES, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED -----------------------------
APRIL 30, 1997 JULY 31, 1996 JULY 31, 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Weighted average common shares outstanding .......... 7,328 7,328 7,328
Weighted average common equivalent shares from
convertible preferred stock calculated using
the "if converted" method ......................... 6,000 6,000 6,000
Weighted average common equivalent shares from
stock options calculated using the treasury stock
method(1) ......................................... 2,780 2,780 2,780
------- ------- -------
Shares used to compute net income (loss) per
share ............................................. 16,108 16,108 16,108
======= ======= =======
Net income (loss) ................................... $ (599) $(4,328) $ 2,081
======= ======= =======
Net income (loss) per share.......................... $ (0.04) $ (0.27) $ 0.13
======= ======= =======
</TABLE>
- --------------
(1) Pursuant to a Securities and Exchange Commission Staff Accounting Bulletin,
stock options issued in conjunction with and subsequent to the
Recapitalization have been included in the computation as if they were
outstanding for all periods presented.
<PAGE> 1
Exhibit 16.1
[ERNST & YOUNG LLP LETTERHEAD]
August 27, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read the section captioned "Change of Accountants" included in the
Registration Statement (Form S-1) of International Manufacturing Services, Inc.
for the registration of 5,750,000 shares of its Class A Common Stock and are in
agreement with the statements contained in the second sentence of the first
paragraph and in the second and third paragraphs therein. We have no basis to
agree or disagree with other statements of the registrant contained therein.
Very truly yours,
/s/ ERNST & YOUNG LLP
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
- ------------------------------------------------------------ -----------------------------
<S> <C>
IMS Industries Inc. (formerly IMS Borrower, Inc.) Delaware
IMS Holdco, Inc. Delaware
IMS International Manufacturing Services (Hong Kong) Limited Hong Kong
(formerly Maxtor (Hong Kong) Limited, formerly Silkmount Limited)
IMS International Manufacturing Services, Limited Cayman Islands
IMS International Manufacturing Services (Thailand) Limited Thailand
(formerly IMS International Manufacturing Services Ltd.)
Dongguan IMS Electronics Ltd. China
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 3, 1997, relating to
the consolidated financial statements of International Manufacturing Services,
Inc., which appears in such Prospectus. We also consent to the application of
such report to the Financial Statement Schedule for the year ended April 30,
1997 listed under Item 16(b) of this Registration Statement when such schedule
is read in conjunction with the consolidated financial statements referred to in
our report. The audit referred to in such report also included this schedule. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
San Jose, California
August 27, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 25, 1996, except for Note 14 as to which the date
is August __, 1997 in the Registration Statement (Form S-1) and related
Prospectus of International Manufacturing Services, Inc. for the registration
of 5,750,000 shares of its common stock.
Our audits also included the financial statement schedule of International
Manufacturing Services, Inc., listed in Item 16b. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects the information set forth therein.
San Jose, California
August 27, 1997
- -------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion of
the reverse stock split described in Note 14 to the Consolidated Financial
Statements.
/s/ ERNST & YOUNG LLP
San Jose, California
August 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> OTHER 3-MOS
<FISCAL-YEAR-END> APR-30-1996 APR-30-1997
<PERIOD-START> MAY-01-1996 MAY-01-1997
<PERIOD-END> APR-30-1997 JUL-31-1997
<CASH> 2,828,000 1,813,000
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 210,000 276,000
<INVENTORY> 20,242,000 32,091,000
<CURRENT-ASSETS> 42,002,000 52,381,000
<PP&E> 43,273,000 44,795,000
<DEPRECIATION> (29,337,000) (30,028,000)
<TOTAL-ASSETS> 60,471,000 70,809,000
<CURRENT-LIABILITIES> 38,022,000 46,554,000
<BONDS> 0 0
0 0
6,000 6,000
<COMMON> 7,000 7,000
<OTHER-SE> (10,380,000) (8,549,000)
<TOTAL-LIABILITY-AND-EQUITY> 60,471,000 70,809,000
<SALES> 0 0
<TOTAL-REVENUES> 169,695,000 64,736,000
<CGS> 155,028,000 58,397,000
<TOTAL-COSTS> 11,041,000 2,666,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,048,000 1,277,000
<INCOME-PRETAX> (346,000) 2,418,000
<INCOME-TAX> 253,000 337,000
<INCOME-CONTINUING> (599,000) 2,081,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (599,000) 2,081,000
<EPS-PRIMARY> (.04) .13
<EPS-DILUTED> 0 0
</TABLE>
