FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter period ended March 4, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 333-50981
MCMS, INC.
(Exact name of registrant as specified in its charter)
Idaho 82-0480109
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
16399 Franklin Road, Nampa, Idaho 83687
(Address of principal executive offices, Zip Code)
(208)898-2600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares of Class A Common Stock outstanding at March 4, 1999: 3,261,177
Shares of Class B Common Stock outstanding at March 4, 1999: 863,823
Shares of Class C Common Stock outstanding at March 4, 1999: 874,999
<PAGE>
MCMS,INC.
INDEX
Part I. Page
----
Item 1 Financial Information
Unaudited Consolidated Balance Sheets -
March 4, 1999 and September 3, 1998 3
Unaudited Consolidated Statements of Operations -
Three and Six Months Ended March 4, 1999 and
February 26, 1998 4
Unaudited Consolidated Statements of Cash Flows -
Six Months Ended March 4, 1999 and February 26, 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Certain Factors 14
Item 3 Quantitative and Qualitative Disclosures about Market
Risk 19
Part II. Other Information
Item 6 Exhibits 19
Signatures 20
2
<PAGE>
PART I FINANCIAL INFORMATION
- ----------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MCMS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<CAPTION>
March 4, September 3,
As of 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 7,542
Trade account receivable, net of allowances for
doubtful accounts of $442 and $97 48,060 34,231
Receivable from affiliates 1,951 2,096
Inventories 38,527 29,816
Deferred income taxes 1,356 1,255
Other current assets 921 356
--------- ---------
Total current assets 90,815 75,296
Property, plant and equipment, net 66,996 62,106
Deferred income taxes 2,488 -
Other assets 7,658 7,650
--------- ---------
Total assets $ 167,957 $ 145,052
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term debt $ 571 $ 420
Accounts payable and accrued expenses 56,871 44,433
Payable to affiliates 423 775
Interest payable 217 197
--------- ---------
Total current liabilities 58,082 45,825
Long-term debt, net of current portion 203,225 184,737
Deferred income taxes - 1,286
Other liabilities 646 580
--------- ---------
Total liabilities 261,953 232,428
Redeemable preferred stock, no par value,
750,000 shares authorized; issued and
outstanding 283,217 and 266,313 shares,
respectively; mandatory redemption value of
$28.3 million and $26.6 million, respectively 27,407 25,675
SHAREHOLDERS' DEFICIT
Series A convertible preferred stock, par value
$0.001 per share, 6,000,000 shares
authorized; issued and outstanding 3,261,177;
aggregate liquidation preference of $36,949,135 3 3
Series B convertible preferred stock, par value
$0.001 per share, 6,000,000 shares authorized;
issued and outstanding 863,823 shares;
aggregate liquidation preference of $9,787,115 1 1
Series C convertible preferred stock, par value
$0.001 per share, 1,000,000 shares authorized;
issued and outstanding 874,999 shares;
aggregate liquidation preference of $9,913,739 1 1
Class A common stock, par value $0.001 per share,
30,000,000 shares authorized; issued and
outstanding 3,261,177 3 3
Class B common stock, par value $0.001 per share,
12,000,000 shares authorized; issued and
outstanding 863,823 shares 1 1
Class C common stock, par value $0.001 per share,
2,000,000 shares authorized; issued and
outstanding 874,999 shares 1 1
Additional paid-in capital 61,586 63,318
Accumulated other comprehensive loss (2,219) (2,270)
Retained deficit (180,730) (174,109)
Less treasury stock at cost:
Series A convertible preferred stock, 3,676
shares outstanding (42) -
Class A common stock, 3,676 shares outstanding (8) -
--------- ---------
Total shareholders' deficit (121,403) (113,051)
--------- ---------
Commitments and contingencies - -
Total liabilities and shareholders'
deficit $ 167,957 $ 145,052
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
MCMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<CAPTION>
Three months ended Six months ended
------------------------------- -------------------------------
March 4, February 26, March 4, February 26,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 116,348 $ 74,680 $ 207,591 $ 145,681
Cost of goods sold 110,337 67,182 196,393 128,091
--------- --------- --------- ---------
Gross profit 6,011 7,498 11,198 17,590
Selling, general and
administrative 6,790 3,805 11,009 6,927
--------- --------- --------- ---------
Income (loss) from
operations (779) 3,693 189 10,663
Other expense (income):
Interest expense(income), net 4,925 (194) 9,646 (329)
Transaction expenses - 8,312 45 8,312
--------- --------- --------- ---------
Income (loss) before taxes
and extraordinary item (5,704) (4,425) (9,502) 2,680
Income tax provision
(benefit) (1,722) (562) (3,497) 2,067
--------- --------- --------- ---------
Income (loss) before
extraordinary item (3,982) (3,863) (6,005) 613
Extraordinary item - loss
on early extinguishment
of debt, net of income
tax benefit of $403 (617) - (617) -
--------- --------- --------- ---------
Net income (loss) (4,599) (3,863) (6,622) 613
Redeemable preferred
stock dividends and
accretion of preferred
stock discount (918) (9) (1,772) (9)
--------- --------- --------- ---------
Net income (loss) to
common stockholders $ (5,517) $ (3,872) $ (8,394) $ 604
========= ========= ========= =========
Net income (loss) per
common share - basic:
Income (loss) before
extraordinary item $ (0.98) $ (69.21) $ (1.56) $ 21.23
Extraordinary item (0.12) - (0.12) -
--------- --------- --------- ---------
Net income (loss) per
share $ (1.10) $ (69.21) $ (1.68) $ 21.23
========= ========= ========= =========
Net income (loss) per
common share - assuming
dilution:
Income (loss) before
extraordinary item $ (0.98) $ (69.21) $ (1.56) $ 10.80
Extraordinary item (0.12) - (0.12) -
--------- --------- --------- ---------
Net income (loss) per
share $ (1.10) $ (69.21) $ (1.68) $ 10.80
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
MCMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<CAPTION>
Six months ended
-------------------------------
March 4, February 26,
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (6,622) $ 613
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Loss on extinguishment of debt 617 -
Depreciation and amortization 7,441 5,458
Loss (gain) on sale of property, plant and equipment 25 (2)
Write-off of deferred loan costs - 206
Changes in operating assets and liabilities:
Receivables (13,857) (5,933)
Inventories (8,722) (5,879)
Other assets (699) (217)
Accounts payable and accrued expenses 8,261 12,453
Deferred income taxes (3,472) (917)
Other liabilities 52 156
--------- ---------
Net cash provided by (used for) operating activities (16,976) 5,938
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (7,544) (10,763)
Proceeds from sales of property, plant and equipment - 219
--------- ---------
Net cash used for investing activities (7,544) (10,544)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions - 1,786
Repurchase of common stock and recapitalization - (249,147)
Proceeds from issuance of common stock - 10,200
Proceeds from issuance of convertible preferred stock - 51,000
Proceeds from and issuance of redeemable preferred
stock - 24,000
Proceeds from borrowings 28,094 175,000
Repayments of debt (9,832) (916)
Payment of deferred debt issuance costs (1,239) (7,489)
Purchase of treasury stock (50) -
--------- ---------
Net cash provided by financing activities 16,973 4,434
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents 5 (201)
--------- ---------
Net decrease in cash and cash equivalents (7,542) (373)
Cash and cash equivalents at beginning of period 7,542 13,636
--------- ---------
Cash and cash equivalents at end of period $ - $ 13,263
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(TABULAR DOLLAR AMOUNTS IN THOUSANDS)
1. General
The information included in the accompanying
consolidated interim financial statements is unaudited and
should be read in conjunction with the annual audited
financial statements and notes thereto contained in the
Company's Report on Form 10-K for the fiscal year ended
September 3, 1998. In the opinion of management, all
adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of
operations for the interim periods presented have been
reflected herein. The results of operations for the interim
periods presented are not necessarily indicative of the
results to be expected for the entire fiscal year.
2. Effect of Recently Issued Accounting Standards
During the first quarter of fiscal 1999, the Company
adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, Reporting Comprehensive Income. SFAS No. 130
establishes standards for the presentation of comprehensive
income or loss in financial statements. Comprehensive income
or loss includes income and loss components which are
otherwise recorded directly to shareholders' equity under
generally accepted accounting principles. The Company's
comprehensive loss for the second quarter and first six
months of fiscal 1999 was $4,481,000 and $6,570,000,
respectively. The Company's comprehensive loss was
$4,453,000 and $1,271,000 for the corresponding periods of
fiscal 1998. The accumulated balance of foreign currency
translation adjustments, excluded from net income or loss, is
presented in the consolidated balance sheet as "Accumulated
other comprehensive loss."
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Under SFAS No. 131,
publicly held companies are required to report financial and
other information about key revenue-producing segments of the
entity for which such information is available and utilized
by the chief operating decision-maker. Specific information
to be reported for individual segments includes profit or
loss, certain revenue and expense items and total assets. A
reconciliation of segment financial information to amounts
reported in the financial statements must also be provided.
SFAS No. 131 is effective for the Company in fiscal 1999 and
the form of the presentation in the Company's financial
statements has not yet been determined.
In March 1998, the AICPA issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Under SOP 98-1,
companies are required to capitalize certain costs of
computer software developed or obtained for internal use,
provided that those costs are not research and development.
The Company is required to implement SOP 98-1 in fiscal 2000
and adoption is not expected to have a material effect on the
Company's results of operations or financial position.
<TABLE>
3. Inventories
<CAPTION>
March 4, September 3,
1999 1998
-------------- --------------
<S> <C> <C>
Raw materials and supplies $ 20,257 $ 18,126
Work in process 17,238 11,020
Finished goods 1,032 670
--------- ---------
$ 38,527 $ 29,816
========= =========
</TABLE>
<TABLE>
4. Accounts payable and accrued expenses
<CAPTION>
March 4, September 3,
1999 1998
-------------- --------------
<S> <C> <C>
Trade accounts payable $ 46,080 $ 39,152
Short-term equipment contracts 4,745 543
Salaries, wages, and benefits 4,766 3,619
Other 1,280 1,119
--------- ---------
$ 56,871 $ 44,433
========= =========
</TABLE>
6
<PAGE>
<TABLE>
5. Long-term Debt
<CAPTION>
March 4, September 3,
1999 1998
-------------- --------------
<S> <C> <C>
Revolving loan, principal payments at the
Company's option to February 26, 2003,
interest due quarterly, interest rates
ranging from 8.38% to 10.75% (8.38%
September 3, 1998) $ - $ 9,500
Revolving loan, principal payments at the
Company's option to February 26, 2004,
interest due monthly, interest rate of
7.75% since inception and as of March 4,
1999 28,094 -
Senior subordinated notes (the "Fixed
Rate Notes"), unsecured, interest at
9.75% due semiannually, mature on March
1, 2008 145,000 145,000
Floating interest rate subordinated term
securities, (the "Floating Rate Notes"),
unsecured, interest due semiannually,
mature on March 1, 2008, variable
interest rate equal to LIBOR plus 4.63%
(9.75% and 10.22% at March 4, 1999 and
September 3, 1998, respectively) 30,000 30,000
Note payable, matures on October 8, 1998,
interest due at maturity, weighted
average interest rate equal to interest
earned on the Company's cash investments
(5.24% at September 3, 1998) - 212
Note payable, quarterly installments
through October 1, 2000,
interest rate of 3.51% 326 445
Note payable, monthly installments
through December 26, 1999, interest rate
of 5.95% 376 -
--------- ---------
Total debt 203,796 185,157
Less current portion (571) (420)
--------- ---------
Long-term debt, net of current portion $ 203,225 $ 184,737
========= =========
</TABLE>
On February 26, 1999, the Company entered into a $60
million Senior Credit Facility (the "Credit Facility") which
matures on February 26, 2004. The Credit Facility includes
both a $10 million facility restricted to the purchase of
qualifying equipment and a $50 million revolving credit
facility. Amounts outstanding under the equipment loan
facility bear interest at the lesser of the applicable
Alternate Base Rate plus 0.25% or the Eurodollar Rate plus
2.50%, as defined in the agreement, and borrowings are
limited to the first three loan years. Amounts outstanding
under the revolving credit facility bear interest at the
lower of the applicable Alternate Base Rate or Eurodollar
Rate plus 2.25%. Amounts available under the revolving credit
facility vary depending on Eligible Receivable and Eligible
Inventory balances, as defined in the agreement. The Credit
Facility includes a quarterly commitment fee of 0.375% per
annum based upon the average unused portion and is
collateralized by substantially all the assets of the
Company. The Credit Facility contains customary covenants
such as restrictions on capital expenditures, additional
indebtedness and on the payment of dividends. In particular,
the Credit Facility contains a covenant requiring that the
Company maintain a fixed charge ratio of not less than 1.0 to
1.0, provided, however, that this fixed charge ratio covenant
will not be applied to any fiscal quarter during the term as
long as the Company maintains at all times during such fiscal
quarter undrawn availability of more than $5 million for any
such fiscal quarter during the ninety days following the
closing date of the Credit Facility and $10 million for any
month thereafter. As of March 4, 1999, the Company would not
have satisfied the requirements of this fixed charge ratio
covenant. The Credit Facility contains customary events of
default. Any default under the Credit Facility could result
in default of the Notes and Redeemable Preferred Stock, as
defined below. As of March 4, 1999, the Company had a $28.1
million outstanding balance under the revolving credit
facility and no outstanding balance on the equipment loan
facility. As of March 4, 1999, the Company had $14.1 million,
after adjustments required by the fixed charge ratio
covenant, and $10 million available to borrow under the
revolving credit facility and the equipment loan facility,
respectively. The Credit Facility replaced the $40 million
revolving credit facility the company had previously entered
into with various lending institutions.
7
<PAGE>
On February 26, 1998, the Company issued $25.0 million
in 12-1/2% Redeemable Preferred Stock due on March 1, 2010
with a liquidation preference of $100 per share. Dividends
are payable in cash or in-kind quarterly beginning June 1,
1998 at a rate equal to 12-1/2% per annum. To-date, the
Company has paid all dividends in-kind.
6. Net Income (Loss) Per Share
Basic earnings per share is computed using net income
(loss) reduced (increased) by dividends on the Redeemable
Preferred Stock divided by the weighted average number of
common shares outstanding. Diluted earnings per share is
computed using the weighted average number of common and
common stock equivalent shares outstanding. Common
equivalent shares include shares issuable upon the exercise
of outstanding stock options and shares issuable upon the
conversion of outstanding convertible securities, and affect
earnings per share only when they have a dilutive effect.
Loss before extraordinary item per share and net loss per
share for the three and six months ended March 4, 1999 and
the three months ended February 26, 1998 is computed based on
the weighted average number of common shares outstanding
during each period of 5,000,000, 5,000,000 and 55,934,
respectively. The Company's basic earnings per share and its
fully diluted earnings per share were the same for the three
and six months ended March 4, 1999 and three months ended
February 26, 1998 because of the antidilutive effect of
outstanding convertible securities and stock options. The
following table presents a reconciliation of the numerators
and denominators of basic earnings per share and fully
diluted earnings per share for the six months ending February
26, 1998:
<TABLE>
<CAPTION>
Weighted
Average Number Per Share
Income Of Shares Amount
--------- ---------------- ------------
<S> <C> <C> <C>
Basic earnings per share:
Net income to common stockholders $ 604,000 28,467 $ 21.23
=========
Add dilutive effect of
convertible securities - 27,473
--------- ---------
Earnings per share - assuming
dilution:
Net income to common stockholders $ 604,000 55,940 $ 10.80
========= =========
</TABLE>
7. Income Taxes
The effective rate of the tax benefit for the three and
six months ended March 4, 1999 was 31.6% and 37.1%,
respectively. The effective rate for the benefit and the
provision of income taxes was 12.7% and 77.1% for the
corresponding periods of fiscal 1998. The effective tax rate
for fiscal 1999 primarily reflects the statutory corporate
income tax rate, the net effect of state taxation and the
effect of a tax holiday granted to the Company's Malaysian
operation. The increases in the effective rate of the tax
benefit in the three and six months ended March 4, 1999
relative to the corresponding periods of fiscal 1998 were
primarily due to nondeductible transaction costs related to
the Recapitalization, as defined below, in fiscal 1998,
offset in part by a decrease in the proportion of lower taxed
income generated by the Company's international operations
and an increase in a valuation allowance established during
fiscal 1999. The Company does not provide for U.S. tax on
the earnings of its foreign subsidiaries and, therefore, the
effective rate may vary significantly from period to period.
During the three months ended March 4, 1999, the Company
set up a valuation allowance of $0.5 million for the amount
of the deferred tax asset which would not be realized through
either carrying back its net operating losses or through
future income generated by reversal of deferred tax
liabilities during the loss carryforward period.
8. Recapitalization
On February 26, 1998 the Company completed a
recapitalization (the "Recapitalization"). Prior to the
closing of the Recapitalization, the Company was a wholly
owned subsidiary of MEI California, Inc. ("MEIC"), a wholly
owned subsidiary of Micron Electronics, Inc. ("MEI"). Under
the terms of the amended and restated Recapitalization
Agreement between the Company, MEIC, MEI and certain other
parties, pursuant to which the Company effected the
Recapitalization, certain unrelated investors (the
"Investors") acquired an equity interest in the Company. In
order to complete the Recapitalization, the Company arranged
for additional financing in the form of notes and redeemable
preferred stock totaling $200.0 million. The Company used the
proceeds from the Investors' equity investment and the
issuance of notes and redeemable preferred stock to redeem a
portion of MEIC's outstanding equity interest for
approximately $249.2 million. As of the date of this report
and at all times since the date of the Recapitalization, MEIC
holds and has held a 10% equity interest in the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements contained in this Form 10-Q that are not
purely historical are forward-looking statements and are
being provided in reliance upon the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements are made as of the date hereof and
are based on current management expectations and information
available to the Company as of such date. The Company assumes
no obligation to update any forward-looking statement. It is
important to note that actual results could differ materially
from historical results or those contemplated in the forward-
looking statements. Forward-looking statements involve a
number of risks and uncertainties, and include trend
information. Factors that could cause actual results to
differ materially include, but are not limited to, those
identified herein under "Certain Factors" and in other
Company filings with the Securities and Exchange Commission.
All quarterly references are to the Company's fiscal periods
ended March 4, 1999, September 3, 1998 or February 26, 1998,
unless otherwise indicated.
MCMS, Inc. ("MCMS" or the "Company") is a leading
electronics manufacturing services ("EMS") provider serving
original equipment manufacturers ("OEMs") in the networking,
telecommunications, computer systems and other sectors of the
electronics industry. The Company offers a broad range of
capabilities and manufacturing management services, including
product design and prototype manufacturing; materials
procurement and inventory management; manufacturing and
testing of printed circuit board assemblies ("PCBAs"); memory
modules and systems; quality assurance; and end-order
fulfillment.
MCMS provides services on both a turnkey and consignment
basis. Under a consignment arrangement, the OEM procures the
components and the Company assembles and tests them in
exchange for a processing fee. Under a turnkey arrangement,
the Company assumes responsibility for both the procurement
of components and their assembly and test. Turnkey
manufacturing generates higher net sales than consignment
manufacturing due to the generation of revenue from materials
as well as labor and manufacturing overhead, but also
typically results in lower gross margins than consignment
manufacturing because the Company generally realizes lower
gross margins on material-based revenue than on manufacturing-
based revenue. The Company also provides services on a
partial consignment basis, whereby the OEM procures certain
materials and the Company procures the remaining materials.
Consignment revenues, excluding partial consignment revenues,
accounted for 5.8% and 5.3% of the Company's net sales for
the three and six months ended March 4, 1999, respectively.
<TABLE>
Results of Operations
<CAPTION>
Three months ended Six months ended
------------------------------ --------------------------------
March 4, February 26, March 4, February 26,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Costs of sales 94.8 90.0 94.6 87.9
------- ------- ------- -------
Gross margin 5.2 10.0 5.4 12.1
Selling, general and
administrative expenses 5.9 5.1 5.3 4.8
------- ------- ------- -------
Income (loss) from operations (0.7) 4.9 0.1 7.3
Interest expense (income), net 4.2 (0.3) 4.6 (0.2)
Transaction expenses - 11.1 0.1 5.7
------- ------- ------- -------
Income (loss) before taxes (4.9) (5.9) (4.6) 1.8
Income tax provision (benefit) (1.5) (0.7) (1.7) 1.4
Extraordinary loss (0.5) - (0.3) -
------- ------- ------- -------
Net income (loss) (3.9)% (5.2)% (3.2)% 0.4%
======= ======= ======= =======
Depreciation and amortization (1) 3.1% 3.8% 3.4% 3.7%
======= ======= ======= =======
(1) For the three and six months ended March 4, 1999, the depreciation and amortization amount
excludes $233,000 and $466,000, respectively, of deferred loan amortization that was expensed as
interest.
</TABLE>
9
<PAGE>
Three Months Ended March 4, 1999 Compared to Three Months Ended
February 26, 1998
Net Sales. Net sales for the three months ended March
4, 1999 increased by $41.7 million, or 55.8%, to $116.3
million from $74.7 million for the three months ended
February 26, 1998. The increase in net sales is primarily
the result of higher volumes of complex PCBA and system level
shipments to customers in the networking and
telecommunications industries. These increases were partially
offset by lower complex PCBA prices, lower volumes and prices
on custom turnkey memory modules and lower prices on
consigned memory modules.
Net sales attributable to foreign subsidiaries totaled
$7.1 million for the three months ended March 4, 1999,
compared to $3.6 million for the corresponding period of
fiscal 1998. The growth in foreign subsidiary net sales is
primarily the result of higher volumes of complex PCBA's in
both Malaysia and Belgium. This increase was negatively
impacted by a shift from a turnkey to consignment model at
the Belgian facility early in the second quarter of fiscal
1999.
Gross Profit. Gross profit for the three months ended
March 4, 1999 decreased by $1.5 million, or 19.8%, to $6.0
million from $7.5 million for the three months ended February
26, 1998. Gross margin for the three months ended March 4,
1999 decreased to 5.2% of net sales from 10.0% for the
comparable period ended February 26, 1998. The decrease in
gross profit resulted from lower margins realized on less
mature programs, continued pricing pressure on existing
programs, reduced capacity utilization as manufacturing lines
and personnel were added to support anticipated growth in the
Idaho and Malaysia facilities and lower prices on consigned
memory modules.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses ("SG&A") for the three
months ended March 4, 1999 increased by $3.0 million, or
78.4%, to $6.8 million from $3.8 million for the three months
ended February 26, 1998. This increase for the three months
ended March 4, 1999 was primarily the result of expenses
associated with additional senior management to support
future growth, additional program management personnel, sales
commissions associated with increased sales volume and
additional expenses and headcount associated with the Company
operating as a standalone entity following the
Recapitalization. SG&A expenses included a non-cash foreign
currency expense of $0.8 million for the three months ended
March 4, 1999 primarily related to an intercompany loan
between the Company and its Belgian subsidiary.
Interest Expense. Interest expense for the three months
ended March 4, 1999 increased to $4.9 million due principally
to the addition of $175 million in long-term debt issued or
incurred in conjunction with the Recapitalizaton.
Provision for Income Taxes. Income taxes for the three
months ended March 4, 1999 decreased by $1.6 million, to a
benefit of $2.1 million from a benefit of $0.6 million for
the three months ended February 26, 1998. The effective rate
of the tax benefit for the three months ended March 4, 1999
was 31.6%, as compared to 12.7% for the corresponding period
of fiscal 1998. The increase in the effective rate of the tax
benefit during the three months ended March 4, 1999 relative
to the corresponding period of fiscal 1998 was primarily due
to nondeductible transaction costs related to the
Recapitalization in the three months ended February 26, 1998,
offset in part by a decrease in the proportion of lower taxed
income generated by the Company's international operations
and an increase in a valuation allowance established during
the three months ended March 4, 1999. The Company does not
provide for U.S. tax on the earnings of its foreign
subsidiaries and, therefore, the effective rate may vary
significantly from period to period.
During the three months ended March 4, 1999, the Company
set up a valuation allowance of $0.5 million for the amount
of the deferred tax asset which would not be realized through
either carrying back its net operating losses or through
future income generated by reversal of deferred tax
liabilities during the loss carryforward period.
Extraordinary loss. The extraordinary after tax loss of
the $0.6 million for the three months ended March 4, 1999
resulted from the write-off of deferred financing costs
related to the early retirement of the Company's Revolving
Credit Facility.
Net Loss. For the reasons stated above, the net loss
for the three months ended March 4, 1999 increased by $0.7
million to $4.6 million from $3.9 million for the three
months ended February 26, 1998. As a percentage of net
sales, net loss for the three months ended March 4, 1999 was
3.9% compared to 5.2% for the three months ended February 26,
1998.
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<PAGE>
Six Months Ended March 4, 1999 Compared to Six Months Ended
February 26, 1998
Net Sales. Net sales for the six months ended March 4,
1999 increased by $61.9 million, or 42.5%, to $207.6 million
from $145.7 million for the six months ended February 26,
1998. The increase in net sales is primarily the result of
higher volumes of complex PCBA and system level shipments to
customers in the networking and telecommunications
industries. These increases were partially offset by lower
complex PCBA prices, lower volumes of custom turnkey memory
modules, and both lower volumes and prices on consigned
memory modules.
Net sales attributable to foreign subsidiaries totaled
$14.2 million for the six months ended March 4, 1999,
compared to $9.0 million for the corresponding period of
fiscal 1998. The growth in foreign subsidiary net sales is
primarily the result of additional sales at the Company's
Belgian operation, which began operations in November of
1997. This increase was negatively impacted by a shift from a
turnkey to consignment model at the Belgian facility early in
the second quarter of fiscal 1999.
Gross Profit. Gross profit for the six months ended
March 4, 1999 decreased by $6.4 million, or 36.3%, to $11.2
million from $17.6 million for the six months ended February
26, 1998. Gross margin for the six months ended March 4,
1999 decreased to 5.4% of net sales from 12.1% for the
comparable period ended February 26, 1998. The decrease in
gross profit resulted from lower prices on existing programs,
lower margins on startup programs with new customers,
lower volumes of turnkey custom memory modules and both lower
volumes and prices on consigned memory modules.
Selling, General and Administrative Expenses. SG&A
expenses for the six months ended March 4, 1999 increased by
$4.1 million, or 58.9%, to $11.0 million from $6.9 million
for the six months ended February 26, 1998. This increase
for the six months ended March 4, 1999 was primarily the
result of additional senior management to support future
growth and additional expenses and headcount associated with
operating the Company as a standalone entity following the
Recapitalization. SG&A expenses included a non-cash foreign
currency expense of $0.3 million related to an intercompany
loan between the Company and its Belgian subsidiary
Interest Expense. Interest expense for the six months
ended March 4, 1999 increased to $9.6 million due primarily
to the addition of $175 million in long-term debt issued or
incurred in conjunction with the Recapitalizaton.
Provision for Income Taxes. Income taxes for the six
months ended March 4, 1999 decreased by $6.0 million to a
benefit of $3.9 million from an expense of $2.1 million for
the six months ended February 26, 1998. The Company's
effective income tax rate for its benefit for the first six
months of fiscal 1999 decreased to 37.1% from a provision of
77.1% for the comparable period in fiscal 1998 principally as
a result of certain transaction expenses for which no tax
deduction was allowed in fiscal 1998, offset in part by both
a decrease in the proportion of lower taxed income generated
by the Company's international operations and an increase in
a valuation allowance established in fiscal 1999.
During the six months ended March 4, 1999 the Company
set up a valuation allowance of $0.5 million for the amount
of the deferred tax assets which would not be realized
through either carrying back its net operating losses or
through future income generated by reversal of deferred tax
liabilities during the loss carryforward period.
Extraordinary loss. The extraordinary after tax loss of
the $0.6 million for the six months ended March 4, 1999
resulted from the write-off of deferred financing costs
related to the early retirement of the Company's Revolving
Credit Facility.
Net Income. For the reasons stated above, net income
for the six months ended March 4, 1999 decreased by $7.2
million to a loss of $6.6 million from income of $0.6 million
for the six months ended February 26, 1998. As a percentage
of net sales, net loss for the six months ended March 4, 1999
was 3.2% compared to net income of 0.4% for the six months
ended February 26, 1998.
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<PAGE>
Liquidity and Capital Resources
During the first six months of fiscal 1999, the
Company's cash and cash equivalents decreased by $7.5
million. Net cash consumed by operating activities was $17.0
million. Net cash used by investing activities was $7.5
million and net cash provided by financing activities was
$17.0 million. Net cash used by investing activities during
the first six months of fiscal 1999 primarily consisted of
capital expenditures for additional manufacturing capacity
primarily in the U.S and implementation of the Company's new
enterprise resource planning ("ERP") system. Net cash
generated from financing activities principally resulted from
net borrowings under the Company's existing credit facility.
The $17.0 million of cash consumed by operations was
primarily due to an increase in accounts receivables of $13.9
million and an increase in inventory of $8.7 million during the
six months ended March 4, 1999. The growth in accounts receivables
and inventory related primarily to increased sales. The average
collection period for accounts receivable and the average
inventory turns were 37.2 days and 10.0 turns, respectively,
for the six months ended March 4, 1999 compared to 46.8 days
and 12.4 turns, respectively, for the corresponding period in
fiscal 1998. The average collection period for accounts
receivable and the average inventory turns were 35.6 days and
10.0 turns, respectively, for the three months ended March 4,
1999 compared to 38.5 days and 8.7 turns, respectively, for
the three months ended December 3, 1998. The average
collection period and average inventory turn levels vary,
among other things, as a function of sales volume, sales
volatility, product mix, payment terms with customers and
suppliers and the mix of consigned and turnkey business.
Capital expenditures during the first six months of
fiscal 1999 were $7.5 million, including $5.1 million for
additional manufacturing capacity primarily in the U.S. and
$2.4 million toward the implementation of the ERP system.
The Company anticipates additional capital expenditures of
$1.7 million in fiscal 1999 to complete the ERP system
implementation. See "Year 2000 Readiness Disclosure" and
"Certain Factors-ERP System Implementation."
On February 26, 1999, the Company entered into a $60
million Senior Credit Facility (the "Credit Facility"). The
Credit Facility includes both a $50 million revolving credit
facility and a $10 million facility restricted to the
purchase of qualifying equipment. Amounts available to
borrow under the revolving credit facility vary depending on
accounts receivable and inventory balances, which serve as
collateral along with substantially all of the other assets
of the Company. The Credit Facility contains a covenant
requiring that the Company maintain a fixed charge ratio of
not less than 1.0 to 1.0, provided, however, that this fixed
charge ratio covenant will not be applied to any fiscal
quarter during the term as long as the Company maintains at
all times during such fiscal quarter undrawn availability of
more than $5 million for any such fiscal quarter during the
ninety days following the closing date of the Credit Facility
and $10 million for any month thereafter. As of March 4,
1999, the Company would not have satisfied the requirements
of this fixed charge ratio covenant. As of March 4, 1999,
the Company had $14.1 million, after adjustments required by
the fixed charge ratio covenant, and $10 million available to
borrow under the revolving credit facility and the equipment
loan facility, respectively. As of March 4, 1999, the
Company had a $28.1 million outstanding balance under the
revolving credit facility and no outstanding balance on the
equipment loan facility. See "Notes to Consolidated
Financial Statement--5. Long-term Debt" and "Certain Factors-
- -Restrictions Imposed by Terms of Indebtedness and Redeemable
Preferred Stock".
The Company's principal sources of future liquidity are
cash flows from operating activities and borrowings under the
Credit Facility. The Company is highly leveraged and believes
that these sources should provide sufficient liquidity and
capital resources to meet its current and future interest
payments, working capital and capital expenditures
obligations. No assurance can be given, however, that this
will be the case. See "Certain Factors--High Level of
Indebtedness; Ability to Service Indebtedness and Satisfy
Preferred Stock Dividend Requirements."
Year 2000 Readiness Disclosure
State of Readiness
The Year 2000 presents many issues for the Company
because many computer hardware and software systems use only
the last two digits to refer to a calendar year.
Consequently, these systems may fail to process dates
correctly after December 31, 1999, which may cause system
failures. In October 1997, the Company established a cross
functional team chartered with the specific task of
evaluating all of the Company's software, equipment and
processes for Year 2000 compliance. This team determined
that a substantial portion of the Company's systems,
including its company-wide ERP system, were not Year 2000
compliant and, therefore, developed a plan to resolve this
12
<PAGE>
issue which includes, among other things, implementing a new
ERP system. The new ERP system is being implemented across
all of the Company's sites with targeted completion scheduled
in late fiscal 1999. In addition, the Company retained the
services of outside consulting firms to review and assess the
Company's evaluation and implementation plan. The Company
believes that the new ERP system will make all "mission
critical" company information systems Year 2000 compliant.
As part of the Company's Year 2000 compliance
evaluation, the Company recently began contacting key
suppliers and significant customers to determine the extent
to which the Company is exposed to third party failure to
remedy their Year 2000 compliance issues. In order to assist
in these efforts, the Company recently joined a Year 2000
high tech consortium comprised of a number of companies in
the electronics industry. The mission of the consortium is
to provide a framework to facilitate the sharing of
information and practices concerning the Year 2000 readiness
of suppliers as well as develop and utilize standardized
tools and methods to assess, mitigate and plan for potential
Year 2000 disruptions. The Company believes that its efforts
and membership in the high tech consortium will significantly
assist in the Year 2000 assessment of key suppliers and
customers. However, there can be no assurance that such
efforts and membership will adequately protect the Company
from disruptions caused by the failure of some or all of the
Company's key suppliers and customers to be Year 2000
compliant, which could have a material adverse effect on the
Company's business, financial condition and results of
operations.
Costs
The total costs, whether capitalized or expensed,
associated with implementation and system modification
relating to the Year 2000 problem is anticipated to be
approximately $10.1 million, excluding internal programming
time on existing systems. The total amount spent during the
first six months of fiscal 1999 and since inception on this
implementation was $2.4 million and $8.4 million,
respectively, with anticipated expenditures of approximately
$1.7 million during the remainder of fiscal 1999. This
amount includes the costs associated with new systems that
will be Year 2000 compliant even though such compliance was
not the primary reason for installation.
Contingency Plan
Although the Company has no formal contingency plan
related to the ERP implementation at the present time, the
implementation is on schedule with key implementation dates
established and completion is slated for late fiscal 1999.
If the ERP implementation is significantly delayed at any key
implementation date, the Company will develop appropriate
contingency plans. However, there can be no assurance that
the Company will be able to develop contingency plans on a
timely basis, or at all, which could have a material adverse
effect on the Company's business, financial condition and
results of operations.
The Company will be attempting to develop a contingency
plan designed to address problems which might arise from the
failure of the Company's key suppliers and customers to
timely and adequately address Year 2000 issues, which may
include, among other things, duel sourcing the supply of
materials or changing suppliers.
Risks Associated with the Company's Year 2000 Issues
The Company presently believes that by modifying
existing software and converting to new software, such as the
ERP system, the Year 2000 problem will not pose significant
operational problems for the Company's information systems.
However, if such modifications and conversions are not timely
or properly implemented, the Year 2000 problem could affect
the ability of the Company, among other things, to
manufacture product, procure and manage materials, and
administer functions and processes, which could have a
material adverse effect on the Company's business, financial
condition and results of operations. Additionally, failure
of third party suppliers to become Year 2000 compliant on a
timely basis could create a need for the Company to change
suppliers and otherwise impair the sourcing of components,
raw materials or services to the Company, or the
functionality of such components or raw materials, any of
which could have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, the Company's Year 2000 compliance efforts
have caused significant strain on the Company's information
technology resources and, as a result, could cause the
deferral or cancellation of other important Company projects.
There can be no assurance that the delay or cancellation of
such projects will not have a material adverse effect on the
Company's business, financial condition and results of
operations.
13
<PAGE>
CERTAIN FACTORS
In addition to factors discussed elsewhere in this Form
10-Q and in other Company filings with the Securities and
Exchange Commission, the following are important factors
which could cause actual results or events to differ
materially from the historical results of the Company's
operations or those results or events contemplated in any
forward-looking statements made by or on behalf of the
Company.
High Level of Indebtedness; Ability to Service Indebtedness
and Satisfy Preferred Stock Dividend Requirements
The Company is highly leveraged. At March 4, 1999, the
Company had approximately $203.8 million of total
indebtedness outstanding (exclusive of unused commitments of
$24.1 million, after adjustments required by the fixed charge
ratio covenant, under the Credit Facility), and Series
B 12-1/2% Senior Preferred Stock (the "Redeemable Preferred Stock")
outstanding with an aggregate liquidation preference of $28.3
million. The Company may incur additional indebtedness from
time to time to provide for working capital or capital
expenditures or for other purposes, subject to certain
restrictions in (i) the Credit Facility (ii) the
Indenture (the "Indenture") governing the Company's Series B
9-3/4% Senior Subordinated Notes due 2008 and the Series B
Floating Interest Rate Subordinated Term Securities due 2008
(collectively, the "Notes"), (iii) the Certificate of
Designation relating to the Redeemable Preferred Stock (the
"Certificate of Designation") and (iv) the Indenture (the
"Exchange Indenture") governing the 12-1/2% Subordinated
Exchange Debentures (the "Exchange Debentures") due 2010
issuable in exchange for the Redeemable Preferred Stock.
The level of the Company's indebtedness could have
important consequences to the Company and the holders of the
Company's securities, including, but not limited to, the
following: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and
will not be available for other purposes; (ii) the Company's
ability to obtain additional financing in the future, as
needed, may be limited; (iii) the Company's leveraged
position and covenants contained in the Indenture, the
Certificate of Designation, the Exchange Indenture and the
Credit Facility may limit its ability to grow and make
capital improvements and acquisitions; (iv) the Company's
level of indebtedness may make it more vulnerable to economic
downturns; and (v) the Company may be at a competitive
disadvantage because some of the Company's competitors are
less financially leveraged, resulting in greater operational
and financial flexibility for such competitors.
The ability of the Company to pay cash dividends on, and
to satisfy the redemption obligations in respect of, the
Redeemable Preferred Stock and to satisfy its debt
obligations, including the Notes, will be primarily dependent
upon the future financial and operating performance of the
Company. Such performance is dependent upon the Company's
rate of growth and profitability and the ability of the
Company to manage its working capital effectively, including
its inventory turns and accounts receivable collection
period. The Company may require additional equity or debt
financing to meet its interest payments, working capital
requirements and capital equipment needs. There can be no
assurance that additional financing will be available when
required or, if available, will be on terms satisfactory to
the Company. The Company's future operating performance and
ability to service or refinance the Notes and to repay,
extend or refinance the Credit Facility will be subject to
future economic conditions and to financial, business and
other factors, many of which are beyond the Company's
control. If the Company is unable to generate sufficient cash
flow to meet its debt service obligations or provide adequate
long-term liquidity, it will have to pursue one or more
alternatives, such as reducing or delaying capital
expenditures, refinancing debt, selling assets or raising
equity capital. There can be no assurance that such
alternatives could be accomplished on satisfactory terms, if
at all, or in a timely manner.
Restrictions Imposed by Terms of Indebtedness and Redeemable
Preferred Stock
The Indenture, the Certificate of Designation, the
Exchange Indenture and the Credit Facility contain certain
covenants that restrict, among other things, the ability of
the Company and its subsidiaries to incur additional
indebtedness, consummate certain assets sales and purchases,
issue preferred stock, incur liens, pay dividends or make
certain other restricted payments, enter into certain
transactions with affiliates, merge or consolidate with any
other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets
of the Company and its subsidiaries, none of which impaired
the Company's ability to conduct business in the first six
months of fiscal 1999. A breach of any of these covenants
could result in a default under the Credit Facility, the
Indenture and the Exchange Indenture and would violate
certain provisions of the Certificate of Designation. The
Credit Facility contains a covenant requiring that the
Company maintain a fixed charge ratio of not less than 1.0 to
1.0, provided, however, that this fixed charge ratio covenant
will not be applied to any fiscal quarter during the term as
long as the Company maintains at all times during such fiscal
quarter undrawn availability of more than $5 million for any
such fiscal quarter during the ninety days following the
closing date of the Credit Facility and $10 million for any
month thereafter. As of March 4, 1999, the Company would not
have satisfied the requirements of this fixed charge ratio
covenant.
14
<PAGE>
In the event the Company is unable to satisfy the
requirements of this fixed charge ratio, the availability of
capital from bank borrowings, including but not limited to
the ability to access the Credit Facility, could be adversely
affected. The inability to borrow under the Credit Facility
could have a material adverse effect on the Company's
business, financial condition and results of operations.
Upon an event of default under the Credit Facility, the
Indenture or the Exchange Indenture, the lenders thereunder
could elect to declare all amounts outstanding thereunder,
together with accrued interest, to be immediately due and
payable. In the case of the Credit Facility, if the Company
were unable to repay those amounts, the lenders thereunder
could proceed against the collateral granted to them to
secure that indebtedness. Such collateral is comprised of
substantially all of the tangible and intangible assets of
the Company, including the capital stock and membership
interests of its subsidiary stock.
Customer Concentration; Dependence on Certain Industries
Certain customers account for significant portions of
the Company's net sales. For the first six months of fiscal
1999 approximately 84.2% of net sales were derived from
networking and telecommunications customers. In addition,
for the second quarter and first six months of fiscal 1999,
the Company's ten largest customers accounted for
approximately 86.1% and 87.2%, respectively, of net sales.
The Company's top two customers accounted for approximately
43.5% and 21.6%, respectively, of net sales in the first six
months of fiscal 1999. In addition, the Company has another
major customer that operates under a consignment manufacturing
model and, while sales are less than 10% of total revenue, the
customer makes an important contribution to the Company's overall
financial performance. Moreover, the Company has significant
customer concentration at a site level. Volatility in demand from
these customers may lead to reduced site capacity utilization
and have a negative effect on the Company's gross margin.
Decreases in sales to or margins with these or any other key
customers could have a material adverse effect on the
Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of
Operations."
The Company expects to continue to depend upon a
relatively small number of customers for a significant
percentage of its net sales. There can be no assurance that
the Company's principal customers will continue to purchase
services at current levels, if at all. The percentage of the
Company's sales to these customers may fluctuate from period-
to-period. Significant reductions in sales to any of the
Company's major customers as well as period-to-period
fluctuations in sales and changes in product mix ordered by
such customers could have a material adverse effect on the
Company's business, financial condition and results of
operations. In addition, in the event the Company were to
lose a key customer at a specific site, the Company may be
forced to reduce its workforce at such site, reallocate
manufacturing demand or close the site, any of which could
have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, the Company is dependent upon the continued
growth, viability and financial stability of its OEM
customers, which are in turn substantially dependent on the
growth of the networking, telecommunications, computer
systems and other industries. These industries are subject to
rapid technological change, product obsolescence and price
competition. Many of the Company's customers in these
industries are affected by general economic conditions.
Recent currency devaluations and economic slowdowns in
various Asian economies may have an adverse effect on the
results of operations of certain of the Company's OEM
customers, and in turn, their orders from the Company. These
and other competitive factors affecting the networking,
telecommunications and computer system industries in general,
and the Company's OEM customers in particular, could have a
material adverse effect on the Company's business, financial
condition and results of operations. Moreover, any further
volatility in the market for DRAM components caused by, among
other things, the turmoil in the Asian economies, could have
a material adverse effect on MTI, which has historically been
one of the Company's major customers, and consequently the
Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of
Operations."
15
<PAGE>
Variability of Results of Operations
The Company's operations may be affected by a number of
factors including economic conditions, price competition, the
level of volume and the timing of customer orders, product
mix, management of manufacturing processes, materials
procurement and inventory management, fixed asset
utilization, foreign currency fluctuations, the level of
experience in manufacturing a particular product, customer
product delivery requirements, availability and pricing of
components, availability of experienced labor and failure to
introduce, or lack of market acceptance, new processes,
services, technologies and products. In addition, the level
of net sales and gross margin can vary significantly based on
whether certain projects are contracted on a turnkey basis,
where the Company purchases materials, versus on a
consignment basis, where materials are provided by the
customer (turnkey manufacturing tends to result in higher net
sales and lower gross margins than consignment
manufacturing). An adverse change in one or more of these
factors could have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, customer orders can be canceled and volume
levels can be changed or delayed. From time to time, some of
the Company's customers have terminated their manufacturing
arrangements with the Company, and other customers have
reduced or delayed the volume of design and manufacturing
services performed by the Company. Resolving customer
obligations due to program or relationship termination and
the replacement of canceled, delayed or reduced contracts
with new business cannot be assured. Termination of a
manufacturing relationship or changes, reductions or delays
in orders could have a material adverse effect on the
Company's business, financial condition and results of
operations.
Management of Growth
Expansion has caused, and is expected to cause, strain
on the Company's infrastructure, including its managerial,
technical, financial, information systems and other
resources. To manage further growth, the Company must
continue to enhance financial and operational controls,
develop or hire additional executive officers and other
qualified personnel. Continued growth will also require
increased investments to add manufacturing capacity and to
enhance management information systems. See "Certain
Factors-ERP System Implementation." There can be no
assurance that the Company will be able to scale its internal
infrastructure and other resources to effectively manage
growth and the failure to do so could have a material adverse
effect on the Company's business, financial condition and
results of operations.
The markets served by the Company are characterized by
short product life cycles and rapid technology changes. The
Company's ability to successfully support new product
introductions is critical to the Company's customers. New
product introductions have caused, and are expected to
continue to cause, certain inefficiencies and strain on the
Company's resources. Any such inefficiencies could have a
material adverse effect on the Company's business, financial
condition and 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 that 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-
- -Results of Operations."
ERP System Implementation
In fiscal 1997, the Company finalized selection of a
company-wide ERP software solution to, among other things,
accommodate the future growth and requirements of the Company
and, in early fiscal 1998, the Company began implementation
of the ERP system. The Company based its selection criteria
on a number of items it deemed critical, and included among
other things, multi-site and foreign currency capabilities,
7x24 hour system availability, enhanced customer
communications, end-order fulfillment and other mix mode
manufacturing support and year 2000 compliance. The Company
began to implement this software in early fiscal 1998 with
completion scheduled in fiscal 1999. There can be no
assurance that the Company will be successful and timely in
its implementation efforts and any delay of such
implementation could have a material adverse affect on the
Company's business, financial condition and results of
operations.
16
<PAGE>
Competition
The electronics manufacturing services industry is
intensely competitive and subject to rapid change, and
includes numerous regional, 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 manufacturing technology,
product quality, responsiveness and flexibility, consistency
of performance, range of services provided, the location of
facilities and price. To be competitive, the Company must
provide technologically advanced manufacturing services, high
quality products, 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 directly
with a number of EMS firms, including Celestica International
Holdings Inc., Flextronics International, Ltd., Jabil
Circuits, Inc., SCI Systems, Inc., Sanmina Corporation and
Solectron Corporation. The Company also faces indirect
competition from the captive 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
manufacturing facilities, international procurement
capabilities, research and development and capital and
marketing resources than the Company. In addition, the
Company may be at a competitive disadvantage because some of
the Company's competitors are less financially leveraged,
resulting in, among other things, greater operational and
financial flexibility for such competitors. See "Certain
Factors--High Level of Indebtedness; Ability to Service
Indebtedness and Satisfy Preferred Stock Dividend
Requirements." 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 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
and results of operations.
Capital Requirements
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 manufacturing
capabilities and management information systems, working
capital and debt service. The Company has added significant
manufacturing capacity and increased capital expenditures
since 1995. In April 1995, it opened its Durham, North
Carolina facility. In October 1996, it opened its first
international facility in Penang, Malaysia and moved from its
former Boise, Idaho facility to a new facility in Nampa,
Idaho. In November 1997, it purchased its first European
facility in Colfontaine, Belgium from Alcatel. The Company
anticipates that its capital expenditures will continue to
increase as the Company expands its facilities in Asia and
Europe, 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
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 reduce or
delay its capital expenditures and facilities expansion,
which could materially adversely affect the Company's
business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
International Operations
The Company currently offers EMS capabilities in North
America, Asia and Europe. In the second quarter of fiscal
1999, net sales attributable to foreign operations totaled
$7.1 million or 6.1% of total net sales. During the three
months ended March 4, 1999, sales to the Belgian operation's
largest customer shifted from a turnkey to consignment model
and the Malaysian operation continued to have a significant
portion of revenue derived from consignment programs. 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 fluctuations
in the value of currencies, import duties, changes to import
and export regulations (including quotas), possible
restrictions on the transfer of funds, employee turnover,
labor or civil unrest, inadequate law enforcement, long
payment cycles, greater difficulty in collecting accounts
receivable, the burdens, cost and risk of compliance with a
variety of foreign laws, and, in certain parts of the world,
political and economic instability. In addition, the
attractiveness of the Company's services 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.
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 Belgian operations are subject to
labor union agreements covering managerial, supervisory and
production employees, which set standards for, among other
things, the maximum number of working hours and minimum
compensation levels. In addition, economic considerations may
make it difficult for the Company to compete effectively
compared to other lower cost European locations. The
Company's Malaysian operations and assets are subject to
significant political, economic, legal and other
uncertainties customary for businesses located in Southeast
Asia.
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The Company's international operations are based in
Belgium and Malaysia. The functional currencies of the
Company's international operations are the Belgian Franc and
the Malaysian Ringgit. The Company's financial performance
may be adversely impacted by changes in exchange rates
between these currencies and the U.S. dollar. Fixed assets
for the Belgian and Malaysian operations are denominated in
each entity's functional currency and translation gains or
losses will occur as the exchange rate between the local
functional currency and the U.S. dollar fluctuates on each
balance sheet reporting date. The Company's investments in
fixed assets as of March 4, 1999 were $6.1 million (9.1% of
total fixed assets) and $2.8 million (4.1% of total fixed
assets) in Belgium and Malaysia, respectively. The Company's
cumulative translation losses as of March 4, 1999, were $0
million and $2.2 million for the Belgian and Malaysian
operations, respectively. The Company's equity investments in
Belgium and Malaysia are long-term in nature and, therefore,
the translations adjustments are shown as a separate
component of shareholders' equity and do not effect the
Company's net income. An additional risk is that certain
working capital accounts such as accounts receivable and
accounts payable are denominated in currencies other than the
functional currency and may give rise to exchange gains or
losses upon settlement or at the end of any financial
reporting period. Sales in currencies other than the
functional currency were approximately 1.8% and 3.7% of
consolidated sales for the quarter ended March 4, 1999 for
Belgium and Malaysia, respectively. The Company experienced a
non cash transaction loss of $0.8 million for the three
months ended March 4, 1999 primarily related to an
intercompany loan between the Company and its Belgian
subsidiary. During fiscal 1998, the exchange rate between
the Malaysian Ringgit and U.S. dollar was extremely volatile.
In September 1998, the Malaysian government imposed currency
control measures which, among other things, fixed the
exchange rate between the United States dollar and the
Malaysian Ringgit and make it more difficult to repatriate
the Company's investments. In January 1999, the Euro became
the official currency of eleven countries, including Belgium,
and a fixed conversion rate between the Belgium Franc and the
Euro was established. For three years after the introduction
of the Euro, the participating countries can perform
financial transactions in either the Euro or their original
local currencies. This will result in a fixed exchange rate
among the participating countries, whereas the Euro (and the
participating countries' currencies in tandem) will continue
to float freely against the U.S. dollar and other currencies
of non-participating countries. The Company is currently
evaluating the timing of changing the functional currency of
its Belgium operation from the Belgium Franc to the Euro and
is required to finalize this change no later than January
2002. The Company attempts to minimize the impact of
exchange rate volatility by entering into U.S. dollar
denominated transactions whenever possible for purchases of
raw materials and capital equipment and by keeping minimal
cash balances of foreign currencies. Direct labor,
manufacturing overhead, and selling, general and
administrative costs of the international operations are also
denominated in the local currencies. Transaction losses are
reflected in the Company's net income. As exchange rates
fluctuate, the Company will continue to experience
translation and transaction adjustments related to its
investments in Belgium and Malaysia which could have a
material and adverse effect on the Company's business,
financial condition and results of operations.
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
attracting and retaining key managerial and technical
employees to date, the loss of services of certain key
employees, in particular, any of its executive officers, or
the Company's failure to continue to attract and retain other
key managerial and technical employees could have a material
adverse effect on the Company's business, financial condition
and results of operations.
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Environmental Regulations
The Company is subject to a variety of environmental
laws and regulations governing, among other things, air
emissions, waste water discharge, waste storage, treatment
and disposal, and remediation of releases of hazardous
materials. While the Company believes that it is currently in
material compliance with all such environmental requirements,
any failure to comply with present and future requirements
could have a material adverse effect on the Company's
business, financial conditions and results of operations.
Such requirements could require the Company to acquire costly
equipment or to incur other significant expenses to comply
with environmental regulations. The imposition of additional
or more stringent environmental requirements, the results of
future testing at the Company's facilities, or a
determination that the Company is potentially responsible for
remediation at other sites where problems are not presently
known, could result in expenditures in excess of amounts
currently estimated to be required for such matters.
Concentration of Ownership
Cornerstone Equity Investors and certain other investors
beneficially own, in the aggregate, approximately 90.0% of
the outstanding capital stock (other than the Redeemable
Preferred Stock) of the Company. As a result, although no
single investor has more than 49.0% of the voting power of
the Company's outstanding securities or the ability to
appoint a majority of the directors, the aggregate votes of
these investors could determine the composition of a majority
of the board of directors and, therefore, influence the
management and policies of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company uses the U.S. dollar as its functional
currency, except for its operations in Belgium and Malaysia.
The Company has evaluated the potential costs and benefits of
hedging potential adverse changes in the exchange rates
between U.S. dollar, Belgian Franc and Malaysian Ringgit.
Currently, the Company does not enter into derivative
financial instruments because a substantial portion of the
Company's sales in these foreign operations are in U.S
dollars. The assets and liabilities of these two operations
are translated into U.S. dollars at an exchange rates in
effect at the period end date. Income and expense items are
translated at the year-to-date average rate. Aggregate
transaction losses included in net income for the second
quarter and first six months of fiscal 1999 were $0.8 million
and $0.3 million, respectively, for the Belgian operation.
There were no transaction losses for the Malaysian operation in
either period.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS
(a): The following are filed as part of this report:
Exhibit Description
10.4 (b) Credit Agreement, dated as of February 26, 1999,
between MCMS, Inc. and PNC Bank, as agent.
27 Financial Data Schedules.
(b): Reports on Form 8-K:
During the second quarter of Fiscal 1999, no reports on Form
8-K were filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed on behalf of the
registrant by the following duly authorized person.
MCMS, Inc.
(Registrant)
Date: April 15, 1999 By: /s/ Chris J. Anton
Vice President, Finance and Chief
Financial Officer (Principal Financial
Officer and Accounting Officer)
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REVOLVING CREDIT, EQUIPMENT LOAN
AND
SECURITY AGREEMENT
PNC BANK, NATIONAL ASSOCIATION
(AS LENDER AND AS AGENT)
WITH
MCMS, INC.
(BORROWER)
February 26, 1999
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TABLE OF CONTENTS
I. DEFINITIONS 1
1.1. Accounting Terms 1
1.2. General Terms 1
1.3. Uniform Commercial Code Terms 19
1.4. Certain Matters of Construction 19
II. ADVANCES, PAYMENTS 19
2.1. (a) Revolving Advances 19
(b) Discretionary Rights 20
2.2. Procedure for Revolving Advances Borrowing 20
2.3. Disbursement of Advance Proceeds 22
2.4. Equipment Loans 22
2.5. Maximum Advances 23
2.6. Repayment of Advances 23
2.7. Repayment of Excess Advances 24
2.8. Statement of Account 24
2.9. Additional Payments 24
2.10. Manner of Borrowing and Payment 25
2.11. Mandatory Prepayments 26
2.12. Use of Proceeds 27
2.13. Defaulting Lender 27
III. INTEREST AND FEES 29
3.1. Interest 29
3.2. Fee Letter 29
3.3. Facility Fee 29
3.4. Intentionally Omitted 30
3.5. Computation of Interest and Fees 30
3.6. Maximum Charges 30
3.7. Increased Costs 30
3.8. Basis For Determining Interest Rate
Inadequate or Unfair 32
3.9. Capital Adequacy 32
3.10. Limitation on Additional Amounts, etc. 33
IV. COLLATERAL: GENERAL TERMS 34
4.1. Security Interest in the Collateral 34
4.2. Perfection of Security Interest 34
4.3. Disposition of Collateral 34
4.4. Preservation of Collateral 35
4.5. Ownership of Collateral 36
4.6. Defense of Agent's and Lenders' Interests 36
4.7. Books and Records 37
4.8. Financial Disclosure 37
4.9. Compliance with Laws 37
4.10. Inspection of Premises 38
4.11. Insurance 38
4.12. Failure to Pay Insurance 39
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4.13. Payment of Taxes 39
4.14. Payment of Leasehold Obligations 40
4.15. Receivables 40
(a) Nature of Receivables 40
(b) Solvency of Customers 40
(c) Locations of Borrower 40
(d) Collection of Receivables 41
(e) Notification of Assignment of
Receivables 41
(f) Power of Agent to Act on Borrower's
Behalf 41
(g) No Liability 42
(h) Establishment of a Dominion Account 42
(i) Adjustments 42
4.16. Inventory 43
4.17. Maintenance of Equipment 43
4.18. Exculpation of Liability 43
4.19. Environmental Matters 43
4.20. Financing Statements 46
V. REPRESENTATIONS AND WARRANTIES 46
5.1. Authority 46
5.2. Formation and Qualification 46
5.3. Survival of Representations and Warranties 47
5.4. Tax Returns 47
5.5. Financial Statements 47
5.6. Corporate Name 48
5.7. O.S.H.A. and Environmental Compliance 48
5.8. Solvency; No Litigation, Violation,
Indebtedness or Default 49
5.9. Patents, Trademarks, Copyrights and
Licenses 50
5.10. Licenses and Permits 51
5.11. Default of Indebtedness 51
5.12. No Default 51
5.13. No Burdensome Restrictions 51
5.14. No Labor Disputes 51
5.15. Margin Regulations 51
5.16. Investment Company Act 51
5.17. Disclosure 51
5.18. Delivery of Recapitalization Documentation
and Subordinated Note Documentation 52
5.19. Swaps 52
5.20. Conflicting Agreements 52
5.21. Application of Certain Laws and Regulations 52
5.22. Business and Property of Borrower 52
5.23. Year 2000 53
5.24. Section 20 Subsidiaries 53
VI. AFFIRMATIVE COVENANTS 53
6.1. Payment of Fees 53
6.2. Conduct of Business and Maintenance of
Existence and Assets 53
6.3. Violations 54
6.4. Government Receivables 54
6.5. Fixed Charge Coverage Ratio 54
6.6. Execution of Supplemental Instruments 54
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6.7. Payment of Indebtedness 54
6.8. Standards of Financial Statements 55
6.9. Appraisals 55
6.10. Mortgage 55
VII. NEGATIVE COVENANTS 55
7.1. Merger, Consolidation, Acquisition and Sale
of Assets 55
7.2. Creation of Liens 56
7.3. Guarantees 56
7.4. Investments 56
7.5. Loans 58
7.6. Capital Expenditures 58
7.7. Dividends 58
7.8. Indebtedness 59
7.9. Nature of Business 60
7.10. Transactions with Affiliates 60
7.11. Subsidiaries 60
7.12. Fiscal Year and Accounting Changes 61
7.13. Pledge of Credit 61
7.14. Amendment of Articles of Incorporation,
By-Laws 61
7.15. Compliance with ERISA 61
7.16. Prepayment of Indebtedness 61
7.17. Subordinated Notes 62
7.18. Other Agreements 62
VIII. CONDITIONS PRECEDENT. 62
8.1. Conditions to Initial Advances 62
(a) Note 62
(b) Filings, Registrations and Recordings 62
(c) Corporate Proceedings of Borrower 62
(d) Proceedings of Guarantor 63
(e) Incumbency Certificates of Guarantor 63
(f) Incumbency Certificates of Borrower 63
(g) Certificates 63
(h) Good Standing Certificates 63
(i) Legal Opinion 64
(j) No Litigation 64
(k) Financial Condition Certificates 64
(l) Collateral Examination 64
(m) Fees 64
(n) Pro Forma Financial Statements 64
(o) Recapitalization Documentation 64
(p) Insurance 64
(q) Payment Instructions 65
(r) Blocked Accounts 65
(s) Consents 65
(t) No Adverse Material Change 65
(u) Leasehold Agreements 65
(v) Guaranty and Other Documents 65
(w) Subordinated Note Documentation 65
(x) Contract Review 65
(y) Closing Certificate 65
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<PAGE>
(z) Borrowing Base Certificate 66
(aa) Other 66
8.2. Conditions to Each Advance 66
(a) Representations and Warranties 66
(b) No Material Change 66
(c) No Default 66
(d) Maximum Advances 66
8.3. Conditions to Each Equipment Loan 67
IX. INFORMATION AS TO BORROWER 67
9.1. Disclosure of Material Matters 67
9.2. Schedules 67
9.3. Environmental Reports 68
9.4. Litigation 68
9.5. Material Occurrences 68
9.6. Government Receivables 68
9.7. Annual Financial Statements 69
9.8. Quarterly Financial Statements 69
9.9. Monthly Financial Statements 69
9.10. Other Reports 70
9.11. Additional Information 70
9.12. Projected Operating Budget 70
9.13. Variances From Operating Budget 70
9.14. Notice of Suits, Adverse Events 70
9.15. ERISA Notices and Requests 71
9.16. Additional Documents 71
X. EVENTS OF DEFAULT 72
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT 74
11.1. Rights and Remedies 74
11.2. Agent's Discretion 75
11.3. Setoff 75
11.4. Rights and Remedies not Exclusive 76
XII. WAIVERS AND JUDICIAL PROCEEDINGS 76
12.1. Waiver of Notice 76
12.2. Delay 76
12.3. Jury Waiver 76
XIII. EFFECTIVE DATE AND TERMINATION 76
13.1. Term 76
13.2. Termination 77
XIV. REGARDING AGENT 77
14.1. Appointment 77
14.2. Nature of Duties 78
14.3. Lack of Reliance on Agent and Resignation 78
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<PAGE>
14.4. Certain Rights of Agent 79
14.5. Reliance 79
14.6. Notice of Default 79
14.7. Indemnification 79
14.8. Agent in its Individual Capacity 79
14.9. Delivery of Documents 80
14.10. Borrower's Undertaking to Agent 80
XVI. MISCELLANEOUS 80
15.1 Governing Law 80
15.2. Entire Understanding 81
15.3. Successors and Assigns; Participations;
New Lenders 82
15.4. Application of Payments 84
15.5. Indemnity 84
15.6. Notice 85
15.7. Survival 86
15.8. Severability 86
15.9. Expenses 86
15.10. Injunctive Relief 87
15.11. Consequential Damages 87
15.12. Captions 87
15.13. Counterparts; Telecopied Signatures 87
15.14. Construction 87
15.15. Confidentiality; Sharing Information 87
15.16. Publicity 88
26
<PAGE>
REVOLVING CREDIT, EQUIPMENT LOAN
AND
SECURITY AGREEMENT
Revolving Credit, Equipment Loan and Security Agreement
dated as of February 26, 1999 among MCMS, INC., a corporation
organized under the laws of the State of Idaho ("Borrower"), the
financial institutions which are now or which hereafter become a
party hereto (collectively, the "Lenders" and individually a
"Lender") and PNC BANK, NATIONAL ASSOCIATION ("PNC"), as agent
for Lenders (PNC, in such capacity, the "Agent").
BACKGROUND
Borrower entered into a Credit Agreement on February 26,
1998 with various financial institutions named therein and
Bankers Trust Company as an agent thereunder (as amended,
modified, restated and supplemented as of the date hereof, the
"Existing Credit Agreement"). This Agreement is being entered
into for the purpose of, among other things, refinancing
Borrower's indebtedness under the Existing Credit Agreement.
IN CONSIDERATION of the mutual covenants and undertakings
herein contained, Borrower, Lenders and Agent hereby agree as
follows:
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement, the Note,
or any certificate, report or other document made or delivered
pursuant to this Agreement, accounting terms not defined in
Section 1.2 or elsewhere in this Agreement and accounting terms
partly defined in Section 1.2 to the extent not defined, shall
have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes
of determining compliance with financial covenants in this
Agreement, such accounting terms shall be defined in accordance
with GAAP as applied in preparation of the audited financial
statements of Borrower for the fiscal year ended September 3,
1998.
1.2. General Terms. For purposes of this Agreement the
following terms shall have the following meanings:
"Accountants" shall have the meaning set forth in
Section 9.7 hereof.
"Advances" shall mean and include the Revolving
Advances and the Equipment Loans.
"Advance Rates" shall have the meaning set forth in
Section 2.1(a) hereof.
"Affiliate" of any Person shall mean (a) any Person
which, directly or indirectly, is in control of, is controlled
by, or is under common control with such Person, or (b) any
Person who is a director or officer (i) of such Person, (ii) of
any Subsidiary of such Person or (iii) of any Person described in
clause (a) above. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (x) to vote 10%
or more of the securities having ordinary voting power for the
election of directors of such Person, or (y) to direct or cause
the direction of the management and policies of such Person
whether by contract or otherwise.
27
<PAGE>
"Agent" shall have the meaning set forth in the
preamble to this Agreement and shall include its successors and
assigns.
"Alternate Base Rate" shall mean, for any day, a rate
per annum equal to the higher of (i) the Base Rate in effect on
such day and (ii) the Federal Funds Rate in effect on such day
plus 1/2 of 1%.
"Authority" shall have the meaning set forth in Section
4.19(d).
"Baan Project" shall mean the implementation by
Borrower of a resource planning system.
"Base Rate" shall mean the base commercial lending rate
of PNC as publicly announced to be in effect from time to time,
such rate to be adjusted automatically, without notice, on the
effective date of any change in such rate. This rate of interest
is determined from time to time by PNC as a means of pricing some
loans to its customers and is neither tied to any external rate
of interest or index nor does it necessarily reflect the lowest
rate of interest actually charged by PNC to any particular class
or category of customers of PNC.
"Blocked Accounts" shall have the meaning set forth in
Section 4.15(h).
"Borrower" shall have the meaning set forth in the
preamble to this Agreement and shall extend to all permitted
successors and assigns of such Person.
"Borrower's Account" shall have the meaning set forth
in Section 2.8.
"Borrowing Base Certificate" shall mean a certificate
duly executed by an officer of Borrower appropriately completed
and in substantially the form of Exhibit A hereto.
"Business Day" shall mean any day other than Saturday
or Sunday or a legal holiday on which commercial banks are
authorized or required by law to be closed for business in East
Brunswick, New Jersey and, if the applicable Business Day relates
to any Eurodollar Rate Loans, such day must also be a day on
which dealings are carried on in the London interbank market.
"CEI" shall mean Cornerstone Equity Investors IV, L.P.,
a Delaware limited partnership.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. 9601 et seq.
28
<PAGE>
"Change of Control" shall mean (a) the occurrence of
any event (whether in one or more transactions) which results in
a transfer of control of Borrower to a Person who is not an
Original Owner, (b) any merger or consolidation of or with
Borrower which results in a transfer of control of Borrower to a
Person who is not an Original Owner or a sale of all or
substantially all of the property or assets of Borrower or (c)
the board of directors of Borrower shall cease to consist of a
majority of Continuing Directors. For purposes of this
definition, "control of Borrower" shall mean the power, direct or
indirect to vote 50% or more of the securities having ordinary
voting power for the election of directors of Borrower.
"Charges" shall mean all taxes, charges, fees, imposts,
levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation and
property taxes, custom duties, fees, assessments, liens, claims
and charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts,
imposed by any taxing or other authority, domestic or foreign
(including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the
Collateral or Borrower.
"Closing Date" shall mean February 26, 1999 or such
other date as may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and the regulations promulgated
thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Subsidiary Stock (not to exceed 65% of
the stock of any foreign Subsidiary);
(f) all Investment Property;
(g) all of Borrower's right, title and interest
in and to (i) its goods and other property including, but not
limited to, all merchandise returned or rejected by Customers,
relating to or securing any of the Receivables; (ii) all of
Borrower's rights as a consignor, a consignee, an unpaid vendor,
mechanic, artisan, or other lienor, including stoppage in
transit, setoff, detinue, replevin, reclamation and repurchase;
(iii) all additional amounts due to Borrower from any Customer
relating to the Receivables; (iv) other property, including
warranty claims, relating to any goods securing this Agreement;
(v) all of Borrower's contract rights (to the extent such
contract rights are assignable or a security interest may be
granted in such contract rights; provided, however, that the
foregoing limitation shall not affect the security interest of
Agent in any proceeds of the underlying contract giving rise to
such contract rights), rights of payment which have been earned
under a contract right, instruments, documents, chattel paper,
warehouse receipts, deposit accounts and money; (vi) if and when
obtained by Borrower, all real and personal property of third
parties in which Borrower has been granted a lien or security
interest as security for the payment or enforcement of
Receivables; and (vii) any other goods, personal property or real
property now owned or hereafter acquired in which Borrower has
expressly granted a security interest or may in the future grant
a security interest to Agent hereunder, or in any amendment or
supplement hereto or thereto, or under any other agreement
between Agent and Borrower;
29
<PAGE>
(h) all of Borrower's ledger sheets, ledger
cards, files, correspondence, records, books of account, business
papers, computers, computer software (owned by Borrower or in
which it has an interest), computer programs, tapes, disks and
documents, each to the extent relating to (a), (b), (c), (d),
(e), (f), or (g) of this Paragraph; and
(i) all proceeds and products of (a), (b), (c),
(d), (e), (f), (g) and (h) in whatever form, including, but not
limited to: cash, deposit accounts (whether or not comprised
solely of proceeds), certificates of deposit, insurance proceeds
(including hazard, flood and credit insurance), negotiable
instruments and other instruments for the payment of money,
chattel paper, security agreements, documents, eminent domain
proceeds, condemnation proceeds and tort claim proceeds.
"Commitment Percentage" of any Lender shall mean the
percentage set forth below such Lender's name on the signature
page hereof as same may be adjusted upon any assignment by a
Lender pursuant to Section 15.3(b) hereof.
"Commitment Transfer Supplement" shall mean a document
in the form of Exhibit 15.3 hereto, properly completed and
otherwise in form and substance satisfactory to Agent by which
the Purchasing Lender purchases and assumes a portion of the
obligation of Lenders to make Advances under this Agreement.
"Consents" shall mean all filings and all licenses,
permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and other third parties,
domestic or foreign, necessary to carry on Borrower's business,
including, without limitation, any Consents required under all
applicable federal, state or other applicable law.
"Continuing Directors" shall mean (a) the directors of
Borrower as of the Closing Date and each other director if such
director's nomination for election to the board of directors of
Borrower was approved by the affirmative vote of a majority of
the Continuing Directors who were members of the board of
directors at the time of such nomination or election or (b) any
director of Borrower who is a designee of CEI or was nominated by
CEI or any designee of CEI on the Board of Directors.
30
<PAGE>
"Contract Rate" shall mean, as applicable, the
Revolving Interest Rate or the Equipment Loan Rate.
"Controlled Group" shall mean all members of a
controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which,
together with Borrower, are treated as a single employer under
Section 414 of the Code.
"Customer" shall mean and include the account debtor
with respect to any Receivable and/or the prospective purchaser
of goods, services or both with respect to any contract or
contract right, and/or any party who enters into any contract or
other arrangement with Borrower, pursuant to which Borrower is to
deliver any personal property or perform any services.
"Default" shall mean an event which, with the giving of
notice or passage of time or both, would constitute an Event of
Default.
"Default Rate" shall have the meaning set forth in
Section 3.1 hereof.
"Defaulting Lender" shall have the meaning set forth in
Section 2.13 hereof.
"Depository Accounts" shall have the meaning set forth
in Section 4.15(h) hereof.
"Documents" shall have the meaning set forth in Section
8.1(c) hereof.
"Dollar" and the sign "$" shall mean lawful money of
the United States of America.
"Domestic Rate Loan" shall mean any Advance that bears
interest based upon the Alternate Base Rate.
"Early Termination Date" shall have the meaning set
forth in Section 13.1 hereof.
"Earnings Before Interest and Taxes" shall mean for any
period the sum of (i) net income (or loss) of Borrower on a
consolidated basis for such period (excluding extraordinary,
unusual or nonrecurring gains and charges and losses including
any unrealized losses and gains for such period resulting from
marking to market of hedging or swap agreements and foreign
currency transaction gains or losses in respect of intercompany
payments to or from a foreign Subsidiary of Borrower), plus (ii)
all interest expense of Borrower on a consolidated basis for such
period, plus (iii) all charges against income of Borrower on a
consolidated basis for such period for federal, state and local
taxes actually paid.
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"EBITDA" shall mean for any period the sum of (i)
Earnings Before Interest and Taxes for such period plus (ii)
depreciation expenses for such period, plus (iii) amortization
expenses for such period plus (iv) other non-cash charges
(including, without limitation, non-cash charges in connection
with the granting of options, warrants or other equity interests
and any write-off of deferred financing costs existing as of the
Closing Date but excluding write-offs of Inventory to the extent
such write-offs are deemed to be non-cash charges or Inventory
reserves, plus (v) transaction costs incurred by Borrower in
connection with acquisitions and investments entered into by
Borrower after the Closing Date which are permitted under Section
7.4 hereof not to exceed the aggregate amount of $5,000,000 in
any fiscal year. In addition EBITDA shall be calculated without
giving effect to (x) non-cash purchase accounting adjustments
required or permitted by Account Principles Board Opinion Nos. 16
(including non-cash write-ups and non-cash charges), in each case
arising in connection with any acquisition entered into by
Borrower after the Closing Date which is permitted by Section 7.4
hereof) and 17 (including non-cash charges relating to
intangibles and good will arising in connection with any such
permitted acquisition), and (y) any non-cash gains or losses
recognized in determining consolidated net income (or net loss)
for such period in respect of post-retirement benefits as a
result of the application of FASB 106.
"Eligible Inventory" shall mean and include Inventory
valued at the lower of average cost or market value, determined
on a first-in-first-out basis, which is not, in Agent's
reasonable opinion, obsolete, slow moving or unmerchantable and
which Agent, in its reasonable discretion, shall not deem
ineligible Inventory, based on such considerations as Agent may
from time to time deem appropriate including, without limitation,
whether the Inventory is subject to a perfected, first priority
security interest in favor of Agent and no other Lien (other than
Permitted Encumbrances) and whether the Inventory conforms to all
standards imposed by any governmental agency, division or
department thereof which has regulatory authority over such goods
or the use or sale thereof.
"Eligible Receivables" shall mean and include with
respect to Borrower, each Receivable of Borrower arising in the
ordinary course of Borrower's business and which Agent, in its
reasonable credit judgment, shall deem to be an Eligible
Receivable, based on such considerations as Agent may from time
to time deem appropriate. A Receivable shall not be deemed
eligible unless such Receivable is subject to Agent's first
priority perfected security interest and no other Lien (other
than Permitted Encumbrances), and is evidenced by an invoice or
other documentary evidence satisfactory to Agent. In addition,
no Receivable shall be an Eligible Receivable if:
(a) other than sales on an arms-length basis to
MTI and MEI, it arises out of a sale made by Borrower to an
Affiliate of Borrower or to a Person controlled by an Affiliate
of Borrower;
(b) it is due or unpaid more than (i) sixty (60)
days after the original due date or (ii) more than one hundred
twenty (120) days after the original invoice date;
(c) fifty percent (50%) or more of the
Receivables from such Customer are not deemed Eligible
Receivables hereunder;
(d) any covenant, representation or warranty
contained in this Agreement with respect to such Receivable has
been breached in any material respect;
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(e) the Customer shall (i) apply for, suffer, or
consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or
a substantial part of its property or call a meeting of its
creditors, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations
of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect),
(v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the
relief of debtors, (vii) acquiesce to, or fail to have dismissed,
any petition which is filed against it in any involuntary case
under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
(f) the sale is to a Customer not domiciled in
the United States of America (other than sales to a foreign
subsidiary of Cisco Systems, Inc. Fore Systems, Inc. and MTI),
unless the sale is on letter of credit, guaranty or acceptance
terms, in each case acceptable to Agent in its reasonable
discretion;
(g) the sale to the Customer is on a bill-and-
hold (other than sales as to which Borrower (i) retains
possession of the goods but title has passed to the Customer,
(ii) at the request of Agent, provides acceptable evidence that
title has so passed, and (iii) recognizes revenue in accordance
with GAAP), guaranteed sale, sale-and-return, sale on approval,
consignment or any other repurchase or return basis or is
evidenced by chattel paper;
(h) the Customer is the United States of America,
any state or any department, agency or instrumentality of any of
them, unless Borrower assigns its right to payment of such
Receivable to Agent pursuant to the Assignment of Claims Act of
1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41
U.S.C. Sub-Section 15 et seq.) or has otherwise complied with
other applicable statutes or ordinances;
(i) the goods giving rise to such Receivable have
not been shipped to the Customer (other than sales in which
Borrower retains possession of the goods but title has passed to
the Customer and Borrower recognizes revenue in accordance with
GAAP) or the services giving rise to such Receivable have not
been performed by Borrower or the Receivable otherwise does not
represent a final sale;
(j) (i) the Customer is Cisco Systems, Inc. and
Receivables from such Customer exceed 66% of all Eligible
Receivables, solely to the extent such Receivables exceed such
percentage of Eligible Receivables; (ii) the Customer is Fore
Systems, Inc. and Receivables from such Customer exceed 50% of
all Eligible Receivables, solely to the extent such Receivables
exceed such percentage of Eligible Receivables and (iii) the
Receivables of any other Customer exceed 25% of all Eligible
Receivables, solely to the extent such Receivables exceed such
percentage of Eligible Receivables.
(k) the Receivable is subject to any offset,
deduction, defense, dispute, or counterclaim, the Customer is
also a creditor or supplier of Borrower or the Receivable is
contingent in any respect or for any reason, in each case solely
to the extent of any such offset, deduction, defense, dispute or
counterclaim;
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(l) Borrower has made any agreement with any
Customer for any deduction therefrom, except for discounts or
allowances made in the ordinary course of business for prompt
payment, all of which discounts or allowances are reflected in
the calculation of the face value of each respective invoice
related thereto;
(m) any return, rejection or repossession of the
merchandise has occurred or the rendition of services has been
disputed but only to the extent of the portion of the Receivable
relating to the returned, rejected or repossessed merchandise or
the dispute;
(n) such Receivable is not payable to Borrower;
or
(o) such Receivable is not otherwise satisfactory
to Agent as determined in good faith by Agent in the exercise of
its discretion in a reasonable manner.
"Environmental Complaint" shall have the meaning set
forth in Section 4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and
local laws, statutes, ordinances and codes relating to the
protection of the environment and/or governing the use, storage,
treatment, generation, transportation, processing, handling,
production or disposal of Hazardous Substances and the rules,
regulations, and to the extent specifically relating to the type
of business conducted by Borrower or the facilities of Borrower
and having the effect of law, policies, guidelines,
interpretations, decisions, orders and directives of federal,
state and local governmental agencies and authorities with
respect thereto.
"Equipment" shall mean and include all of Borrower's
goods (other than Inventory) whether now owned or hereafter
acquired and wherever located including, without limitation, all
equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all
replacements and substitutions therefor or accessions thereto.
"Equipment Loan Rate" shall mean an interest rate per
annum equal to (a) the sum of the Alternate Base Rate plus one
quarter of one percent (0.25%) with respect to Domestic Rate
Loans or (b) the sum of the Eurodollar Rate plus two and one half
(2.50%) percent with respect to Eurodollar Loans.
"Equipment Loans" shall have the meaning set forth in
Section 2.4 hereof.
"Equipment Note" shall mean, collectively, the
promissory notes referred to in Section 2.4 hereof.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time and the rules
and regulations promulgated thereunder.
"Eurodollar Rate Loan" shall mean an Advance at any
time that bears interest based on the Eurodollar Rate.
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"Eurodollar Rate" shall mean for any Eurodollar Rate
Loan for the then current Interest Period relating thereto the
interest rate per annum determined by PNC by dividing (the
resulting quotient rounded upwards, if necessary, to the nearest
1/100th of 1% per annum) (i) the rate of interest determined by
PNC in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) to be the average of
the London interbank offered rates for U.S. Dollars quoted by the
British Bankers' Association as set forth on Dow Jones Markets
Service (formerly known as Telrate) (or appropriate successor or,
if British Banker's Association or its successor ceases to
provide such quotes, a comparable replacement determined by PNC)
display page 3750 (or such other display page on the Dow Jones
Markets Service system as may replace display page 3750) two (2)
Business Days prior to the first day of such Interest Period for
an amount comparable to such Eurodollar Rate Loan and having a
borrowing date and a maturity comparable to such Interest Period
by (ii) a number equal to 1.00 minus the Reserve Percentage. The
Eurodollar Rate may also be expressed by the following formula:
Average of London interbank offered rates quoted by BBA as shown on
Eurodollar Rate=Dow Jones Markets Service display page 3750 or
appropriate successor
1.00 - Reserve Percentage
"Event of Default" shall mean the occurrence of any of
the events set forth in Article X hereof.
"Exchange Debentures" shall mean the 12-1/2% of
subordinated exchange debentures due 2010, as amended or
supplemented from time to time to the extent permitted by this
Agreement and which shall be issued pursuant to the Exchange
Indenture.
"Exchange Indenture" shall mean that certain Indenture
dated as of February 26, 1998 between Borrower and Trustee
relating to the Exchange Debentures as amended, modified,
restated or supplemented from time to time to the extent not
prohibited by Section 7.18 hereof.
"Existing Credit Agreement" shall have the meaning set
forth in the Background section hereof.
"Extraordinary Receipts" shall mean the net proceeds
received by Borrower in connection with (a) the sale of capital
stock of Borrower, (b) a public offering of securities issued by
Borrower or (c) a cash equity contribution to Borrower.
"Federal Funds 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 for such day (or if such
day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or if such rate is not
so published for any day which is a Business Day, the average of
quotations for such day on such transactions received by PNC from
three Federal funds brokers of recognized standing selected by
PNC.
"Fee Letter" shall mean the fee letter dated February
26, 1999 between Borrower and PNC.
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"Fixed Charge Coverage Ratio" shall mean and include
for Borrower on a consolidated basis, with respect to any fiscal
period, the ratio of (a) the sum of (i) EBITDA for such period
plus (ii) capitalized lease payments during such period, minus
the sum of (x) non-financed capitalized expenditures made during
such period plus (y) permitted cash dividends paid on the
Preferred Stock during such period plus (z) cash taxes during
such period paid during such period to (b) the sum of (i) all
Senior Debt Payments made during such period plus (ii) all
Subordinated Debt Payments made during such period. For purposes
of this definition, (a) capital expenditures made in connection
with the Baan Project not to exceed $12,000,000 to the extent
that such capital expenditures are not made with the proceeds of
an Equipment Loan or (b) capital expenditures made solely out of
the proceeds of the disposition of assets (other than Equipment
purchased with the proceeds of an Equipment Loan), insurance
losses (other than losses received with respect to Equipment
which was purchased with the proceeds of an Equipment Loan) or
Extraordinary Receipts, shall not be included in the calculation
of clause (a)(ii)(x) of the definition hereof. The foregoing
shall not be deemed implied consent to any such sale otherwise
prohibited by the terms and conditions hereof or a waiver of the
requirement that any such asset sale or insurance proceeds be
applied as a mandatory prepayment of the outstanding Obligations
under Section 2.11 or 4.11 hereof.
"Fixed Rate Notes" shall mean, collectively, the 9-3/4%
senior subordinated term securities due 2008, as amended or
supplemented from time to time to the extent permitted by this
Agreement, in the aggregate original principal amount not to
exceed $145,000,000 issued by Borrower pursuant to the Indenture.
"Floating Rate Notes" shall mean, collectively, the
floating interest rate subordinated term securities, as amended
or supplemented from time to time to the extent permitted by this
Agreement, in the aggregate original principal amount not to
exceed $30,000,000 issued by Borrower pursuant to the Indenture.
"Formula Amount" shall have the meaning set forth in
Section 2.1(a).
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from time to
time.
"General Intangibles" shall mean and include all of
Borrower's general intangibles, whether now owned or hereafter
acquired including, without limitation, all choses in action,
causes of action, corporate or other business records,
inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control
procedures, trademarks, service marks, trade secrets, goodwill,
copyrights, design rights, registrations, licenses, franchises,
customer lists, tax refunds, tax refund claims, computer
programs, all claims under guaranties, security interests or
other security held by or granted to Borrower to secure payment
of any of the Receivables by a Customer all rights of
indemnification and all other intangible property of every kind
and nature (other than Receivables).
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<PAGE>
"Governmental Body" shall mean any nation or
government, any state or other political subdivision thereof or
any entity exercising the legislative, judicial, regulatory or
administrative functions of or pertaining to a government.
"Guarantor" shall mean MCMS Customer Services, Inc., an
Idaho corporation, MCMS Holdings LLC, an Idaho limited liability
company, and any other Person who may hereafter guarantee payment
or performance of the whole or any part of the Obligations and
"Guarantors" means collectively, all such Persons.
"Guaranty" shall mean any guaranty of the obligations
of Borrower executed by a Guarantor in favor of Agent for its
benefit and for the ratable benefit of Lenders.
"Hazardous Discharge" shall have the meaning set forth
in Section 4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation,
any flammable explosives, radon, radioactive materials, asbestos,
polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or
toxic substances as defined in CERCLA, the Hazardous Materials
Transportation Act, TSCA as amended (49 U.S.C. Sections 1801, et
seq.), RCRA, or any other applicable Environmental Law.
"Hazardous Wastes" shall mean all waste materials
subject to regulation under RCRA or any other applicable Federal
and state laws now in force or hereafter enacted relating to
hazardous waste management and disposal.
"Indebtedness" of a Person at a particular date shall
mean all obligations for money borrowed of such Person which in
accordance with GAAP would be classified upon a balance sheet as
liabilities for money borrowed (except capital stock and surplus
earned or otherwise) and in any event, without limitation by
reason of enumeration, shall include all indebtedness, debt and
other similar monetary obligations of such Person whether direct
or guaranteed, and all premiums, if any, due at the required
prepayment dates of such indebtedness, and all indebtedness
secured by a Lien on assets owned by such Person, whether or not
such indebtedness actually shall have been created, assumed or
incurred by such Person. Any indebtedness of such Person
resulting from the acquisition by such Person of any assets
subject to any Lien shall be deemed, for the purposes hereof, to
be the equivalent of the creation, assumption and incurring of
the indebtedness secured thereby, whether or not actually so
created, assumed or incurred.
"Indenture" shall mean that certain Indenture dated as
of February 26, 1998 between Borrower and Trustee relating to the
Subordinated Notes as amended, modified, restated or supplemented
from time to time to the extent not prohibited by Section 7.18
hereof.
"Ineligible Security" shall mean any security which may
not be underwritten or dealt in by member banks of the Federal
Reserve System under Section 16 of the Banking Act of 1933 (12
U.S.C. Section 24, Seventh), as amended.
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"Interest Period" shall mean the period provided for
any Eurodollar Rate Loan pursuant to Section 2.2(b).
"Inventory" shall mean and include all of Borrower's
now owned or hereafter acquired goods, merchandise and other
personal property, wherever located, to be furnished under any
contract of service or held for sale or lease, all raw materials,
work in process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or
consumed in Borrower's business or used in selling or furnishing
such goods, merchandise and other personal property, and all
documents of title or other documents representing them.
"Inventory Advance Rate" shall have the meaning set
forth in Section 2.1(a)(y)(ii) hereof.
"Investment Property" shall mean and include all of
Borrower's now owned or hereafter acquired securities (whether
certificated or uncertificated), securities entitlements,
securities accounts, commodities contracts and commodities
accounts.
"Lender" and "Lenders" shall have the meaning ascribed
to such term in the preamble to this Agreement and shall include
each Person which becomes a transferee, successor or assign of
any Lender.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether
statutory or otherwise), Charge, claim or encumbrance, or
preference, priority or other security agreement or preferential
arrangement held or asserted in respect of any asset of any kind
or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease
having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code or comparable law of
any jurisdiction.
"Loan Year" shall mean each period of twelve (12)
consecutive months commencing on the Closing Date and on each
anniversary thereof.
"Management Services Agreement" shall mean that certain
Management Services Agreement dated February 26, 1998 between CEI
and Borrower, as amended, modified, restated or supplemented from
time to time to the extent not prohibited by Section 7.18 hereof.
"Material Adverse Effect" shall mean a material adverse
effect on (a) the condition, operations, assets or business of
Borrower, (b) Borrower's ability to pay the Obligations in
accordance with the terms thereof, (c) the value of the
Collateral, or Agent's Liens on the Collateral or the priority of
any such Lien (subject to Liens which are Permitted Encumbrances
under clauses (c), (g), (l), (m), (n), (o) or (r) of the
definition thereof) or (d) the practical realization of the
benefits of Agent's and each Lender's rights and remedies under
this Agreement and the Other Documents taken as a whole.
"Maximum Equipment Loan Amount" shall mean $10,000,000
less repayments of the Equipment Loans.
"Maximum Loan Amount" shall mean $60,000,000 less
repayments of the Equipment Loans.
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"Maximum Revolving Advance Amount" shall mean
$50,000,000.
"MEI" shall mean Micron Electronics, Inc., a Minnesota
corporation.
"MTI" shall mean Micron Technology, Inc., a Delaware
corporation.
"Multiemployer Plan" shall mean a "multiemployer plan"
as defined in Sections 3(37) and 4001(a)(3) of ERISA.
"Negative Pledge Agreement" shall mean the negative
pledge agreement on the Real Property located in Nampa, Idaho
executed by Borrower in favor of Agent, together with all
extensions, renewals, amendments, supplements, modifications and
replacements thereto and thereof.
"Note" shall mean collectively, the Equipment Note and
the Revolving Credit Note.
"Obligations" shall mean and include any and all loans,
advances, debts, liabilities, obligations, covenants and duties
owing by Borrower to Lenders or Agent of any kind or nature,
present or future (including, without limitation, any interest
accruing thereon after maturity, or after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to Borrower, whether
or not a claim for post-filing or post-petition interest is
allowed in such proceeding), whether or not evidenced by any
note, guaranty or other instrument, arising under this Agreement
and the Other Documents whether or not for the payment of money,
whether arising by reason of an extension of credit, opening of a
letter of credit, loan, equipment lease or guarantee, under any
interest or currency swap, future, option or other similar
agreement, or in any other manner, whether arising out of
overdrafts or deposit or other accounts or electronic funds
transfers (whether through automated clearing houses or
otherwise) or out of the Agent's or any Lenders non-receipt of or
inability to collect funds or otherwise not being made whole in
connection with depository transfer check or other similar
arrangements, whether direct or indirect (including those
acquired by assignment or participation), absolute or contingent,
joint or several, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated,
regardless of how such indebtedness or liabilities arise or by
what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument, including, but not
limited to, any and all of Borrower's Indebtedness and/or
liabilities under this Agreement or the Other Documents and any
amendments, extensions, renewals or increases and all costs and
expenses of Agent and any Lender incurred in the documentation,
negotiation, modification, enforcement, collection or otherwise
in connection with any of the foregoing, including but not
limited to reasonable attorneys' fees and expenses and all
obligations of Borrower to Agent or Lenders to perform acts or
refrain from taking any action. The obligations shall constitute
"Designated Senior Debt" under and as defined in the Indenture
and the Exchange Indenture.
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"Original Owners" shall mean, collectively, CEI and the
shareholders listed on Schedule A hereto.
"Other Documents" shall mean the Negative Pledge
Agreement, the Pledge Agreement, the Note, the Questionnaire, the
Guaranty, and any and all other agreements, instruments and
documents, including, without limitation, guaranties, pledges,
powers of attorney, consents, and all other writings heretofore,
now or hereafter executed by Borrower or any Guarantor and/or
delivered to Agent or any Lender in respect of the transactions
contemplated by this Agreement.
"Parent" of any Person shall mean a corporation or
other entity owning, directly or indirectly at least 50% of the
shares of stock or other ownership interests having ordinary
voting power to elect a majority of the directors of the Person,
or other Persons performing similar functions for any such
Person.
"Participant" shall mean each Person who shall be
granted the right by any Lender to participate in any of the
Advances and who shall have entered into a participation
agreement in form and substance satisfactory to such Lender.
"Payment Office" shall mean initially Two Tower Center
Boulevard, East Brunswick, New Jersey 08816; thereafter, such
other office of Agent, if any, which it may designate by notice
to Borrower and to each Lender to be the Payment Office.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation.
"Pension Benefit Plan" shall mean an employee pension
benefit plan subject to Title IV of ERISA.
"Permitted Encumbrances" shall mean (a) Liens in favor
of Agent for the benefit of Agent and Lenders; (b) Liens for
taxes, assessments or other Charges not delinquent or being
contested in good faith and by appropriate proceedings and with
respect to which proper reserves have been taken by Borrower;
provided, that, the Lien shall have no effect on the priority of
the Liens in favor of Agent or the value of the assets in which
Agent has such a Lien and a stay of enforcement of any such Lien
shall be in effect; (c) Liens disclosed in the financial
statements referred to in Section 5.5, the existence of which
Agent has consented to in writing; (d) deposits or pledges to
secure obligations under worker's compensation, social security
or similar laws, or under unemployment insurance; (e) deposits or
pledges to secure bids, tenders, contracts (other than contracts
for the payment of borrowed money), leases, statutory
obligations, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of Borrower's
business; (f) judgment Liens that have been stayed or bonded or
otherwise would not result in an Event of Default and mechanics',
workers', landlord's, materialmen's, warehousemen's, carriers' or
other like Liens arising in the ordinary course of Borrower's
business with respect to obligations which are not due or which
are being contested in good faith by Borrower and by appropriate
proceedings and with respect to which proper reserves have been
taken by Borrower; (g) Liens placed upon fixed assets hereafter
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acquired to secure a portion of the purchase price thereof
(including under capitalized leases which are permitted under
Section 7.6 hereof), provided that (x) any such lien shall not
encumber any other property of Borrower and (y) the aggregate
amount of Indebtedness secured by such Liens incurred as a result
of such purchases during any fiscal year shall not exceed the
amount provided for in Section 7.6; (h) Liens disclosed on
Schedule 1.2; (i) zoning and municipal ordinances, easements,
rights-of-way, restrictions and other similar charges or
encumbrances not interfering in any material respect with the
ordinary conduct of business of Borrower or such other matters
affecting Real Property as Agent may consent to in writing; (j)
Liens arising from precautionary UCC financing statements
regarding operating leases or consignments; (k) Liens securing
hedge agreements entered into by Borrower to the extent such
agreements are permitted by Section 7.8 hereof; (l) Liens on
property or assets acquired pursuant to an acquisition or
investment permitted under Section 7.4 hereof, provided that (x)
such Liens are not incurred in connection with or in anticipation
of such permitted acquisition or permitted investment, (y) do not
attach to any other asset of the Borrower, and (z) the aggregate
amount of Indebtedness secured by such Liens incurred as a result
of such permitted investment or permitted acquisition during any
fiscal year shall not exceed the amount provided for in Section
7.4 hereof; (m) Liens consisting of rights of set-off of a
customary nature or bankers' liens on amounts on deposit (other
than the Blocked Account) arising by operation of law or
contract, incurred in the ordinary course of business; (n) Liens
encumbering customary initial deposits and margin deposits and
similar Liens attaching to commodity trading accounts or other
brokerage accounts incurred in the ordinary course of business to
the extent such Liens secure investments which are permitted
under Section 7.4 hereof; (o) Liens solely on any cash earnest
money deposits made by Borrower in connection with any letter of
intent or purchase agreement entered into by it in compliance
with acquisitions or investments permitted by Section 7.4 hereof;
(p) any interest or title of a licensor under any license
permitted by this Agreement provided that such interest shall not
extend to the proceeds of such license and provided, further,
that to the extent such license imposes restrictions that would
prevent the disposition by Agent of Inventory which is the
subject of such license or grants the licensor a Lien upon the
Inventory which is subject to such license, such Inventory shall
not be deemed "Eligible Inventory" hereunder; (q) the ownership
interest and title of a lessor or sublessor under any operating
lease which is permitted by this Agreement; and (r) Liens
incurred by Borrower with respect to liabilities and obligations
of Borrower to any Person (other than for Indebtedness for money
borrowed) which do not exceed $500,000 in the aggregate at any
time, provided that Borrower shall promptly notify Agent of the
existence of such Liens and there is sufficient availability to
establish reserves against borrowing availability under Section
2.1 hereof in an amount equal to the obligations secured by such
Liens.
"Person" shall mean any individual, sole
proprietorship, partnership, corporation, business trust, joint
stock company, trust, unincorporated organization, association,
limited liability company, institution, public benefit
corporation, joint venture, entity or government (whether
Federal, state, county, city, municipal or otherwise, including
any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean any employee benefit plan within the
meaning of Section 3(3) of ERISA other than a Multiemployer Plan,
maintained for employees of Borrower or any member of the
Controlled Group or any such Plan to which Borrower or any member
of the Controlled Group is required to contribute on behalf of
any of its employees.
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"Pledge Agreement" shall mean, collectively, the Pledge
Agreement dated as of the Closing Date between Agent and Borrower
and the Pledge and Security Agreement (Membership Interests)
dated as of the Closing Date pursuant to which Borrower shall
grant to Agent for its benefit and for the benefit of Lenders a
security interest in the issued and outstanding capital stock or
membership interests, as applicable, of its Subsidiaries listed
therein, as same may be amended, modified, restated or
supplemented from time to time.
"Preferred Stock" shall mean, collectively, the 12-1/2%
senior exchangeable preferred stock of Borrower, of which 274,632
shares are issued and outstanding as of the Closing Date.
"Pro Forma Balance Sheet" shall have the meaning set
forth in Section 5.5(a) hereof.
"Pro Forma Financial Statements" shall have the meaning
set forth in Section 5.5(b) hereof.
"Projections" shall have the meaning set forth in
Section 5.5(b) hereof.
"Purchasing Lender" shall have the meaning set forth in
Section 15.3 hereof.
"Questionnaire" shall mean the Documentation
Information Questionnaire and the responses thereto provided by
Borrower and delivered to Agent.
"RCRA" shall mean the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq., as same may be amended
from time to time.
"Real Property" shall mean all of Borrower's right,
title and interest in and to the owned and leased premises
identified on Schedule 4.19 hereto.
"Recapitalization Agreement" shall mean the Amended and
Restated Recapitalization Agreement including all schedules and
exhibits thereto dated as of February 1, 1998 by and among MEI,
MEI California, Inc., CEI and Borrower as amended, modified,
restated or supplemented from time to time to the extent not
prohibited by Section 7.18 hereof.
"Recapitalization Documentation" shall mean,
collectively, the Recapitalization Agreement and all other
agreements, instruments and documents executed in connection
therewith but excluding the Subordinated Note Documentation, this
Agreement and the Other Documents.
"Receivables" shall mean and include all of Borrower's
accounts, contract rights, instruments (including those
evidencing indebtedness owed to Borrower by its Affiliates),
documents, chattel paper, general intangibles relating to
accounts, drafts and acceptances, and all other forms of
obligations owing to Borrower arising out of or in connection
with the sale or lease of Inventory or the rendition of services,
all guarantees and other security therefor, whether secured or
unsecured, now existing or hereafter created, and whether or not
specifically sold or assigned to Agent hereunder.
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"Receivables Advance Rate" shall have the meaning set
forth in Section 2.1(a)(y)(i) hereof.
"Release" shall have the meaning set forth in Section
5.7(c)(i) hereof.
"Reportable Event" shall mean a reportable event
described in Section 4043(b) of ERISA or the regulations
promulgated thereunder.
"Required Lenders" shall mean Lenders holding at least
fifty-one percent (51%) of the Advances and, if no Advances are
outstanding, shall mean Lenders holding at least fifty-one
percent (51%) of the Commitment Percentages.
"Reserve Percentage" shall mean the maximum effective
percentage in effect on any day as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including, without
limitation, supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding.
"Revolving Advances" shall mean Advances made other
than Equipment Loans.
"Revolving Credit Note" shall mean, collectively, the
promissory notes referred to in Section 2.1(a) hereof.
"Revolving Interest Rate" shall mean an interest rate
per annum equal to (a) the Alternate Base Rate with respect to
Domestic Rate Loans or (b) the sum of the Eurodollar Rate plus
two and one quarter percent (2.25%) with respect to Eurodollar
Rate Loans.
"Section 20 Subsidiary" shall mean the Subsidiary of
the bank holding company controlling PNC, which Subsidiary has
been granted authority by the Federal Reserve Board to underwrite
and deal in certain Ineligible Securities.
"Senior Debt Payments" shall mean and include all cash
actually expended by Borrower to make (a) interest payments on
any Advances hereunder, plus, (b) scheduled principal payments on
the Equipment Loans, plus (c) payments for all fees, commissions
and charges set forth herein and with respect to any Advances
other than any such fees incurred as of the Closing Date in
connection with the consummation of the Transactions not to
exceed the aggregate amount of $1,000,000, plus (d) capitalized
lease payments, plus (e) payments with respect to any other
Indebtedness for borrowed money other than with respect to the
Subordinated Notes.
"Settlement Date" shall mean the Closing Date and
thereafter Wednesday of each week unless such day is not a
Business Day in which case it shall be the next succeeding
Business Day.
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"Subordinated Debt Payments" shall mean and include all
cash actually expended to make payments of principal and interest
on the Subordinated Notes.
"Subordinated Loan" shall mean the loan evidenced by
the Subordinated Notes.
"Subordinated Notes" shall mean, collectively, the
Fixed Rate Notes and the Floating Rate Notes.
"Subordinated Note Documentation" shall mean,
collectively, the Subordinated Notes, the Exchange Debentures,
the Indenture and the Exchange Indenture.
"Subordination Agreement" shall mean the provisions of
Article 10 of each of the Indenture and the Exchange Indenture.
"Subsidiary" of any Person shall mean a corporation or
other entity of whose shares of stock or other ownership
interests having ordinary voting power (other than stock or other
ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors
of such corporation, or other Persons performing similar
functions for such entity, are owned, directly or indirectly, by
such Person.
"Subsidiary Stock" shall mean all of the issued and
outstanding shares of stock or membership interests owned by
Borrower of its direct Subsidiaries listed on Schedule 5.2(b).
"Term" shall have the meaning set forth in Section 13.1
hereof.
"Termination Event" shall mean (i) a Reportable Event
with respect to any Plan or Multiemployer Plan; (ii) the
withdrawal of Borrower or any member of the Controlled Group from
a Plan or Multiemployer Plan during a plan year in which such
entity was a "substantial employer" as defined in Section
4001(a)(2) of ERISA; (iii) the providing of notice of intent to
terminate a Plan in a distress termination described in Section
4041(c) of ERISA; (iv) the institution by the PBGC of proceedings
to terminate a Plan or Multiemployer Plan; (v) any event or
condition (a) which would constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan or Multiemployer Plan, or (b) that
results in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA; or (vi) the partial or complete
withdrawal within the meaning of Sections 4203 and 4205 of ERISA,
of Borrower or any member of the Controlled Group from a
Multiemployer Plan.
"Transactions" shall have the meaning set forth in
Section 5.5 hereof.
"Transferee" shall have the meaning set forth in
Section 15.3(b) hereof.
"Trustee" shall mean the United States Trust Company of
New York and shall include its successors and assigns.
"Undrawn Availability" at a particular date shall mean
an amount equal to (a) the lesser of (i) the Formula Amount or
(ii) the Maximum Revolving Advance Amount, minus (b) the sum of
(i) the outstanding amount of Revolving Advances plus (ii) all
amounts due and owing to Borrower's trade creditors which are
outstanding more than sixty (60) days beyond the due date thereof
plus (iii) fees and expenses for which Borrower is liable
hereunder which are due and payable but which have not been paid
or charged to Borrower's Account.
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"Week" shall mean the time period commencing with the
opening of business on a Wednesday and ending on the end of
business the following Tuesday.
1.3. Uniform Commercial Code Terms. All terms used herein
and defined in the Uniform Commercial Code as adopted in the
State of New York shall have the meaning given therein unless
otherwise defined herein.
1.4. Certain Matters of Construction. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to
cover all genders. Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice
versa. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and
regulations. Unless otherwise provided, all references to any
instruments or agreements to which Agent is a party, including,
without limitation, references to any of the Other Documents,
shall include any and all modifications or amendments thereto and
any and all extensions or renewals thereof.
II. ADVANCES, PAYMENTS.
2.1. (a) Revolving Advances. Subject to the terms and
conditions set forth in this Agreement including, without
limitation, Section 2.1(b), each Lender, severally and not
jointly, will make Revolving Advances to Borrower in aggregate
amounts outstanding at any time equal to such Lender's Commitment
Percentage of the lesser of (x) the Maximum Revolving Advance
Amount or (y) an amount equal to the sum of:
(i) up to 85%, subject to the provisions of
Section 2.1(b) hereof ("Receivables Advance Rate"), of
Eligible Receivables, plus
(ii) up to the lesser of (A) (i) 20%, subject to
the provisions of Section 2.1(b) hereof ("Raw Material
Inventory Advance Rate"), of the value of Eligible
Inventory consisting of raw materials plus (ii) 60%,
subject to the provisions of Section 2.1(b) hereof
("Combined Inventory Advance Rate"), of the value of
Eligible Inventory consisting of work-in-process and
finished goods (the Receivables Advance Rate, the Raw
Material Inventory Advance Rate and the Combined
Inventory Advance Rate shall be referred to
collectively, as the "Advance Rates") or (B) the lesser
of (i) $10,000,000 (the "Inventory Cap") or (ii) 50% of
the amount derived from the sum of Sections
2.1(a)(y)(i) and (ii)(A) or (B)(i), in the aggregate at
any one time, minus
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(iii) such reserves as Agent may reasonably
deem proper and necessary from time to time.
The amount derived from the sum of (x) Sections 2.1(a)(y)(i)
and (ii) minus (y) Section 2.1 (a)(y)(iii) at any time and from
time to time shall be referred to as the "Formula Amount". The
Revolving Advances shall be evidenced by one or more secured
promissory notes (collectively, the "Revolving Credit Note")
substantially in the form attached hereto as Exhibit 2.1(a).
(b) Discretionary Rights. The Advance Rates may be
increased or decreased by Agent at any time and from time to time
in the good faith exercise of its reasonable discretion.
Borrower consents to any such increases or decreases and
acknowledges that decreasing the Advance Rates or imposing or
increasing reserves may limit or restrict Advances requested by
Borrower.
2.2. Procedure for Borrowing Advances.
(a) Borrower may notify Agent prior to 1:30 P.M. New
York Time on a Business Day of Borrower's request to incur, on
that day, a Revolving Advance hereunder. Subject to the
satisfaction of the conditions set forth in Section 8.3 hereof,
in the event Borrower desires an Equipment Loan, it shall give
Agent at least three (3) Business Days' prior written notice.
Should any amount required to be paid as principal or interest
hereunder, or as fees or other charges under this Agreement or
any Other Document, or with respect to any other Obligation,
become due, same shall be deemed a request for a Revolving
Advance as of the date such payment is due, in the amount
required to pay in full such principal, interest, fee, charge or
Obligation under this Agreement or any other agreement with Agent
or Lenders, and such request shall be irrevocable and such
amounts shall be charged to Borrower's Account as Revolving
Advances constituting Domestic Rate Loans.
(b) Notwithstanding the provisions of subsection (a)
above, in the event Borrower desires to obtain a Eurodollar Rate
Loan, Borrower shall give Agent at least three (3) Business Days'
prior written notice, specifying (i) the date of the proposed
borrowing (which shall be a Business Day), (ii) the type of
borrowing and the amount on the date of such Advance to be
borrowed, which amount shall be in a minimum amount of $250,000
and an integral multiples of $50,000 thereafter, and (iii) the
duration of the first Interest Period therefor. Interest Periods
for Eurodollar Rate Loans shall be for one, two or three months;
provided, if an Interest Period would end on a day that is not a
Business Day, it shall end on the next succeeding Business Day
unless such day falls in the next succeeding calendar month in
which case the Interest Period shall end on the next preceding
Business Day. No Eurodollar Rate Loan shall be made available to
Borrower during the continuance of a Default or an Event of
Default.
(c) Each Interest Period of a Eurodollar Rate Loan
shall commence on the date such Eurodollar Rate Loan is made and
shall end on such date as Borrower may elect as set forth in
subsection (b)(iii) above provided that the exact length of each
Interest Period shall be determined in accordance with the
practice of the interbank market for offshore Dollar deposits and
no Interest Period shall end after the last day of the Term.
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Borrower shall elect the initial Interest Period applicable
to a Eurodollar Rate Loan by its notice of borrowing given to
Agent pursuant to Section 2.2(b) or by its notice of conversion
given to Agent pursuant to Section 2.2(d), as the case may be.
Borrower shall elect the duration of each succeeding Interest
Period by giving irrevocable written notice to Agent of such
duration not less than three (3) Business Days prior to the last
day of the then current Interest Period applicable to such
Eurodollar Rate Loan. If Agent does not receive timely notice
of the Interest Period elected by Borrower, Borrower shall be
deemed to have elected to convert to a Domestic Rate Loan subject
to Section 2.2(d) hereinbelow.
(d) Provided that no Event of Default shall have
occurred and be continuing, Borrower may, subject to payment by
Borrower of any amounts due to Agent or any Lender under Section
2.2(f) hereof, convert any such loan into a loan of another type
in the same aggregate principal amount. If Borrower desires to
convert a loan, Borrower shall give Agent not less than three (3)
Business Days' prior written notice to convert from a Domestic
Rate Loan to a Eurodollar Rate Loan or one (1) Business Day's
prior written notice to convert from a Eurodollar Rate Loan to a
Domestic Rate Loan, specifying the date of such conversion, the
loans to be converted and if the conversion is from a Domestic
Rate Loan to any other type of loan, the duration of the first
Interest Period therefor. After giving effect to each such
conversion, there shall not be outstanding more than six (6)
Eurodollar Rate Loans, in the aggregate.
(e) At its option and upon three (3) Business Days'
prior written notice, Borrower may prepay the Eurodollar Rate
Loans in whole at any time or in part from time to time, without
premium or penalty, but with accrued interest on the principal
being prepaid to the date of such prepayment. Borrower shall
specify the date of prepayment of Advances which are Eurodollar
Rate Loans and the amount of such prepayment. In the event that
any prepayment of a Eurodollar Rate Loan is required or permitted
on a date other than the last Business Day of the then current
Interest Period with respect thereto, Borrower shall indemnify
Agent and Lenders therefor in accordance with Section 2.2(f)
hereof.
(f) Borrower shall indemnify Agent and Lenders and
hold Agent and Lenders harmless from and against any and all
losses (other than losses of anticipated profits) or expenses
that Agent and Lenders may sustain or incur as a consequence of
any prepayment, conversion of or any default by Borrower in the
payment of the principal of or interest on any Eurodollar Rate
Loan on any day other than the last day of an Interest Period or
failure by Borrower to complete a borrowing of, a prepayment of
or conversion of or to a Eurodollar Rate Loan after notice
thereof has been given on any day other than the last day of an
Interest Period, including, but not limited to, any interest
payable by Agent or Lenders to lenders of funds obtained by it in
order to make or maintain its Eurodollar Rate Loans hereunder. A
certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by Agent or any Lender to Borrower
shall be conclusive absent manifest error and shall be in
reasonable detail and with calculations and explanations of
claimed amounts and circumstances giving rise to such events.
(g) Notwithstanding any other provision hereof, if
after the date hereof, the adoption of any applicable law,
treaty, regulation or directive, or any change therein or in the
interpretation or application thereof, shall make it unlawful for
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any Lender (for purposes of this subsection (g), the term
"Lender" shall include any Lender and the office or branch where
any Lender or any corporation or bank controlling such Lender
makes or maintains any Eurodollar Rate Loans) to make or maintain
its Eurodollar Rate Loans, the obligation of such Lender to make
Eurodollar Rate Loans hereunder shall forthwith be cancelled and
Borrower shall, if any affected Eurodollar Rate Loans are then
outstanding, promptly upon request from Agent if then required by
law, either pay all such affected Eurodollar Rate Loans or
convert such affected Eurodollar Rate Loans into loans of another
type. If any such payment or conversion of any Eurodollar Rate
Loan is made on a day that is not the last day of the Interest
Period applicable to such Eurodollar Rate Loan, Borrower shall
pay Agent, upon Agent's request, such amount or amounts as may be
necessary to compensate Lenders for any loss (excluding any loss
of anticipated profits) or expense sustained or incurred by such
Lender in respect of such Eurodollar Rate Loan as a result of
such payment or conversion, including (but not limited to) any
interest or other amounts payable by Lenders to lenders of funds
obtained by Lenders in order to make or maintain such Eurodollar
Rate Loan. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by Lenders to
Borrower shall be conclusive absent manifest error and shall be
in reasonable detail and with calculations and explanations of
claimed amounts and circumstances giving rise to such events. If
Agent or any Lender claims that it is unlawful to make or
maintain its Eurodollar Loans, then Agent or such Lender shall
use reasonable efforts (consistent with internal policy and legal
and regulatory restrictions) to change the jurisdiction of its
lending office if it will permit Agent or such Lender (as the
case may be) to make or maintain such Eurodollar Rate Loans and
would not, in the reasonable judgment of Agent or such Lender (as
the case may be), be otherwise disadvantageous to Agent or such
Lender (as the case may be).
2.3. Disbursement of Advance Proceeds. All Advances shall
be disbursed from whichever office or other place Agent may
designate from time to time and, together with any and all other
Obligations of Borrower to Agent or Lenders, shall be charged to
Borrower's Account on Agent's books. During the Term, Borrower
may use the Revolving Advances by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions
hereof. The proceeds of each Revolving Advance requested by
Borrower or deemed to have been requested by Borrower under
Section 2.2(a) hereof shall, with respect to requested Revolving
Advances to the extent Lenders make such Revolving Advances, be
made available to Borrower on the day so requested by way of
credit to Borrower's operating account at PNC, or such other bank
as Borrower may designate following notification to Agent, in
immediately available federal funds or other immediately
available funds or, with respect to Revolving Advances deemed to
have been requested by Borrower, be disbursed to Agent to be
applied to the outstanding Obligations giving rise to such deemed
request.
2.4. Equipment Loans. (i) Subject to the terms and
conditions of this Agreement, each Lender, severally and not
jointly, shall, from time to time, make available Advances to
Borrower (each, an "Equipment Loan" and collectively, the
"Equipment Loans") to finance Borrower's purchase of Equipment
for use in Borrower's business during the first three Loan Years.
All such Equipment Loans shall be in such amounts as are
requested by Borrower, but in no event shall any Equipment Loan
exceed eighty-five percent (85%) of the net invoice cost
(excluding taxes, shipping, delivery, handling, installation,
overhead and other so called "soft" costs) of the Equipment then
to be purchased by Borrower and the total amount of all Equipment
Loans outstanding hereunder shall not exceed, in the aggregate,
the sum of Ten Million Dollars ($10,000,000). Once repaid
Equipment Loans may not be reborrowed.
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(ii) Advances constituting Equipment Loans shall
be accumulated during each twelve month period (each a "Borrowing
Period") during the first three Loan Years. The first Borrowing
Period shall commence on the Closing Date and end on February 25,
2000 (the "Initial Borrowing Period"). Each subsequent Borrowing
Period shall consist of twelve month periods commencing on
February 26 of each year. At the end of each Borrowing Period,
the sum of all Equipment Loans made during the Borrowing Period
shall amortize on the basis of an eighty-four (84) month schedule
(such amount as determined with respect to any Borrowing Period,
the "Amortization Amount"). Monthly principal payments will be
initially determined for the Equipment Loans made during the
Initial Borrowing Period and the amount of such monthly principal
payments shall be increased upon the completion of each such
subsequent Borrowing Period by the Amortization Amount for each
such subsequent Borrowing Period. The Equipment Loans shall be,
with respect to principal, payable in equal monthly installments
based upon the amortization schedule set forth above, commencing
on March 1, 2000 and on the first day of each month thereafter
with the balance payable upon the expiration of the Term, subject
to acceleration upon the occurrence of an Event of Default under
this Agreement or termination of this Agreement, and shall be
evidenced by one or more secured promissory notes (collectively,
the "Equipment Note"), executed by Borrower in substantially the
form annexed hereto as Exhibit 2.4.
2.5. Maximum Advances. The aggregate balance of Revolving
Advances outstanding at any time shall not exceed the lesser of
(a) the Maximum Revolving Advance Amount or (b) the Formula
Amount except with respect to overadvances which are knowingly
made by Agent and permitted pursuant to Section 15(b) hereof.
2.6. Repayment of Advances.
(a) The Revolving Advances shall be due and payable in
full on the last day of the Term subject to earlier prepayment as
herein provided. The Equipment Loans shall be due and payable as
provided in Section 2.4 hereof and in the Equipment Note.
(b) Borrower recognizes that the amounts evidenced by
checks, notes, drafts or any other items of payment relating to
and/or proceeds of Collateral may not be collectible by Agent on
the date received. In consideration of Agent's agreement to
conditionally credit Borrower's Account as of the Business Day on
which Agent receives those items of payment, Borrower agrees
that, in computing the charges under this Agreement, all items of
payment shall be deemed applied by Agent on account of the
Obligations one (1) Business Day after the Business Day Agent
receives such payments via wire transfer or electronic depository
check. Agent is not, however, required to credit Borrower's
Account for the amount of any item of payment which is
unsatisfactory to Agent in its reasonable and good faith business
judgment and Agent may charge Borrower's Account for the amount
of any item of payment which is returned to Agent unpaid.
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(c) All payments of principal, interest and other
amounts payable hereunder, or under any of the Other Documents
shall be made to Agent at the Payment Office not later than 2:00
P.M. (New York time) on the due date therefor in lawful money of
the United States of America in federal funds or other funds
immediately available to Agent. Agent shall have the right to
effectuate payment on any and all Obligations due and owing
hereunder by charging Borrower's Account or by making Advances as
provided in Section 2.2 hereof.
(d) Borrower shall pay principal, interest, and all
other amounts payable hereunder, or under any related agreement,
without any deduction whatsoever, including, but not limited to,
any deduction for any setoff or counterclaim, provided, however,
that with respect to amounts due to Agent or any Lender under
Section 3.7 hereof, Agent or such Lender shall only be entitled
to the payment of such amounts to the extent it complies with
Section 3.7(b) hereof.
2.7. Repayment of Excess Advances. The aggregate balance of
Advances outstanding at any time in excess of the maximum amount
of Advances permitted hereunder shall be immediately due and
payable without the necessity of any demand, at the Payment
Office, whether or not a Default or Event of Default has occurred
except with respect to overadvances which are knowingly made by
Agent and permitted pursuant to Section 15(b) hereof which shall
be due and payable at the sole and absolute discretion of Agent.
2.8. Statement of Account. Agent shall maintain, in
accordance with its customary procedures, a loan account
("Borrower's Account") in the name of Borrower in which shall be
recorded the date and amount of each Advance made by Agent and
the date and amount of each payment in respect thereof; provided,
however, the failure by Agent to record the date and amount of
any Advance shall not adversely affect Agent or any Lender. Each
month, Agent shall send to Borrower a statement showing the
accounting for the Advances made, payments made or credited in
respect thereof, and other transactions between Agent and
Borrower, during such month. The monthly statements shall be
deemed correct and binding upon Borrower in the absence of
manifest error and shall constitute an account stated between
Lenders and Borrower unless Agent receives a written statement of
Borrower's specific exceptions thereto within forty-five (45)
days after such statement is received by Borrower. The records
of Agent with respect to the loan account shall be conclusive
evidence absent manifest error of the amounts of Advances and
other charges thereto and of payments applicable thereto.
2.9. Additional Payments. Any sums expended by Agent or any
Lender due to Borrower's failure to perform or comply with its
obligations under this Agreement or any Other Document after all
applicable grace periods have expired including, without
limitation, Borrower's obligations under Sections 4.2, 4.4, 4.12,
4.13, 4.14 and 6.1 hereof, may be charged to Borrower's Account
as a Revolving Advance and added to the Obligations.
2.10. Manner of Borrowing and Payment.
(a) Each borrowing of Revolving Advances shall be
advanced according to the applicable Commitment Percentages of
Lenders. Each borrowing of Equipment Loans shall be advanced
according to the applicable Commitment Percentages of Lenders.
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(b) Each payment (including each prepayment) by
Borrower on account of the principal of and interest on the
Revolving Advances, shall be applied to the Revolving Advances
pro rata according to the applicable Commitment Percentages of
Lenders. Each payment (including each prepayment) by Borrower on
account of the principal of and interest on the Equipment Note,
shall be applied to that portion of the Equipment Loan evidenced
by the Equipment Note pro rata according to the Commitment
Percentages of Lenders. Except as expressly provided herein, all
payments (including prepayments) to be made by Borrower on
account of principal, interest and fees shall be made without set
off or counterclaim except as provided herein and shall be made
to Agent on behalf of the Lenders to the Payment Office, in each
case on or prior to 2:00 P.M., New York time, in Dollars and in
immediately available funds.
(c) (i) Notwithstanding anything to the contrary
contained in Sections 2.10(a) and (b) hereof, commencing with the
first Business Day following the Closing Date, each borrowing of
Revolving Advances shall be advanced by Agent and each payment by
Borrower on account of Revolving Advances shall be applied first
to those Revolving Advances advanced by Agent. On or before 2:00
P.M., New York time, on each Settlement Date commencing with the
first Settlement Date following the Closing Date, Agent and
Lenders shall make certain payments as follows: (I) if the
aggregate amount of new Revolving Advances made by Agent during
the preceding Week (if any) exceeds the aggregate amount of
repayments applied to outstanding Revolving Advances during such
preceding Week, then each Lender shall provide Agent with funds
in an amount equal to its applicable Commitment Percentage of the
difference between (w) such Revolving Advances and (x) such
repayments and (II) if the aggregate amount of repayments applied
to outstanding Revolving Advances during such Week exceeds the
aggregate amount of new Revolving Advances made during such Week,
then Agent shall provide each Lender with funds in an amount
equal to its applicable Commitment Percentage of the difference
between (y) such repayments and (z) such Revolving Advances.
(ii) Each Lender shall be entitled to earn
interest at the applicable Contract Rate on outstanding Advances
which it has funded.
(iii) Promptly following each Settlement Date,
Agent shall submit to each Lender a certificate with respect to
payments received and Advances made during the Week immediately
preceding such Settlement Date. Such certificate of Agent shall
be conclusive in the absence of manifest error.
(d) If any Lender or Participant (a "benefitted
Lender") shall at any time receive any payment of all or part of
its Advances, or interest thereon, or receive any Collateral in
respect thereof (whether voluntarily or involuntarily or by set-
off) in a greater proportion than any such payment to and
Collateral received by any other Lender, if any, in respect of
such other Lender's Advances, or interest thereon, and such
greater proportionate payment or receipt of Collateral is not
expressly permitted hereunder, such benefitted Lender shall
purchase for cash from the other Lenders a participation in such
portion of each such other Lender's Advances, or shall provide
such other Lender with the benefits of any such Collateral, or
the proceeds thereof, as shall be necessary to cause such
benefitted Lender to share the excess payment or benefits of such
Collateral or proceeds ratably with each of the other Lenders;
provided, however, that if all or any portion of such excess
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payment or benefits is thereafter recovered from such benefitted
Lender, such purchase shall be rescinded, and the purchase price
and benefits returned, to the extent of such recovery, but
without interest. Each Lender so purchasing a portion of another
Lender's Advances may exercise all rights of payment (including,
without limitation, rights of set-off) with respect to such
portion as fully as if such Lender were the direct holder of such
portion.
(e) Unless Agent shall have been notified by
telephone, confirmed in writing, by any Lender that such Lender
will not make the amount which would constitute its applicable
Commitment Percentage of the Advances available to Agent, Agent
may (but shall not be obligated to) assume that such Lender shall
make such amount available to Agent on the next Settlement Date
and, in reliance upon such assumption, make available to Borrower
a corresponding amount. Agent will promptly notify Borrower of
its receipt of any such notice from a Lender. If such amount is
made available to Agent on a date after such next Settlement
Date, such Lender shall pay to Agent on demand an amount equal to
the product of (i) the daily average Federal Funds Rate (computed
on the basis of a year of 360 days) during such period as quoted
by Agent, times (ii) such amount, times (iii) the number of days
from and including such Settlement Date to the date on which such
amount becomes immediately available to Agent. A certificate of
Agent submitted to any Lender with respect to any amounts owing
under this paragraph (e) shall be conclusive, in the absence of
manifest error. If such amount is not in fact made available to
Agent by such Lender within three (3) Business Days after such
Settlement Date, Agent shall be entitled to recover such an
amount, with interest thereon at the rate per annum then
applicable to such Revolving Advances hereunder, on demand from
Borrower; provided, however, that Agent's right to such recovery
shall not prejudice or otherwise adversely affect Borrower's
rights (if any) against such Lender.
2.11. Mandatory Prepayments. Subject to Section 4.3
hereof, when Borrower sells or otherwise disposes of any
Equipment which was financed by the proceeds of an Equipment
Loan, Borrower shall repay the Advances in an amount equal to the
net proceeds of such sale (i.e., gross proceeds less the
reasonable costs of such sales or other dispositions), such
repayments to be made promptly but in no event more than one (1)
Business Day following receipt of such net proceeds, and until
the date of payment, such proceeds shall be held in trust for
Agent. The foregoing shall not be deemed to be implied consent
to any such sale otherwise prohibited by the terms and conditions
hereof. Such repayments shall be applied (x) first, to the
outstanding principal installments of the Equipment Loans in the
inverse order of the maturities thereof and (y) second, to the
remaining Advances in such order as Agent may determine, subject
to Borrower's ability to reborrow Revolving Advances in
accordance with the terms hereof.
2.12. Use of Proceeds. Borrower shall apply the
proceeds of Advances to (i) repay existing indebtedness owed
under the Existing Credit Agreement, (ii) pay fees and expenses
relating to this transaction, and (iii) to provide for its
working capital needs and general corporate purposes, including,
without limitation, to make capital expenditures permitted by
Section 7.6 hereof, to make investments and acquisitions
permitted by Section 7.4 hereof, to make loans and advances to
other Persons permitted by Section 7.5 hereof and to make
payments on account of Subordinated Notes to the extent such
payments are permitted by Section 7.18 hereof.
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2.13. Defaulting Lender.
(a) Notwithstanding anything to the contrary contained
herein, in the event any Lender (x) has refused (which refusal
constitutes a breach by such Lender of its obligations under this
Agreement) to make available its portion of any Advance or (y)
notifies either Agent or Borrower that it does not intend to make
available its portion of any Advance (if the actual refusal would
constitute a breach by such Lender of its obligations under this
Agreement) (each, a "Lender Default"), all rights and obligations
hereunder of such Lender (a "Defaulting Lender") as to which a
Lender Default is in effect and of the other parties hereto shall
be modified to the extent of the express provisions of this
Section 2.13 while such Lender Default remains in effect.
(b) Advances shall be incurred pro rata from Lenders
(the "Non-Defaulting Lenders") which are not Defaulting Lenders
based on their respective Commitment Percentages, and no
Commitment Percentage of any Lender or any pro rata share of any
Advances required to be advanced by any Lender shall be increased
as a result of such Lender Default. Amounts received in respect
of principal of any type of Advances shall be applied to reduce
the applicable Advances of each Lender pro rata based on the
aggregate of the outstanding Advances of that type of all Lenders
at the time of such application; provided, that, such amount
shall not be applied to any Advances of a Defaulting Lender at
any time when, and to the extent that, the aggregate amount of
Advances of any Non-Defaulting Lender exceeds such Non-Defaulting
Lender's Commitment Percentage of all Advances then outstanding.
Upon the occurrence and during the continuance of a Lender
Default, a Defaulting Lender shall not be entitled to receive its
pro rata portion of any fees due hereunder, provided, however,
that the foregoing limitation shall not affect the right of any
Non-Defaulting Lender to receive its pro rata portion of any fees
due hereunder.
(c) A Defaulting Lender shall not be entitled to give
instructions to Agent or to approve, disapprove, consent to or
vote on any matters relating to this Agreement and the Other
Documents. All amendments, waivers and other modifications of
this Agreement and the Other Documents may be made without regard
to a Defaulting Lender and, for purposes of the definition of
"Required Lenders", a Defaulting Lender shall be deemed not to be
a Lender and not to have Advances outstanding.
(d) Other than as expressly set forth in this Section
2.13, the rights and obligations of a Defaulting Lender
(including the obligation to indemnify Agent) and the other
parties hereto shall remain unchanged. Nothing in this Section
2.13 shall be deemed to release any Defaulting Lender from its
obligations under this Agreement and the Other Documents, shall
alter such obligations, shall operate as a waiver of any default
by such Defaulting Lender hereunder, or shall prejudice any
rights which Borrower, Agent or any Lender may have against any
Defaulting Lender as a result of any default by such Defaulting
Lender hereunder.
(e) In the event a Defaulting Lender retroactively
cures to the satisfaction of Agent the breach which caused a
Lender to become a Defaulting Lender, such Defaulting Lender
shall no longer be a Defaulting Lender and shall be treated as a
Lender under this Agreement.
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(f) In the event a Defaulting Lender fails to
retroactively cure, to the satisfaction of Agent and Borrower,
the breach which caused a Lender to become a Defaulting Lender
within five (5) days of the occurrence of such default (the "Cure
Period"), then Agent may, but shall not be obligated to, require
such Defaulting Lender to assign its interest in the Advances to
PNC or to another financial institution designated by Agent which
is consented to by Borrower (in accordance with, and to the
extent required by, Section 15.3(c) hereof) (the "Designated
Lender") for a purchase price equal to the outstanding principal
amount of all Advances made by such Defaulting Lender plus
accrued and unpaid interest and fees (other than any unused
facility fees due during the continuance of such Lender Default)
due to such Defaulting Lender, which interest and fees shall be
paid to the Defaulting Lender when collected from Borrower. In
the event Agent so elects to require any Defaulting Lender to
assign its interest to PNC or to the Designated Lender, as
applicable, PNC will notify such Defaulting Lender at any time
after the expiration of the Cure Period, and such Defaulting
Lender shall assign its interest to PNC or the Designated Lender,
as applicable, no later than five (5) days following receipt of
such notice pursuant to a Commitment Transfer Supplement executed
by such Defaulting Lender, PNC or the Designated Lender, as
applicable, and Agent. Upon (i) the execution of the Commitment
Transfer Supplement, (ii) payment of the purchase price set forth
above, (iii) recordation of the assignment in the Register by
Agent pursuant to Section 15.3(d), and (iv) if so requested by
PNC or the Designated Lender (as applicable), receipt by such
Person of replacement Notes, PNC or the Designated Lender (as
applicable) shall increase its Commitment Percentage hereunder or
shall become a Lender hereunder, respectively, and the Defaulting
Lender shall cease to be a Lender hereunder except with respect
to indemnification provisions set forth herein.
(g) In addition to the provisions set forth in clause
(f) above, so long as no Default or Event of Default shall have
occurred and be continuing, in the event that (i) any Lender
becomes a Defaulting Lender and Agent does not elect to require
such Defaulting Lender to assign its interest to PNC or to a
Designated Lender, (ii) upon the occurrence of an event giving
rise to the operation of Section 3.7 which results in any Lender
charging Borrower increased costs in excess of those generally
charged by the other Lenders or Section 3.8 which results in
Eurodollar Rate Loans being unavailable to Borrower or (iii)
Agent requests the consent of a Lender pursuant to Section 15.2
and such Lender refuses to give its consent and the Required
Lenders have consented to such request, then Borrower shall have
the right to replace such Lender ("Replaced Lender") with a
financial institution ("New Lender") selected by Borrower and
consented and agreed to by Agent (which consent shall not be
unreasonably withheld). The New Lender shall acquire the
Replaced Lender's interest in the Loans at a purchase price equal
to outstanding principal amount of all Advances made by such
Replaced Lender plus accrued and unpaid interest and fees due
hereunder including such Replaced Lender's pro rata portion of
the early termination fee set forth in Section 13.1 hereof and
any unused facility fees so long as such Replaced Lender was not
a Defaulting Lender at the time of such replacement. In the
event that Borrower elects to replace a Lender hereunder,
Borrower will notify Agent and such Replaced Lender within five
(5) days of the occurrence of any event specified in clause (i),
(ii) or (iii) above, and such Replaced Lender will assign its
interest to the New Lender within five (5) days following receipt
of such notice from Borrower pursuant to a Commitment Transfer
Supplement executed by such Replaced Lender, the New Lender and
Agent. Upon (i) the execution of the Commitment Transfer
Supplement, (ii) payment of the purchase price set forth above,
(iii) recordation of the assignment in the Register by Agent
pursuant to Section 15.3(d), and (iv) if so requested by the New
Lender, receipt by such New Lender of replacement Notes, such New
Lender shall become a Lender hereunder and the Replaced Lender
shall cease to be a Lender hereunder except with respect to
indemnification provisions set forth herein.
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III. INTEREST AND FEES.
3.1. Interest. Interest on Advances shall be payable in
arrears on the first day of each month with respect to Domestic
Rate Loans and, with respect to Eurodollar Rate Loans, at the end
of each Interest Period. Interest charges shall be computed on
the actual principal amount of Advances outstanding during the
month at a rate per annum equal to (i) with respect to Revolving
Advances, the applicable Revolving Interest Rate and (ii) with
respect to the Equipment Loans, the applicable Equipment Loan
Rate (as applicable, the "Contract Rate"). Whenever, subsequent
to the date of this Agreement, the Alternate Base Rate is
increased or decreased, the applicable Contract Rate for Domestic
Rate Loans shall be similarly changed without notice or demand of
any kind by an amount equal to the amount of such change in the
Alternate Base Rate during the time such change or changes remain
in effect. The Eurodollar Rate shall be adjusted with respect to
Eurodollar Rate Loans without notice or demand of any kind on the
effective date of any change in the Reserve Percentage as of such
effective date. Upon and after the occurrence of an Event of
Default, and during the continuation thereof, (i) the Obligations
shall bear interest at the applicable Contract Rate plus two
percent (2%) per annum (the "Default Rate").
3.2. Fee Letter. Borrower shall pay the fees set forth in
the Fee Letter in accordance with the provisions thereof.
3.3. Facility Fee. If, for any month during the Term, the
average daily unpaid balance of the Revolving Advances and
Equipment Loans for each day of such month does not equal the
Maximum Loan Amount, then Borrower shall pay to Agent for the
ratable benefit of Lenders a fee at a rate equal to three-eighths
of one percent (.375%) per annum on the amount by which the
Maximum Loan Amount exceeds such average daily unpaid balance.
Such fee shall be payable to Agent in arrears on the last day of
each fiscal quarter.
3.4. Intentionally Omitted.
3.5. Computation of Interest and Fees. Interest and fees
hereunder shall be computed on the basis of a year of 360 days
and for the actual number of days elapsed. If any payment to be
made hereunder becomes due and payable on a day other than a
Business Day, the due date thereof shall be extended to the next
succeeding Business Day or, solely with respect to Eurodollar
Rate Loans, the due date thereof shall be on the immediately
preceding Business Day if the end of the Interest Period relating
thereto falls in the next succeeding calendar month and interest
thereon shall be payable at the applicable Contract Rate for
Domestic Rate Loans during such extension.
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3.6. Maximum Charges. In no event whatsoever shall interest
and other charges charged hereunder exceed the highest rate
permissible under law. In the event interest and other charges as
computed hereunder would otherwise exceed the highest rate
permitted under law, such excess amount shall be first applied to
any unpaid principal balance owed by Borrower, and if the then
remaining excess amount is greater than the previously unpaid
principal balance, Lenders shall promptly refund such excess
amount to Borrower and the provisions hereof shall be deemed
amended to provide for such permissible rate.
3.7. Increased Costs. (a) Subject to the provisions of
Section 3.7(b), in the event that after the date hereof the
adoption of any applicable law, treaty or governmental
regulation, or any change therein or in the interpretation or
application thereof, or compliance by any Lender (for purposes of
this Section 3.7, the term "Lender" shall include Agent or any
Lender and any corporation or bank controlling Agent or any
Lender) and the office or branch where Agent or any Lender (as so
defined) makes or maintains any Eurodollar Rate Loans with any
request or directive (whether or not having the force of law)
from any central bank or other financial, monetary or other
authority, shall:
(i) subject Agent or any Lender to any tax of any
kind whatsoever with respect to this Agreement or any Other
Document or change the basis of taxation of payments to Agent or
any Lender of principal, fees, interest or any other amount
payable hereunder or under any Other Documents (except for tax on
or measured by the overall net income or profits of Agent or any
Lender by the jurisdiction in which it is organized or
incorporated, maintains its principal office or its applicable
lending office subject to Section 3.7(c) below);
(ii) impose, modify or hold applicable any
reserve, special deposit, assessment or similar requirement
against assets held by, or deposits in or for the account of,
Eurodollar Rate Loans by the applicable lending office of Agent
or any Lender (including, without limitation pursuant to
Regulation D of the Board of Governors of the Federal Reserve
System); or
(iii) impose on Agent or any Lender or the
London interbank Eurodollar market any other condition relating
to Eurodollar Rate Loans in general;
and the result of any of the foregoing is to increase the cost to
Agent or any Lender of making, renewing or maintaining its
Advances hereunder by an amount that Agent or such Lender deems
to be material or to reduce the amount of any payment (whether of
principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be
material, then, in any case Borrower shall promptly pay Agent or
such Lender, after its demand, such additional amount as will
compensate Agent or such Lender for such additional cost or such
reduction, as the case may be, provided that the foregoing shall
not apply to increased costs which are reflected in the
Eurodollar Rate, as the case may be. Agent or such Lender shall
certify the amount of such additional cost or reduced amount to
Borrower, and such certification shall be conclusive absent
manifest error and shall be in reasonable detail and with
calculations and explanations of claimed amounts and
circumstances giving rise to such events.
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(b) A Lender shall be entitled to payment under
Section 3.7(a)(i) only if it has complied with this Section
3.7(b). Each Lender that is not incorporated under the laws of
the United States of America or a state thereof agrees that it
will deliver to Borrower and Agent (i) two duly completed copies
of United States Internal Revenue Service Form 1001 or 4224 or
successor applicable form, establishing that payments of interest
hereunder are either not subject to or totally exempt from United
States Federal withholding tax and (ii) a duly completed Internal
Revenue Service Form W-8 or W-9 or successor applicable form.
Each such Lender also agrees to deliver to Borrower and Agent two
further copies of the said Form 1001 or 4224 and Form W-8 or W-9,
or successor applicable forms or other manner of certification,
as the case may be, on or before the date that any such form
expires or becomes obsolete (provided that a request has been
made by Borrower) or after the occurrence of any event requiring
a change in the most recent form previously delivered by it to
Borrower, and such extensions or renewals thereof as may
reasonably be requested by Borrower or Agent, unless in any such
case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on
which any such delivery would otherwise be required which renders
any such forms inapplicable or which would prevent such Lender
from duly completing and delivering any such form with respect to
it and such Lender so advises each of Borrower and Agent. Each
Lender shall promptly notify Borrower at any time if it
determines that it is no longer in a position to provide any
previously delivered certificates to Borrower (or any other form
of certification adopted by the United States taxing authorities
for such purpose). Each such Lender shall certify (i) in the
case of Form 1001, that it is entitled to receive payments under
this Agreement without deduction or withholding of any United
States federal income taxes, (ii) in the case of a Form 4224,
that the interest paid hereunder is effectively connected with
the conduct of such Lender's trade or business in the United
States, and (iii) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding
tax. Borrower's obligation under paragraph (a) of this Section
3.7 shall be in effect with respect to a Lender only during the
period(s) in which such Lender establishes that it is exempt from
withholding of all United States federal income taxes with
respect to such payments in accordance with the foregoing
procedures or such other procedures as may be promulgated by the
United States Treasury Department or Internal Revenue Service.
Each Lender shall, to the extent it is legally required to do so,
deliver to Borrower or Agent (as the case may be) such other
forms or similar documentation as may be required from time to
time by any applicable law, treaty, rule or regulation in order
to establish such Lender's complete or partial exemption from
withholding on all payments under this Agreement or the Notes.
(c) If Agent or any Lender claims any additional
amounts payable pursuant to this Section 3.7, then Agent or such
Lender shall use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the
jurisdiction of its lending office if the making of such a change
would avoid the need for, or reduce the amount of, any such
additional amounts which may thereafter accrue and would not, in
the reasonable judgment of Agent or such Lender (as the case may
be), be otherwise disadvantageous to Agent or such Lender (as the
case may be).
3.8. Basis For Determining Interest Rate Inadequate or
Unfair. In the event that Agent shall have determined that:
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(a) reasonable means do not exist for ascertaining the
Eurodollar Rate applicable pursuant to Section 2.2 hereof for any
Interest Period; or
(b) Dollar deposits in the relevant amount and for the
relevant maturity are not available in the London interbank
Eurodollar market, with respect to an outstanding Eurodollar Rate
Loan, a proposed Eurodollar Rate Loan, or a proposed conversion
of a Domestic Rate Loan into a Eurodollar Rate Loan;
then Agent shall give Borrower prompt written, telephonic or
telegraphic notice of such determination. If such notice is
given, (i) any such requested Eurodollar Rate Loan shall be made
as a Domestic Rate Loan, unless Borrower shall notify Agent no
later than 10:00 a.m. (New York City time) two (2) Business Days
prior to the date of such proposed borrowing, that its request
for such borrowing shall be cancelled or made as an unaffected
type of Eurodollar Rate Loan, (ii) any Domestic Rate Loan or
Eurodollar Rate Loan which was to have been converted to an
affected type of Eurodollar Rate Loan shall be continued as or
converted into a Domestic Rate Loan, or, if Borrower shall notify
Agent, no later than 10:00 a.m. (New York City time) two (2)
Business Days prior to the proposed conversion, shall be
maintained as an unaffected type of Eurodollar Rate Loan, and
(iii) any outstanding affected Eurodollar Rate Loans shall be
converted into a Domestic Rate Loan, or, if Borrower shall notify
Agent, no later than 10:00 a.m. (New York City time) two (2)
Business Days prior to the last Business Day of the then current
Interest Period applicable to such affected Eurodollar Rate Loan,
shall be converted into an unaffected type of Eurodollar Rate
Loan, on the last Business Day of the then current Interest
Period for such affected Eurodollar Rate Loans. Until such
notice has been withdrawn, Lenders shall have no obligation to
make an affected type of Eurodollar Rate Loan or maintain
outstanding affected Eurodollar Rate Loans and Borrower shall not
have the right to convert a Domestic Rate Loan or an unaffected
type of Eurodollar Rate Loan into an affected type of Eurodollar
Rate Loan.
3.9. Capital Adequacy.
(a) In the event that Agent or any Lender shall have
determined that after the date hereof the adoption of any
applicable law, rule, regulation or guideline regarding capital
adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Agent
or any Lender (for purposes of this Section 3.9, the term
"Lender" shall include Agent or any Lender and any corporation or
bank controlling Agent or any Lender) and the office or branch
where Agent or any Lender (as so defined) makes or maintains any
Eurodollar Rate Loans with any request or directive regarding
capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on Agent or any
Lender's capital as a consequence of its obligations hereunder to
a level below that which Agent or such Lender could have achieved
but for such adoption, change or compliance (taking into
consideration Agent's and each Lender's policies with respect to
capital adequacy) by an amount deemed by Agent or any Lender to
be material, then, from time to time, Borrower shall promptly pay
after demand to Agent or such Lender such additional amount or
amounts as will compensate Agent or such Lender for such
reduction. In determining such amount or amounts, Agent or such
Lender may use any reasonable averaging or attribution methods.
The protection of this Section 3.9 shall be available to Agent
and each Lender regardless of any possible contention of
invalidity or inapplicability with respect to the applicable law,
regulation or condition.
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(b) A certificate of Agent or such Lender setting
forth such amount or amounts as shall be necessary to compensate
Agent or such Lender with respect to Section 3.9(a) hereof when
delivered to Borrower shall be conclusive absent manifest error
and shall be in reasonable detail and with calculations and
explanations of claimed amounts and circumstances giving rise to
such events.
3.10. Limitation on Additional Amounts, etc.
Notwithstanding anything to the contrary contained in this
Agreement, unless a Lender gives notice to Borrower that it is
obligated to pay to such Lender any amounts due under Sections
2.2(f), 3.7, 3.8 or 3.9 within 90 days after the date Lender
incurs the respective increased costs, taxes, loss, expense or
liability, reduction in amounts received or to be received or
reduction in return on capital, then such Lender shall only be
entitled to be compensated for such amount by Borrower pursuant
to such Section to the extent the costs, taxes, loss, expense or
liability, reduction in amounts received or to be received or
reduction in return on capital are incurred or suffered on or
after the date which occurs 90 days prior to such Lender giving
notice to Borrower that it is obligated to pay the respective
amounts pursuant to such Section. Each Lender, in determining
additional amounts owing under Sections 2.2(f), 3.7, 3.8 or 3.9,
will act reasonably and in good faith and to the extent the
increased costs or reductions in amounts received or reduction in
return on capital relate to such Lender's loans or commitments in
general and not specifically attributable to the Advances or
commitments hereunder, will use reasonable averaging and
attribution methods which cover all advances similar to the
Advances made, issued or participated in by such Lender whether
or not the documentation for such other advances permit such
Lender to receive amounts of the type described in such Sections.
IV. COLLATERAL: GENERAL TERMS
4.1. Security Interest in the Collateral. To secure the
prompt payment and performance to Agent and each Lender of the
Obligations, Borrower hereby collaterally assigns, pledges and
grants to Agent for its benefit and for the ratable benefit of
each Lender a continuing security interest in and to all of its
Collateral, whether now owned or existing or hereafter acquired
or arising and wheresoever located. Borrower shall mark its
books and records as may be necessary or appropriate to evidence,
protect and perfect Agent's security interest and shall cause its
financial statements to reflect such security interest.
4.2. Perfection of Security Interest. Borrower shall take
all action that may be necessary, or that Agent may reasonably
request, so as at all times to maintain the validity, perfection,
enforceability and priority (subject to clauses (c), (g), (l),
(m), (n), (o), or (r) of the definition of Permitted
Encumbrances) of Agent's security interest in the Collateral or
to enable Agent to protect, exercise or enforce its rights
hereunder and in the Collateral, including, but not limited to,
(i) immediately discharging all Liens other than Permitted
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Encumbrances, (ii) using commercially reasonable efforts to
obtain landlords' or mortgagees' lien waivers, provided, however,
that in the event Borrower fails to obtain such waivers in form
and substance satisfactory to Agent, Agent shall have the right
to establish reserves against borrowing availability under
Section 2.1 hereof, (iii) delivering to Agent, endorsed or
accompanied by such instruments of assignment as Agent may
specify, and stamping or marking, in such manner as Agent may
specify, any and all chattel paper, instruments, letters of
credits and advices thereof and documents evidencing or forming a
part of the Collateral (other than checks and other instruments
for deposit unless required to do so under Section 4.15(d)
hereof), (iv) entering into warehousing and other custodial
arrangements satisfactory to Agent, and (v) executing and
delivering financing statements, instruments of pledge,
mortgages, notices and assignments, in each case in form and
substance satisfactory to Agent, relating to the creation,
validity, perfection, maintenance or continuation of Agent's
security interest under the Uniform Commercial Code or other
applicable law. Agent is hereby authorized to file financing
statements signed by Agent instead of Borrower in accordance with
Section 9-402(2) of the Uniform Commercial Code as adopted in the
State of New York. All charges, expenses and fees Agent may
incur in doing any of the foregoing, and any local taxes relating
thereto, shall be charged to Borrower's Account as a Revolving
Advance of a Domestic Rate Loan and added to the Obligations, or,
at Agent's option, shall be paid to Agent for the ratable benefit
of Lenders immediately upon demand.
4.3. Disposition of Collateral. Borrower will safeguard and
protect all Collateral for Agent's general account and make no
disposition thereof whether by sale, lease or otherwise except
(a) the sale of Inventory in the ordinary course of business, (b)
the disposition or transfer of Equipment which was purchased with
the proceeds of an Equipment Loan in the ordinary course of
business only to the extent that (i) the proceeds of such sale
are remitted to Agent to be applied pursuant to Section 2.11 and
(ii) the aggregate amount of such net proceeds received by
Borrower in connection with such sale equals or exceeds the
outstanding balance of the Equipment Loan used to purchase such
Equipment, (c) the disposition or transfer of Equipment other
than Equipment which was purchased with the proceeds of an
Equipment Loan in the ordinary course of business during any
fiscal year having an aggregate fair market value of not more
than $5,000,000 and only to the extent that the proceeds of any
such disposition are used to acquire assets (and such acquisition
occurs within 180 days of such disposition or transfer) which are
subject to Agent's security interest which shall have first
priority to the extent Agent had a first priority security
interest in the assets which were disposed of, or transferred,
(d) the grant of licenses with respect to the General Intangibles
in the ordinary course of Borrower's business provided that Agent
shall have a first priority security interest in the proceeds of
such licenses; (e) the sale of obsolete or worn out Collateral
other than Equipment which was purchased by the proceeds of an
Equipment Loan; (f) lease as lessor or lessee or the grant or
receipt of licenses as licensor or licensee of real or personal
property (including intellectual property) in the ordinary course
of business so long as Agent retains a security interest in the
proceeds of any such lease or license and provided, that, to the
extent such licensor imposes restrictions that would prevent the
disposition by Agent of Inventory which is the subject of such
license, such Inventory shall not be deemed "Eligible Inventory"
hereunder until written consent is received from such licensor in
form and substance satisfactory to Agent; (g) the sale or other
transfer to any Subsidiary of Equipment which was not purchased
by the proceeds of an Equipment Loan in the ordinary course of
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business during any fiscal year having an aggregate fair market
value of not more than $5,000,000 net of the fair market value of
all assets sold or transferred by such Subsidiary to Borrower;
(h) transactions which are permitted under Sections 7.1 and 7.4
hereof; (i) the sale of non-core assets acquired in connection
with acquisitions and investments permitted under Section 7.4
hereof; (j) sale or discount of Receivables in connection with
the collection or compromise thereof, provided that such
Receivables shall not constitute "Eligible Receivables" hereunder
and Agent shall have a first priority security interest in the
proceeds of such Receivables; and (k) sales, transfers or other
dispositions of Equipment, Inventory and other property to a
Subsidiary of Borrower which property was purchased by Borrower
in its capacity as purchasing agent for such Subsidiary, and
provided, that (i) the purchase price for such property paid by
such Subsidiary is not less than the purchase price Borrower paid
for such property, (ii) Borrower segregates such property from
the Collateral and (iii) such property shall not be deemed
"Eligible Receivables" or "Eligible Inventory" hereunder. To the
extent Lenders waive the provisions of this Section with respect
to the sale or other disposition of any Collateral, or any
Collateral is sold or disposed of as permitted by this Section,
such Collateral in each case shall be sold, or otherwise disposed
of, free and clear of the Liens created by this Agreement and the
Other Documents and Agent shall take such actions as are
reasonably appropriate in connection therewith; provided,
however, that the Liens created by this Agreement or the Other
Documents shall attach to the proceeds arising from such sale or
disposition.
4.4. Preservation of Collateral. During the continuance of
an Event of Default in addition to the rights and remedies set
forth in Section 11.1 hereof, Agent: (a) may at any time take
such steps as Agent deems necessary to protect Agent's interest
in and to preserve the Collateral, including the hiring of such
security guards or the placing of other security protection
measures as Agent may deem appropriate; (b) may employ and
maintain at any of Borrower's premises a custodian who shall have
full authority to do all acts necessary to protect Agent's
interests in the Collateral; (c) may lease warehouse facilities
to which Agent may move all or part of the Collateral; (d) may
use Borrower's owned or leased lifts, hoists, trucks and other
facilities or equipment for handling or removing the Collateral;
and (e) shall have, and is hereby granted, a right of ingress and
egress to the places where the Collateral is located, and may
proceed over and through any of Borrower's owned or leased
property. Borrower shall cooperate fully with all of Agent's
efforts to preserve the Collateral and will take such actions to
preserve the Collateral as Agent may direct. All of Agent's
reasonable expenses of preserving the Collateral, including any
expenses relating to the bonding of a custodian, shall be charged
to Borrower's Account as a Revolving Advance of a Domestic Rate
Loan and added to the Obligations.
4.5. Ownership of Collateral. With respect to the
Collateral, at the time the Collateral becomes subject to Agent's
security interest: (a) Borrower shall be the sole owner of and
fully authorized and able to sell, transfer, pledge and/or grant
a first priority security interest (subject to Liens which are
Permitted Encumbrances under clauses (c), (g), (l), (m), (n), (o)
or (r) of the definition thereof) in each and every item of the
its respective Collateral to Agent; and, except for Permitted
Encumbrances the Collateral shall be free and clear of all Liens
and encumbrances whatsoever; (b) all signatures and endorsements
of Borrower that appear on such documents and agreements shall be
genuine and Borrower shall have full capacity to execute same;
and (c) Borrower's Equipment and Inventory shall be located as
set forth on Schedule 4.5 and shall not be removed from such
location(s) without the prior written consent of Agent except
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with respect to (i) the sale of Inventory in the ordinary course
of business and Equipment to the extent permitted in Section 4.3
hereof, (ii) Equipment which is located at any location other
than as set forth on Schedule 4.5 for repairs, refurbishment or
processing, provided, however, in the event that Borrower
anticipates that such Equipment is kept at such location for a
period of ninety (90) days or more, Borrower shall execute all
UCC-1 financing statements necessary in order for Agent to
maintain a first priority perfected security interest therein and
provided that such Inventory shall not be deemed "Eligible
Inventory" unless Agent receives a waiver letter from such
processor pursuant to which such processor waives all Liens it
may have in such Inventory or Equipment, (iii) motor vehicles
owned by Borrower, and (iv) Inventory sold on consignment or held
by a third party for display or demonstration not to exceed the
fair market value of $500,000 in the aggregate in any fiscal year
provided that Borrower shall indicate on the applicable Borrowing
Base Certificate the aggregate amount of such Inventory as of the
date such Borrowing Base Certificate was prepared and such
Inventory shall not be deemed "Eligible Inventory" hereunder.
4.6. Defense of Agent's and Lenders' Interests. Until (a)
payment and performance in full of all of the Obligations (other
than indemnity obligations with respect to which no claim has
been made) and (b) termination of this Agreement, Agent's
interests in the Collateral shall continue in full force and
effect. During such period Borrower shall not, without Agent's
prior written consent, pledge, sell (except Inventory in the
ordinary course of business and other Collateral to the extent
permitted in Section 4.3 hereof), assign, transfer ownership,
create or suffer to exist a Lien upon or encumber or allow or
suffer to be encumbered in any way except for Permitted
Encumbrances, any part of the Collateral. Borrower shall defend
Agent's interests in the Collateral against any and all Persons
whatsoever. At any time during the continuance of an Event of
Default and demand by Agent for payment of all Obligations, Agent
shall have the right to take possession of the indicia of the
Collateral and the Collateral in whatever physical form
contained, including without limitation: labels, stationery,
documents, instruments and advertising materials. If Agent
exercises this right to take possession of the Collateral,
Borrower shall, upon demand, assemble it in the best manner
possible and make it available to Agent at a place reasonably
convenient to Agent. In addition, with respect to all
Collateral, Agent and Lenders shall be entitled to all of the
rights and remedies set forth herein and further provided by the
Uniform Commercial Code or other applicable law. During the
continuance of an Event of Default, Borrower shall, at Agent's
request, and Agent may, at its option, instruct all suppliers,
carriers, forwarders, warehousers or others receiving or holding
cash, checks, Inventory, documents or instruments in which Agent
holds a security interest to deliver same to Agent and/or subject
to Agent's order and if they shall come into Borrower's
possession, they, and each of them, shall be held by Borrower in
trust as Agent's trustee, and Borrower will immediately deliver
them to Agent in their original form together with any necessary
endorsement.
4.7. Books and Records. Borrower shall (a) keep proper
books of record and account in which full, true and correct
entries will be made of all dealings or transactions of or in
relation to its business and affairs; (b) set up on its books
accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its
books, from its earnings, allowances against doubtful
Receivables, advances and investments and all other proper
accruals (including without limitation by reason of enumeration,
accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of
properties), which should be set aside from such earnings in
connection with its business. All determinations pursuant to
this subsection shall be made in accordance with, or as required
by, GAAP consistently applied in the opinion of such independent
public accountant as shall then be regularly engaged by Borrower.
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4.8. Financial Disclosure. Borrower hereby irrevocably
authorizes and directs all accountants and auditors employed by
Borrower at any time during the Term to exhibit and deliver to
Agent and each Lender copies of any of Borrower's financial
statements and trial balances and to disclose to Agent and each
Lender any information such accountants may have concerning
Borrower's financial status and business operations. Borrower
hereby authorizes all federal, state and municipal authorities to
furnish to Agent and each Lender copies of reports or
examinations relating to Borrower, whether made by Borrower or
otherwise; however, Agent and each Lender will attempt to obtain
such information or materials directly from Borrower prior to
obtaining such information or materials from such accountants or
such authorities.
4.9. Compliance with Laws. Borrower shall comply in all
material respects with all acts, rules, regulations and orders of
any legislative, administrative or judicial body or official
applicable to the Collateral or any part thereof or to the
operation of Borrower's business the non-compliance with which
could reasonably be expected to have a Material Adverse Effect on
Borrower. Borrower may, however, contest or dispute any acts,
rules, regulations, orders and directions of those bodies or
officials in any reasonable manner, provided that any related
Lien is inchoate or stayed and sufficient reserves are
established to the reasonable satisfaction of Agent to protect
Agent's Lien on or security interest in the Collateral. The
assets of Borrower at all times shall be maintained in accordance
with the requirements of all insurance carriers which provide
insurance with respect to the assets of Borrower so that such
insurance shall remain in full force and effect.
4.10. Inspection of Premises. At all reasonable times
during regular business hours (and after the occurrence of an
Event of Default at any time) Agent and each Lender shall have
full access to and the right to audit, check, inspect and make
abstracts and copies from Borrower's books, records, audits,
correspondence and all other papers relating to the Collateral
and the operation of Borrower's business, provided, however, that
Agent shall use its best efforts to ensure that the other Lenders
make their visits at the same time as Agent visits Borrower's
premises. Agent, any Lender and their agents may enter upon any
of Borrower's premises at any time during business hours and at
any other reasonable time, and from time to time (and after the
occurrence of a Default or Event of Default at any time), for the
purpose of inspecting the Collateral and any and all records
pertaining thereto and the operation of Borrower's business.
4.11. Insurance. (a) Borrower shall bear the full risk
of any loss of any nature whatsoever with respect to the
Collateral. At Borrower's own cost and expense in amounts and
with carriers acceptable to Agent, Borrower shall (i) keep all
its insurable properties and properties in which Borrower has an
interest insured against the hazards of fire, flood, sprinkler
leakage, those hazards covered by extended coverage insurance and
such other hazards, and for such amounts, as is customary in the
case of companies engaged in businesses similar to Borrower's
including, without limitation, business interruption insurance;
(ii) maintain insurance in such amounts as is customary in the
case of companies engaged in businesses similar to Borrower
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insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may
either singly or jointly with others at any time have access to
the assets or funds of Borrower either directly or through
authority to draw upon such funds or to direct generally the
disposition of such assets; (iii) maintain public and product
liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such
worker's compensation or similar insurance as may be required
under the laws of any state or jurisdiction in which Borrower is
engaged in business; (v) furnish Agent with (1) copies of all
policies within thirty (30) days of the Closing Date and evidence
of the maintenance of such policies by the renewal thereof at
least thirty (30) days before any expiration date, and (2)
appropriate loss payable endorsements in form and substance
satisfactory to Agent, naming Agent as a co-insured and loss
payee as its interests may appear with respect to all insurance
coverage referred to in clauses (i) and (iii) above, and
providing (A) that all proceeds thereunder shall be payable to
Agent, (B) no such insurance shall be affected by any act or
neglect of the insured or owner of the property described in such
policy, and (C) that such policy and loss payable clauses may not
be cancelled, amended or terminated unless at least thirty (30)
days' prior written notice is given to Agent. In the event of
any loss thereunder, the carriers named therein hereby are
directed by Agent and Borrower to make payment for such loss to
Agent and not to Borrower and Agent jointly. If any insurance
losses are paid by check, draft or other instrument payable to
Borrower and Agent jointly, Agent may endorse Borrower's name
thereon and do such other things as Agent may deem advisable to
reduce the same to cash. During an Event of Default, Agent is
hereby authorized to adjust and compromise claims under insurance
coverage referred to in clauses (i) and (iii) above. Subject to
clause (b) below, all loss recoveries received by Agent upon any
such insurance shall be applied to the Obligations (x) if the
insurance proceeds are received with respect to Equipment which
was financed through the proceeds of an Equipment Loan, first to
the outstanding principal installments of the Equipment Loans in
the inverse order of the maturities thereof and second, to the
outstanding Revolving Advances in such order as Agent may
determine, subject to Borrower's ability to reborrow Revolving
Advances in accordance with the terms hereof and (ii) if the
insurance proceeds received are with respect to any other
Collateral to the outstanding Revolving Advances, subject to
Borrower's ability to reborrow Revolving Advances in accordance
with the terms hereof. Any surplus shall be paid by Agent to
Borrower or applied as may be otherwise required by law.
(b) Anything hereinabove to the contrary
notwithstanding, and subject to the fulfillment of the conditions
set forth below, Agent shall remit to Borrower insurance proceeds
received by Agent during any calendar year under insurance
policies procured and maintained by Borrower which insure
Borrower's insurable properties (other than insurance proceeds
received with respect to Equipment which was financed by an
Equipment Loan) to the extent such insurance proceeds do not
exceed $10,000,000 in the aggregate during such calendar year or
$5,000,000 per occurrence. The agreement of Agent to remit
insurance proceeds in the manner above provided shall be subject
in each instance to satisfaction of each of the following
conditions: (x) no Event of Default or Default shall then have
occurred, (y) Borrower shall use such insurance proceeds to
repair, replace or restore the insurable property which was the
subject of the insurable loss and for no other purpose and (z) at
the time of receipt by Agent of such insurance proceeds, Borrower
has Undrawn Availability of at least $5,000,000 during the ninety
(90) days following the Closing Date and $10,000,000 thereafter.
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4.12. Failure to Pay Insurance. If Borrower fails to
obtain insurance as hereinabove provided, or to keep the same in
force, Agent, if Agent so elects, may obtain such insurance and
pay the premium therefor on behalf of Borrower, and charge
Borrower's Account therefor as a Revolving Advance of a Domestic
Rate Loan and such expenses so paid shall be part of the
Obligations.
4.13. Payment of Taxes. Borrower will pay, when due,
all taxes, assessments and other Charges lawfully levied or
assessed upon Borrower or any of the Collateral including,
without limitation, real and personal property taxes, assessments
and charges and all franchise, income, employment, social
security benefits, withholding, and sales taxes unless Borrower
shall be contesting or disputing such taxes, assessments or
Charges in good faith, by expeditious protest, administrative or
judicial appeal or similar proceedings and, provided, further,
that (i) (a) any related tax Lien shall have no effect on the
priority of the Liens in favor of Agent or the value of the
assets in which Agent has a Lien, (b) a stay of enforcement of
any such tax Lien is in effect and (c) sufficient reserves are
established by Borrower to the reasonable satisfaction of Agent
or (ii) any related Tax lien shall fall within the basket
permitted by clause (r) of the definition of Permitted
Encumbrances. If any tax by any governmental authority is or may
be imposed on or as a result of any transaction between Borrower
and Agent or any Lender which Agent or any Lender may be required
to withhold or pay (other than (x) income taxes or (y)
withholding taxes incurred by a Lender which is not incorporated
under the laws of the United States of America or a state
thereof) or if any taxes, assessments, or other Charges remain
unpaid after the date fixed for their payment, or if any claim
shall be made which, in Agent's or any Lender's opinion, may
possibly create a valid Lien on the Collateral, Agent may without
notice to Borrower pay the taxes, assessments or other Charges
and Borrower hereby indemnifies and holds Agent and each Lender
harmless in respect thereof. Agent will not pay any taxes,
assessments or Charges to the extent that Borrower has contested
or disputed those taxes, assessments or Charges in good faith, by
expeditious protest, administrative or judicial appeal or similar
proceeding provided that any related tax lien is stayed and
sufficient reserves are established to the reasonable
satisfaction of Agent to protect Agent's security interest in or
Lien on the Collateral. The amount of any payment by Agent under
this Section 4.13 shall be charged to Borrower's Account as a
Revolving Advance of a Domestic Rate Loan and added to the
Obligations and, until Borrower shall furnish Agent with an
indemnity therefor (or supply Agent with evidence satisfactory to
Agent that due provision for the payment thereof has been made),
Agent may hold without interest any balance standing to
Borrower's credit and Agent shall retain its security interest in
any and all Collateral held by Agent.
4.14. Payment of Leasehold Obligations. Borrower shall
at all times pay, when and as due after giving effect to all
applicable grace periods, its rental obligations under all leases
under which it is a tenant, unless Borrower shall be contesting
or disputing the payment of such rental obligations in good faith
by expeditious protest and has established sufficient reserves to
the reasonable satisfaction of Agent and any related Lien which
may arise falls within the basket permitted by clause (r) of the
definition of Permitted Encumbrances, and shall otherwise comply,
in all material respects, with all other terms of such leases
and, at Agent's request, will provide evidence of having done so.
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4.15. Receivables.
(a) Nature of Receivables. Each of the Receivables
shall be a bona fide and valid account representing a bona fide
indebtedness incurred by the Customer therein named, for a fixed
sum as set forth in the invoice relating thereto (provided
immaterial or unintentional invoice errors shall not be deemed to
be a breach hereof) with respect to an absolute sale or lease and
delivery of goods upon stated terms of Borrower, or work, labor
or services theretofore rendered by Borrower as of the date each
Receivable is created. Same shall be due and owing in accordance
with Borrower's standard terms of sale or other applicable
agreements without dispute, setoff or counterclaim except as may
be stated on the accounts receivable schedules delivered by
Borrower to Agent.
(b) Solvency of Customers. Each Customer, to the best
of Borrower's knowledge, as of the date each Receivable is
created, is and will be solvent and able to pay all Receivables
on which the Customer is obligated in full when due or with
respect to such Customers of Borrower who are not solvent
Borrower has set up on its books and in its financial records bad
debt reserves adequate to cover such Receivables.
(c) Locations of Borrower. Borrower's chief executive
office is located at 16399 Franklin Road, Nampa, Idaho 83687.
Until written notice is given to Agent by Borrower of any other
office at which Borrower keeps its records pertaining to
Receivables, all such records shall be kept at such executive
office.
(d) Collection of Receivables. Until Borrower's
authority to do so is terminated by Agent (which notice Agent may
give at any time during the continuance of an Event of Default),
Borrower will, at Borrower's sole cost and expense, but on
Agent's behalf and for Agent's account, collect as Agent's
property and in trust for Agent all amounts received on
Receivables, and shall not commingle such collections with
Borrower's funds or use the same except to pay Obligations.
Borrower shall deposit in the Blocked Account, or upon the
continuance of an Event of Default upon Agent's request deliver
to Agent, in original form and on the date of receipt thereof,
all checks, drafts, notes, money orders, acceptances, cash and
other evidences of Indebtedness.
(e) Notification of Assignment of Receivables. At any
time during the occurrence of an Event of Default, Agent shall
have the right to send notice of the assignment of, and Agent's
security interest in, the Receivables to any and all Customers or
any third party holding or otherwise concerned with any of the
Collateral. Thereafter, Agent shall have the sole right to
collect the Receivables, take possession of the Collateral, or
both. Agent's actual collection expenses, including, but not
limited to, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any
collection personnel used for collection, may be charged to
Borrower's Account and added to the Obligations.
(f) Power of Agent to Act on Borrower's Behalf. Agent
shall have the right to receive, endorse, assign and/or deliver
in the name of Agent or Borrower any and all checks, drafts and
other instruments for the payment of money relating to the
Receivables, and Borrower hereby waives notice of presentment,
protest and non-payment of any instrument so endorsed. Borrower
hereby constitutes Agent or Agent's designee as Borrower's
attorney with power (i) to endorse Borrower's name upon any
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notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral; (ii) to sign Borrower's name
on any invoice or bill of lading relating to any of the
Receivables, drafts against Customers, assignments and
verifications of Receivables; (iii) to send verifications of
Receivables to any Customer, provided, however that absent the
occurrence and continuation of a Default or Event of Default,
Agent shall send no more than one such verification in any
calendar quarter; (iv) to sign Borrower's name on all financing
statements or any other documents or instruments deemed necessary
or appropriate by Agent to preserve, protect, or perfect Agent's
interest in the Collateral and to file same; (v) to demand
payment of the Receivables; (vi) to enforce payment of the
Receivables by legal proceedings or otherwise; (vii) to exercise
all of Borrower's rights and remedies with respect to the
collection of the Receivables and any other Collateral; (viii) to
settle, adjust, compromise, extend or renew the Receivables; (ix)
to settle, adjust or compromise any legal proceedings brought to
collect Receivables; (x) to prepare, file and sign Borrower's
name on a proof of claim in bankruptcy or similar document
against any Customer; (xi) to prepare, file and sign Borrower's
name on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with the Receivables; and (xii) to
do all other acts and things Agent deems are necessary in its
reasonable business judgment to carry out this Agreement. All
acts of said attorney or designee are hereby ratified and
approved, and said attorney or designee shall not be liable for
any acts of omission or commission nor for any error of judgment
or mistake of fact or of law, unless done maliciously or with
gross (not mere) negligence; this power being coupled with an
interest is irrevocable while any of the Obligations remain
unpaid. Agent shall not exercise its power with respect to
clauses (i), (ii), (v), (vi), (vii), (viii), (ix), (x) or (xi)
unless an Event of Default shall have occurred and be continuing.
Agent shall have the right at any time during the continuation of
an Event of Default, to change the address for delivery of mail
addressed to Borrower to such address as Agent may designate and
to receive, open and dispose of all mail addressed to Borrower.
(g) No Liability. Neither Agent nor any Lender shall,
under any circumstances or in any event whatsoever, have any
liability for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any of the
Receivables or any instrument received in payment thereof (other
than amounts actually received by Agent), or for any damage
resulting therefrom (other than damages from the gross (not mere)
negligence or willful misconduct of Agent or such Lender).
Following the occurrence and during the continuation of an Event
of Default Agent may, without notice or consent from Borrower,
sue upon or otherwise collect, extend the time of payment of,
compromise or settle for cash, credit or upon any terms any of
the Receivables or any other securities, instruments or insurance
applicable thereto and/or release any obligor thereof. Agent is
authorized and empowered to accept on behalf of Borrower
following the occurrence and during the continuation of an Event
of Default the return of the goods represented by any of the
Receivables, without notice to or consent by Borrower, all
without discharging or in any way affecting Borrower's liability
hereunder.
(h) Establishment of a Dominion Account. All proceeds
of Collateral shall be deposited by Borrower into a dominion
account or such other "blocked account" ("Blocked Accounts") as
Agent may require pursuant to an arrangement with such bank as
may be selected by Borrower and be acceptable to Agent. Borrower
shall issue to any such bank, an irrevocable letter of
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instruction directing said bank to transfer such funds so
deposited to Agent, either to any account maintained by Agent at
said bank or by wire transfer to appropriate account(s) of Agent.
All funds deposited in such Blocked Accounts shall immediately
become the property of Agent and Borrower shall obtain the
agreement by such bank to waive any offset rights against the
funds so deposited except with respect to fees or returned or
unpaid items and then only to the extent that such bank charges
such amounts to an operating account of Borrower maintained at
such bank prior to offsetting the Blocked Account. Neither Agent
nor any Lender assumes any responsibility for such Blocked
Accounts arrangement, including without limitation, any claim of
accord and satisfaction or release with respect to deposits
accepted by any bank thereunder. Alternatively, Agent may
establish depository accounts ("Depository Accounts") in the name
of Agent at a bank or banks for the deposit of such funds and
Borrower shall deposit all proceeds of Collateral or cause same
to be deposited, in kind, in such Depository Accounts of Agent in
lieu of depositing same to the Blocked Accounts.
(i) Adjustments. Borrower will not, without Agent's
consent, compromise or adjust any material amount of the
Receivables (or extend the time for payment thereof) or accept
any material returns of merchandise or grant any material
additional discounts, allowances or credits thereon except for
those compromises, adjustments, returns, discounts, credits and
allowances as have been heretofore customary in the business of
Borrower.
4.16. Inventory. To the extent Inventory held for sale
or lease has been produced by Borrower, it has been and will be
produced by Borrower in accordance with the Federal Fair Labor
Standards Act of 1938, as amended, and all rules, regulations and
orders thereunder.
4.17. Maintenance of Equipment. All necessary and
useful Equipment and all Equipment which was financed through the
proceeds of an Equipment Loan shall be maintained in good
operating condition and repair (reasonable wear and tear excepted
and casualty damage excepted to the extent such damages are
covered by insurance) and all necessary replacements of and
repairs thereto shall be made so that the value and operating
efficiency of such Equipment shall be maintained and preserved.
Borrower shall use and operate the Equipment in compliance with
all laws, statutes, ordinances, codes, rules or regulations where
the failure to comply could reasonably be expected to have a
Material Adverse Effect. Borrower shall have the right to sell
Equipment to the extent set forth in Section 4.3 hereof.
4.18. Exculpation of Liability. Nothing herein
contained shall be construed to constitute Agent or any Lender as
Borrower's agent for any purpose whatsoever, nor shall Agent or
any Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the
cause thereof so long as Agent has acted in a commercially
reasonable manner. Neither Agent nor any Lender, whether by
anything herein or in any assignment or otherwise, assume any of
Borrower's obligations under any contract or agreement assigned
to Agent or such Lender, and neither Agent nor any Lender shall
be responsible in any way for the performance by Borrower of any
of the terms and conditions thereof.
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4.19. Environmental Matters. (a) Borrower shall ensure
that the Real Property remains in compliance with all
Environmental Laws and it shall not place or permit to be placed
any Hazardous Substances on any Real Property unless the
placement of such Hazardous Materials is not prohibited by any
Environmental Law where any failure to comply with the foregoing
could reasonably be expected to result in a Material Adverse
Effect.
(b) Borrower shall establish and maintain a system to
reasonably assure and monitor continued compliance with all
applicable Environmental Laws which system shall include periodic
reviews of such compliance.
(c) Borrower shall (i) employ in connection with the
use of the Real Property such appropriate technology which in
good faith judgment of Borrower is necessary to maintain
compliance with any applicable Environmental Laws, (ii) dispose
of any and all Hazardous Waste generated at the Real Property in
quantities beyond those that would impose upon Borrower an
immaterial liability only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable
Environmental Law (to the extent such Hazardous Waste is not
treated by Borrower itself in accordance with applicable law) and
(iii) use commercially reasonable efforts to obtain certificates
of disposal, such as hazardous waste manifest receipts, from all
treatment, transport, storage or disposal facilities or operators
employed by Borrower in connection with the transport or disposal
of any Hazardous Waste generated at the Real Property, unless the
failure to do any of the foregoing could not reasonably be
expected to result in a Material Adverse Effect.
(d) In the event Borrower obtains, gives or receives
notice of any Release or threat of Release of a reportable
quantity of any Hazardous Substances at the Real Property (any
such event being hereinafter referred to as a "Hazardous
Discharge") or receives any notice of violation, request for
information or notification as to whether it is potentially
responsible for investigation or cleanup of environmental
conditions at the Real Property, demand letter or complaint,
order, citation, or other written notice with regard to any
Hazardous Discharge or violation of Environmental Laws affecting
the Real Property or Borrower's interest therein (any of the
foregoing is referred to herein as an "Environmental Complaint")
from any state or local agency responsible in whole or in part
for environmental matters in the jurisdiction in which the Real
Property is located or the United States Environmental Protection
Agency (any such agency hereinafter the "Authority") and the
adverse consequences associated with any such Hazardous Discharge
or Environmental Complaint could reasonably be expected to result
in a Material Adverse Effect, then Borrower shall, within ten
(10) Business Days, give written notice of same to Agent
reasonably setting forth facts and circumstances of which
Borrower is aware giving rise to the Hazardous Discharge or
Environmental Complaint. Such information is to be provided to
allow Agent to protect its security interest in the Real
Property, if any, and the Collateral and is not intended to
create nor shall it create any obligation upon Agent or any
Lender with respect thereto.
(e) With respect to any Environmental Complaint
covered by clause (d) above which could reasonably be expected to
result in a Material Adverse Effect, Borrower shall promptly
forward to Agent copies of any notification of potential
liability or demand letter from the Authority relating to
potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated
or used by Borrower to dispose of Hazardous Substances and shall
continue to forward copies of material correspondence between
Borrower and the Authority regarding such Environmental Complaint
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to Agent until the Environmental Complaint is settled. Borrower
shall promptly forward to Agent copies of all material documents
and reports concerning a Hazardous Discharge at the Real Property
that Borrower is required to file with an Authority under any
Environmental Laws. Such information is to be provided solely to
allow Agent to protect Agent's security interest in the Real
Property, if any, and the Collateral.
(f) Borrower shall respond promptly to any Hazardous
Discharge or Environmental Complaint where the failure to comply
with the Environmental Laws relating to such Hazardous Discharge
or Environmental Complaint could reasonably be expected to result
in a Material Adverse Effect, and in connection with such
response, take all necessary action in order to safeguard the
health of any Person and to avoid subjecting the Collateral or
Real Property to any Lien (other than Permitted Encumbrances).
If Borrower shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint or Borrower shall fail to
comply with any of the requirements of any Environmental Laws
(where such failure could reasonably be expected to result in a
Material Adverse Effect), then Agent on behalf of Lenders may,
but without the obligation to do so, for the sole purpose of
protecting Agent's interest in the Collateral: (A) give such
notices or (B) enter onto the Real Property (or authorize third
parties to enter onto the Real Property) and take such actions as
Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to appropriately remediate any
such Hazardous Discharge or the violations or non-compliance
specified in such Environmental Complaint. All reasonable costs
and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums
paid in connection with any judicial or administrative
investigation or proceedings, fines and penalties, together with
interest thereon from the date expended at the Default Rate for
Domestic Rate Loans constituting Revolving Advances shall be paid
upon demand by Borrower, and until paid shall be added to and
become a part of the Obligations secured by the Liens created by
the terms of this Agreement or any other agreement between Agent,
any Lender and Borrower.
(g) Promptly upon the written request of Agent from
time to time (which request shall only be given by Agent (after
the occurrence and during the continuation of an Event of Default
and any non-compliance with any Environmental Law which could
reasonably be expected to result in a Material Adverse Effect),
Borrower shall provide Agent, at Borrower's expense, with an
environmental site assessment or environmental audit report
prepared by an environmental engineering firm acceptable in the
reasonable opinion of Agent, to assess with a reasonable degree
of certainty the subject matter of the alleged breach and the
potential costs in connection with abatement, cleanup and removal
of any Hazardous Substances found on, under, at or within the
Real Property relating to such breach. Any report or
investigation of such Hazardous Discharge proposed and acceptable
to an appropriate Authority that is charged to oversee the clean-
up of such Hazardous Discharge shall be acceptable to Agent. If
such environmental site assessment or audit report indicates,
individually or in the aggregate, that the cost of remediation
would exceed $2,500,000, then Agent shall establish a reserve
against borrowing availability under Section 2.1(a) hereof for
the amount of such costs, and if Undrawn Availability is less
than $2,500,000 at such time, then Agent shall have the right to
require Borrower to post a bond, letter of credit or other
security reasonably satisfactory to Agent to secure payment of
these costs and expenses.
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(h) Borrower shall defend and indemnify Agent and
Lenders and hold Agent, Lenders and their respective employees,
agents, directors and officers harmless from and against all
loss, liability, damage and expense, claims, costs, fines and
penalties, including reasonable attorney's fees, suffered or
incurred by Agent or Lenders under or on account of any
Environmental Laws, including, without limitation, the assertion
of any Lien thereunder, with respect to any Hazardous Discharge,
the presence of any Hazardous Substances affecting the Real
Property, whether or not the same originates or emerges from the
Real Property or any contiguous real estate, except to the extent
such loss, liability, damage and expense is attributable to any
Hazardous Discharge resulting from actions on the part of Agent
or any Lender or the gross (not mere) negligence or willful
misconduct of Agent or such Lender. Borrower's obligations under
this Section 4.19 shall arise upon the discovery of the presence
of any Hazardous Substances at the Real Property, whether or not
any federal, state, or local environmental agency has taken or
threatened any action in connection with the presence of any
Hazardous Substances. Borrower's obligation and the
indemnifications hereunder shall survive the termination of this
Agreement.
(i) For purposes of Section 4.19 and 5.7, all
references to Real Property shall be deemed to include all of
Borrower's right, title and interest in and to its owned and
leased premises.
4.20. Financing Statements. Except as respects the
financing statements filed by Agent and the financing statements
described on Schedule 1.2, no financing statement covering any of
the Collateral or any proceeds thereof is on file in any public
office other than under clauses (g), (j), (l) or (n) of the
definition of Permitted Encumbrances.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1. Authority. Borrower has full power, authority and
legal right to enter into this Agreement and the Other Documents
and to perform all its Obligations hereunder and thereunder.
This Agreement and the Other Documents constitute the legal,
valid and binding obligation of Borrower enforceable in
accordance with their terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, moratorium or
similar laws affecting creditors' rights generally. The
execution, delivery and performance of this Agreement and of the
Other Documents (a) are within Borrower's corporate powers, have
been duly authorized, are not in contravention of law or the
terms of Borrower's by-laws, certificate of incorporation or
other applicable documents relating to Borrower's formation or to
the conduct of Borrower's business or of any material agreement
or undertaking to which Borrower is a party or by which Borrower
is bound, and (b) will not conflict with nor result in any breach
in any of the provisions of or constitute a default under or
result in the creation of any Lien except Permitted Encumbrances
upon any asset of Borrower under the provisions of any agreement,
charter document, instrument, by-law, or other instrument to
which Borrower is a party or by which it or its property may be
bound.
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5.2. Formation and Qualification. (a) Borrower is duly
incorporated and in good standing under the laws of the state of
Idaho and is qualified to do business and is in good standing in
the states listed on Schedule 5.2(a) which constitute all states
in which qualification and good standing are necessary for
Borrower to conduct its business and own its property and where
the failure to so qualify could reasonably be expected to have a
Material Adverse Effect on Borrower. Borrower has delivered to
Agent true and complete copies of its certificate of incorpora
tion and by-laws and will promptly notify Agent of any amendment
or changes thereto.
(b) The only Subsidiaries of Borrower are listed on
Schedule 5.2(b).
5.3. Survival of Representations and Warranties. All
representations and warranties of Borrower contained in this
Agreement and the Other Documents shall be true at the time of
Borrower's execution of this Agreement and the Other Documents,
and shall survive the execution, delivery and acceptance thereof
by the parties thereto and the closing of the transactions
described therein or related thereto but shall not survive the
termination of this Agreement.
5.4. Tax Returns. Borrower's federal tax identification
number is 82-0480109. Borrower has filed all federal, state and
local tax returns and other material reports it is required by
law to file and has paid all taxes, assessments, fees and other
governmental charges that are due and payable except to the
extent that Borrower shall be contesting or disputing such taxes,
assessments, fees and other governmental charges in good faith,
by expeditious protest, administrative or judicial appeal or
similar proceedings and, provided, further, that (i) (a) any
related tax Lien shall have no effect on the priority of the
Liens in favor of Agent or the value of the assets in which Agent
has a Lien, (b) a stay of enforcement of any such tax Lien is in
effect and (c) sufficient reserves are established by Borrower to
the reasonable satisfaction of agent or (ii) any related Tax lien
falls within the basket permitted by clause (r) of the definition
of Permitted Encumbrances. Federal, state and local income tax
returns of Borrower have been examined and reported upon by the
appropriate taxing authority or closed by applicable statute and
satisfied for all fiscal years prior to and including the fiscal
year ending August 31, 1993. The provision for taxes on the
books of Borrower is adequate for all years not closed by
applicable statutes, and for its current fiscal year, and
Borrower has no knowledge of any deficiency or additional
assessment in connection therewith not provided for on its books.
5.5. Financial Statements.
(a) The pro forma balance sheet of Borrower (the "Pro
Forma Balance Sheet") furnished to Agent on the Closing Date
reflects the consummation of the transactions contemplated under
this Agreement (the "Transactions") and is, in Borrower's good
faith judgment, accurate, complete and correct and fairly
reflects in all material respects the financial condition of
Borrower as of the Closing Date after giving effect to the
Transactions. The Pro Forma Balance Sheet has been certified as
accurate, complete and correct in all material respects by the
Chief Financial Officer of Borrower.
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(b) The twelve-month cash flow projections of Borrower
and its projected balance sheets as of the Closing Date, copies
of which are annexed hereto as Exhibit 5.5(b) (the "Projections")
were prepared by the Chief Financial Officer of Borrower, are
based in Borrower's good faith judgment on underlying assumptions
which provide a reasonable basis for the projections contained
therein which are based on circumstances existing at the time
made. The cash flow Projections together with the Pro Forma
Balance Sheet, are referred to as the "Pro Forma Financial
Statements".
(c) The consolidated and consolidating balance sheets
of Borrower, its Subsidiaries and such other Persons described
therein (including the accounts of all Subsidiaries for the
respective periods during which a subsidiary relationship
existed) as of September 3, 1998, and the related statements of
income, changes in stockholder's equity, and changes in cash flow
for the period ended on such date, all accompanied by reports
thereon containing opinions without qualification by independent
certified public accountants, copies of which have been delivered
to Agent, have been prepared in accordance with GAAP,
consistently applied (except for changes in application in which
such accountants concur and present fairly in all material
respects the financial position of Borrower and its Subsidiaries
at such date and the results of their operations for such period.
Except as set forth on Schedule 5.5(c), since December 3, 1998
there has been no change in the condition, financial or
otherwise, of Borrower and its Subsidiaries as shown on the
consolidated balance sheet as of such date and no change in the
aggregate value of machinery, equipment and Real Property owned
by Borrower and its Subsidiaries, except changes in the ordinary
course of business, none of which individually or in the
aggregate has been materially adverse.
5.6. Corporate Name. Except as set forth on Schedule 5.6,
Borrower has not been known by any other corporate name in the
past five years and does not sell Inventory under any other name,
nor has Borrower been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets
of any Person during the preceding five (5) years.
5.7. O.S.H.A. and Environmental Compliance.
(a) Borrower has duly complied with, and its
facilities, business, assets, property, leaseholds and Equipment
are in compliance in all material respects with, the provisions
of the Federal Occupational Safety and Health Act, the
Environmental Protection Act, RCRA and all other Environmental
Laws except as set forth on Schedule 5.7 hereto or where the
failure to so comply could not reasonably be expected to result
in a Material Adverse Effect; there are no outstanding citations,
notices or orders of non-compliance issued to Borrower or
relating to its business, assets, property, leaseholds or
Equipment under any such laws, rules or regulations which could
reasonably be expected to result in a Material Adverse Effect.
(b) Borrower has been issued all required federal,
state and local licenses, certificates or permits relating to all
applicable Environmental Laws except where failure to have such
licenses, certificates or permits could not reasonably be
expected to result in a Material Adverse Effect.
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(c) Except as set forth on Schedule 5.7(c) or where
the presence of any Hazardous Substances could not reasonably be
expected to result in a Material Adverse Effect, (i) there are no
visible signs of releases, spills, discharges, leaks or disposal
(collectively referred to as "Releases") of Hazardous Substances
at, upon, under or within any Real Property or any premises
leased by Borrower; (ii) there are no underground storage tanks
or polychlorinated biphenyls on the Real Property or any premises
leased by Borrower; (iii) to the best of Borrower's knowledge
following diligent inquiry, neither the Real Property nor any
premises leased by Borrower has ever been used as a treatment,
storage or disposal facility of Hazardous Waste; and (iv) no
Hazardous Substances are present on the Real Property or any
premises leased by Borrower, excepting such quantities as are
handled in accordance with all applicable manufacturer's
instructions and governmental regulations and in proper storage
containers and as are necessary for the operation of the
commercial business of Borrower or of its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness or
Default.
(a) After giving effect to the Transactions, Borrower
will be solvent, able to pay its debts as they mature, have
capital sufficient to carry on its business and all businesses in
which it is about to engage, and (i) as of the Closing Date, the
fair present saleable value of its assets, calculated on a going
concern basis, is in excess of the amount of its liabilities and
(ii) subsequent to the Closing Date, the fair saleable value of
its assets (calculated on a going concern basis) will be in
excess of the amount of its liabilities.
(b) Except as disclosed in Schedule 5.8(b), Borrower
has no (i) pending or threatened litigation, arbitration, actions
or proceedings which are reasonably likely to have a Material
Adverse Effect on Borrower, and (ii) indebtedness for borrowed
money other than the Obligations or as permitted by Section 7.8
hereof.
(c) Borrower is not in violation of any applicable
statute, regulation or ordinance in any respect which could
reasonably be expected to have a Material Adverse Effect, nor is
Borrower in violation of any order of any court, governmental
authority or arbitration board or tribunal which could reasonably
be expected to have a Material Adverse Effect.
(d) Borrower does not maintain or contribute to any
Multiemployer Plan or any Pension Benefit Plan other than those
listed on Schedule 5.8(d) hereto. Except as set forth in
Schedule 5.8(d) or as could not reasonably be expected to result
in a Material Adverse Effect, (i) no Plan has incurred any
"accumulated funding deficiency," as defined in Section 302(a)(2)
of ERISA and Section 412(a) of the Code, whether or not waived,
and Borrower and each member of the Controlled Group has met all
applicable minimum funding requirements under Section 302 of
ERISA in respect of each Plan, (ii) each Plan which is intended
to be a qualified plan under Section 401(a) of the Code as
currently in effect has been determined by the Internal Revenue
Service to be qualified under Section 401(a) of the Code (or a
request for determination has been made within the applicable
remedial period) and the trust related thereto is exempt from
federal income tax under Section 501(a) of the Code, (iii)
Borrower has not incurred any liability to the PBGC which could
reasonably be expected to result in a Material Adverse Effect
other than for the payment of premiums, and there are no premium
payments which have become due which are unpaid, (iv) no Plan
that is subject to Title IV of ERISA has been terminated by the
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plan administrator thereof nor by the PBGC, and there is no
occurrence which would reasonably be expected to cause the PBGC
to institute proceedings under Title IV of ERISA to terminate any
such Plan, (v) the current value of the assets of each Plan that
is subject to Title IV of ERISA equals or exceeds the present
value of the accrued benefits and other liabilities of such Plan
and neither Borrower nor to the best of Borrower's knowledge, any
member of the Controlled Group knows of any facts or
circumstances which would materially change the value of such
assets and accrued benefits and other liabilities, (vi) neither
Borrower nor to the best of Borrower's knowledge, any member of
the Controlled Group has breached any of the responsibilities,
obligations or duties imposed on it by ERISA with respect to any
Plan, (vii) neither Borrower nor to the best of Borrower's
knowledge, any member of a Controlled Group has incurred any
liability for any excise tax arising under Section 4972 or 4980B
of the Code, and to the best of Borrower's knowledge no fact
exists which would give rise to any such liability, (viii)
neither Borrower nor to the best of Borrower's knowledge, any
member of the Controlled Group nor any fiduciary of, nor any
trustee to, any Plan, has engaged in a "prohibited transaction"
described in Section 406 of the ERISA or Section 4975 of the Code
nor taken any action which could reasonably be expected to
constitute or result in a Termination Event with respect to any
such Plan which is subject to ERISA, (ix) Borrower has made all
contributions due and payable with respect to each Plan which is
subject to Title IV of ERISA, (x) there exists no event described
in Section 4043(b) of ERISA, for which the thirty (30) day notice
period contained in 29 CFR 2615.3 has not been waived, (xi)
neither Borrower nor any member of the Controlled Group has any
fiduciary responsibility for investments with respect to any plan
existing for the benefit of persons other than employees or
former employees of Borrower and any member of the Controlled
Group, and (xii) neither Borrower nor any member of the
Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan which would impose liability upon Borrower
under the Multiemployer Pension Plan Amendments Act of 1980.
5.9. Patents, Trademarks, Copyrights and Licenses. All
patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, copyrights, copyright
applications, design rights and assumed names which are
registered with any state or federal agency and which are owned
or utilized by Borrower and all licenses (except for licenses of
commercially available software) and tradenames owned or held by
Borrower are set forth on Schedule 5.9, are valid and have been
duly registered or filed with all appropriate governmental
authorities, if applicable, except to the extent that the failure
of any such intellectual property rights, either singly or in the
aggregate, to be valid or registered could not reasonably be
expected to result in a Material Adverse Effect and together with
all trade secrets owned or utilized by Borrower constitute all of
the intellectual property rights which are necessary for the
operation of its business except to the extent the failure to so
possess any such intellectual property rights could not
reasonably be expected to result in a Material Adverse Effect;
there is no objection to or pending challenge to the validity of
any such patent, trademark, copyright, design right, tradename,
trade secret or license. Each patent, patent application, patent
license, trademark, trademark application, trademark license,
service mark, service mark application, service mark license,
design right, copyright, copyright application and copyright
license owned or held by Borrower and all trade secrets used by
Borrower consist of original material or property developed by
Borrower or was lawfully acquired by Borrower from the proper and
lawful owner thereof unless failure to do so could not reasonably
be expected to result in a Material Adverse Effect. Each of such
items has been maintained so as to preserve the value thereof
from the date of creation or acquisition thereof. Except as set
forth on Schedule 5.9 hereto, with respect to all software used
by Borrower where the failure to possess any source and object
codes or hold any license agreement from the software owner to
use such software could reasonably be expected to result in a
Material Adverse Effect, Borrower is in possession of all such
source and object codes related to each piece of such software or
is the beneficiary of a source code escrow agreement or holds a
license agreement from the software owner to use such software,
including all source and object codes related thereto.
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5.10. Licenses and Permits. Except as set forth in
Schedule 5.10, Borrower is in compliance with and has procured
and is now in possession of, all material licenses or permits
required by any applicable federal, state or local law or
regulation for the operation of its business in each jurisdiction
wherein it is now conducting or proposes to conduct business and
where the failure to be in compliance or procure such licenses or
permits could reasonably be expected to have a Material Adverse
Effect on Borrower.
5.11. Default of Indebtedness. As of the Closing Date,
Borrower is not in default in the payment of the principal of or
interest on any Indebtedness or under any instrument or agreement
under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or
agreement which with or without the lapse of time or the giving
of notice, or both, constitutes or would constitute an event of
default thereunder.
5.12. No Default. Borrower is not in default in the
performance of any of its contractual obligations which could
reasonably be expected to result in a Material Adverse Effect and
no Default has occurred.
5.13. No Burdensome Restrictions. Borrower is not party
to any contract or agreement the performance of which could
reasonably be expected to have a Material Adverse Effect on
Borrower. Borrower has not agreed or consented to cause or
permit in the future (upon the happening of a contingency or
otherwise) any of its property, whether now owned or hereafter
acquired, to be subject to a Lien which is not a Permitted
Encumbrance.
5.14. No Labor Disputes. Borrower is not involved in
any labor dispute; there are no strikes or walkouts or union
organization of Borrower's employees threatened or in existence
and no labor contract is scheduled to expire during the Term, in
each case other than as set forth on Schedule 5.14 hereto or as
could not reasonably be expected to result in a Material Adverse
Effect.
5.15. Margin Regulations. Borrower is not engaged, nor
will it engage, principally or as one of its important
activities, in the business of extending credit for the purpose
of "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation
U of the Board of Governors of the Federal Reserve System as now
and from time to time hereafter in effect. No part of the
proceeds of any Advance will be used for "purchasing" or
"carrying" "margin stock" as defined in Regulation U of such
Board of Governors.
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5.16. Investment Company Act. Borrower is not an
"investment company" registered or required to be registered
under the Investment Company Act of 1940, as amended, nor is it
controlled by such a company.
5.17. Disclosure. No representation or warranty made by
Borrower in this Agreement or in any financial statement, report,
certificate or any other document (other than projections, pro
forma statements, budgets or estimates) furnished in connection
herewith contains any untrue statement of a material fact or
omits to state any material fact necessary to make the statements
herein or therein not misleading. There is no fact known to
Borrower or which reasonably should be known to Borrower which
Borrower has not disclosed to Agent in writing with respect to
the transactions contemplated by this Agreement which could
reasonably be expected to have a Material Adverse Effect on
Borrower.
5.18. Delivery of Recapitalization Documentation. Agent
has received complete copies of the Recapitalization
Documentation and the Subordinated Note Documentation (including
all exhibits, schedules and disclosure letters referred to
therein or delivered pursuant thereto, if any) and all amendments
thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of such documents
and agreements has been amended or supplemented, nor have any of
the provisions thereof been waived, except pursuant to a written
agreement or instrument which has heretofore been delivered to
Agent.
5.19. Swaps. Except as set forth on Schedule 5.19 or as
otherwise permitted pursuant to Article VII hereof, Borrower is
not a party to, nor will it be a party to, any swap agreement
whereby Borrower has agreed or will agree to swap interest rates
or currencies unless same provides that damages upon termination
following an event of default thereunder are payable on an
unlimited "two-way basis" without regard to fault on the part of
either party.
5.20. Conflicting Agreements. No provision of any
mortgage, indenture, material contract, agreement, judgment,
decree or order binding on Borrower or affecting the Collateral
conflicts with, or requires any Consent which has not already
been obtained to, or would in any way prevent the execution,
delivery or performance of, the terms of this Agreement or the
Other Documents.
5.21. Application of Certain Laws and Regulations.
Neither Borrower nor any Affiliate of Borrower is subject to any
statute, rule or regulation which regulates the incurrence of any
Indebtedness, including without limitation, statutes or
regulations relative to common or interstate carriers or to the
sale of electricity, gas, steam, water, telephone, telegraph or
other public utility services.
5.22. Business and Property of Borrower. Upon and after
the Closing Date, Borrower does not propose to engage in any
business other than providing electronics manufacturing services
to original electronics manufacturers in the networking,
telecommunications, computer systems and other segments of the
electronics industry and activities necessary to conduct the
foregoing and other businesses and activities reasonably related
or ancillary thereto. On the Closing Date, Borrower will own or
have the right to use all the property and possess all of the
rights and Consents necessary for the conduct of the business of
Borrower except to the extent that the failure to so possess or
own or have the right to use such property could not reasonably
be expected to result in a Material Adverse Effect.
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5.23. Year 2000. Borrower and its Subsidiaries have
reviewed the areas within their business and operations which
could be adversely affected by, and have developed or are
developing a program to address on a timely basis, the risk that
certain computer applications used by Borrower or its
Subsidiaries (or any of their respective suppliers, customers or
vendors which are material to the operation of Borrower's
business as determined by Borrower in its good faith business
judgment) may be unable to recognize and perform properly date-
sensitive functions involving dates prior to and after December
31, 1999 (the "Year 2000 Problem"). To the best of Borrower's
knowledge, the Year 2000 Problem will not have a Material Adverse
Effect on Borrower.
5.24. Section 20 Subsidiaries. Borrower does not intend
to use and shall not use any portion of the proceeds of the
Advances, directly or indirectly, to purchase during the
underwriting period, or for 30 days thereafter, Ineligible
Securities being underwritten by a Section 20 Subsidiary.
Borrower shall be permitted to amend the schedules to this
Agreement at any time that the information contained in any such
schedule is no longer true and correct at such time, provided,
however, that any such amended schedules shall not cure or waive
any Default or Event of Default which may be reflected on such
amended schedules nor will Agent's consent to any action or
disclosure reflected on such amended schedules be deemed to be
implied solely as a result of Agent's acceptance of such amended
schedules.
VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations
(other than indemnity obligations with respect to which no claim
has been made) and termination of this Agreement:
6.1. Payment of Fees. Pay to Agent on demand all usual and
customary reasonable out-of-pocket expenses (including without
limitation, all wire transfer charges) which Agent incurs in
connection with (a) the forwarding of Advance proceeds and (b)
the establishment and maintenance of any Blocked Accounts or
Depository Accounts as provided for in Section 4.15(h). Agent
may, without making demand, charge Borrower's Account for all
such out-of-pocket expenses.
6.2. Conduct of Business and Maintenance of Existence and
Assets. (a) Conduct and operate its business according to good
business practices and maintain all of its properties which are
necessary in its business in good working order and condition
(reasonable wear and tear excepted and casualty damage excepted
to the extent covered by insurance and except as may be disposed
of in accordance with the terms of this Agreement), including,
without limitation, all licenses, patents, copyrights, design
rights, tradenames, trade secrets and trademarks and take all
actions necessary to enforce and protect the validity of any
intellectual property right necessary in the conduct or operation
of Borrower's business or other right included in the Collateral;
(b) keep in full force and effect its existence and comply in all
material respects with the laws and regulations governing the
conduct of its business where the failure to do so could
reasonably be expected to have a Material Adverse Effect on
Borrower; and (c) make all such reports and pay all such
franchise and other taxes and license fees and do all such other
acts and things as may be lawfully required to maintain its
rights, licenses, leases, powers and franchises under the laws of
the United States or any political subdivision thereof where the
failure to do so could reasonably be expected to have a Material
Adverse Effect on Borrower.
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6.3. Violations. Promptly notify Agent in writing of any
violation of any law, statute, regulation or ordinance of any
Governmental Body, or of any agency thereof, applicable to
Borrower which could reasonably be expected to have a Material
Adverse Effect on Borrower.
6.4. Government Receivables. To the extent reasonably
requested by Agent, take all steps necessary to protect Agent's
interest in the Collateral under the Federal Assignment of Claims
Act or other applicable state or local statutes or ordinances
and, to the extent requested by Agent, deliver to Agent
appropriately endorsed, any instrument or chattel paper connected
with any Receivable arising out of contracts between Borrower and
the United States, any state or any department, agency or
instrumentality of any of them.
6.5. Fixed Charge Coverage Ratio. Maintain a Fixed Charge
Coverage Ratio at the end of each fiscal quarter with respect to
the four fiscal quarters then ended commencing with the fiscal
quarter ending closest to May 31, 1999 of not less than 1.0 to
1.0, provided, however, that the foregoing covenant shall not be
tested for any fiscal quarter during the Term so long as Borrower
maintains at all times during such fiscal quarter Undrawn
Availability of more than $5,000,000 for any such fiscal quarter
during the ninety (90) days following the Closing Date and
$10,000,000 for any such fiscal quarter thereafter.
Notwithstanding the foregoing, if at any time during any month in
the Term, Undrawn Availability does not exceed $5,000,000 for any
such month during the ninety (90) days following the Closing Date
and $10,000,000 for any such month thereafter, Agent shall test
the Fixed Charge Coverage Ratio set forth above as of the end of
the immediately preceding month with respect to the twelve (12)
months then ended.
6.6. Execution of Supplemental Instruments. Execute and
deliver to Agent from time to time, promptly after demand, such
supplemental agreements, statements, collateral assignments and
transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may request, in
order that the full intent of this Agreement may be carried into
effect.
6.7. Payment of Indebtedness. Pay, discharge or otherwise
satisfy at or before maturity (subject, where applicable, to
specified grace periods and, in the case of the trade payables,
to normal payment practices) all its obligations and liabilities
of whatever nature, except when the failure to do so could not
reasonably be expected to have a Material Adverse Effect or when
the amount or validity thereof is currently being contested in
good faith by appropriate proceedings and Borrower shall have
provided for such reserves as Agent may reasonably deem proper
and necessary.
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6.8. Standards of Financial Statements. Cause all financial
statements referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11,
9.12, 9.13 and 9.14 as to which GAAP is applicable to be complete
and correct in all material respects (subject, in the case of
interim financial statements, to normal year-end audit
adjustments and the absence of footnotes) and to be prepared in
reasonable detail and in accordance with GAAP applied
consistently throughout the periods reflected therein (except as
concurred in by such reporting accountants or officer, as the
case may be, and disclosed therein).
6.9. Appraisals. From time to time, upon the request of
Agent (which request shall not be made by Agent more than one
time in any calendar quarter unless a Default or Event of Default
has occurred and is continuing), obtain and deliver to Agent, at
Borrower's expense, appraisal reports in form and substance and
from appraisers satisfactory to Agent, stating the net recovery
value of the Inventory.
6.10. Mortgage. Borrower shall, at Agent's request
(which request shall only be made during the continuation of an
Event of Default), execute a mortgage on the Real Property
located in Nampa, Idaho, in form and substance reasonably
satisfactory to Agent and shall deliver to Agent an ALTA survey
on such Real Property containing no survey exceptions other than
immaterial survey exceptions for which affirmative title
insurance coverage is provided to the extent such insurance
coverage is available and otherwise in form and substance
reasonably satisfactory to Agent, and a fully paid mortgagee
insurance policy in standard ALTA form, issued by a title
insurance company reasonably satisfactory to Agent, in an amount
equal to not less than the fair market value of such Real
Property insuring the mortgage to create a valid Lien on such
Real Property subject to Permitted Encumbrances.
VII. NEGATIVE COVENANTS.
Borrower shall not, until satisfaction in full of the
Obligations (other than indemnity obligations with respect to
which no claim has been made) and termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other
reorganization with or into any other Person other than any
merger of a shell corporation with Borrower being the surviving
corporation of such merger for the purpose of reincorporating
Borrower under a different state following written notice of same
to Agent ("Reincorporation Merger") or acquire all or a
substantial portion of the assets or stock of any Person other
than as permitted by Section 7.4 hereof or permit any other
Person to consolidate with or merge with it other than a
Reincorporation Merger or in connection with an investment or
acquisition which is permitted by Section 7.4 hereof and then
only to the extent that Borrower is the surviving entity of any
such merger consummated in connection with such permitted
investment or acquisition.
(b) Sell, lease, transfer ownership or otherwise
dispose of any of its properties or assets, except in the
ordinary course of its business and except as provided in Section
4.3.
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7.2. Creation of Liens. Create or suffer to exist any Lien
or transfer upon or against any of its property or assets now
owned or hereafter acquired, except Permitted Encumbrances.
7.3. Guarantees. Become liable upon the obligations of any
Person by assumption, endorsement or guaranty thereof or
otherwise (other than to Lenders) except (a) the endorsement of
checks in the ordinary course of business, (b) guarantees of
obligations of Borrower's Subsidiaries to third parties, (c)
contingent obligations in the form of customary indemnifications
of agents, employees, consultants, officers and directors of
Borrower or any of its Subsidiaries in the ordinary course of
business consistent with past practice, (d) contingent
obligations in the form of customary and reasonable
indemnification provisions or purchase price adjustments (based
on post closing audit adjustments) incurred in connection with
acquisitions which are permitted under Section 7.4 hereof or
sales of assets which are permitted by Section 7.1(b) hereof, (e)
guaranties in respect to employment arrangements and other
compensation arrangements entered into in connection with an
acquisition or investment is permitted under Section 7.4 hereof,
(f) other guaranty obligations, provided, that the aggregate
amount of obligations incurred under clauses (b) through (f)
hereof shall not exceed $10,000,000 at any time outstanding, and
(g) pledges and deposits to the extent such pledges and deposits
constitute Permitted Encumbrances" under clauses (d), (e), (n) or
(o) of the definition thereof.
7.4. Investments. Purchase or acquire obligations or stock
of, or any other equity or ownership interest in, any Person,
except (a) obligations issued or guaranteed by the United States
of America or any agency thereof, (b) commercial paper with
maturities of not more than 360 days and a published rating of
not less than A-1 or P-1 (or the equivalent rating), (c)
certificates of time deposit and bankers' acceptances having
maturities of not more than 360 days and repurchase agreements
backed by United States government securities of a commercial
bank if (i) such bank has a combined capital and surplus of at
least $500,000,000, or (ii) its debt obligations, or those of a
holding company of which it is a Subsidiary, are rated not less
than A (or the equivalent rating) by a nationally recognized
investment rating agency, and (d) U.S. money market funds that
invest substantially all in obligations issued or guaranteed by
the United States of America or an agency thereof; provided,
however, that if no Event of Default shall have occurred and be
continuing at the time of such investment, or occur as a result
thereof, Borrower may:
(1) acquire assets constituting a business unit or
substantially all of the stock or other equity interests of
any Person engaged in a line of business currently engaged
in by Borrower as described in Section 5.22, provided that
(i) the aggregate value of the consideration (including,
without limitation, the assumption of liabilities) of all
such investments made during the Term shall not exceed
$30,000,000 plus the appreciated value, if any, of such
investments, (ii) no more than twenty five percent (25%) of
such consideration shall be funded, directly or indirectly,
with the proceeds of Advances, (iii) any portion of such
consideration consisting of Indebtedness of Borrower to the
seller or sellers of such assets, stock or other investments
or to any other Person shall be subordinated in right of
payment to the prior payment in full of the Obligations on
terms and conditions satisfactory to Agent and (iv) after
giving effect to any Advances made or to be made to Borrower
to consummate such acquisition, Borrower shall have Undrawn
Availability of at least $5,000,000 upon such consummation
during the ninety (90) days following the Closing Date and
$10,000,000 upon such consummation commencing with the
ninety-first (91st) day following the Closing Date;
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(2) invest in direct Subsidiaries of Borrower so long
as (x) Borrower has pledged sixty five percent (65%) (to the
extent it is a foreign Subsidiary) or one hundred percent
(100%) (to the extent it is a domestic Subsidiary) of each
class of equity securities of such Subsidiary owned by
Borrower and (y) the aggregate amount of such investments
during any fiscal year net of the aggregate amount of cash
dividends actually received by Borrower in such fiscal year
from such Subsidiaries plus the aggregate amount of loans
made by Borrower to its Subsidiaries during such fiscal year
which remain outstanding after giving effect solely to
principal repayments of such loans made by such Subsidiary,
shall not exceed $15,000,000;
(3) make investments solely with the proceeds of
Extraordinary Receipts;
(4) maintain investments existing on the date hereof
and set forth on Schedule 7.4;
(5) acquire and hold Receivables owing to it or
created in the ordinary course of its business;
(6) make pledges and deposits to the extent such
pledges and deposits constitute "Permitted Encumbrances"
under clauses (d), (e), (n) or (o) of the definition
thereof;
(7) acquire and own investments (including debt
obligations) received in connection with the bankruptcy or
reorganization of suppliers and Customers and in good faith
settlement of delinquent obligations of, and other disputes
with Customers or suppliers arising in the ordinary course
of business, subject to Agent receiving a first priority
perfected security interest in such investments (including
debt obligations) (subject to Permitted Encumbrances);
(8) make deposits in the ordinary course consistent
with past practices to secure Borrower's performance under
leases;
(9) enter into transactions which are permitted under
Section 7.1 (a) hereof; and
(10) other investments not to exceed the aggregate
amount of $250,000 at any time or from time to time.
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7.5. Loans. Make advances, loans or extensions of credit to
any Person, including without limitation, any Parent, Subsidiary
or Affiliate except with respect to (a) the extension of
commercial trade credit in connection with the sale of Inventory
in the ordinary course of its business, (b) loans to its
employees in the ordinary course of business not to exceed the
aggregate amount of $500,000 at any time outstanding, (c) non-
cash loans or extensions of credit made to the purchaser of any
of Borrower's assets (other than Equipment which was purchased
with the proceeds of an Equipment Loan) in connection with the
disposition of assets (other than Equipment which was purchased
with the proceeds of an Equipment Loan) which is permitted by
Section 7.1(b) hereof to the extent that such loans are evidenced
by a promissory note in favor of Borrower which is assigned to
Agent as collateral security for the Obligations, (d) non-cash
loans made to an officer or other employee of Borrower to enable
such officer or employee to acquire shares of capital stock of
Borrower or options to purchase shares of capital stock of
Borrower so long as such loans are evidenced by a promissory note
in favor of Borrower which is assigned to Agent as collateral
security for the Obligations, and (e) so long as no Event of
Default shall have occurred and be continuing, loans made to a
direct Subsidiary of Borrower provided that (x) Borrower has
pledged sixty five percent (65%) (to the extent it is a foreign
Subsidiary) or one hundred percent (100%) (to the extent it is a
domestic Subsidiary) of each class of equity securities of such
Subsidiary owned by Borrower, (y) the aggregate amount of such
loans during any fiscal year plus the aggregate amount of
investments made by Borrower to its Subsidiaries during such
fiscal year net of the aggregate amount of cash dividends
actually received by Borrower in such fiscal year from such
Subsidiaries which remain outstanding after giving effect solely
to principal repayments of such loans made by such Subsidiary,
shall not exceed $15,000,000 and (z) such loans are evidenced by
a promissory note in favor of Borrower which is assigned to Agent
as collateral security for the Obligations.
7.6. Capital Expenditures. Contract for, purchase or make
any expenditure or commitments ("Capital Expenditures") for fixed
or capital assets (including capitalized leases) in an aggregate
amount for Borrower in excess of (a) $20,550,000 in fiscal year
ending August 31, 1999, (b) $23,000,000 in fiscal year ending
August 31, 2000, (c) $24,000,000 in fiscal year ending August 31,
2001, (d) $31,000,000 in fiscal year ending August 31, 2002 and
(e) $38,700,000 in fiscal year ending August 31, 2003 (with
unused amounts ("Capital Expenditure Carryover Amounts") in any
fiscal year being carried over to the next succeeding fiscal year
("Capital Expenditure Carryover Year") and any such amounts used
to make capital expenditures in the Capital Expenditure Carryover
Year shall be allocated first to the permitted amounts in such
year and then to the Capital Expenditure Carryover Amount from
the preceding fiscal year). For purposes of this Section 7.6,
Capital Expenditures shall not include (i) expenditures made
solely from proceeds of insurance settlements, condemnation
awards and other settlements in respect of lost, destroyed,
damaged or condemned assets or property, (ii) expenditures from
proceeds of asset sales and transfers permitted under Section
7.1(b) hereof; (iii) expenditures made solely from Extraordinary
Receipts; and (iv) expenditures made from the proceeds of
Indebtedness incurred under Section 7.8 other than under clause
(i) thereof.
7.7. Dividends. Declare, pay or make any dividend or
distribution on any shares of the common stock or preferred stock
of Borrower (other than dividends or distributions payable (a) in
its stock, or split-ups or reclassifications of its stock or (b)
payable solely out of Extraordinary Receipts to the extent that
no Event of Default shall have occurred and be continuing) or
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apply any of its funds, property or assets to the purchase,
redemption or other retirement of any common or Preferred Stock,
or of any options to purchase or acquire any such shares of
common or Preferred Stock of Borrower; provided, however, that
any Subsidiary of the Borrower may pay dividends or make other
distributions to its shareholders; and provided, further, that so
long as no Default or Event of Default shall have occurred and be
continuing, Borrower shall be permitted to (a) repurchase,
redeem, otherwise acquire or retire for value any capital stock
of Borrower held by any members or former member of the
Borrower's (or any of its Subsidiaries') management; so long as
the aggregate price paid shall not exceed (x) $1,000,000 in any
calendar year (with unused amounts ("Carryover Amounts") in any
fiscal year being carried over to the next succeeding fiscal year
("Carryover Year") and any such payments used for such repurchase
or redemption in the Carryover Year shall be allocated first to
the permitted amounts in such year and then, to the Carryover
Amount from the preceding fiscal year), plus (y) the aggregate
amount of Extraordinary Receipts received from members of
management of Borrower and its Subsidiaries plus (z) the proceeds
received by Borrower of any "key-man" life insurance policies;
provided, that the cancellation of Indebtedness owing to Borrower
from members of management of Borrower in connection with such
repurchase of capital stock will not be deemed to be a restricted
payment under this Section; (b) repurchase capital stock upon the
exercise of stock options if such capital stock represents a
portion of the exercise price thereof; and (c) in the event that
any letter of intent or purchase agreement entered into which is
permitted by Section 7.4 hereof is terminated and Borrower is
entitled to a reimbursement of any cash earnest money deposit
made by it in connection therewith which was funded by an equity
contribution, pay a cash dividend in an amount not to exceed the
amount of such reimbursement payment.
7.8. Indebtedness. Create, incur, assume or suffer to exist
any Indebtedness (exclusive of trade debt) except in respect of
(i) Indebtedness to Lenders; (ii) Indebtedness incurred for
capital expenditures permitted under Section 7.6 hereof; (iii)
Indebtedness due under the Subordinated Note Documentation or any
refinancing thereof, provided that such refinancing shall not be
materially more onerous to Borrower and shall contain
subordination terms which are acceptable to Agent in all
respects; (iv) subordinated Indebtedness incurred in connection
with (a) any investment permitted by the proviso of Section 7.4
and otherwise complying with the conditions thereof and (b) any
repurchase of capital stock or options from terminated employees
in accordance with the provisions of Section 7.7 hereof; (v)
Indebtedness in respect of hedge agreements entered into in the
ordinary course of business to protect the Borrower or any of its
Subsidiaries against fluctuations in interest rates or currency
valuations and not for speculative purposes; (vi) Indebtedness
deemed to exist pursuant to guarantees which are permitted by
Section 7.3 hereof; (vii) Indebtedness existing as of the Closing
Date as set forth in Schedule 7.8 and refinancing thereof not to
exceed the aggregate amount of Indebtedness existing as of the
Closing Date and so long as such refinancing does not contain
terms which are materially more onerous than the existing
arrangement; (viii) Indebtedness secured by Liens which are
permitted under Section 7.2 hereof including under capitalized
leases so long as the amount of such Indebtedness, including
capitalized leases, does not exceed the amounts permitted under
Section 7.6 hereof; and (ix) unsecured Indebtedness not otherwise
permitted hereunder not to exceed $5,000,000 in the aggregate
principal amount at any one time outstanding.
7.9. Nature of Business. Substantially change the nature of
the business in which it is presently engaged and those
reasonably related or ancillary thereto, nor except as
specifically permitted hereby purchase or invest, directly or
indirectly, in any assets or property other than in the ordinary
course of business for assets or property which are useful in,
necessary for and are to be used in its business as presently
conducted or as reasonably related or ancillary thereto.
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7.10. Transactions with Affiliates. Directly or
indirectly, purchase, acquire or lease any property from, or
sell, transfer or lease any property to, or otherwise deal with,
any Affiliate, except transactions in the ordinary course of
business, on an arm's-length basis on terms no less favorable
than terms which would have been obtainable from a Person other
than an Affiliate, provided that in any event the following
transactions shall be permitted:
(a) the payment of management fees and expenses
incurred by CEI and/or any of their respective Affiliates in
providing services to Borrower from time to time in accordance
with the Management Services Agreement as in effect on the
Closing Date;
(b) the payment of customary and reasonable fees to,
and the out-of-pocket expenses of the Board of Directors of
Borrower and customary indemnities for the benefit of members of
the Board of Directors of Borrower;
(c) the payment by Borrower, in connection with any
acquisition, divestiture or financing transaction that is
consummated, of a transaction fee to CEI and/or any of their
respective Affiliates for such transaction in an amount which is
customary in transactions of that nature;
(d) the making of any payments permitted pursuant to
Section 7.7;
(e) the payment of customary compensation paid to, and
indemnity provided on behalf of, officers, employees or
consultants of Borrower or any of its Subsidiaries as determined
in good faith by the Board of Directors of Borrower; and
(f) transactions with Subsidiaries to the extent such
transactions are permitted under Sections 7.1, 7.3, 7.4 or 7.5
hereof.
7.11. Subsidiaries.
(a) Form any Subsidiary so long as (i) such Subsidiary
executes a Guaranty if each Subsidiary is incorporated in the
United States of America or any state thereof, (ii) Agent shall
be granted a first priority perfected security interest in the
capital stock of such Subsidiary owned by Borrower to the extent
required by Section 7.4(2) hereof and (iii) Agent shall have
received all documents, including legal opinions, it may
reasonably require to establish compliance with each of the
foregoing conditions.
(b) Enter into any partnership, joint venture or
similar arrangement except to the extent permitted by Section 7.4
hereof.
7.12. Fiscal Year and Accounting Changes. Change its
fiscal year from a year ending on or about August 31 or make any
significant change (i) in accounting treatment and reporting
practices except as is consistent with GAAP or (ii) in tax
reporting treatment except as permitted by law and provided that
Borrower shall promptly notify Agent of any such changes.
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7.13. Pledge of Credit. Now or hereafter pledge Agent's
or any Lender's credit on any purchases or for any purpose
whatsoever.
7.14. Amendment of Articles of Incorporation, By-Laws.
Amend, modify or waive any term or material provision of its
Articles of Incorporation or By-Laws if any such amendment,
modification or waiver could, in Agent's reasonable judgment,
have a Material Adverse Effect.
7.15. Compliance with ERISA. (i) (x) Maintain or (y)
become obligated to contribute to any Multiemployer Plan or
Pension Benefit Plan, other than those Multiemployer Plans and
Pension Benefit Plans disclosed on Schedule 5.8(d), (ii) engage
in any non-exempt "prohibited transaction", as that term is
defined in section 406 of ERISA and Section 4975 of the Code
unless such transactions could not reasonably be expected to
result in a Material Adverse Effect, (iii) incur any "accumulated
funding deficiency", as that term is defined in Section 302 of
ERISA or Section 412 of the Code which, if such deficiency
continued for two plan years and was not corrected as provided in
Section 4971 of the Code could subject Borrower to a material tax
imposed by Section 4971 of the Code or could reasonably be
expected to result in a Material Adverse Effect, (iv) terminate
any Plan where such event could reasonably be expected to result
in any material liability of Borrower or the imposition of a Lien
on the property of Borrower pursuant to Section 4068 of ERISA,
unless such Lien falls with the basket permitted by clause (r) of
the definition of Permitted Encumbrances, (v) assume any
obligation to contribute to any Multiemployer Plan not disclosed
on Schedule 5.8(d), (vi) incur any withdrawal liability to any
Multiemployer Plan which could reasonably be expected to result
in a Material Adverse Effect; (vii) fail to promptly notify Agent
of the occurrence of any Termination Event, (viii) fail to comply
with the requirements of ERISA or the Code or other applicable
laws in respect of any Plan, unless the failure to so comply
could not reasonably be expected to result in a Material Adverse
Effect (ix) fail to meet all minimum funding requirements under
ERISA or the Code or postpone or delay any funding requirement
with respect of any Plan unless the failure to meet such funding
requirements could not reasonably be expected to result in a
Material Adverse Effect.
7.16. Prepayment of Indebtedness. Except as permitted
pursuant to Section 7.18 hereof, at any time, directly or
indirectly, prepay or defease any subordinated Indebtedness
(other than to Lenders), or repurchase, redeem, retire or
otherwise acquire any subordinated Indebtedness of Borrower.
7.17. Subordinated Notes. At any time, directly or
indirectly, pay, prepay, repurchase, redeem, retire or otherwise
acquire, or make any payment on account of any principal of,
interest on or premium payable in connection with the repayment
or redemption of the Subordinated Notes, including, without
limitation, any defeasance of such Subordinated Notes, other than
(a) regularly scheduled payments of principal and interest to the
extent payment is permitted by the terms of the Subordinated Debt
Documentation as in effect on the Closing Date and (b)
redemptions of such Subordinated Notes on the terms set forth in
the Subordinated Note Documentation as in effect on the Closing
Date and so long as (i) no Default or Event of Default shall have
occurred and be continuing or would occur as a result of such
redemptions and (ii) such redemptions shall be made solely out of
Extraordinary Receipts or the proceeds of a refinancing of the
Subordinated Notes not to exceed the aggregate outstanding
principal balance of the Subordinated Notes as of the date of any
such redemption, and provided, further, that such refinancing
shall not be materially more onerous to Borrower and shall
contain subordination terms which are acceptable to Agent in all
respects.
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7.18. Other Agreements. Enter into any material
amendment, waiver or modification of the Recapitalization
Documentation, Subordinated Note Documentation, Indenture,
Exchange Indenture, Management Services Agreement or any related
agreements.
VIII. CONDITIONS PRECEDENT.
8.1. Conditions to Initial Advances. The agreement of
Lenders to make the initial Advances requested to be made on the
Closing Date is subject to the satisfaction, or waiver by Agent,
immediately prior to or concurrently with the making of such
Advances, of the following conditions precedent:
(a) Note. Agent shall have received the Note duly
executed and delivered by an authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Each
document (including, without limitation, any Uniform Commercial
Code financing statement) required by this Agreement, any related
agreement or under law or reasonably requested by the Agent to be
filed, registered or recorded in order to create, in favor of
Agent, a perfected security interest in or lien upon the
Collateral shall have been properly filed, registered or recorded
in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and Agent shall
have received an acknowledgment copy, or other evidence
satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto;
(c) Corporate Proceedings of Borrower. Agent shall
have received a copy of the resolutions in form and substance
reasonably satisfactory to Agent, of the Board of Directors or
managers, as applicable, of Borrower authorizing (i) the
execution, delivery and performance of this Agreement, the Notes,
the Pledge Agreement, the Negative Pledge Agreement and any
related agreements, (collectively the "Documents") and (ii) the
granting by Borrower of the security interests in and liens upon
the Collateral in each case certified by the Secretary or an
Assistant Secretary of Borrower as of the Closing Date; and, such
certificate shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded as of the
date of such certificate;
(d) Proceedings of Guarantor. Agent shall have
received a copy of the resolutions in form and substance
reasonably satisfactory to Agent, of the Board of Directors
authorizing the execution, delivery and performance of the
Guaranty certified by the Secretary, Assistant Secretary or
Manager, as applicable, of Guarantor as of the Closing Date; and,
such certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded
as of the date of such certificate;
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(e) Incumbency Certificates of Guarantor. Agent shall
have received a certificate of the Secretary, Assistant Secretary
or Manager, as applicable, of Guarantor, dated the Closing Date,
as to the incumbency and signature of the officers of Guarantor
executing the Guaranty, any certificate or other documents to be
delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary, Assistant Secretary or Manager, as
applicable;
(f) Incumbency Certificates of Borrower. Agent shall
have received a certificate of the Secretary or an Assistant
Secretary of Borrower, dated the Closing Date, as to the
incumbency and signature of the officers of Borrower executing
this Agreement, any certificate or other documents to be
delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(g) Certificates. Agent shall have received a copy of
the Articles or Certificate of Incorporation of Borrower and
Guarantor, and all amendments thereto, certified by the Secretary
of State or other appropriate official of its jurisdiction of
incorporation together with copies of the By-Laws of Borrower
and Guarantor and all agreements of Borrower's and Guarantor's
shareholders to which Borrower or Guarantor, as applicable, is a
party certified as accurate and complete by the Secretary of
Borrower and Guarantor;
(h) Good Standing Certificates. Agent shall have
received good standing certificates for Borrower and Guarantor
dated not more than thirty (30) days prior to the Closing Date,
issued by the Secretary of State or other appropriate official of
Borrower's and Guarantor's jurisdiction of incorporation and each
jurisdiction where the conduct of Borrower's and Guarantor's
business activities or the ownership of its properties
necessitates qualification;
(i) Legal Opinion. Agent shall have received the
executed legal opinion of Kirkland & Ellis in form and substance
satisfactory to Agent which shall cover such matters incident to
the transactions contemplated by this Agreement, the Note, the
Pledge Agreement, the Negative Pledge Agreement, the Guaranty and
related agreements as Agent may reasonably require and Borrower
and Guarantor hereby authorizes and directs such counsel to
deliver such opinions to Agent and Lenders;
(j) No Litigation. Except as set forth on Schedule
5.8(b), (i) no litigation, investigation or proceeding before or
by any arbitrator or Governmental Body shall be continuing or
overtly threatened against Borrower or against the officers or
directors of Borrower (A) in connection with the Other Documents
or any of the transactions contemplated thereby and which, in the
reasonable opinion of Agent, is deemed material or (B) which
could, in the reasonable opinion of Agent, have a Material
Adverse Effect; and (ii) no injunction, writ, restraining order
or other order of any nature materially adverse to Borrower or
the conduct of its business or inconsistent with the due
consummation of the Transactions shall have been issued by any
Governmental Body;
(k) Financial Condition Certificates. Agent shall
have received an executed Financial Condition Certificate in the
form of Exhibit 8.1(i).
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(l) Collateral Examination. Agent shall have
completed Collateral examinations and received appraisals, the
results of which shall be reasonably satisfactory in form and
substance to Lenders, of the Receivables, Inventory, General
Intangibles, Real Property, Leasehold Interest and Equipment of
Borrower and all books and records in connection therewith;
(m) Fees. Agent shall have received all fees payable
to Agent and Lenders on or prior to the Closing Date pursuant to
Article III hereof;
(n) Pro Forma Financial Statements. Agent shall have
received a copy of the Pro Forma Financial Statements which shall
be satisfactory in all respects to Lenders;
(o) Recapitalization Documentation. Agent shall have
received final executed copies of the Recapitalization
Documentation, and all related material agreements, documents and
instruments as in effect on the Closing Date;
(p) Insurance. Agent shall have received in form and
substance satisfactory to Agent, certified copies of Borrower's
casualty insurance policies (or an insurance certificate
evidencing same), together with loss payable endorsements on
Agent's standard form of loss payee endorsement naming Agent as
loss payee, and certified copies of Borrower's liability
insurance policies (or an insurance certificate evidencing same),
together with endorsements naming Agent as a co-insured;
(q) Payment Instructions. Agent shall have received
written instructions from Borrower directing the application of
proceeds of the initial Advances made pursuant to this Agreement;
(r) Blocked Accounts. Agent shall have received duly
executed agreements establishing the Blocked Accounts or
Depository Accounts with financial institutions acceptable to
Agent for the collection or servicing of the Receivables and
proceeds of the Collateral;
(s) Consents. Agent shall have received any and all
Consents necessary to permit the effectuation of the transactions
contemplated by this Agreement and the Other Documents; and,
Agent shall have received such Consents and waivers of such third
parties as might assert claims with respect to the Collateral, as
Agent and its counsel shall deem necessary;
(t) No Adverse Material Change. Except as set forth
on Schedule 8.1(t), (i) since December 3, 1998, there shall not
have occurred any event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect and (ii)
no representations made or information supplied to Agent shall
have been proven to be inaccurate or misleading in any material
respect on or prior to the Closing Date;
(u) Leasehold Agreements. Agent shall have received
landlord, mortgagee or warehouseman agreements satisfactory to
Agent with respect to all premises leased by Borrower in the
United States of America at which Inventory is located;
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(v) Guaranty and Other Documents. Agent shall have
received in form and substance satisfactory to Lenders (i) the
executed Guaranty, (ii) the executed Negative Pledge Agreement,
Pledge Agreement and Other Documents and (iii) the original stock
certificates for the Subsidiary Stock to be pledged pursuant to
the Pledge Agreement together with corresponding stock powers
duly endorsed in blank unless otherwise set forth in a Pledge
Agreement;
(w) Subordinated Note Documentation. Agent shall have
received final executed copies of the Subordinated Note
Documentation which shall contain such terms and provisions
including, without limitation, subordination terms, satisfactory
to Agent;
(x) Contract Review. Agent shall have reviewed all
material contracts of Borrower including, without limitation,
leases, union contracts, labor contracts, vendor supply
contracts, license agreements and distributorship agreements and
such contracts and agreements shall be reasonably satisfactory in
all respects to Agent;
(y) Closing Certificate. Agent shall have received a
closing certificate signed by the President or Chief Financial
Officer of Borrower dated as of the date hereof, stating that (i)
all representations and warranties set forth in this Agreement
and the Other Documents are true and correct in all material
respects on and as of such date, (ii) Borrower is on such date in
compliance with all the terms and provisions set forth in this
Agreement and the Other Documents and (iii) on such date no
Default or Event of Default has occurred or is continuing;
(z) Borrowing Base Certificate. Agent shall have
received a Borrowing Base Certificate prepared by an officer of
Borrower as of the Closing Date and which shall indicate that the
aggregate amount of Eligible Receivables and Eligible Inventory
is sufficient in value and amount to support Advances in the
amount requested by Borrower on the Closing Date and that after
giving effect to the initial Revolving Advances hereunder,
Borrower shall have Undrawn Availability of at least $5,000,000;
and
(aa) Other. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection
with the Transactions shall be reasonably satisfactory in form
and substance to Agent and its counsel.
8.2. Conditions to Each Advance. The agreement of Lenders
to make any Advance requested to be made on any date (including,
without limitation, the initial Advance), other than deemed
requests for Advances hereunder, is subject to the satisfaction
of the following conditions precedent as of the date such Advance
is made:
(a) Representations and Warranties. Each of the
representations and warranties made by Borrower in or pursuant to
this Agreement and any related agreements to which it is a party,
and each of the representations and warranties contained in any
certificate, document or financial or other statement furnished
at any time under or in connection with this Agreement or any
related agreement shall be true and correct in all material
respects on and as of such date as if made on and as of such
date, except to the extent such representations or warranties are
limited by their terms to a specific date in which case they
shall be true and correct in all material respects as of such
date;
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(b) No Material Change. No change in Borrower's
condition or affairs (financial or otherwise) shall have occurred
which in Agent's reasonable opinion has a Material Adverse
Effect.
(c) No Default. No Event of Default or Default shall
have occurred and be continuing on such date, or would exist
after giving effect to the Advances requested to be made, on such
date; provided, however that Lenders, in their sole discretion,
may continue to make Advances notwithstanding the existence of an
Event of Default or Default and that any Advances so made shall
not be deemed a waiver of any such Event of Default or Default;
and
(d) Maximum Advances. In the case of any Revolving
Advances requested to be made, after giving effect thereto, the
aggregate Revolving Advances shall not exceed the maximum amount
of Revolving Advances permitted under Section 2.1 hereof, except
with respect to overadvances which are permitted pursuant to
Section 15(b) hereof.
Each request for an Advance by Borrower hereunder shall
constitute a representation and warranty by Borrower as of the
date of such Advance that the conditions contained in this
subsection shall have been satisfied.
8.3. Conditions to Each Equipment Loan. The agreement of
Lenders to make any Equipment Loan is subject to satisfaction of
the following conditions precedent: (a) receipt by Agent of (i) a
copy of the invoice relating to the Equipment being purchased,
(ii) evidence that such Equipment has been shipped to Borrower,
(iii) evidence that the requested Equipment Loan does not exceed
eighty-five percent (85%) of the net invoice cost of such
Equipment purchased by Borrower (which shall be exclusive of
shipping, delivery, handling, taxes, overhead, installation and
all other "soft" costs), and (iv) such other documentation and
evidence that Agent may reasonably request; and (b) after giving
effect thereto, the aggregate Equipment Loans outstanding shall
not exceed the Maximum Equipment Loan Amount.
IX. INFORMATION AS TO BORROWER.
Borrower shall, until satisfaction in full of the
Obligations (other than indemnity obligations with respect to
which no claims have been made) and the termination of this
Agreement:
9.1. Disclosure of Material Matters. Promptly (but in any
event no later than five (5) Business Days) upon learning
thereof, report to Agent all matters materially affecting the
value, enforceability or collectibility of any material portion
of the Collateral including, without limitation, Borrower's
reclamation or repossession of, or the return to Borrower of, a
material amount of goods or claims or disputes asserted by any
Customer or other obligor.
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9.2. Schedules. Deliver to Agent on or before the thirtieth
(30th) day of each calendar month as and for the prior month (a)
accounts receivable ageings, (b) accounts payable schedule, (c)
Inventory reports and (d) a Borrowing Base Certificate (which
shall be calculated as of the last day of the prior month and
which shall not be binding upon Agent or restrictive of Agent's
rights under this Agreement). In addition, Borrower will deliver
to Agent at such reasonable intervals as Agent may reasonably
require: (i) confirmatory assignment schedules, (ii) copies of
Customer's invoices, (iii) evidence of shipment or delivery, and
(iv) such further schedules, documents and/or information
regarding the Collateral as Agent may require including, without
limitation, trial balances and test verifications. Agent shall
have the right to confirm and verify all Receivables by any
manner and through any medium it considers advisable, provided,
however, that Agent shall not confirm or verify Receivables more
than one time in any calendar quarter unless a Default or Event
of Default shall have occurred and be continuing and, during the
continuation of an Event of Default, do whatever it may deem
reasonably necessary to protect its interests hereunder. The
items to be provided under this Section are to be in form
reasonably satisfactory to Agent and executed by Borrower and
delivered to Agent from time to time solely for Agent's
convenience in maintaining records of the Collateral, and
Borrower's failure to deliver any of such items to Agent shall
not affect, terminate, modify or otherwise limit Agent's Lien
with respect to the Collateral.
9.3. Environmental Reports. Furnish Agent, concurrently
with the delivery of the financial statements referred to in
Sections 9.7 and 9.8, with a certificate signed by the President
or any other executive officer of Borrower stating, to the best
of his knowledge, that Borrower is in compliance in all material
respects with all federal, state and local laws relating to
environmental protection and control and occupational safety and
health except to the extent the failure to be in compliance could
not reasonably be expected to result in a Material Adverse
Effect. To the extent Borrower is not so in compliance with the
foregoing laws, the certificate shall set forth with specificity
all areas of non-compliance and the proposed action Borrower will
implement in order to resolve such matter.
9.4. Litigation. Promptly notify Agent in writing of any
litigation, suit or administrative proceeding affecting Borrower,
whether or not the claim is covered by insurance, and of any suit
or administrative proceeding, which in any such case could
reasonably be expected to have a Material Adverse Effect on
Borrower.
9.5. Material Occurrences. Promptly notify Agent in writing
upon the occurrence of (a) any Event of Default or Default; (b)
any event of default under any of the Recapitalization
Documentation or Subordinated Note Documentation; (c) any event
which with the giving of notice or lapse of time, or both, would
constitute an event of default under any of the Recapitalization
Documentation or the Subordinated Note Documentation; (d) any
event, development or circumstance whereby any financial
statements or other reports furnished to Agent fail in any
material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition or operating
results of Borrower as of the date of such statements; (e) any
accumulated retirement plan funding deficiency which, if such
deficiency continued for two plan years and was not corrected as
provided in Section 4971 of the Code, could subject Borrower to a
material tax imposed by Section 4971 of the Code or could
reasonably be expected to result in a Material Adverse Effect;
(f) each and every default by Borrower which might result in the
acceleration of the maturity of any Indebtedness, including the
names and addresses of the holders of such Indebtedness with
respect to which there is a default existing or with respect to
which the maturity has been or could be accelerated, and the
amount of such Indebtedness; and (g) any other development in the
business or affairs of Borrower which could reasonably be
expected to have a Material Adverse Effect; in each case
describing the nature thereof and the action Borrower propose to
take with respect thereto.
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9.6. Government Receivables. Notify Agent within three (3)
Business Days of the creation of any Receivables arising out of
contracts between Borrower and the United States, any state, or
any department, agency or instrumentality of any of them.
9.7. Annual Financial Statements. Furnish Agent within
ninety (90) days after the end of each fiscal year of Borrower,
financial statements of Borrower on a consolidated and
consolidating basis including, but not limited to, statements of
income and stockholders' equity and cash flow from the beginning
of the current fiscal year to the end of such fiscal year and the
balance sheet as at the end of such fiscal year, all prepared in
accordance with GAAP applied on a basis consistent with prior
practices, and in reasonable detail and reported upon without
qualification by an independent certified public accounting firm
selected by Borrower and satisfactory to Agent (the
"Accountants"). The report of the Accountants shall be
accompanied by a statement of the Accountants certifying that (i)
they have caused this Agreement to be reviewed, (ii) in making
the examination upon which such report was based either no
information came to their attention which to their knowledge
constituted an Event of Default or a Default under this Agreement
or any related agreement or, if such information came to their
attention, specifying any such Default or Event of Default, its
nature, when it occurred and whether it is continuing, and such
report shall contain or have appended thereto calculations which
set forth Borrower's compliance with the requirements or
restrictions imposed by Sections 6.5 and 7.6 hereof. In
addition, the reports shall be accompanied by a certificate of
Borrower's Chief Financial Officer which shall state that, based
on an examination sufficient to permit him to make an informed
statement, no Default or Event of Default exists, or, if such is
not the case, specifying such Default or Event of Default, its
nature, when it occurred, whether it is continuing and the steps
being taken by Borrower with respect to such event, and such
certificate shall have appended thereto calculations which set
forth Borrower's compliance with the requirements or restrictions
imposed by Sections 6.5 and 7.6 hereof.
9.8. Quarterly Financial Statements. Furnish Agent within
forty-five (45) days after the end of each fiscal quarter, an
unaudited balance sheet of Borrower on a consolidated and
consolidating basis and unaudited statements of income and
stockholders' equity and cash flow of Borrower on a consolidated
and consolidating basis reflecting results of operations from the
beginning of the fiscal year to the end of such quarter and for
such quarter, prepared on a basis consistent with prior practices
and complete and correct in all material respects, subject to
normal year end adjustments. The reports shall be accompanied by
a certificate signed by the Chief Financial Officer of Borrower,
which shall state that, based on an examination sufficient to
permit him to make an informed statement, no Default or Event of
Default exists, or, if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred,
whether it is continuing and the steps being taken by Borrower
with respect to such default and, such certificate shall have
appended thereto calculations which set forth Borrower's
compliance with the requirements or restrictions imposed by
Sections 6.5 and 7.6 hereof.
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9.9. Monthly Financial Statements. Furnish Agent within
thirty (30) days after the end of each month, an unaudited
balance sheet of Borrower on a consolidated and unaudited
statements of income and stockholders' equity and cash flow of
Borrower on a consolidated and consolidating reflecting results
of operations from the beginning of the fiscal year to the end of
such month and for such month, prepared on a basis consistent
with prior practices and complete and correct in all material
respects, subject to normal year end adjustments and the absence
of footnotes. The reports shall be accompanied by a certificate
of Borrower's Chief Financial Officer, which shall state that,
based on an examination sufficient to permit him to make an
informed statement, no Default or Event of Default exists, or, if
such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing
and the steps being taken by Borrower with respect to such event
and, such certificate shall have appended thereto calculations
which set forth Borrower's compliance with the requirements or
restrictions imposed by Sections 6.5 and 7.6 hereof.
9.10. Other Reports. Furnish Agent as soon as
available, but in any event within ten (10) days after the
issuance thereof, (i) with copies of such financial statements,
reports and returns as Borrower shall send generally to all of
its stockholders and (ii) copies of all material notices sent
pursuant to the Recapitalization Documentation and Subordinated
Note Documentation.
9.11. Additional Information. Furnish Agent with such
additional information as Agent shall reasonably request in order
to enable Agent to determine whether the terms, covenants,
provisions and conditions of this Agreement and the Notes have
been complied with by Borrower including, without limitation and
without the necessity of any request by Agent, (a) copies of all
material environmental audits and reviews, (b) at least thirty
(30) days prior thereto, notice of Borrower's opening of any new
office or place of business or thirty (30) days after Borrower's
closing of any existing office or place of business, and (c)
promptly upon Borrower's learning thereof, notice of any labor
dispute to which Borrower may become a party, any strikes or
walkouts relating to any of its plants or other facilities, and
the expiration of any labor contract to which Borrower is a party
or by which Borrower is bound, in each case to the extent such
action could reasonably be expected to result in a Material
Adverse Effect.
9.12. Projected Operating Budget. Furnish Agent, no
later than thirty (30) days after the beginning of Borrower's
fiscal years commencing with fiscal year 2000, a month by month
projected operating budget and cash flow of Borrower for such
fiscal year (including an income statement for each month and a
balance sheet as at the end of the last month in each fiscal
quarter), such projections to be accompanied by a certificate
signed by the President or Chief Financial Officer of Borrower to
the effect that such projections have been prepared on the basis
of financial planning practice consistent with past budgets and
financial statements and that such officer has no reason to
question the reasonableness of any material assumptions on which
such projections were prepared.
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9.13. Variances From Operating Budget. Furnish Agent,
concurrently with the delivery of the financial statements
referred to in Section 9.7 and each monthly report, a written
report summarizing all material variances from budgets submitted
by Borrower pursuant to Section 9.12 and a discussion and
analysis by management with respect to such variances.
9.14. Notice of Suits, Adverse Events. Furnish Agent
with prompt notice of (i) any lapse or other termination of any
Consent issued to Borrower by any Governmental Body or any other
Person that is material to the operation of Borrower's business,
(ii) any refusal by any Governmental Body or any other Person to
renew or extend any such Consent; and (iii) copies of any
periodic or special reports filed by Borrower with any
Governmental Body or Person, if such reports indicate any
material change in the business, operations, affairs or condition
of Borrower, or if copies thereof are requested by Lender, and
(iv) copies of any material notices and other communications from
any Governmental Body or Person which specifically relate to
Borrower.
9.15. ERISA Notices and Requests. Furnish Agent with
prompt (but in no event later then five (5) days) written notice
in the event that (i) Borrower knows or has reason to know that a
Termination Event has occurred, together with a written statement
describing such Termination Event and the action, if any, which
Borrower or such member of the Controlled Group has taken, is
taking, or proposes to take with respect thereto and, when known,
any action taken or threatened by the Internal Revenue Service,
Department of Labor or PBGC with respect thereto, (ii) Borrower
knows or has reason to know that a prohibited transaction (as
defined in Sections 406 of ERISA and 4975 of the Code) has
occurred with respect to a Plan together with a written statement
describing such transaction and the action which Borrower or any
member of the Controlled Group has taken, is taking or proposes
to take with respect thereto, (iii) a funding waiver request has
been filed with respect to any Plan together with all written
communications received by Borrower or to the best of Borrower's
knowledge, any member of the Controlled Group with respect to
such request, (iv) any material increase in the benefits of any
existing Plan or the establishment of any new Plan that is
subject to Title IV of ERISA or to the minimum funding
requirements of Section 412 of the Code or Section 302 of ERISA
or the commencement of contributions to any Multi-employer Plan
to which Borrower or to the best of Borrower's knowledge, any
member of the Controlled Group was not previously contributing
shall occur, (v) Borrower or to the best of Borrower's knowledge,
any member of the Controlled Group shall receive from the PBGC a
notice of intention to terminate a Plan or to have a trustee
appointed to administer a Plan, together with copies of each such
notice, (vi) Borrower or to the best of Borrower's knowledge, any
member of the Controlled Group shall receive any favorable or
unfavorable determination letter from the Internal Revenue
Service regarding the qualification of a Plan under Section
401(a) of the Code, together with copies of each such letter;
(vii) Borrower or to the best of Borrower's knowledge, any member
of the Controlled Group shall receive a written notice regarding
the imposition of withdrawal liability with respect to any Multi-
employer Plan, together with copies of each such notice; (viii)
Borrower or to the best of Borrower's knowledge, any member of
the Controlled Group shall fail to make a required installment or
any other required payment under Section 412 of the Code on or
before the due date for such installment or payment; (ix)
Borrower or to the best of Borrower's knowledge, any member of
the Controlled Group knows that (a) a Multiemployer Plan has been
terminated, (b) the administrator or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan, or
(c) the PBGC has instituted or will institute proceedings under
Section 4042 of ERISA to terminate a Multiemployer Plan.
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9.16. Additional Documents. Execute and deliver to
Agent, upon request, such documents and agreements as Agent may,
from time to time, reasonably request to carry out the purposes,
terms or conditions of this Agreement.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events
shall constitute an "Event of Default":
10.1. failure by Borrower to (a) pay any principal,
interest or unused facility fees on the Obligations when due,
whether at maturity or by reason of acceleration pursuant to the
terms of this Agreement or by notice of intention to prepay, or
by required prepayment or failure to pay any other liabilities or
(b) make any other payment, fee or charge provided for herein or
in any Other Document within five (5) Business Days of when due;
10.2. any representation or warranty made or deemed made
by Borrower in this Agreement or any related agreement or in any
certificate, document or financial or other statement furnished
at any time to Agent or Lenders in connection herewith or
therewith shall prove to have been misleading in any material
respect on the date when made or deemed to have been made;
10.3. failure by Borrower to (i) furnish financial
information required by Section 9.2 hereof or any other financial
information within ten (10) days of when due or when requested or
(ii) permit the inspection of its books or records in accordance
with the terms hereof;
10.4. issuance of a notice of Lien, levy, assessment,
injunction or attachment against a material portion of Borrower's
property which is not stayed or lifted within thirty (30) days;
10.5. except as otherwise provided for in Sections 10.1
through 10.4 or Section 10.19 (i) failure or neglect of Borrower
to perform, keep or observe any term, provision, condition,
covenant contained in Sections 4.6, 4.7, 4.9, 6.1, 6.3, 6.4, 9.4
or 9.6 hereof which is not cured within thirty (30) days from the
occurrence of such failure or neglect (or, with respect to
Section 4.19 hereof, providing Borrower is making reasonable
progress in effecting such cure, such longer period (not to
exceed ninety (90) days) which is reasonably necessary to
complete such cure) or (ii) failure or neglect of Borrower to
perform, keep or observe any other term, provision, condition or
covenant contained in any other agreement or arrangement, now or
hereafter entered into between Borrower and Agent or any Lender;
10.6. any judgment or judgments are rendered or judgment
liens filed against Borrower for an aggregate amount in excess of
$5,000,000 solely as it relates to a Subsidiary of Borrower not
incorporated in the United States of America or any state thereof
or $2,000,000 in all other matters which within forty (40) days
of such rendering or filing is not either satisfied, bonded,
stayed or discharged of record;
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10.7. Borrower shall (i) apply for, consent to or suffer
the appointment of, or the taking of possession by, a receiver,
custodian, trustee or similar fiduciary of itself or of all or a
substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) commence a voluntary case
under any state or federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file
a petition seeking to take advantage of any other law providing
for the relief of debtors, (vi) acquiesce to, or fail to have
dismissed, within sixty (60) days, any petition filed against it
in any involuntary case under such bankruptcy laws, or (vii)
take any action for the purpose of effecting any of the
foregoing;
10.8. Borrower shall admit in writing its inability, or
be generally unable, to pay its debts as they become due or cease
operations of its present business in its entirety;
10.9. any Subsidiary of Borrower which is material to
the operations of Borrower shall (i) apply for, consent to or
suffer the appointment of, or the taking of possession by, a
receiver, custodian, trustee or similar fiduciary of itself or of
all or a substantial part of its property, (ii) admit in writing
its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business unless
consolidated, merged or liquidated with and into Borrower or any
other Subsidiary of Borrower; (iii) make a general assignment for
the benefit of creditors, (iv) commence a voluntary case under
any state or federal bankruptcy laws (as now or hereafter in
effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a
petition seeking to take advantage of any other law providing for
the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within sixty (60) days, any petition filed against it
in any involuntary case under such bankruptcy laws, or (viii)
take any action for the purpose of effecting any of the
foregoing;
10.10. any Lien created hereunder or provided for hereby
or under any related agreement for any reason ceases to be or is
not a valid and perfected Lien having a first priority interest
to the extent such Lien has been properly perfected by Agent (and
subject to Permitted Encumbrances under clauses (c), (g), (l),
(m), (n), (o) or (r) of the definition thereof), except for those
Liens which cease to be perfected solely as a result of Agent's
failure to file continuation statements for previously filed
Uniform Commercial Code financing statements;
10.11. an event of default has occurred and been declared
under the Subordinated Note Documentation which default shall not
have been cured or waived within any applicable grace period and
for which Trustee is permitted to take action under the Indenture
or the Exchange Indenture, as applicable;
10.12. a default of the obligations of Borrower under any
other agreement to which it is a party shall occur which could
reasonably be expected to result in a Material Adverse Effect
which default is not cured within any applicable grace period;
10.13. any Change of Control shall occur;
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10.14. any material provision of this Agreement shall,
for any reason, cease to be valid and binding on Borrower, or
Borrower shall so claim in writing to Agent;
10.15. (i) any Governmental Body shall (A) revoke,
terminate, suspend or adversely modify any license, permit,
patent trademark or tradename of Borrower, the continuation of
which is material to the continuation of Borrower's business and
is not replaced by a substitute acceptable to Agent within sixty
(60) days after the date of such revocation, termination or
similar action and such revocation, termination or other similar
action could reasonably be expected to result in a Material
Adverse Effect, or (ii) any agreement which is necessary or
material to the operation of Borrower's business shall be revoked
or terminated and not replaced by a substitute acceptable to
Agent within sixty (60) days after the date of such revocation or
termination, and such revocation or termination and non-
replacement would reasonably be expected to have a Material
Adverse Effect on Borrower;
10.16. any portion of the Collateral having a fair market
value in excess of $1,000,000 shall be seized or taken by a
Governmental Body, or Borrower or the title and rights of
Borrower in the Collateral shall have become the subject matter
of litigation which would, in the reasonable opinion of Agent,
upon final determination, result in impairment or loss of the
security provided by this Agreement or the Other Documents;
10.17. the operations of Borrower's manufacturing
facility are interrupted at any time for more than seven (7)
consecutive days (other than in connection with normal
maintenance conducted on a basis consistent with past practices),
unless Borrower shall (i) be entitled to receive for such period
of interruption, proceeds of business interruption insurance
sufficient to assure that its per diem cash needs during such
period is at least equal to its average per diem cash needs for
the consecutive three month period immediately preceding the
initial date of interruption and (ii) receive such proceeds in
the amount described in clause (i) preceding not later than
ninety (90) days following the initial date of any such
interruption; provided, however, that notwithstanding the
provisions of clauses (i) and (ii) of this section, an Event of
Default shall be deemed to have occurred if Borrower shall be
receiving the proceeds of business interruption insurance for a
period of ninety (90) consecutive days;
10.18. termination except in accordance with its terms or
breach of any Guaranty executed and delivered to Agent in
connection with the Obligations or if any Guarantor attempts to
terminate the validity of, or its liability under, any such
Guaranty except in accordance with its terms; or
10.19. an event or condition specified in Sections 7.15
or 9.15 hereof shall occur or exist with respect to any Plan and,
as a result of such event or condition, together with all other
such events or conditions, Borrower or any member of the
Controlled Group shall incur, or in the opinion of Agent be
reasonably likely to incur, a liability to a Plan or the PBGC (or
both) which, in the reasonable judgment of Agent, would have a
Material Adverse Effect on Borrower.
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XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. Upon the occurrence of (i)
an Event of Default pursuant to Section 10.7 all Obligations
shall be immediately due and payable and this Agreement and the
obligation of Lenders to make Advances shall be deemed
terminated; and, (ii) any of the other Events of Default and at
any time thereafter (such default not having previously been
cured), at the option of Required Lenders all Obligations shall
be immediately due and payable and Lenders shall have the right
to terminate this Agreement and to terminate the obligation of
Lenders to make Advances and (iii) a filing of a petition against
Borrower in any involuntary case under any state or federal
bankruptcy laws, the obligation of Lenders to make Advances
hereunder shall be terminated other than as may be required by an
appropriate order of the bankruptcy court having jurisdiction
over Borrower. Upon the occurrence of any Event of Default and
during the continuation thereof, Agent shall have the right to
exercise any and all other rights and remedies provided for
herein, under the Uniform Commercial Code and at law or equity
generally, including, without limitation, the right to foreclose
the security interests granted herein and to realize upon any
Collateral by any available judicial procedure and/or to take
possession of and sell any or all of the Collateral with or
without judicial process. Agent may enter any of Borrower's
premises or other premises without legal process and without
incurring liability to Borrower therefor, and Agent may
thereupon, or at any time thereafter, in its discretion without
notice or demand, take the Collateral and remove the same to such
place as Agent may deem advisable and Agent may require Borrower
to make the Collateral available to Agent at a convenient place.
With or without having the Collateral at the time or place of
sale, Agent may sell the Collateral, or any part thereof, at
public or private sale, at any time or place, in one or more
sales, at such price or prices, and upon such terms, either for
cash, credit or future delivery, as Agent may elect. Except as
to that part of the Collateral which is perishable or threatens
to decline speedily in value or is of a type customarily sold on
a recognized market, Agent shall give Borrower reasonable
notification of such sale or sales, it being agreed that in all
events written notice mailed to Borrower at least five (5)
Business Days prior to such sale or sales is reasonable
notification. At any public sale Agent or any Lender may bid for
and become the purchaser, and Agent, any Lender or any other
purchaser at any such sale thereafter shall hold the Collateral
sold absolutely free from any claim or right of whatsoever kind,
including any equity of redemption and such right and equity are
hereby expressly waived and released by Borrower. In connection
with the exercise of the foregoing remedies, Agent is granted
permission to use all of Borrower's (a) trademarks, trade styles,
trade names, patents, patent applications, licenses, franchises
and other proprietary rights which are used in connection with
Inventory for the purpose of disposing of such Inventory and (b)
Equipment for the purpose of completing the manufacture of
unfinished goods. The proceeds realized from the sale of any
Collateral shall be applied as follows: first, to the reasonable
costs, expenses and attorneys' fees and expenses incurred by
Agent for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second, to
interest due upon any of the Obligations and any fees payable
under this Agreement; and, third, to the principal of the
Obligations. If any deficiency shall arise, Borrower shall
remain liable to Agent and Lenders therefor.
11.2. Agent's Discretion. Agent shall have the right in
its sole discretion to determine which rights, Liens, security
interests or remedies Agent may at any time pursue, relinquish,
subordinate, or modify or to take any other action with respect
thereto and such determination will not in any way modify or
affect any of Agent's or Lenders' rights hereunder.
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11.3. Setoff. In addition to any other rights which
Agent or any Lender may have under applicable law, upon the
occurrence of an Event of Default hereunder and during the
continuation thereof, Agent and such Lender shall have a right to
apply Borrower's property held by Agent and such Lender to reduce
the Obligations.
11.4 Rights and Remedies not Exclusive. The enumeration of
the foregoing rights and remedies is not intended to be
exhaustive and the exercise of any rights or remedy shall not
preclude the exercise of any other right or remedies provided for
herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Borrower hereby waives notice
of non-payment of any of the Receivables, demand, presentment,
protest and notice thereof with respect to any and all in-
struments, notice of acceptance hereof, notice of loans or
advances made, credit extended, Collateral received or delivered,
or any other action taken in reliance hereon, and all other
demands and notices of any description, except such as are
expressly provided for herein.
12.2. Delay. No delay or omission on Agent's or any
Lender's part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option
or of any default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF
THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
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XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the
benefit of and shall be binding upon the respective successors
and permitted assigns of Borrower, Agent and each Lender, shall
become effective on the date hereof and shall continue in full
force and effect until February __, 2004 (the "Term") unless
sooner terminated as herein provided. Borrower may terminate
this Agreement at any time upon ten (10) Business Days' prior
written notice upon payment in full of the Obligations,
including, without limitation, the payment of all fees set forth
in the Fee Letter.
13.2. Termination. The termination of the Agreement
shall not affect Borrower's, Agent's or any Lender's rights, or
any of the Obligations having their inception prior to the
effective date of such termination, and the provisions hereof
shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations (other
than indemnity obligations with respect to which no claim has
been made) have been fully disposed of, concluded or liquidated.
The security interests, Liens and rights granted to Agent and
Lenders hereunder and the financing statements filed hereunder
shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Borrower's Account
may from time to time be temporarily in a zero or credit
position, until all of the Obligations (other than indemnity
obligations with respect to which no claim has been made) of
Borrower have been paid or performed in full after the
termination of this Agreement or Borrower has furnished Agent and
Lenders with an indemnification satisfactory to Agent and Lenders
with respect thereto. Accordingly, Borrower waives any rights
which it may have under Section 9-404(1) of the Uniform
Commercial Code to demand the filing of termination statements
with respect to the Collateral, and Agent shall not be required
to send such termination statements to Borrower, or to file them
with any filing office, unless and until this Agreement shall
have been terminated in accordance with its terms and all
Obligations (other than indemnity obligations with respect to
which no claim has been made) paid in full in immediately
available funds. All representations, warranties, covenants,
waivers and agreements contained herein shall survive termination
hereof until all Obligations (other than indemnity obligations
with respect to which no claim has been made) are paid or
performed in full.
XIV. REGARDING AGENT.
14.1. Appointment. Each Lender hereby designates PNC to
act as Agent for such Lender under this Agreement and the Other
Documents. Each Lender hereby irrevocably authorizes Agent to
take such action on its behalf under the provisions of this
Agreement and the Other Documents and to exercise such powers and
to perform such duties hereunder and thereunder as are
specifically delegated to or required of Agent by the terms
hereof and thereof and such other powers as are reasonably
incidental thereto and Agent shall hold all Collateral, payments
of principal and interest, fees (except the fees set forth the
Fee Letter), charges and collections (without giving effect to
any collection days) received pursuant to this Agreement, for the
ratable benefit of Lenders. Agent may perform any of its duties
hereunder by or through its agents or employees. As to any
matters not expressly provided for by this Agreement (including
without limitation, collection of the Note) Agent shall not be
required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the
instructions of the Required Lenders, and such instructions shall
be binding; provided, however, that Agent shall not be required
to take any action which exposes Agent to liability or which is
contrary to this Agreement or the Other Documents or applicable
law unless Agent is furnished with an indemnification reasonably
satisfactory to Agent with respect thereto.
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14.2. Nature of Duties. Agent shall have no duties or
responsibilities except those expressly set forth in this
Agreement and the Other Documents. Neither Agent nor any of its
officers, directors, employees or agents shall be (i) liable for
any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their gross (not mere)
negligence or willful misconduct, or (ii) responsible in any
manner for any recitals, statements, representations or
warranties made by Borrower or any officer thereof contained in
this Agreement, or in any of the Other Documents or in any
certificate, report, statement or other document referred to or
provided for in, or received by Agent under or in connection
with, this Agreement or any of the Other Documents or for the
value, validity, effectiveness, genuineness, due execution,
enforceability or sufficiency of this Agreement, or any of the
Other Documents or for any failure of Borrower to perform its
obligations hereunder. Agent shall not be under any obligation
to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions
of, this Agreement or any of the Other Documents, or to inspect
the properties, books or records of Borrower. The duties of
Agent as respects the Advances to Borrower shall be mechanical
and administrative in nature; Agent shall not have by reason of
this Agreement a fiduciary relationship in respect of any Lender;
and nothing in this Agreement, expressed or implied, is intended
to or shall be so construed as to impose upon Agent any
obligations in respect of this Agreement except as expressly set
forth herein.
14.3. Lack of Reliance on Agent and Resignation.
Independently and without reliance upon Agent or any other
Lender, each Lender has made and shall continue to make (i) its
own independent investigation of the financial condition and
affairs of Borrower in connection with the making and the
continuance of the Advances hereunder and the taking or not
taking of any action in connection herewith, and (ii) its own
appraisal of the creditworthiness of Borrower. Agent shall have
no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before
making of the Advances or at any time or times thereafter except
as shall be provided by Borrower pursuant to the terms hereof.
Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or
in any agreement, document, certificate or a statement delivered
in connection with or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement or any Other Document, or of the
financial condition of Borrower, or be required to make any
inquiry concerning either the performance or observance of any of
the terms, provisions or conditions of this Agreement, the Note,
the Other Documents or the financial condition of Borrower, or
the existence of any Event of Default or any Default.
Agent may resign on sixty (60) days' written notice to each
of Lenders and Borrower and upon such resignation, the Required
Lenders will promptly designate a successor Agent reasonably
satisfactory to Borrower.
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Any such successor Agent shall succeed to the rights, powers
and duties of Agent, and the term "Agent" shall mean such
successor agent effective upon its appointment, and the former
Agent's rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of such
former Agent. After any Agent's resignation as Agent, the
provisions of this Article XIV shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
14.4. Certain Rights of Agent. If Agent shall request
instructions from Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or
any Other Document, Agent shall be entitled to refrain from such
act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall
not incur liability to any Person by reason of so refraining.
Without limiting the foregoing, Lenders shall not have any right
of action whatsoever against Agent as a result of its acting or
refraining from acting hereunder in accordance with the
instructions of the Required Lenders.
14.5. Reliance. Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, order or other document or
telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity,
and, with respect to all legal matters pertaining to this
Agreement and the Other Documents and its duties hereunder, upon
advice of counsel selected by it. Agent may employ agents and
attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by
Agent with reasonable care.
14.6. Notice of Default. Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or
Event of Default hereunder or under the Other Documents, unless
Agent has received notice from a Lender or Borrower referring to
this Agreement or the Other Documents, describing such Default or
Event of Default and stating that such notice is a "notice of
default". In the event that Agent receives such a notice, Agent
shall give notice thereof to Lenders. Agent shall take such
action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders; provided, that,
unless and until Agent shall have received such directions, Agent
may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of
Lenders.
14.7. Indemnification. To the extent Agent is not
reimbursed and indemnified by Borrower, each Lender will
reimburse and indemnify Agent in proportion to its respective
portion of the Advances (or, if no Advances are outstanding,
according to its Commitment Percentage), from and against any and
all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever which may be imposed on, incurred
by or asserted against Agent in performing its duties hereunder,
or in any way relating to or arising out of this Agreement or any
Other Document; provided that, Lenders shall not be liable for
any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from Agent's gross (not mere) negligence
or willful misconduct.
14.8. Agent in its Individual Capacity. With respect to
the obligation of Agent to lend under this Agreement, the
Advances made by it shall have the same rights and powers
hereunder as any other Lender and as if it were not performing
the duties as Agent specified herein; and the term "Lender" or
any similar term shall, unless the context clearly otherwise
indicates, include Agent in its individual capacity as a Lender.
Agent may engage in business with Borrower as if it were not
performing the duties specified herein, and may accept fees and
other consideration from Borrower for services in connection with
this Agreement or otherwise without having to account for the
same to Lenders.
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14.9. Delivery of Documents. To the extent Agent
receives financial statements required under Sections 9.7, 9.8,
and 9.9 from Borrower pursuant to the terms of this Agreement,
Agent will promptly furnish such documents and information to
Lenders.
14.10. Borrower's Undertaking to Agent. Without
prejudice to its obligations to Lenders under the other
provisions of this Agreement, Borrower hereby undertakes with
Agent to pay to Agent from time to time on demand all amounts
from time to time due and payable by it for the account of Agent
or Lenders or any of them pursuant to this Agreement to the
extent not already paid. Any payment made pursuant to any such
demand shall pro tanto satisfy the relevant Borrower's
obligations to make payments for the account of Lenders or the
relevant one or more of them pursuant to this Agreement.
XV. MISCELLANEOUS.
15.1. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
York applied to contracts to be performed wholly within the State
of New York. Any judicial proceeding brought by or against
Borrower with respect to any of the Obligations, this Agreement
or any related agreement may be brought in any court of competent
jurisdiction in the State of New York, United States of America,
and, by execution and delivery of this Agreement, Borrower
accepts for itself and in connection with its properties,
generally and unconditionally, the non-exclusive jurisdiction of
the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement.
Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made
by registered mail (return receipt requested) directed to
Borrower at its address set forth in Section 15.6 and service so
made shall be deemed completed five (5) Business Days after the
same shall have been so deposited in the mails of the United
States of America. Nothing herein shall affect the right to serve
process in any manner permitted by law or shall limit the right
of Agent or any Lender to bring proceedings against Borrower in
the courts of any other jurisdiction. Borrower waives any
objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. Any
judicial proceeding by Borrower against Agent or any Lender
involving, directly or indirectly, any matter or claim in any way
arising out of, related to or connected with this Agreement or
any related agreement, shall be brought only in a federal or
state court located in the County of New York, State of New York.
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15.2. Entire Understanding. (a) This Agreement and the
documents executed concurrently herewith contain the entire
understanding between Borrower, Agent and each Lender and
supersedes all prior agreements and understandings, if any,
relating to the subject matter hereof. Any promises,
representations, warranties or guarantees not herein contained
and hereinafter made shall have no force and effect unless in
writing, signed by Borrower's, Agent's and each Lender's
respective officers. Neither this Agreement nor any portion or
provisions hereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by
any course of dealing, or in any manner other than by an
agreement in writing, signed by the party to be charged.
Borrower acknowledges that it has been advised by counsel in
connection with the execution of this Agreement and Other
Documents and is not relying upon oral representations or
statements inconsistent with the terms and provisions of this
Agreement.
(b) The Required Lenders, Agent with the consent in
writing of the Required Lenders, and Borrower may, subject to the
provisions of this Section 15.2 (b), from time to time enter into
written supplemental agreements to this Agreement or the Other
Documents executed by Borrower, for the purpose of adding or
deleting any provisions or otherwise changing, varying or waiving
in any manner the rights of Lenders, Agent or Borrower thereunder
or the conditions, provisions or terms thereof of waiving any
Event of Default thereunder, but only to the extent specified in
such written agreements; provided, however, that no such
supplemental agreement shall, without the consent of all Lenders:
(i) increase the Commitment Percentage or maximum
dollar commitment of any Lender.
(ii) extend the maturity of any Note or the due
date for any amount payable hereunder, or decrease the rate of
interest or reduce any fee payable by Borrower to Lenders
pursuant to this Agreement.
(iii) alter the definition of the term
Required Lenders or alter, amend or modify this Section 15.2(b).
(iv) release any Collateral during any calendar
year (other than in accordance with the provisions of this
Agreement) having an aggregate value in excess of $1,000,000.
(v) change the rights and duties of Agent.
(vi) permit any Revolving Advance to be made if
after giving effect thereto the total of Revolving Advances
outstanding hereunder would exceed the Formula Amount for more
than sixty (60) consecutive Business Days or exceed one hundred
and twenty percent (120%) of the Formula Amount.
(vii) increase the Advance Rates above the
Advance Rates in effect on the Closing Date.
viii) amend the definition of the Inventory
Cap or the Formula Amount in effect on the Closing Date.
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Any such supplemental agreement shall apply equally to each
Lender and shall be binding upon Borrower, Lenders and Agent and
all future holders of the Obligations. In the case of any
waiver, Borrower, Agent and Lenders shall be restored to their
former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of
a specific Event of Default shall extend to any subsequent Event
of Default (whether or not the subsequent Event of Default is the
same as the Event of Default which was waived), or impair any
right consequent thereon.
In the event that Agent requests the consent of a Lender
pursuant to this Section 15.2 and such Lender shall not respond
or reply to Agent in writing within ten (10) days of delivery of
such request, such Lender shall be deemed to have consented to
the matter that was the subject of the request. In the event
that Agent requests the consent of a Lender pursuant to this
Section 15.2 and such consent is denied, then PNC may, at its
option, require such Lender to assign its interest in the
Advances to PNC or to another Lender or to any other Person
designated by the Agent (the "Designated Lender"), for a price
equal to the then outstanding principal amount thereof plus
accrued and unpaid interest and fees due such Lender, which
interest and fees shall be paid when collected from Borrower. In
the event PNC elects to require any Lender to assign its interest
to PNC or to the Designated Lender, PNC will so notify such
Lender in writing within forty five (45) days following such
Lender's denial, and such Lender will assign its interest to PNC
or the Designated Lender no later than five (5) days following
receipt of such notice pursuant to a Commitment Transfer
Supplement executed by such Lender, PNC or the Designated Lender,
as appropriate, and Agent.
Notwithstanding the foregoing, Agent may at its discretion
and without the consent of the Required Lenders, voluntarily
permit the outstanding Revolving Advances at any time to exceed
the Formula Amount by up to one hundred and ten percent (110%) of
the Formula Amount for up to thirty (30) consecutive Business
Days. For purposes of the preceding sentence, the discretion
granted to Agent hereunder shall not preclude involuntary
overadvances that may result from time to time due to the fact
that the Formula Amount was unintentionally exceeded for any
reason, including, but not limited to, Collateral previously
deemed to be either "Eligible Receivables" or "Eligible
Inventory", as applicable, becomes ineligible, collections of
Receivables applied to reduce outstanding Revolving Advances are
thereafter returned for insufficient funds or overadvances are
made to protect or preserve the Collateral. In the event Agent
involuntarily permits the outstanding Revolving Advances to
exceed the Formula Amount by more than ten percent (10%), Agent
shall decrease such excess in as expeditious a manner as is
practicable under the circumstances and not inconsistent with the
reason for such excess. Revolving Advances made after Agent has
determined the existence of involuntary overadvances shall be
deemed to be involuntary overadvances and shall be decreased in
accordance with the preceding sentence.
15.3. Successors and Assigns; Participations; New
Lenders.
(a) This Agreement shall be binding upon and inure to
the benefit of Borrower, Agent, each Lender, all future holders
of the Obligations and their respective successors and assigns,
except that Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written
consent of Agent and each Lender.
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(b) Borrower acknowledges that in the regular course
of commercial banking business one or more Lenders may at any
time and from time to time sell participating interests in the
Advances to other financial institutions (each such transferee or
purchaser of a participating interest, a "Transferee"). Each
Transferee may exercise all rights of payment (including without
limitation rights of set-off) with respect to the portion of such
Advances held by it or other Obligations payable hereunder as
fully as if such Transferee were the direct holder thereof
provided that Borrower shall not be required to pay to any
Transferee more than the amount which it would have been required
to pay to Lender which granted an interest in its Advances or
other Obligations payable hereunder to such Transferee had such
Lender retained such interest in the Advances hereunder or other
Obligations payable hereunder and in no event shall Borrower be
required to pay any such amount arising from the same
circumstances and with respect to the same Advances or other
Obligations payable hereunder to both such Lender and such
Transferee. Borrower hereby grants to any Transferee a
continuing security interest in any deposits, moneys or other
property actually or constructively held by such Transferee as
security for the Transferee's interest in the Advances.
(c) Any Lender may with the consent of Agent and
Borrower (which consent shall not be unreasonably withheld or
delayed and which consent of Borrower shall not be required for
the initial syndication by Agent of the Loans or at any time
following the occurrence of an Event of Default and during the
continuation thereof) which shall not be unreasonably withheld or
delayed sell, assign or transfer all or any part of its rights
under this Agreement and the Other Documents to one or more
additional banks or financial institutions and one or more
additional banks or financial institutions may commit to make
Advances hereunder (each a "Purchasing Lender"), in minimum
amounts of not less than $5,000,000, pursuant to a Commitment
Transfer Supplement, executed by a Purchasing Lender, the
transferor Lender, and Agent and delivered to Agent for recording
in the Register described in paragraph (d) below. Upon such
execution, delivery, acceptance and recording, from and after the
transfer effective date determined pursuant to such Commitment
Transfer Supplement, (i) Purchasing Lender thereunder shall be a
party hereto and, to the extent provided in such Commitment
Transfer Supplement, have the rights and obligations of a Lender
thereunder with a Commitment Percentage as set forth therein, and
(ii) the transferor Lender thereunder shall, to the extent
provided in such Commitment Transfer Supplement, be released from
its obligations under this Agreement, the Commitment Transfer
Supplement creating a novation for that purpose. Such Commitment
Transfer Supplement shall be deemed to amend this Agreement to
the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Lender and the resulting adjustment
of the Commitment Percentages arising from the purchase by such
Purchasing Lender of all or a portion of the rights and
obligations of such transferor Lender under this Agreement and
the Other Documents. Borrower hereby consents to the addition of
such Purchasing Lender and the resulting adjustment of the
Commitment Percentages arising from the purchase by such
Purchasing Lender of all or a portion of the rights and
obligations of such transferor Lender under this Agreement and
the Other Documents. Borrower shall execute and deliver such
further documents and do such further acts and things in order to
effectuate the foregoing. On or prior to the effective date of
any such sale or transfer hereunder, the Purchasing Lender, to
the extent it is not incorporated under the laws of the United
States, shall deliver to Borrower and Agent the forms required
under Section 3.7(b) hereof.
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(d) Agent shall maintain at its address a copy of each
Commitment Transfer Supplement delivered to it and a register
(the "Register") for the recordation of the names and addresses
of each Lender and the outstanding principal, accrued and unpaid
interest and other fees due and owing hereunder from time to
time. The entries in the Register shall be conclusive, in the
absence of manifest error, and Borrower, Agent and Lenders may
treat each Person whose name is recorded in the Register as the
owner of the Advance recorded therein for the purposes of this
Agreement. The Register shall be available for inspection by
Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice. Agent shall receive a fee in
the amount of $3,500 payable by the applicable Purchasing Lender
upon the effective date of each transfer or assignment to such
Purchasing Lender.
(e) Borrower authorizes each Lender to disclose to any
Transferee or Purchasing Lender and any prospective Transferee or
Purchasing Lender who has signed a confidentiality agreement in
substantially the form of Exhibit A attached hereto any and all
financial information in such Lender's possession concerning
Borrower which has been delivered to such Lender by or on behalf
of Borrower pursuant to this Agreement or in connection with such
Lender's credit evaluation of Borrower.
15.4. Application of Payments. Agent shall have the
continuing and exclusive right to apply or reverse and re-apply
any payment and any and all proceeds of Collateral to any portion
of the Obligations subject to the express terms regarding
application of proceeds of Collateral provided herein. To the
extent that Borrower makes a payment or Agent or any Lender
receives any payment or proceeds of the Collateral for Borrower's
benefit, which are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other
party under any bankruptcy law, common law or equitable cause,
then, to such extent, the Obligations or part thereof intended to
be satisfied shall be revived and continue as if such payment or
proceeds had not been received by Agent or such Lender.
15.5. Indemnity. Borrower shall indemnify Agent, each
Lender and each of their respective officers, directors,
Affiliates, employees and agents (collectively, the
"Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, reasonable fees and
disbursements of counsel) which may be imposed on, incurred by,
or asserted against Agent or any Lender in any litigation,
proceeding or investigation instituted or conducted by any
governmental agency or instrumentality or any other Person with
respect to any aspect of, or any transaction contemplated by, or
referred to in, or any matter related to, this Agreement or the
Other Documents, whether or not Agent or any Lender is a party
thereto, except to the extent that any of the foregoing arises
out of the willful misconduct or gross (not mere) negligence of
the Indemnitees.
15.6. Notice. Any notice or request hereunder may be
given to Borrower or to Agent or any Lender at their respective
addresses set forth below or at such other address as may
hereafter be specified in a notice designated as a notice of
change of address under this Section. Any notice or request
hereunder shall be given by (a) hand delivery, (b) overnight
courier, (c) registered or certified mail, return receipt
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requested, (d) telex or telegram, subsequently confirmed by
registered or certified mail, or (e) telecopy to the number set
out below (or such other number as may hereafter be specified in
a notice designated as a notice of change of address) with
electronic confirmation of its receipt. Any notice or other
communication required or permitted pursuant to this Agreement
shall be deemed given (a) when personally delivered to any
officer of the party to whom it is addressed, (b) on the earlier
of actual receipt thereof or three (3) days following posting
thereof by certified or registered mail, postage prepaid, or (c)
upon actual receipt thereof when sent by a recognized overnight
delivery service or (d) upon actual receipt thereof when sent by
telecopier to the number set forth below with electronic
confirmation of its receipt, in each case addressed to each party
at its address set forth below or at such other address as has
been furnished in writing by a party to the other by like notice:
(A) If to Agent or PNC Bank, National Association
PNC at: Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: Ryan Peak
Telephone: (732) 220-4315
Facsimile: (732) 220-4393
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118-0075
Attention: Steven J. Seif, Esq.
Telephone: (212) 736-1000
Facsimile: (212) 594-7167
(B) If to a Lender other than Agent, as specified on
the signature pages hereof
(C) If to Borrower: MCMS, Inc.
16399 Franklin Road
Nampa, Idaho 83687
Attention: Christopher J. Anton
Telephone: (208) 898-2600
Facsimile: (208) 898-2796
with copies to: Kirkland & Ellis
153 East 53rd Street, 39th Floor
New York, New York 10022-4675
Attention: Frederick Tanne,
Esq.
Telephone: (212) 446-4800
Telecopier: (212) 446-4900
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and: Cornerstone Equity
Investors IV, L.P.
717 Fifth Avenue, Suite 1100
New York, New York 10022
Attention: Michael Najjar
John A. Downer
Telephone: (212) 753-0901
Telecopier: (212) 826-6798
and: Wilson Sonsini Goodrich & Rosati
650 Pagemill Road
Palo Alto, California 94304
Attention: Aaron Alter, Esq.
Telephone: (650) 493-9300
Telecopier: (650) 493-6811
15.7. Survival. The obligations of Borrower under
Sections 2.2(f), 3.7, 3.8, 3.9, 4.19(h) and 15.5 and the
obligations of Lenders under Section 14.7 shall survive
termination of this Agreement and the Other Documents and payment
in full of the Obligations.
15.8. Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable
laws or regulations, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid,
but the remainder hereof shall not be invalidated thereby and
shall be given effect so far as possible.
15.9. Expenses. All reasonable costs and expenses
including, without limitation, reasonable attorneys' fees
(whether outside counsel or the allocated costs of in house
counsel but not for the same legal work performed by each such
counsel) and disbursements incurred by (a) Agent, Agent on behalf
of Lenders and Lenders (i) in all efforts made to enforce payment
of any Obligation or effect collection of any Collateral, or (ii)
in connection with the enforcement of this Agreement and the
Other Documents or any consents or waivers hereunder and all
related agreements, documents and instruments, or (iii) in
instituting, maintaining, preserving, enforcing and foreclosing
on Agent's security interest in or Lien on any of the Collateral,
whether through judicial proceedings or otherwise, or (iv) in
defending or prosecuting any actions or proceedings arising out
of or relating to Agent's or any Lender's transactions with
Borrower, or (v) in connection with any advice given to Agent or
any Lender with respect to its rights and obligations under this
Agreement and all related agreements, may be charged to
Borrower's Account and shall be part of the Obligations and (b)
Agent in connection with the entering into, modification,
amendment and administration of this Agreement and the Other
Documents.
15.10. Injunctive Relief. Borrower recognizes that, in
the event Borrower fails to perform, observe or discharge any of
its obligations or liabilities under this Agreement, any remedy
at law may prove to be inadequate relief to Lenders; therefore,
Agent, if Agent so requests, shall be entitled to seek temporary
and permanent injunctive relief in any such case without the
necessity of proving that actual damages are not an adequate
remedy.
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15.11. Consequential Damages. Neither Agent nor any
Lender, nor any agent or attorney for any of them, shall be
liable to Borrower for consequential damages arising from any
breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations.
15.12. Captions. The captions at various places in this
Agreement are intended for convenience only and do not constitute
and shall not be interpreted as part of this Agreement.
15.13. Counterparts; Telecopied Signatures. This
Agreement may be executed in any number of and by different
parties hereto on separate counterparts, all of which, when so
executed, shall be deemed an original, but all such counterparts
shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to
be an original signature hereto.
15.14. Construction. The parties acknowledge that each
party and its counsel have reviewed this Agreement and that the
normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any
amendments, schedules or exhibits thereto.
15.15. Confidentiality; Sharing Information. (a) Agent,
each Lender and each Transferee shall hold all non-public
information obtained by Agent, such Lender or such Transferee
pursuant to the requirements of this Agreement in accordance with
Agent's, such Lender's and such Transferee's customary procedures
for handling confidential information of this nature; provided,
however, Agent, each Lender and each Transferee may disclose such
confidential information (a) to its examiners, affiliates,
outside auditors, counsel and other professional advisors to the
extent such Persons(s) has signed a confidentiality agreement in
substantially the form of Exhibit B hereto, (b) to Agent, any
Lender or to any prospective Transferees and Purchasing Lenders
to the extent such Persons(s) has signed a confidentiality
agreement in substantially the form of Exhibit B hereto, and (c)
as required or requested by any Governmental Body or
representative thereof or pursuant to legal process; provided,
further that (i) unless specifically prohibited by applicable law
or court order, Agent, each Lender and each Transferee shall use
its best efforts prior to disclosure thereof, to notify Borrower
of the applicable request for disclosure of such non-public
information (A) by a Governmental Body or representative thereof
(other than any such request in connection with an examination of
the financial condition of a Lender or a Transferee by such
Governmental Body) or (B) pursuant to legal process and (ii) in
no event shall Agent, any Lender or any Transferee be obligated
to return any materials furnished by Borrower other than those
documents and instruments in possession of Agent or any Lender in
order to perfect its Lien on the Collateral once the Obligations
(other than indemnity obligations with respect to which no claim
has been made) have been paid in full and this Agreement has been
terminated.
(b) Borrower acknowledges that from time to time
financial advisory, investment banking and other services may be
offered or provided to Borrower or one or more of its Affiliates
(in connection with this Agreement or otherwise) by any Lender or
by one or more Subsidiaries or Affiliates of such Lender and
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Borrower hereby authorizes each Lender to share any information
delivered to such Lender by Borrower and its Subsidiaries
pursuant to this Agreement, or in connection with the decision of
such Lender to enter into this Agreement, to any such Subsidiary
or Affiliate of such Lender for such purposes only to the extent
such Person(s) has signed a confidentiality agreement in
substantially the form of Exhibit B hereto, it being understood
that any such Subsidiary or Affiliate of any Lender receiving
such information shall be bound by the provision of Section 15.15
as if it were a Lender hereunder. Such authorization shall
survive the repayment of the other Obligations and the
termination of the Loan Agreement.
15.16. Publicity. Borrower and each Lender hereby
authorizes Agent to make appropriate announcements of the
financial arrangement entered into among Borrower, Agent and
Lenders, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such
selected parties as Agent shall in its sole and absolute
discretion deem appropriate so long as Borrower is provided with
an opportunity to review any such announcements in advance of its
use by Agent.
[SIGNATURE PAGE TO FOLLOW]
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Each of the parties has signed this Agreement as of the day
and year first above written.
MCMS, INC.
ATTEST:
/s/ Christian J. Anton
/s/ Jai Agrawal Vice President, Finance and Chief
Financial Officer
16399 Franklin Road
Nampa, Idaho 83687
PNC BANK, NATIONAL ASSOCIATION,
as Lender and as Agent
/s/ Craig Stillwagon
Vice President
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Commitment Percentage: 100%
113
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STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this 25th day of February, 1999, before me personally came
Chris J. Anton, to me known, who, being by me duly sworn, did depose
and say that he is the Vice President, Finance and Chief Financial
Officer of MCMS, INC., the corporation described in and which
executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the board of
directors of said corporation, and that he signed his name thereto
by like order.
/s/ Daphne E. Schmitt
Notary Public
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this 25th day of February, 1999, before me personally came
Craig Stillwagon, to me known, who, being by me duly sworn, did
depose and say that he is the Vice President of PNC BANK, NATIONAL
ASSOCIATION, the national association described in and which
executed the foregoing instrument and that he signed his name
thereto by on behalf of said association
/s/ Daphne E. Schmitt
Notary Public
114
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List of Exhibits and Schedules
Exhibits
Exhibit 2.1(a) Revolving Credit Note
Exhibit 2.4 Equipment Note
Exhibit 5.5(b) Financial Projections
Exhibit 8.1(i) Financial Condition Certificate
Exhibit 15.3 Commitment Transfer Supplement
Exhibit A Borrowing Base Certificate
Exhibit B Confidentiality Agreement
Schedules
Schedule 1.2 Permitted Encumbrances
Schedule 4.5 Equipment and Inventory Locations
Schedule 4.19 Real Property
Schedule 5.2(a) States of Qualification and Good Standing
Schedule 5.2(b) Subsidiaries
Schedule 5.5(c) Changes in Financial Condition
Schedule 5.6 Prior Names
Schedule 5.7(c) Environmental
Schedule 5.8(b) Litigation
Schedule 5.8(d) Plans
Schedule 5.9 Intellectual Property, Source Code Escrow
Agreements
Schedule 5.10 Licenses and Permits
Schedule 5.14 Labor Disputes
Schedule 5.19 Swap Agreements
Schedule 7.4 Investments
Schedule 7.8 Indebtedness
Schedule 8.1(t) Material Adverse Changes
Schedule A Original Owners
115
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Exhibit 2.1(a)
REVOLVING CREDIT NOTE
$50,000,000 New York, New York
February 26, 1999
This Revolving Credit Note is executed and delivered
under and pursuant to the terms of that certain Revolving Credit,
Equipment Loan and Security Agreement dated as of the date hereof
(as amended, supplemented or modified from time to time the "Loan
Agreement") by and among MCMS, INC., an Idaho corporation
("Borrower"), and jointly and severally, the "Borrowers"), PNC
BANK, NATIONAL ASSOCIATION ("PNC"), each of the various other
financial institutions named therein or which hereafter become
parties thereto (together with PNC, collectively, the "Lenders")
and PNC as agent for the Lenders (PNC, in such capacity,
"Agent"). Capitalized terms not otherwise defined herein shall
have the meanings ascribed thereto in the Loan Agreement.
FOR VALUE RECEIVED, Borrower promises to pay to the
order of Agent for its benefit and for the ratable benefit of the
Lenders, at Agent's offices located at Two Tower Center
Boulevard, East Brunswick, New Jersey 08816 or at such other
place as the holder may from time to time designate to Borrower
in writing:
(i) the principal sum of FIFTY MILLION DOLLARS
($50,000,000) or, if different from such amount, the unpaid
principal balance of Revolving Advances as may be due and owing
under the Loan Agreement, payable on the last day of the Term,
subject to acceleration upon the occurrence of an Event of
Default under the Loan Agreement, or earlier termination of the
Loan Agreement; and
(ii) interest on the principal amount of this Note from
time to time outstanding, payable in arrears, at the applicable
Revolving Interest Rate in accordance with the terms of the Loan
Agreement. Upon and after the occurrence of an Event of Default,
and during the continuation thereof, interest shall be payable at
the applicable Default Rate to the extent provided in the Loan
Agreement. In no event, however, shall interest hereunder exceed
the maximum interest rate permitted by law.
This Note is the Revolving Credit Note referred to in
the Loan Agreement and is secured by the liens granted pursuant
to the Loan Agreement and the Other Documents, is entitled to the
benefits of the Loan Agreement and the Other Documents and is
subject to all of the agreements, terms and conditions therein
contained.
This Note may be voluntarily prepaid, in whole or in
part, on the terms and conditions set forth in the Loan
Agreement.
116
<PAGE>
If an Event of Default under Section 10.7 of the Loan
Agreement shall occur, then this Note shall immediately become
due and payable, without notice, together with reasonable
attorneys' fees if the collection hereof is placed in the hands
of an attorney to obtain or enforce payment hereof. If any other
Event of Default shall occur under the Loan Agreement or any of
the Other Documents, which is not cured within any applicable
notice and grace period, then this Note may, as provided in the
Loan Agreement, be declared to be immediately due and payable,
without further notice, together with reasonable attorneys' fees,
if the collection hereof is placed in the hands of an attorney to
obtain or enforce payment hereof.
This Note is being delivered in the State of New York,
and shall be construed and enforced in accordance with the laws
of such State.
Borrower expressly waives any presentment, demand,
protest, notice of protest, or notice of any kind except as ex-
pressly provided in the Loan Agreement.
MCMS, INC.
/s/ Christian J. Anton
Vice President, Finance and
Chief Financial Officer
117
<PAGE>
Exhibit 2.4
EQUIPMENT LOAN NOTE
$10,000,000 New York, New York
February 26, 1999
This Equipment Loan Note is executed and delivered
under and pursuant to the terms of that certain Revolving Credit,
Equipment Loan and Security Agreement dated as of the date hereof
(as amended, restated, supplemented or modified from time to time
the "Loan Agreement") by and among MCMS, INC., an Idaho
corporation ("Borrower"), PNC BANK, NATIONAL ASSOCIATION ("PNC"),
each of the various other financial institutions named therein or
which hereafter become parties thereto (together with PNC,
collectively, the "Lenders") and PNC as agent for the Lenders
(PNC, in such capacity, "Agent"). Capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto
in the Loan Agreement.
FOR VALUE RECEIVED, Borrower hereby promises to pay to
the order of Agent for its benefit and for the ratable benefit of
the Lenders, at Agent's offices located at Two Tower Center
Boulevard, East Brunswick, New Jersey 08816 or at such other
place as the holder may from time to time designate to Borrower
in writing:
(i) the principal sum of TEN MILLION and 00/100
Dollars ($10,000,000) or, if different, the unpaid principal
balance of the Equipment Loans as may be otherwise due and owing
under the Loan Agreement, payable in accordance with the terms of
the Loan Agreement and subject to acceleration upon the
occurrence and during the continuation of an Event of Default
under the Loan Agreement or earlier termination of the Loan
Agreement pursuant to the terms thereof; and
(ii) interest on the principal amount of this Note from
time to time outstanding, payable in accordance with the terms of
the Loan Agreement at the applicable Equipment Loan Rate. Upon
and after the occurrence of an Event of Default, and during the
continuation thereof, interest shall be payable at the Default
Rate to the extent provided in the Loan Agreement. In no event,
however, shall interest exceed the maximum interest rate
permitted by law.
This Note is the Equipment Loan Note referred to in the
Loan Agreement and is secured by the liens granted pursuant to
the Loan Agreement and the Other Documents, is entitled to the
benefits of the Loan Agreement and the Other Documents and is
subject to all of the agreements, terms and conditions therein
contained.
This Note is subject to mandatory prepayment and may be
voluntarily prepaid, in whole or in part, on the terms and
conditions set forth in the Loan Agreement.
If an Event of Default under Section 10.7 of the Loan
Agreement shall occur, then this Note shall immediately become
due and payable, without notice, together with reasonable
attorneys' fees if the collection hereof is placed in the hands
of an attorney to obtain or enforce payment hereof. If any other
Event of Default shall occur under the Loan Agreement which is
not cured within any applicable notice and grace period, then
this Note may, as provided in the Loan Agreement, be declared to
be immediately due and payable, without further notice, together
with reasonable attorneys' fees, if the collection hereof is
placed in the hands of an attorney to obtain or enforce payment
hereof.
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This Note is being delivered in the State of New York,
and shall be construed and enforced in accordance with the laws
of such State.
Borrower expressly waives any presentment, demand,
protest, notice of protest, or notice of any kind except as
expressly provided in the Loan Agreement.
MCMS, INC.
/s/ Christian J. Anton
Vice President, Finance and
Chief Financial Officer
119
<PAGE>
EXHIBIT 5.5(b)
FINANCIAL PROJECTIONS
OMITTED
Exhibit 8.1(i)
FINANCIAL CONDITION CERTIFICATE
I, Chris J. Anton hereby certify on behalf of the
Borrower that:
1. I am the duly elected, qualified and acting Chief
Financial Officer of MCMS, Inc. ("Borrower"). Borrower is a
corporation duly organized, existing and in good standing under
the laws of the State of Idaho.
2. I am fully familiar with all of the business and
financial affairs of Borrower, including without limiting the
generality of the foregoing, all of the matters hereinafter
described.
3. This Certificate is made and delivered to PNC Bank,
National Association ("PNC") as agent (in such capacity, "Agent")
for Lenders (as defined below) pursuant to the terms of the
Revolving Credit, Equipment Loan and Security Agreement dated as
of the date hereof (as amended, modified, restated or
supplemented from time to time, the "Loan Agreement") among
Borrower, PNC and the various other financial institutions named
therein or which hereafter become a party thereto (PNC and such
other institutions, collectively, the "Lenders") and Agent, for
the purpose of inducing Agent and Lenders, now and from time to
time hereafter, to advance monies and extend credit and other
financial accommodations to Borrower pursuant to the Loan
Agreement, together with all notes, security agreements,
mortgages, agreements, guarantees, instruments and documents
heretofore now and from time to time hereafter executed by
Borrower and delivered to Agent and/or Lenders, as the case may
be, in connection with the Loan Agreement (all hereinafter
collectively referred to as the "Loan Documents"). I understand
that Agent and Lenders are relying on this Certificate. All
capitalized terms used herein which are not otherwise defined
herein shall have the meanings set forth in the Loan Agreement.
4. I have reviewed the following and am fully familiar
with the process pursuant to which they were generated:
(a) Pro Forma Balance Sheet of Borrower on a
Consolidated Basis attached hereto as Exhibit A (the
"Balance Sheet").
(b) Twelve-Month Cash Flow Projections of Borrower on
a Consolidated Basis attached hereto as Exhibit B (the
"Projections").
In my good faith judgment, the Balance Sheet is
complete and correct in all material respects and fairly presents
in all material respects the financial condition of Borrower on a
Consolidated Basis as of the date hereof after giving effect to
the consummation of the Transactions. In my good faith judgment
the Projections are based upon underlying assumptions which
provide a reasonable basis for the projections contained therein
which are based on circumstances existing at the time made.
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<PAGE>
5. Immediately following the execution of the Loan
Documents and after giving effect to the Transactions, the
aggregate assets of Borrower, at a fair valuation (on a going
concern basis) and at their present fair saleable value (on a
going concern basis) will be in excess of the aggregate amount of
Borrower's liabilities (including contingent and unmatured
liabilities), Borrower will be able to pay all of its debts as
such debts mature and Borrower will not have unreasonably small
capital in order to carry on its business.
6. The Loan Agreement was and the other Loan Documents
were and will be executed and delivered by Borrower to Agent
and/or Lenders, as the case may be, in good faith and in exchange
for reasonably equivalent value and fair consideration.
7. I have reviewed the relevant terms of the Loan
Agreement and the other Loan Documents and have made or have
caused to be made under my supervision a review of the
transactions and conditions of Borrower from the beginning of the
accounting period covered by the documents set forth in Paragraph
4 hereof to the date of this Certificate and that such review has
not disclosed the existence during such period of any condition
or event which constitutes or would constitute a Default or Event
of Default under the Loan Agreement or the other Loan Documents.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, I have signed this Certificate solely in
my capacity as Chief Financial Officer of the Borrower as of the
date written below.
/s/ Christian J. Anton, the Chief
Financial Officer of MCMS, Inc.
New York, New York
Dated: February 26, 1999
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Exhibit 15.3
COMMITMENT TRANSFER SUPPLEMENT
COMMITMENT TRANSFER SUPPLEMENT, dated as of February
__, 1999, among ____________ ("_____") (_____, in such capacity,
the "Transferor Lender"), ____________ ("_____") (_____, in such
capacity the "Purchasing Lender") and PNC Bank, National
Association, as Agent for the Lenders under the Credit Agreement
(as those terms are hereafter defined).
W I T N E S S E T H:
WHEREAS, this Commitment Transfer Supplement is being
executed and delivered in accordance with the Revolving Credit,
Equipment Loan and Security Agreement dated as of February _____,
1999 (as amended, modified, restated, and supplemented from time
to time, the "Credit Agreement") by and among MCMS, Inc.,
("Borrower"), PNC Bank, National Association ("PNC"), the other
financial institutions named in and which hereafter become a
party thereto (collectively, "Lenders") and PNC as agent for
Lenders (in such capacity "Agent"); and
WHEREAS, the Transferor Lender is selling and assigning
to the Purchasing Lender, certain rights, obligations and commit
ments under the Credit Agreement and the Purchasing Lender is
committing to make Advances under the Credit Agreement.
NOW, THEREFORE, the parties hereto hereby agree as
follows:
1. All capitalized terms used herein which are not
defined shall have the meanings given to them in the Credit
Agreement.
2. Upon receipt by Agent of four (4) counterparts of
this Commitment Transfer Supplement, to each of which is attached
a fully completed Schedule I, and each of which has been executed
by the Transferor Lender, the Purchasing Lender and Agent, Agent
will transmit to Transferor Lender and Purchasing Lender a
Transfer Effective Notice, substantially in the form of Schedule
II to this Commitment Transfer Supplement (a "Transfer Effective
Notice"). Such Transfer Effective Notice shall set forth, inter
alia, the date on which the transfer effected by this Commitment
Transfer Supplement shall become effective (the "Transfer Effect
ive Date").
3. At or before 12:00 Noon (New York City time) on
the Transfer Effective Date, Purchasing Lender shall pay to
Transferor Lender, in immediately available funds, an amount (the
"Purchase Price") equal to the product of (x) the percentage of
the Transferor Lender's Commitment Percentage being purchased by
such Purchasing Lender (the "Purchased Percentage") multiplied by
(y) the amount of the outstanding Advances and other amounts
owing to the Transferor Lender under the Credit Agreement and the
Other Documents. Effective upon receipt by Transferor Lender of
the Purchase Price from a Purchasing Lender, Transferor Lender
hereby irrevocably sells, assigns and transfers to such Purchas
ing Lender, without recourse, representation or warranty (except
as hereinafter provided), and Purchasing Lender hereby irrevocab
ly purchases, takes and assumes from Transferor Lender, such
Purchasing Lender's Commitment Percentage of the Advances (as set
forth in Schedule I) and other amounts owing to the Transferor
Lender under the Credit Agreement and the Other Documents.
123
<PAGE>
4. Transferor Lender has made arrangements with
Purchasing Lender with respect to the portion, if any, to be
paid, and the date or dates for payment, by Transferor Lender to
such Purchasing Lender of any fees heretofore received by Trans
feror Lender with respect to the Purchased Percentage of the
Advances pursuant to the Credit Agreement prior to the Transfer
Effective Date.
5. (a) All principal payments that would otherwise
be payable from and after the Transfer Effective Date to or for
the account of Transferor Lender with respect to the Transferor
Lender's Commitment Percentage pursuant to the Credit Agreement
shall, instead, be payable to or for the account of Purchasing
Lender with respect to its Commitment Percentage and to Transfer
or Lender with respect to its Revised Commitment Percentage, each
as reflected in Schedule I to this Commitment Transfer Supple
ment.
(b) All interest, fees and other amounts that
would otherwise accrue for the account of Transferor Lender from
and after the Transfer Effective Date pursuant to the Credit
Agreement and the Other Documents with respect to the Transferor
Lender's Commitment Percentage shall, instead, accrue for the
account of, and be payable to, Purchasing Lender with respect to
its Commitment Percentage and to Transferor Lender with respect
to its Revised Commitment Percentage, each as reflected in
Schedule I to this Commitment Transfer Supplement.
6. In the event the Purchasing Lender requests that
it receive Notes payable to its order to evidence its Commitment
Percentage of the Advances, the Transferor Lender shall, within
two (2) Business Days after the Transfer Effective Date, deliver
to Agent the Notes then held by it, and Agent shall notify
Borrower that it is holding such Notes pending issuance of
replacement Notes therefor. In accordance with the terms of the
Credit Agreement, within two (2) Business Days after receipt by
Borrower of such Notice, Borrower shall deliver new Notes to
Agent reflecting the Commitment Percentages of Transferor Lender
and Purchasing Lender (as adjusted by this Commitment Transfer
Supplement) and the principal amount of the Advances represented
thereby. The new Notes shall be dated the Transfer Effective
Date and shall state that they are delivered in substitution for
the Notes theretofore held by the Transferor Lender. Agent will
deliver the new Notes to the Purchasing Lender and the Transferor
Lender and surrender the superseded Notes to Borrower, marked
"Canceled by Substitution".
7. Each of the parties to this Commitment Transfer
Supplement agrees that at any time and from time to time upon the
written request of any other party, it will execute and deliver
such further documents and do such further acts and things as
such other party may reasonably request in order to effect the
purposes of this Commitment Transfer Supplement.
8. By executing and delivering this Commitment
Transfer Supplement, Transferor Lender and Purchasing Lender
confirm to and agree with each other and Agent as follows: (i)
other than the representation and warranty that (x) it is the
124
<PAGE>
legal and beneficial owner of the interest being assigned hereby
free and clear of any adverse claim and (y) it is not aware of
the existence of any Event of Default as of the date hereof,
Transferor Lender makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agree
ment or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, the
Other Documents or any other instrument or document furnished
pursuant thereto; (ii) Transferor Lender makes no representation
or warranty and assumes no responsibility with respect to the
financial condition of Borrower or the performance or observance
by Borrower of any of the Obligations under the Credit Agreement,
or any Other Documents; (iii) Purchasing Lender confirms that it
has received a copy of the Credit Agreement, together with copies
of such financial statements and such other documents and infor
mation as it has deemed appropriate to make its own credit
analysis and decision to enter into this Commitment Transfer
Supplement; (iv) Purchasing Lender will, independently and
without reliance upon Agent, Transferor Lender or any other
Lenders 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 the Credit Agree
ment; (v) Purchasing Lender appoints and authorizes Agent to take
such action as agent on its behalf and to exercise such powers
under the Credit Agreement as are delegated to Agent by the terms
thereof and Agent agrees to accept such appointment and exercise
all such powers in accordance with the terms of the Credit
Agreement; (vi) Purchasing Lender and Agent agree that it will
perform all of their respective obligations as set forth in the
Credit Agreement to be performed by each as a Lender and as
Agent, respectively; and (vii) Purchasing Lender represents and
warrants to Transferor Lender, Lenders, Agent and Borrower that
it is either (x) entitled to the benefits of an income tax treaty
with the United States of America that provides for an exemption
from the United States withholding tax on interest and other
payments made by Borrower under the Credit Agreement and the
Other Documents or (y) engaged in trade or business within the
United States of America.
9. Schedule I hereto sets forth the revised Commit
ment Percentages of Transferor Lender and Purchasing Lender as
well as administrative information with respect to Purchasing
Lender.
10. This Commitment Transfer Supplement shall be
governed by, and construed in accordance with, the laws of the
State of New York.
11. This Commitment Transfer Supplement may be
executed in one or more counterparts, each of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Commitment Transfer Supplement to be executed by their respective
duly authorized officers on the date set forth above.
_______________________________
as Transferor Lender
By:_____________________________
Name:___________________________
Title:____________________________
125
<PAGE>
PNC BANK, NATIONAL ASSOCIATION, as Agent
By:______________________________
Name:____________________________
Title:_____________________________
_________________________________,
as Purchasing Lender
By:______________________________
Name:____________________________
Title:_____________________________
126
<PAGE>
SCHEDULE I TO COMMITMENT TRANSFER SUPPLEMENT
LIST OF OFFICES, ADDRESSES FOR NOTICES AND COMMITMENT AMOUNTS
[Transferor Lender] Revised Dollar Amount $
Revised Commitment _____ %
Percentage:
[Purchasing Lender] Dollar Amount $
Commitment Percentage: _____ %
Addresses for Notices
[Purchasing Lender]
_________________________
_________________________
Attention:_______________
Telephone:_______________
Telecopier:______________
Loan Balance of Transferor Lender as of the
Transfer Effective Date $
Interest and Fees accrued to the
Transfer Effective Date $________
Foreign Exchange Obligations as of
the Transfer Effective Date $
Total Payout Amount $
127
<PAGE>
SCHEDULE II TO COMMITMENT TRANSFER SUPPLEMENT
Form of Transfer Effective Notice
The undersigned, as Agent ("Agent") under the Revolving
Credit, Equipment Loan and Security Agreement dated as of
February ____, 1999 (the "Credit Agreement") by and among MCMS,
Inc., ("Borrower"), PNC Bank, National Association ("PNC"), the
other financial institutions named in and which hereafter become
a party thereto (collectively, "Lenders") and PNC as agent for
Lenders (in such capacity, "Agent"), acknowledges receipt of four
(4) executed counterparts of a completed Commitment Transfer
Supplement in the form attached hereto. Terms defined in such
Commitment Transfer Supplement are used herein as therein
defined.
1. Pursuant to such Commitment Transfer Supplement,
you are advised that the Transfer Effective Date will be [insert
date of Transfer Effective Notice].
2. Pursuant to such Commitment Transfer Supplement,
Transferor Lender is required to deliver its Notes to Agent
within two (2) Business Days after the Transfer Effective Date.
3. Pursuant to the Credit Agreement, Borrower is re
quired to deliver to Agent, within two (2) Business Days after
receipt of notice that Agent has received the Notes previously
issued to the Transferor Lender, new Notes reflecting the adjust
ed Commitment Percentage of the Transferor Lender and the Commit
ment Percentage of the Purchasing Lender, and the principal
amount of the Advances represented thereby, all as more specifi
cally described below:
[describe replacement notes]
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:_______________________________
Title:______________________________
128
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
OMITTED
129
<PAGE>
EXHIBIT B
CONFIDENTIALITY AGREEMENT
___________________________
___________________________
___________________________
___________________________
Ladies and Gentlemen:
In connection with the Credit Agreement referred to below
and in order to assist you in obtaining credit approval to
participate therein, we are prepared to distribute to you certain
Materials (as defined below).
As used herein, the term "Material" means any information
concerning MCMS, Inc. ("MCMS") and/or its subsidiaries or
affiliates which is furnished by or on behalf of MCMS provided
that the term "Material" does not include information which was
generally available to the public or was available to you on a
non-confidential basis.
We are prepared to provide you with a copy of any materials
as necessary or which may be provided pursuant to the information
provisions uder the Revolving Credit Equipment Loan and Security
Agreement dated February 26, 1999 (as amended, modified, restated
or supplemented from time to time, the "Credit Agreement") amount
MCMS, the financial institutions named therein (including
ourselves) and PNC Bank, National Association, as agent.
Pursuant to Section 15.15 of the Credit Agreement, we are
required to have you, as a prospective assignee, transferee or
holder of a participation in Advances (as defined in the Credit
Agreement) and/or commitments under the Credit Agreement enter
into this Confidentiality Agreement before receiving the
Materials. Such Materials will be made available to you upon
your execution of this Confidentiality Agreement. In
consideration thereof, you agree that the Materials will be kept
confidential, in accordance with your customary procedure for
handling confidential information and not to be used by you
except in connection with the Credit Agreement and your
participation therein.
You and your affiliates, directors, officers, employees and
representatives agree to be bound by the terms of this
Confidentiality Agreement. This Agreement shall inure to the
benefit of MCMS.
In this connection, we acknowledge that you may make
disclosure of the Materials to your attorneys and independent
auditors so long as they are advised to treat same in a
confidential manner in accordance with the terms hereof. In
addition, you may make disclosure as required or requested by any
Governmental body (as defined in the Credit Agreement( or
representative thereof or pursuant to legal process and that you
are subject to bank regulatory agencies and may be required to
provide the Materials, to, or otherwise make available the
Materials for review by, the representatives of such agencies.
130
<PAGE>
Please indicate your agreement to the foregoing by signing
the additional copy of this letter provided for such purpose at
the place provided below and returning such signed copy to our
attention.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
as Agent
By __________________________
Title:
The foregoing is agreed to
As of the date of this letter.
By ___________________________
Title:
131
<PAGE>
SCHEDULE 1.2
PERMITTED ENCUMBRANCES
None
132
<PAGE>
SCHEDULE 4.5
EQUIPMENT AND INVENTORY LOCATIONS
1. 16399 Franklin Road, Nampa, Idaho 83687
2. 2500 South Tri-Center Blvd, Bldg 1-B, Durham, NC 27713
3. The Borrower has certain office equipment, furniture, and
furnishings located in the states of Pennsylvania, Arizona,
California, and Massachusetts for the benefit of field employees
located in such states.
133
<PAGE>
SCHEDULE 4.19
REAL PROPERTY
1. Borrower's holds title to the real property located at 16399
Franklin Road, Nampa, Idaho 83687 as more specifically described
in the attachment hereto.
2. Borrower leases real property located at the following
addresses:
A. 2500 South Tri-Center Blvd, Bldg 1-B, Durham, NC 27713
B. 132 Great Road, Suite 200, Stow, Massachusetts 01775
134
<PAGE>
COMMENCING at the Northeast corner of the Northeast Quarter of
the Southeast quarter of Section 10, Township 3 North, Range 2
West, Boise Meridian, Canyon County, Idaho, and bearing
South 137 feet along the East boundary of the aforesaid
Section 10 to the REAL POINT OF BEGINNING; thence
West 494.8 feet on a line 137 feet South and parallel to the
North boundary of the aforesaid Northeast Quarter of the
Southeast Quarter; thence
South 40 degrees 15 minutes East 252.9 feet; thence
East 331.5 feet to the intersection of the East boundary of
the aforesaid Section 10; thence
North 193 feet along the aforesaid East boundary to the REAL
POINT OF BEGINNING;
EXCEPTING THEREFROM:
COMMENCING at the Northeast corner of the Northeast Quarter of
the southeast Quarter of Section 10, Township 3 North, Range 2
West, Boise Meridian, Canyon County, Idaho, and bearing
South 137 feet along the East boundary of the aforesaid
Section 10; thence
West 331.5 feet on a line 137 feet South and parallel to the
North boundary of the aforesaid Northeast Quarter of the
Southeast Quarter to the REAL POINT OF BEGINNING; thence
continuing
West 163.3 feet; thence
South 40 degrees 15 minutes East 252.9 feet; thence
North and parallel to the East boundary line of said
Northeast Quarter of the Southeast Quarter 137 feet, more or
less, to the POINT OF BEGINNING.
135
<PAGE>
A parcel of land being a portion of the Northeast Quarter of the
Southeast Quarter of Section 10, Township 3 North, Range 2 West
of the Boise Meridian, Canyon County, Idaho and more particularly
described as follows:
Beginning at a Brass Cap marking the Southeast corner of the
Southeast Quarter of Section 10, township 3 North, Range 2 West
of the Boise Meridian, Canyon County, Idaho; thence along the
Easterly boundary of the said Southeast Quarter of Section 10,
which is also the centerline of Franklin Road,
North 00 degrees 09 minutes 45 seconds West 1657.70 feet to a
P.K. Nail and Washer, said P.K. Nail and Washer also being the
REAL POINT OF BEGINNING; thence continuing along said Easterly
boundary and centerline
North 00 degrees 09 minutes 45 seconds West 664.62 feet to a
P.K. Nail and Washer; thence leaving said Easterly boundary and
centerline,
South 89 degrees 59 minutes 48 seconds West 331.50 feet to
an iron pin; thence
North 00 degrees 09 minutes 45 seconds West 193.00 feet to
an iron pin; thence
North 89 degrees 59 minutes 48 seconds East 331.50 feet to
a P.K. Nail and Washer on the said Easterly boundary of the
Southeast Quarter of Section 10, said Easterly boundary also
being the centerline of Franklin Road; thence along said Easterly
boundary and centerline
North 00 degrees 09 minutes 45 seconds West 137.00 feet to a
3/4" iron pipe marking the Northeast corner of the said Southeast
Quarter of Section 10; thence leaving said Easterly boundary and
centerline and along the Northerly boundary of said Southeast
Quarter,
South 89 degrees 59 minutes 48 seconds West 1324.00 feet to
an iron pin marking the Northwest corner of the said Northeast
Quarter of the Southeast Quarter of Section 10; thence leaving
said Northerly boundary and along the Westerly boundary of
the said Northeast Quarter of the Southeast Quarter of Section 10;
South 00 degrees 08 minutes 50 seconds East 994.03 feet to
an iron pin; thence leaving said Westerly boundary
South 89 degrees 58 minutes 41 seconds East 1324.27 feet
to the POINT OF BEGINNING.
136
<PAGE>
SCHEDULE 5.2
STATES OF QUALIFICATION AND GOOD STANDING
1. North Carolina
2. California
137
<PAGE>
SCHEDULE 5.2(b)
SUBSIDIARIES
Company Name Place of Incorporation
- -----------------------------------------------------
MCMS Sdn. Bhd. (indirect Malaysia
subsidiary)
MCMS International, Inc. British Virgin Islands
(direct subsidiary)
MCMS Asia Pacific Pte. Ltd. Singapore
(indirect subsidiary)
MCMS Belgium, S.P.R.L. Belgium
(indirect subsidiary)
MCMS Netherlands, B.V. Netherlands
(direct subsidiary)
MCMS Customer Services, Inc. Idaho
(direct subsidiary)
MCMS Holdings, LLC (direct Idaho
Subsidiary)
138
<PAGE>
SCHEDULE 5.5( c )
CHANGES IN FINANCIAL CONDITION
OMITTED
139
<PAGE>
SCHEDULE 5.6
PRIOR NAMES
1. The Borrower was incorporated in the State of Idaho as
Micron Electronics of North Carolina, Inc. on December 23, 1994.
2. On April 4, 1996, the name of Borrower was changed to Micron
Custom Manufacturing Services, Inc.
3. On February 18, 1998, the Borrower changed its name to MCMS,
Inc.
4. The borrower has adopted the name "MCMS North Carolina,
Inc." for use by the Secretary of State of North Carolina on its
records since "MCMS, Inc." is not available for use in North
Carolina.
140
<PAGE>
SCHEDULE 5.7
ENVIRONMENTAL
None
141
<PAGE>
EXHIBIT 5.8(b)
LITIGATION
1. The Borrower is party to a Frame Manufacturing Agreement
(the "FMA")< dated November 18, 1997, with Alcatel Bell N.V.
("Alcatel Bell") and a Manufacturing Service Agreement (the
"MSA"), dated April 2, 1998, with Alcatel Business Systems S.A.
("ABS"). The Borrower believes that Alcatel Bell and ABS are in
non-compliance with certain terms of the FMA and MSA,
respectively. While the Borrower has communicated such non-
compliance to Alcatel Bell and ABS, these matters remain
unresolved. Should they continue unresolved, the borrower may
decide to pursue legal action. While the Borrower believes that
it is in compliance with the terms of the FMA and MSA in all
material respects and has complied with Belgian law in all
material respects, there can be no assurance that Alcatel Bell
and ABS will not decide to pursue legal action against borrower
for such alleged non-compliance. In addition, if the Borrower
decides to pursue legal action against Alcatel Bell and/or ABS,
or if the borrower is subject to legal action by Alcatel Bell
and/or ABS, the Borrower may be forced to shut down its
operations in Colfontaine, Belgium.
142
<PAGE>
SCHEDULE 5.8 (d)
PLANS
Self Insured Medical Plan
Self Insured Dental Plan
Self Insured vision Plan
Health Care Spending Account Plan
Dependent Care Spending Account Plan
Short Term Disability Plan
Long Term Disability Plan
Group Life & AD&D Plan
Supplemental Life & AD&D Plan
MCMS 401()k) Retirement Savings Plan
143
<PAGE>
SCHEDULE 5.9
INTELLECTUAL PROPERTY
ISSUED PATENTS
TITLE PATENT NO. ISSUE DATE
Vibrational method of aligning 4,885,841 December 12,
the leads of surface mount 1989
electronic components with the
mounting pads of printed circuit
boards during the molten solder
mounting process
Semiconductor pick and place 5,247,844 September 28,
machine calibration apparatus 1993
Semiconductor pick and place 5,237,622 August 17,
machine calibration apparatus 1993
Fixture for alignment of vacuum 5,433,013 July 18, 1995
nozzles on semiconductor
manufacturing equipment
Method employing an elevating of 5,385,291 January 31,
atmospheric pressure during the 1995
heating and/or cooling phases of
ball grid array (BGA) soldering
of an IC device to a PCB
Angled pallets for wave 5,540,376 July 30, 1996
soldering
144
<PAGE>
Automatic optical pick and place 5,537,204 July 16, 1996
calibration and capability
analysis system for assembly of
components onto printed circuit
boards
Fixture for alignment of vacuum 5,539,992 July 30, 1996
nozzles on semiconductor
manufacturing equipment
Improved Actuator Stem and 5,755,471 May 26, 1998
Actuator Design
Module handling apparatus and 5,667,077 September 16,
method with rapid switch over 1997
capability
Universal Testing Device 5,757,201 May 26, 1998
Fixture for Testing and Prepping 5,793,220 August 11,
Light-Emitting Diodes 1998
Method and Apparatus for 5,740,730 April 21, 1998
Depositing Solder and Adhesive
Materials onto a Printed Circuit
Board
Universal Fixture for Holding 5,779,794 July 14, 1998
Printed Circuit Boards During
Processing
145
<PAGE>
Wave Solder Method for Attaching 5,775,568 July 7, 1998
Components to a Printed Circuit
Board
Air Bladder Fixture Tooling for 5,820,117 October 13,
Supporting Circuit Board 1998
Assembly Processing
Shield and method for selective 5,617,990 April 8, 1997
wave soldering
Shield and method for selective 5,704,535 January 6,
wave soldering 1998
PATENT APPLICATIONS
TITLE APPLICATION NO. FILING DATE
Thermal Box for a 08/553,763 October 23,
Semiconductor Test System 1995
Module Handling Apparatus and 08/891,954 July 14, 1997
Method with Rapid Switch over
Capabilities
146
<PAGE>
Salvage Method and Apparatus
for Recovering Microelectronic 08/775,644 December 31,
Components from Printed 1996
Circuit Boards
Method and Apparatus for 08/772,155 December 20,
Preserving Solder Paste in the 1996
Manufacturing of Printed
Circuit Board Assemblies
Electronic Component 08/855,092 May 13, 1997
Connecting Tool and Method
Universal Fixture for 08/833,914 April 10,
Supporting and Holding 1997
Populated Sides of Printed
Circuit Board Assemblies
during Processing
Apparatus for Calibrating 08/895,765 July 17, 1997
Surface Mounting Processes in
Printed Circuit Board Assembly
Manufacturing
Method for Calibrating Surface 08/895,766 July 17, 1997
Mounting Processes in Printed
Circuit Board Assembly
Manufacturing
Apparatus for Holding Printed 08/882,479 June 25, 1997
Circuit Board Assemblies in
Manufacturing
147
<PAGE>
Method for Holding Printed 08/882,480 June 25, 1997
Circuit Board Assemblies in
Manufacturing
Alignment Fixture for Solder- 08/852,335 May 2, 1997
Wave Machine
Solder Paste Brick 08/897,093 July 18, 1997
Method of Attaching a Device 08/896,412 July 18, 1997
to a Circuit Board
Apparatus for Supporting 08/925,188 September 8,
Printed Circuit Board 1997
Assemblies
Method for Supporting Printed 08/926,139 September 8,
Circuit Board Assemblies 1997
Improved Carrier Socket for 08/919,626 August 28,
Receiving a Damaged IC 1997
Improved Carrier Socket for 08/919,536 August 28,
Receiving a Damaged IC 1997
High Speed Interface for 08/924,278 September 8,
Testing Semiconductor 1997
Components
Air Bladder Fixture Tooling 09/021,791 February 11,
for Supporting Circuit Board 1998
Assembly Processing
148
<PAGE>
Real-Time Manufacturing
Process Control Monitoring 09/018,076 February 3,
Method 1998
Real-Time Manufacturing 09/018,083 February 3,
Process Control Monitoring 1998
Apparatus
Glass Parts Pick-Up Jig 09/010,206 January 20,
1998
Method for Calibrating a Pick 09/009,626 January 20,
and Place Machine using a 1998
Glass Parts Pick-Up Jig
Z-Origin Calibration Jig 09/010,028 January 20,
1998
Method for Calibrating the Z- 09/008,944 January 20,
Origin Position 1998
Method for Preserving Solder 08/977,340 November 24,
Paste in the Manufacturing of 1997
Printed Circuit Board
Assemblies
Universal Fixture for Holding 09/002,235 December 31,
Printed Circuit Boards during 1997
Processing
Universal Fixture for Holding 09/001,533 December 31,
Printed Circuit Boards during 1997
Processing
149
<PAGE>
Universal Fixture for Holding 09/001,740 December 31,
Printed Circuit Boards during 1997
Processing
Universal Fixture for Holding 09/002,234 December 31,
Printed Circuit Boards during 1997
Processing
Calibration Jig for an 09/057,033 April 8, 1998
Automated Placement Machine
Method and Apparatus for 08/109,002 July 1, 1998
Positioning Connecting Members
on a Microelectronic Device
Method and Apparatus for 09/073,149 May 5, 1998
Leveling the Upper Surface of
a PCB
Non Connected Drainage 09/099,278 June 18, 1998
Channels for Selective Wave
Solder Pallets
Modular Edge Cleaner 09/175,825 October 20,
1998
Molded Selective Solder Pallet 09/173,493 October 15,
1998
Cantilevered Part Tray Support 60/118,199 February 1,
Clip 1999
150
<PAGE>
A Reflow Soldering Apparatus 09/049,439 March 27,
1998
Device and Method for 09/206,197 December 4,
Attaching and Soldering Pre- 1998
Formed Solder Spheres to the
Ball Grid Array (BGA)
Integrated Circuit Package
Attachment Sites in High
Volume
Method and Apparatus for 09/049,763 March 27,
Configuring Component Leads 1998
Method of Calibrating an 09/057,278 April 8, 1998
Automated Placement Machine
Interconnect Device and Method 09/187,477 November 6,
for Mating Dissimilar 1998
Electronic Package Footprints
A Reflow Soldering Method 09/049,428 March 27,
1998
151
<PAGE>
U.S. TRADEMARK APPLICATIONS
TRADEMARK APPLICATION NO. FILING DATE
DESIGN ONLY 75/469,596 April 17, 1998
MCMS GLOBAL LEADER IN 75/469,672 April 17, 1998
CUSTOM MANUFACTURING
MCMS 75/469,673 April 17, 1998
(a) TRADE NAMES
MCMS, Inc.
(a) LICENSES
Patent and Invention Disclosure Assignment and License Agreement,
dated February 26, 1998, by and between Micron Electronics, Inc.
and MCMS, Inc.
Agreement, dated February 26, 1998, by and between Micron
Technology, Inc. and MCMS, Inc.
Know-How License Agreement, dated February 26, 1998, by and
between Micron Electronics, Inc. and MCMS, Inc.
152
<PAGE>
SCHEDULE 5.10
LICENSES AND PERMITS
None.
153
<PAGE>
SCHEDULE 5.14
LABOR DISPUTES
None.
154
<PAGE>
SCHEDULE 5.19
SWAP AGREEMENTS
None.
155
<PAGE>
SCHEDULE 7.4
INVESTMENTS
Name Type Amount
MCMS International, Inc. Equity $ 5,238,484
Debt $ 1,504,616
------------
Total
Investment $ 6,743,100
MCMS Netherlands B.V. Equity $ 20,453
Debt $ 85,858
------------
Total
Investment $ 106,311
MCMS Belgium, SPRL Debt $ 10,000,814
MCMS Customer Equity $ 10,000
Services, Inc.
MCMS Holdings, Inc. $ 28
____________
Grand Total $ 16,860,252
156
<PAGE>
SCHEDULE 7.8
INDEBTEDNESS
After giving effect to the pay-off of the Credit Agreement, dated
as of February 26, 1998, among the borrower, Bankers Trust
Company, as Agent, and the various lending institutions named
therein, the borrower will have the following Indebtedness as of
the Closing Date:
1. Fixed Rate Notes 145,000,000
2. Floating Rate Notes 30,000,000
3. Note payable to Oracle Credit Corporation 329,000
157
<PAGE>
SCHEDULE 8.1 (t)
MATERIAL ADVERSE CHANGES
1. Reference is made to Schedule 5.5 ( c )
158
<PAGE>
SCHEDULE A
ORIGINAL OWNERS
Name
___________________________
BT Investment Partners,
Inc.
August Capital, L.P.
MEI California, Inc.
Oak VII Affiliate Fund,
Limited Parntership
Oak Investment Partners
VII, Limited Partnership
Norman Nie
Rob Subia
Jess Asla
Chris Anton
Raldolph Street Partners II
(Fifth Venture)
Finis F. Conner
R. Stephen Cheheyl
Smith Barney Custodian
FBO C. Nicholas Keating
and Carleen B. Keating
159
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-2-1999
<PERIOD-END> MAR-4-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 50,453
<ALLOWANCES> 442
<INVENTORY> 38,527
<CURRENT-ASSETS> 90,815
<PP&E> 104,163
<DEPRECIATION> 37,167
<TOTAL-ASSETS> 167,957
<CURRENT-LIABILITIES> 58,082
<BONDS> 0
27,407
5
<COMMON> 5
<OTHER-SE> (121,413)
<TOTAL-LIABILITY-AND-EQUITY> 167,957
<SALES> 207,591
<TOTAL-REVENUES> 207,591
<CGS> 196,393
<TOTAL-COSTS> 196,393
<OTHER-EXPENSES> 11,054
<LOSS-PROVISION> 0
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</TABLE>
